The S&P 500 hit another record high last week on the back of an employment report that was boosted by "large seasonal adjustments," which is really just another way of saying the government is manipulating the numbers.
Even after these adjustments, however, three- and six-month average job growth is below 200,000 and also lower than a year ago. The last two months' reports were boosted by higher government hiring (+71,000, the highest two month level since 2010).
Private sector jobs growth is running at a lower 3-month average of 150,000, down significantly from 221,000 in 2015 and 240,000 in 2014.
Don't fall for any of this…
A Vested Interest in Phony Numbers
I am sure that the sudden boost in government hiring (it was averaging 10,000 jobs per month before June) has nothing to do with the desire of the current administration to see its failing economic policies continue under its unimaginative and discredited former Secretary of State.
I am equally certain that there was no desire to dress up the numbers after the catastrophically low 1.2% second quarter GDP print.
U6, which measures underemployed and discouraged workers, rose from 9.6% to 9.7%, an unacceptably high level, though one we will have to accept until better economic policies come around.
If the same percentage of people in work force were employed today as when President Obama took office, the official unemployment rate would be close to 10%, not the phony 4.9% number promulgated by the government. Improving employment would not appear to be consistent with an economy growing at only 1% over the last three quarters.
Nonetheless, stock investors partied like it was 1999 again – literally. They have pushed up the prices of the new tech darlings Amazon and Facebook to 191 times and 60 times earnings, levels reminiscent of the Internet Bubble.
The fact that these companies are making money – unlike their predecessors two decades ago – doesn't justify these absurd valuations. The overall market is not nearly as overvalued (the Nasdaq is trading at 23x earnings, for example) but is certainly at the high end of any reasonable valuation range.
This doesn't mean that stocks won't continue to rise.
Why Every Blip Is Reported as a Boom
The mainstream media will continue to downplay negative economic news and tout the least sign of economic growth as a boom. Typical of this were the truly (but typically) idiotic headlines pouring out of CNBC yesterday after the jobs number.
Ignoring seasonal adjustments, which apparently strain the intellects of so-called financial journalists who demonstrate an ignorance of both finance and journalism, CNBC treated the jobs report as a blockbuster, which it certainly was not.
200,000 jobs a month in an economy with over 300 million people is pathetic, particularly when only 150,000 of those jobs are coming from the private sector.
CNBC has about as much credibility on markets and economics and its favored presidential candidate has on her emails. I can only trust by now that my readers see this swill for what it is and ignore it.
Markets remain in a highly artificial environment driven by central banks. Investors were given more encouragement to commit financial suicide by buying more overpriced bonds and stocks by the Bank of England, which felt compelled to do more stupid things to stimulate the British economy post-Brexit.
Why investors should care what the central bank of such a small country does is a mystery to me, but then so much of what is happening in markets today beggars reason.
For the week, the Dow Jones Industrial Average added 111 points or 0.6% to 18.543.53 while the S&P 500 jumped 9 points or 0.4% to close at a record 2182.87.
The Nasdaq Composite Index rose 59 points or 1.1% to 5221.12 on increasingly stretched valuations of large cap technology stocks.
August has been a tough month for stocks since the financial crisis with average losses of 6% since 2009.
This election year may prove different, but the market and the government numbers supporting it are as phony as the candidates' television posturing.
With the CBOE Volatility Index trading at a one-year low of 11.39, investors are exhibiting epic levels of complacency. This is carrying over to credit markets where they seem to think it is acceptable and prudent to own low yielding or negative yielding debt.
The tally on negative yielding debt has reportedly reached $13 trillion, something that you would expect to see in a depression. Given enough time, central bankers will get us there.
Readers of this column need to resist the temptation to be lured into this false dawn. Reduce equity exposure, sell all bonds, buy gold and save yourselves.
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About the Author
Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.
You make a good point comparing falling GDP numbers to the blockbuster employment numbers the government issues. Its a conundrum.
What's equally hilarious is the fact that the employment numbers since the crisis are applauded at all. Zero Hedge just ran an article about it again the other day. But the gist is that the Economy needs to be creating around 250,000 jobs every month just to keep up with population growth, let alone put any out of work people back to work. This is why most people still feel left behind. It's worth a read, just to put things in perspective.
You are the best writer in the financial business today.
Keep it up.
People have to be able to go somewhere to get the truth!
Just like to tell your readers you are right about the Job Numbers these are phony Job numbers or Fake jobs do not pay any attention to these Fake Jobs how can there be any Job growth when the economy is growing at only 1% they are just trying to make things look better when there not
The little country you refer to happens to be the fifth largest economy in the world and is still a major financial trading hub. probably one of the three most important on the planet. Brexit shows the importance of this little country and will likely be the downfall of Europe itself.
you're right about the employment figures though, is it possible next month's figures will decline or do reckon they will get the massage treatment to?
Central banks, including our Fed, are gaining control of what once were free markets. Governments, needing larger amounts of debt for their survival and growth, need next to zero interest rates. Their debt is almost like printing a new form of high denominated currency. It becomes a means of free wealth transfer to the Government. It is equivalent to a laundry ticket, but when you submit your ticket your cloths are still dirty, with possible another stain. D. B.
Article it is very good!Except part with advice to invest in gold! It is true peoples is discuraging for work hard !Peoples likes speculative in market! Tax sistem will be fairly for midlle class?? Bank sistem will makes effort for change payment sistem , credit debit easy for customer! Must be optimistic because internet help ordinary peoples with economic skill, and after disorder will be order! Excuse me for my english! This is only my opinion! Thank you!