Strong Employment Numbers Can’t Move Interest Rates

The official government report on employment showed that 225,000 new jobs were added in January–against a forecast in the 165,000 area. ADP had claimed a gain of 291,000 new jobs in their report on Wednesday–but folks don’t pay too much attention to that number as it usually varies substantially from the government number–this time it was directionally correct.

You would think with this strong number and a 3 month average in the 210,000 area that interest rates would move higher–but no–the 10 year treasury is off 4 basis points–moving just below 1.60%. Most certainly the bond market is reacting to the relatively stable wage growth rate which continues to show around 3% or so wage growth–not bad, but not something to worry about

For us this is a fairly strong signal that we won’t see a recession anytime soon–absent a black swan event. I believe that someday (When? Who knows) this will end badly for stocks and bonds–but one could have said this for years and years. Having money in a jar buried in the backyard has continued to be a really poor investment.

11 thoughts on “Strong Employment Numbers Can’t Move Interest Rates”

  1. The historically warm weather (NOAA figures) increased the amount jobs in construction and hospitality leisure. Which when you look at the employment report components they made a majority of the created in the months. This will just take away from March and April when you typically see an uptick on Construction after the winter months. Market is seeing right through it as they should.
    Lastly, continuing jobless claims continue to print YOY growth rates for a few months now. In every late-inning cycle before unemployment turns up (and you are too late) you start to see this battle of people getting hired versus jobless claims rising. With the Coronavirus hanging around and freezing trade, it would be reasonable to expect more layoffs in auto, industrial, mining (energy drillers) and transportation.
    This is getting more and more to be looking like 2001 Dotcom bubble. Hisotrically overvaluation due to historically loose monetary policy and fiscal (government) spending. I agree when we have a recession it will be brief and light (like 2001-2002) but financial markets will not act kindly.

    1. The labor participation rate is going up which is why you are seeing a little battle with the job growth and unemployment numbers. It is more a sign of strength than weakness as people who have been discouraged continue reentering the job market.

      There are some challenges, such as maybe an incipient pandemic coming, but those haven’t shown up yet.

  2. I just believe we are severely underestimating this Corona virus. I have a small business and we import a variety of things from China. As of mid-January our contacts just stopped responding. Absolute radio silence. Finally we were able to contact one of them and they’ve all been told to stay home. This is a lagging indicator but will have a material impact on supply chains in my opinion. Similarly we had a contractor come out to give us an estimate on new blinds. He apologized but said currently they only had one option for suppliers that was based in US as their other suppliers are in China and unable to export currently. Central banks can flood the market with more liquidity which I’m sure they’ll do, but they can’t redirect the supply chain – So I’d expect extremely weak Q1 results for a lot of the companies that are pushing this market to higher highs.
    Perhaps I’ll be wrong (it happens often), but I’ve raised a good amount of cash and will see what March/April brings.
    Good luck to all and Happy Weekend

    1. Tdubz–you may be correct and VinL warned of this last week–generally around the lack of reliable data out of China.

  3. Good morning everyone; Does anyone out there have any money in this Brookfield Company??? It appears to me to be a very complicated company with many different arms and tentacles. For that reason I have stayed away but I thought I would ask you guys if you have ever investigated it and all their different sub categorys under their mothership. Some of their coupons look somewhat attractive. Like many of you I continue to accumulate lots of cash from all my preferreds/bonds but have little opportunities to put new money to work. On a Johnny Cochran side bar I finally did get an email from Schwab about my COF+P. A day late and a dollar short. LOL

    1. I’m a big fan of Brookfield and have happily owned some component of the company for decades. Excellent balance sheet and well deserved great reputation for purchasing good businesses on the cheap and running them very well.
      FWIW, I’m currently long BIP, BEP and BBU. I’ve recently been taking some of my long term profits from BIP and thinking of adding to BBU on dips. I’m also considering the preferred for BEP (BRENF) at a price below $19 and a guaranteed minimum yield of ~5.5%.

      1. Brookfield is a very complex group for a reason. Management does not want investors to be able to easily understand what percent of funds goes back to management. While several of their funds have been well managed, the benefits are not all going to the unit holders. As such, I do not invest in any of their firms as they do not seem to be investor friendly. There are other opportunities. If you must, look at the holding company which is at the core of the group. best SC

      2. Hello Greg Gilbert, SC, and Howard Philipson; First let me say a big Thank You to all 3 of you for your input. I think I will invesigate the preferred (BRENF). It appears on the “surface” to be a solid company. But I will say it also appears that there are plenty of fees along that pathway. Like you said even their website is somewhat complicated. Again, to everyone I really hope in these very “difficult times” that we can continue to share our ideas with each other. Thank You guys. Who knows maybe this Chinese virus will at some point give us a great buying opportunity. I happen to think its a whole lot worse than what we realize. Just my gut tells me that. I’ve seen a couple of videos on it and its not pretty.

        1. Chuck – Brookfield is a complex entity but also one of the largest and most successful asset managers in the world.

          Specifically on BRENF, which is properly known as BEP.PR.G on the TSX, it is a Bermudian limited partnership. So, understand the tax implications before diving in.

          There are many other ways to gain Brookfield exposure that don’t involve such complications.

    2. ChuckP
      Just be careful if you access their website, because the parent ( BAM ) pops up even if you are looking for a child. It can be a little confusing, because it is a consolidated website in which the children are accessed via the parent. Brookfield is Canadian and runs a massive World Wide operation through the ‘ subsidiaries ‘. Again, just be careful to ensure you are reading about the correct one. I own various Brookfield products, but not the parent. Thanks

      1. As I have made a post on Tim’s website, the greatest WEB for sure, I have been a big fan of Brookfield. BEP, TERP (renewables), TOO-E and B (smaller positions) on TOO 100% acquired by Brookfield but the preferreds should continue to trade with the original NYSE symbols according to Investor Relations of TOO in Canada. Like almost all shippers and energy names, TOO just have a horrible quarterly report, but the preferreds stay firm. I also own a sizable positions of BPR (eREIT) same deal as the K-1 partnership BPY. I am afraid to add more to BEP and TERF or AY (Wind and Sun) not owned by Brookfield at present price. Brad Thomas just published a tongue in cheek article, “cautiously optimistic” on BPR. Today, someone at SA wrote a positive article. Certainly BPR is not a SWAN. I sold all my BPR preferreds taking profit long ago.
        The debt to equity does seem a tad high and coverage on dividends (just increased 1/2 a penny) is almost 99% per Brad Thomas. Then the yield is enticing. I had good luck with AWP, a global closed end eREIT with many non Mall US names. I just got notice that the management wants to increase the leverage to 30% from the current leverage. LOAN, a small bridge loan or lender to someone doing property exchange or aiming to buy Manhattan over priced but hot properties pays 7.5% pro forma dividend. Last quarter, positive EBITDA and EPR but decrease in cash.

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