I Was Slapped in the Face With Very Good Economic News!
For months now, I have been explaining how weak our overall economy is and why that portends much lower interest rates in the near future – no matter what the Fed does.
I of course was just repeating what Jim Rickards, Jim Rogers, Stephanie Pomboy, Barry Habib, and Jeff Snider, among others, have been saying.
BUT – I was still made very wrong by the “Great Economic News” that surfaced last week.
The great news was: (1) higher than expected Gross Domestic Product (GDP or economic) growth, as growth in the third quarter of 2022 (Q3) was revised higher last week; and (2) a very strong jobs report.
In response to both pieces of news, the stock market climbed and the bond market tanked – pushing rates up (because when bond prices go down, interest rates climb).
But – the bond market later “digested the news” and rates fell sharply.
This is because the good news was not good news – and the bond market almost always seems to figure that out.
The high GDP number was largely driven by higher-than-expected exports. BUT – we did not export more goods; we really just exported a higher dollar amount of goods because the dollar was so strong relative to other currencies. So – it was just an illusion, as Barry Habib likes to say.
The strong jobs report was also an illusion, per Habib, as the report was “double counting” jobs by reporting multiple job holders as having separate full-time jobs. For example, if someone went out and got part-time jobs at Starbucks and Macy’s, Friday’s jobs report would have reported that as two new jobs. There were other serious issues with Friday’s report too that I won’t go into, but suffice it to say that the report was very misleading.
As a result, interest rates improved sharply over the day on Friday – as the bond market dug into all the facts.
There are three primary points to this blog: (1) Don’t believe the hype when it comes to good news put out by the government – until there is time for everyone to fully digest the news; (2) The economy appears to remain very soft, as the above cited pundits have been saying all along, despite last week’s “good news,” – so rates will still likely fall; and (3) if you want to see where the truth is really shaking out – watch the bond market, and NOT the stock market.
We in fact might be wise to remember to never trust the stock market or equity investors of any type – who pushed pets.com and AOL to the stratosphere prior to the dotcom bust; who fell for scams like Enron, Bernie Madoff, WeWork, FTX, and you name it, that had most of us scratching our heads; who pushed GameStop to $80 per share (it’s now $25); and who pushed every tech stock with “a story” to the moon – no matter how much money the underlying company was losing.
LAST POINT: Interest rates have dropped almost 1% over the last 6 weeks even though the Fed has not pivoted or started to lower rates.
