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The Strange New World

July 22, 2019

I ended my last post by saying storm clouds are gathering. Here’s an example.

We’ve talked about the inverted yield curve before. It’s happening again as the 30-day Treasury note is paying more than the 10-year Treasury note.

Right now, it’s an upside-down world.

On top of that, we had a terrible May jobs report:

  • Non-farm payrolls declined sharply
  • Only 75,000 new jobs, estimate was 180,000
  • Second time in four months there were fewer than 100,000 jobs
  • March and April reports saw substantial downward revisions:
    • March jobs down to 153,000 from 189,000
    • April jobs down to 224,000 from 263,000

And yet, the stock market took off!

Why? Because in an upside-down world. Bad news is good news.

Somehow a bad jobs report turned into enthusiastic fervor – likely because investors thought the bad report would make the Federal Reserve cut interest rates further.

But Fed Chair Jerome Powell said the institution remains “data dependent” and won’t move without reason. Perhaps the U.S./China trade negotiations would be enough reason. Maybe not.

Either way, everything depends on the Fed.

Meanwhile, this bull market is old. Its remaining strength is based on cheap money, stock buybacks, and corporate tax cuts.

Going back to the inverted yield curve – this scenario is a precursor for recession. The inverted curve often happens six or nine months before a recession, but sometimes it’s two years or more.

Yet, we just hit an all-time high in the market?!

Like I said, this is an upside-down world right now.

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