Tag: finance

With Wall Street hailing a coronavirus vaccine as a silver bullet to virtually everything that is ailing the global economy – with Goldman recently upgrading its 2021 GDP forecast on the assumption that a covid-19 vaccine will be available in late 2020 and widely used early next year – the reality, as Goldman also wrote in a report earlier this week, is that “even without a vaccine, so far the death toll from the recent virus spike has not risen” suggesting that the rise in cases is “either related to more testing or is occurring in younger, less vulnerable cohorts, in which case it points to evidence of society better protecting vulnerable groups.”

Picking up on this point at a time when many countries in Europe are suffering from a second wave of covid infections (as shown in the chart above) DB’s Jim Reid writes that “in recent days and weeks, concern has risen that Europe could be at the beginning
of a second wave of the pandemic.” He adds that just in his native UK “the number of confirmed cases rose by 2,988 yesterday, which was the largest daily increase since May 22.”

Yet noting the point brought up by Goldman above, Reid then counters that even as case numbers have risen, “hospitalizations and deaths have thankfully not.”

A key reason for this – as we first discussed in July in “The Under-40s Dilemma” – is that it’s now younger people who are more likely to get the virus.

As Reid points out, while most of this evidence has been anecdotal across the world the attached chart from Public Health England provides some telling statistics: back at the peak of the pandemic in late March, 61% of the confirmed cases were among those over 60. But they now make up just 11% of cases. For over 80 year olds it’s dropped from 28% to 3%. For those under 40 it’s the reverse picture with cases increasing from 14% to 67% of the total.

At the same time, cases among the 20-39 years old group has increased from 12% of the total to 48% over the same period: “this cohort seem to be where most of the concern is globally in terms of spreading the virus. They are young enough not to be too scared by the risks and also young enough to be restless from the restrictions.”

As we showed in this chart, unlike the Spanish flu, where young workers were incredibly vulnerable, it is primarily the elderly who’ve been most affected by the covid outbreak.

So will policymakers take into account the demographics of second wave cases or respond more to the inevitability of continually rising raw numbers?

Authored by Andrew Parlin, op-ed via The Financial Times,

I am experiencing déjà vu. 

In 1988, as a young and inexperienced investor, I met a transportation analyst from Nomura. He explained how a midsized and heavily indebted railroad company owned land in Tokyo Bay. It had the potential to build a giant condominium complex on this land, thereby diversifying into the highly profitable real estate market. 

Never mind that the land was desolate and inaccessible. Nor that acquiring the necessary permit would take years. He produced elaborate financial models showing how the stock was actually worth five to 10 times its current value. My head spun. Even Japan’s railroad stocks had been tagged as asset plays and swept up in one of the most powerful stock and real estate manias in modern times. 

Back then, anything with a whiff of exposure to real estate was at the centre of speculation. Now, the hottest sectors in America are nearly all disruptive technologies. Stocks with real, or perceived, exposure to the cloud, digital payments, electric vehicles, plant-based food, or anything at all to do with the stay-at-home economy have shot up meteorically. 

The stories surrounding the hottest disrupters are just as unrealistic as what happened in Japan. Bubbles are formed around individual stocks and sectors. As the concentric circles of excess widen, more and more stocks are infected. Wildly exaggerated stock stories force a delinking between fundamental analysis and share prices. 

That is how a stock such as Tesla commands a market capitalisation of about $400bn, up from $80bn in March, and $40bn one year ago. Tesla’s rise then engulfs the entire electric vehicle market in a frenzy of speculation. These pods of excess continue to pop up and spread so that, eventually, huge and destabilising valuation excesses build up in large swaths of the market. 

Just as soaring price-to-book ratios signalled massive speculative risk in Japan in the late 1980s, where assets were all the rage, so today in the US insanely high price-to-sales ratios highlight the total lack of realism embedded in the hottest growth stocks. 

Normally, this ratio tends to be fairly stable, since revenues are not prone to the big swings of profits, nor are revenues nearly as easy to distort, through creative accounting, as income or book value. But it is rare for a stock to trade at a price-to-sales ratio of over 10 times. If a stock trading on 10 times sales earns net profit margins of 20 per cent — a very high margin indeed — its price-to-earnings ratio is an extremely expensive 50 times. 

Today, according to Bloomberg data, 530 out of America’s 8,513 listed common stocks trade at more than 10 times sales. This is 6.2 per cent of all common stocks, up from a ratio of 3.8 per cent at the market’s low in March. Only at the very top of the dotcom bubble, in March of 2000, can we find a larger percentage of stocks (6.6 per cent) trading in excess of 10 times sales.

In 2000, three of the top 10 US stocks by market capitalisation had price-to-sales ratios over 10 times: Cisco, Intel and Oracle. Today, four of the top 10 US stocks have price-to-sales ratios over 10 times: Microsoft, Facebook, Tesla and Visa. The point is that price-to-sales ratios in the stratosphere do not stay there, any more than a tulip bulb in 17th-century Holland was able to maintain a price of $100,000.

This gets at the troubling thing about bubbles. They do not simply undergo smooth and endogenous shrinkage until they disappear. Instead, they continue to expand until they burst. This is why their bursting is more often than not shocking, spectacular and disorderly. 

In his 2007 memoir, former Federal Reserve chair Alan Greenspan wrote, referring to late 1996, that “America was turning into a shareholders’ nation”. He noted that the total value of US stock holdings had risen from 60 per cent of gross domestic product in 1990 to 120 per cent of GDP by 1996 — “a ratio topped only by Japan at the height of its 1980s bubble”. 

In Japan, that ratio had jumped to 140 per cent by the end of 1989, according to the World Bank. The ratio of market capitalisation-to-GDP in the US in 2000, to the amazement of Mr Greenspan, would go on to reach that same level. Today, the market capitalisation-to-GDP ratio in the US is just shy of 200 per cent. The S&P 500 companies alone are worth about $30tn, or 150 per cent of GDP.

Source: Bloomberg

When and how this ends is impossible to say. But with the Fed pursuing thunderous asset purchases and getting ever softer on its 2 per cent inflation target, the bubble is firmly on track to be one of biggest in stock market history.

*  *  *

The writer is founder and chief investment officer of Washington Peak, an investment advisory firm

AstraZeneca has provided more details on reasons for pausing its COVID vaccine study.

As StatNews reports, the participant who triggered the global trial shutdown was a woman in the United Kingdom who experienced neurological symptoms consistent with a rare but serious spinal inflammatory disorder called transverse myelitis, the drug maker’s chief executive, Pascal Soriot, said during a private conference call with investors on Wednesday morning.

Soriot went on to say that while the woman’s diagnosis has not been confirmed yet, she is improving and will likely be discharged from the hospital as early as Wednesday.

Additionally, Soriot confirmed that the company’s clinical trial had been halted once previously in July after a participant experienced neurological symptoms; that participant was diagnosed with multiple sclerosis, deemed to be unrelated to the vaccine treatment

After ramping overnight to erase the losses, AZN shares are sliding back on these new revelations…

Of course, while this is likely doing nothing to instill confidence in a vaccine-ready public, the broad market doesn’t care today.

Open-border advocates are furious over the addition of former Obama administration immigration expert Cecilia Muñoz to Joe Biden’s transition team, according to The Hill.

Muñoz, formerly with the National Council of La Raza before joining the Obama administration, was harshly criticized by immigration advocates for not doing enough for immigrant rights during her time in the Obama White House – and instead, “too often defended policies that led to the deportation of more than 2 million people.“

“Huge mistake. Huge. Huge mistake. Worst part? We have no other option. I guess we gotta pick our opponent. That’s what it has come down to,” wrote immigration rights activist Erika Andiola, advocacy director for the Refugee and Immigrant Center for Education and Legal Services.

‘If Biden wins, no one from the Obama administration should be allowed to touch the immigration policy portfolio,” said Pablo Manríquez, a former Democratic National Committee spokesman who’s been overtly critical of Obama on immigration.

“Cecilia Muñoz is the one person besides [Trump White House aide] Steven Miller who has spent years of her public service dedicated to the smooth execution of mass deportation policy at the West Wing level,” he added.

Amy Maldonado, an immigration attorney, said of Muñoz: “She was the person in the White House who shielded Obama from all the flak,” adding “The whole reason she was in that room was to give a perspective they weren’t hearing, and instead she covered for them.”

Meanwhile, Biden appears to be losing ground with Latinos.

According to an NBC News-Marist poll from Tuesday, Biden is trailing Trump among Latino voters in Florida – 50% to 46%. In 2016, Hillary Clinton led Trump with Latinos by 25%, according to exit polls.

And while Biden has publicly tried to distance himself from the Obama administration’s “kids in cages” immigration policy, his addition of Muñoz is giving pro-immigration Democrats tough choices to make. The former Obama adviser has both White House experience and immigration expertise, making her a “natural fit” for Biden’s team according to the report.

“There were lots of moments when people thought she should resign in protest and she didn’t. She stuck with it and it earned her a lot of enemies on the pro-immigrant left,” a former staffer told The Hill.

Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,

“When the world turns upside down, the best thing to do is turn right along with it.”   – Mary Poppins

Is Mary’s advice proper when it is your hard-earned wealth at stake?

There is no doubt that investors are living in an upside down world. A speculative frenzy fueled by extreme monetary policy is sending stock markets to all-time highs and bond yields and spreads to record lows. At the same time, a global recession is raging, and social unrest is worsening by the day. We shouldn’t forget a pandemic is still having a significant effect on our lives.

Maybe investors are just an optimistic bunch and able to look beyond the current problems. However, it could be that investors are again falling victim to greed and cannot see the forest for the trees. More bluntly, maybe they cannot see the risks for the hope.

Another consideration is that desperate times call for desperate measures. Despite no visibility into the future, investors are frantic to own anything offering a positive return with little regard for the embedded risk.

In this piece, we quantify the upside down world in which stock investors find themselves in. Does it make sense? Absolutely not, but as we will show, a strong understanding of market dynamics exposes some valuable gems. When the time comes, these stocks will make playing defense productive.

Market Cap Is All That Matters

The major stock indexes sit at record highs despite a large swath of underlying stocks plodding along. The gains are superficial, a mask of sorts, resulting from the outperformance of the largest companies.

The S&P 500 and NASDAQ are market-cap-weighted indexes, meaning the largest companies contribute more to the index than the smallest. To be specific, and as shown below, within the S&P 500, the largest 100 companies account for 72.77% of the index. The smallest 200 only accounts for 6.67%. If those smallest 200 stocks all went to zero tomorrow, the S&P 500 would only decline by 6.67%. 

A closer look reveals that the problem is even more acute. Within the S&P 500 top 100 largest companies, the five biggest by market cap account for 33%. That is a stunning and unhealthy concentration.

Perspective Matters

If we change perspective from index performance to a comprehensive accounting of the index constituents, we get a much different picture. One look at the chart below shows the gains are poorly distributed. The largest 30% of companies are where the gains are found.

If we strip out the five largest companies (AAPL, AMZN, MSFT, GOOG, and GOOGL) from the “highest 30%” grouping, the market-weighted gain falls from 25.56% to 10.23%.

*The S&P 500 return differs from the average, as shown below. This analysis uses current weightings and year to date returns, whereas the index uses daily weightings and returns.

Are the Largest and Best Performing Companies the Cheapest?

An initial glance at the data above may lead one to assume that the biggest companies are the most fundamentally sound. That would certainly explain why they are outperforming. If that is the case, price and financial fundamentals should rightfully be traveling in lockstep.

The graphs below highlight four widely followed measures of equity valuation. Each again contrasts the market cap-weighted and equal-weighted perspectives and the three market cap groupings (bottom 30%, mid 40%, and top 30%). We also separate the five most expensive companies for each valuation metric and the average valuation for each metric.

Contrary to what most would expect in a normal world of markets and valuation, the charts show YTD performance quite the opposite. The more expensive the stock groupings are, on average, the better their performance. Even more insane, the five companies with the most egregious valuations in each metric excelled.

Value is Dead, Long Live Value

Anyone can discuss the latest trend, but the best investors always look for the next trend.  It is easy to restate the obvious and point out what happened; it is much harder to forecast what will happen.

This analysis shows the market is running on the strength of a few stocks while many stocks struggle. As this continues, opportunities emerge – opportunity in the form of companies whose stocks are going nowhere despite having cheap valuations.

CVS, for example, is one such company. The table below shows how CVS’s valuation stacks up against the S&P 500 and the top 30% by market cap.

Over the last five years, CVS has grown earnings and revenue at an annualized rate of approximately 12%. That is three times the rate at which the S&P 500 has increased for each.

Despite the strong fundamentals, CVS is badly underperforming the S&P 500. The graph below shows CVS lags by over 25% this year.

The passive investing phenomenon of indiscriminately chasing the popular stocks and the largest companies is leaving behind some gems. CVS is just one of many companies worth exploring.

Summary  

The market valuations of the companies in which the media and investors focus the most attention are confounding. At the same time, there is little discussion about stocks like CVS, which offer significant relative value. Stocks where you can get a whole lot more for your money.

When the euphoria of the current environment ends, cheap companies have the potential not only to limit downside risk but also to provide healthy returns when the market comes to its senses.

In what is likely going to be viewed as peak virtue signaling, EA Sports has announced that in their latest edition of their hugely popular Madden 21 video game, users will be able to play as Colin Kaepernick.

This is, of course, despite Kaepernick not having played in the NFL in four years.

EA announced on Twitter on Tuesday: “The team at EA Sports, along with millions of Madden NFL fans, want to see him back in our game.”

pic.twitter.com/R2agq5B64p

— Madden NFL 21 (@EAMaddenNFL) September 8, 2020

They continued: “Knowing that our EA Sports experiences are platforms for players to create, we want to make Madden NFL a place that reflects Colin’s position and talent, rates him as a starting QB, and empowers our fans to express their hopes for the future of football. We’ve worked with Colin to make this possible, and we’re excited to bring it to all of you today.”

Their statement referred to Kaepernick as “one of the top free agents in football and a starting caliber quarterback.”

His player rating is said to have gone from a 74 overall in Madden 17, the last year he was legitimately in the video game, to an 81 in Madden 21, after not being in the league for 4 years. 

Kaepernick also has his own personalized introduction in the game and – when he scores a touchdown – he holds up a “black power” fist. 

When you score a touchdown with Colin Kaepernick in #Madden21 and choose “signature” celebration, Kap holds up the Black Power fist. pic.twitter.com/rclVIFjXze

— Jordan Heck (@JordanHeckFF) September 8, 2020

Earlier this year, the NFL issued a mea culpa on Kaepernick, saying it should have supported his protests in 2016 when he kneeled during the national anthem to protest systemic racism and inequality. 

NFL commissioner Roger Goodell said: “We, the National Football League, condemn racism and the systematic oppression of black people. We, the National Football League, admit we were wrong for not listening to NFL players earlier and encourage all to speak out and peacefully protest.”

Of course, if he’s so oppressed, Goodell could just make him the league commissioner and step down. And we’re not football analysts, but we have a strange feeling this is the closest Kaepernick is ever going to get to being back on a football field. 

By Michael Every of Rabobank

I have the perfect visual metaphor for a day on which the headlines show:

• The UK government openly admitting it is going to break international law –but just a little bit– prompting resignations among senior legal staff and pointed questions from a former prime ministers asking how the country can ever be trusted again. Not to worry, Theresa: poisonings, assassinations, dismembering, and kidnappings all seem to have a short political half-life; then it’s back to business as normal – “because markets”. Not so sure it applies to GBP itself though.

• The Hong Kong justice minister wades into a debate prompted by comments from CEO Carrie Lam over the ‘separation of powers’ to argue it “has no place” there. (The Hong Kong Bar Association rejects this as “unfounded and inconsistent” with the Basic Law.)

• The US imposes more sanctions on China, again focused on Xinjiang and allegations of forced labor, and this time potentially impacting the entire textile complex, given it covers cotton, and staple foods, given it also covers tomatoes grown there. From the perspective of the market press, spilling a cheap frozen pizza on a cheap cotton T-shirt while day-trading at home may just have become far more expensive.

On which note, stocks were allowed to fall once again yesterday (Dow -2.3%, S&P -2.8%) as tech stocks in particular crumbled and the most favorite of recent favorites most so. Suddenly zillionaires are only jillionaires. Central banks will be watching carefully with fingers on their red buttons at all this dangerous instability!

Indeed, as yields tumble in general, New Zealand rates turned negative for the first time at 3-years: that as the RBNZ considers going the Swedish rates route. Question: when does Australia wake up and do the same? Another question: when do NZD and AUD bulls notice?

Not negative again (yet), oil prices have tumbled markedly too. Just market positioning, or something about underlying demand we don’t want to accept in this K-shaped recovery in which markets not only don’t care about those left behind, but don’t even bother writing about them?

• Exhibit A for economic confidence: the UK is talking about cancelling Christmas if necessary, surely also breaking international law just a little bit(?), and is again limiting household gatherings to six people as the second virus wave being seen across much of Europe continues to surge. It was only August when folks were being told Mission Accomplished and to go and have fun, wasn’t it? And just consider we are now weeks away from the UK furlough scheme coming to an end and unemployment soaring, or the BOE bank-rolling millions to stay at home and do nothing for another X months while pretending we still live in a market-based system.

• Exhibit B for economic confidence: Astra-Zeneca is halting trials of the ‘Oxford’ virus vaccine after a test subject suffered an unexplained serious illness. That is standard procedure, but is going to generate concern. Russia and China both seem very happy with their vaccines, however.

Bloomberg is reporting: ‘US-China Showdown Over Big Data to Leave Decades-Long Impact’. This correctly surmises the ‘Clean’ vs. ‘China’ Networks plans underway mean “walls around data [that] would eventually transform supply chains”. As it says, TikTok, WeChat, and Huawei are just the beginning of this process. Will that change breathless tech coverage elsewhere on Bloomberg and the like? Mmmm….

Bloomberg is also reporting: ‘Brave New Words Hint at a Less Democratic Future’, which (selectively) notes party political rhetoric around the West “points away from liberal democracy”. Indeed, in 2019 democratic states were not the global majority for the first time since 2001, it quotes a Swedish study as saying, and one third of mankind is living in a country becoming more autocratic.

Congratulations on seeing (some) of what is going on around you! This is of course something I flagged as a key risk back in early 2016’s ‘Thin Ice’, a time when Bloomberg was selling neoliberal rainbows and unicorns; and again in early 2019’s ‘The Age of Rage’, which warned of… rage!…and rising left and right illiberalism – and of politicized central banks; ‘The Next Normal’, out recently, also showed central banks are inadvertently helping us drift into just that illiberal political-economy with each step they take. Of course, none of that registers in the Bloomberg article (which sits alongside dozens of others urging central banks to do more, “because markets”). Instead, these kind of things ‘just happen’…and hence must presumably be resisted with equally vigorous selective blindness.

Indeed, there was a large leap in Aussie consumer confidence today, up 18% m/m, and a surge in Aussie home loans (up 8.9% in the month vs 2% consensus), which will be welcomed by the RBA. However, it also speaks to a K-shaped recovery. Does anyone actually think the economy suddenly improved markedly? Far more likely than a sudden economic miracle is that this is an echo of what we see elsewhere: white-collar Covid winners on full salary and able to work from home using low rates to move out to the suburbs where they don’t need to meet the scrofulous poor and all their petty unemployment, food on table, and virus concerns. And one wonders why we are in an Age of Rage?

Elsewhere, China’s inflation data were mixed: PPI was again deflationary at -2.0% y/y, so bad for producers, and inflation was 2.4% y/y, down from 2.7%, so still not-so-good for consumers.

So, what’s the perfect visual metaphor I claimed to have for all of this? Something I saw on Twitter last night, which seems very 2020:

In Turkey, a large bear with a cardboard box stuck on its head managed to enter into a military base, and then to climb up to the top of a tall communications tower, from where it stood on high not looking down on anything round it. (The link is here.)

In the other news, a bear with a box on his head managed to sneak into one of the Turkish military bases and climb onto the tower.

The animal is reported to be safe and managed to descend on its own. pic.twitter.com/dKoRTmwWHz

— Status-6 (@Archer83Able) September 7, 2020

Personally, it works for me on many levels – but taste is of course subjective. (Or at least some people allow it to be.)

As the Tweet concludes: “The animal is reported to be safe and managed to descend on its own.” Somehow, I doubt we will be as lucky.

A few days ago, we shared an anecdote from hedge fund legend Stanley Druckenmiller – a former George Soros analyst and iconic macro investor – who recounted a painful, nearly career-destroying experience where he ignored the warnings of his gut and jumped on the tech bubble bandwagon far too late. The error cost the firm $3 billion when the crash arrived, prompting Druck to resign.  Here’s what Druckenmiller, who converted his hedge fund Duquesne Capital into a family office back in 2010, said at the time:

“So, I’ll never forget it. January of 2000 I go into Soros’s office and I say I’m selling all the tech stocks, selling everything. This is crazy at 104 times earnings. This is nuts. Just kind of as I explained earlier, we’re going to step aside, wait for the next fat pitch. I didn’t fire the two gun slingers. They didn’t have enough money to really hurt the fund, but they started making 3 percent a day and I’m out.

It is driving me nuts. I mean their little account is like up 50 percent on the year. I think Quantum was up seven. It’s just sitting there…”

“So like around March I could feel it coming. I just – I had to play. I couldn’t help myself. And three times during the same week I pick up a – don’t do it. Don’t do it. Anyway, I pick up the phone finally.

I think I missed the top by an hour. I bought $6 billion worth of tech stocks… and in six weeks I had left Soros and I had lost $3 billion in that one play.”

“You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to that. I was just an emotional basket case and couldn’t help myself. So, maybe I learned not to do it again. but I already knew that.”

An apt lesson, and perhaps the reason why despite taking a lot of heat this year for sitting out most of the summer COVID-19-inspired rally in tech or other home-friendly shares, he has refused to succumb to the euphoria and Albert Edwards probably did a victory lap back in June when Druck announced that he was selling all his stocks and would instead pile into Treasuries.

In any case, fast forward to today when speaking on CNBC this morning, the billionaire investor warned that Wall Street’s “raging party” might soon give way to a brutal worldwide hangover.

“Everybody loves a party … but inevitably after a big party there’s a hangover. Right now we’re in an absolute raging mania,” says Stanley Druckenmiller on the market environment. pic.twitter.com/8lKt41I0q1

— Squawk Box (@SquawkCNBC) September 9, 2020

“Everybody loves a party … but, inevitably, after a big party there’s a hangover,” Druckenmiller said adding that “Right now, we’re in an absolute raging mania. We’ve got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40% on stock splits. That brings no value, but the stocks go up.“

Druck also rejected the notion that stock splits are good for anyone other than management and insiders.

Tesla shares rallied 82.5% between Aug. 11 — when the company announced a 5-for-1 stock split — and Aug. 31, when the split took effect. Apple, meanwhile, jumped 34.2% between July 30 and Aug. 31 on news of a 4-for-1 stock split. The stock has fallen more than 12% since the split took effect.

The S&P 500 is up more than 51% after hitting an intraday low on March 23. Last week, the broader-market index hit an all-time high before a roll-over in tech shares knocked it back below that level.

“I have no clue where the market is gonna go in the near term. I don’t know whether it’s going to go up 10%; I don’t know whether it’s going to go down 10%,” Druckenmiller said. “But I would say the next three-to-five years are going to be very, very challenging.”

Back in March, the Fed’s unprecedented response to the crisis probably was the right thing to do to stop million of Americans from sliding into poverty, Druck said. But the Fed has now taken things to such an extreme, Druckenmiller is more worried about a painful period of untstoppable inflation over the next 3-5 years, contrary to that other investing icon, Jeff Gundlach who sees pandemic-driven deflation as far as the eye can see.

Saying that the Fed did a “great job” in March by cutting rates and launching unprecedented stimulus programs to sustain the economy, the value investor added that the follow-up market rally “has been excessive.” He also said that for the first time in a while, he is worried about inflation shooting higher. “The merging of the Fed and the Treasury, which is effectively what’s happening during Covid, sets a precedent that we’ve never seen since the Fed got its independence,” Druckenmiller said, echoing our own summary from April .

“It’s obviously creating a massive, massive mania in financial assets” and for evidence just look at the FAAMGs or Dave Portnoy’s twitter account.

Looking ahead, Druckenmiller warns that the next three to five years will get “very challenging” for investors, as runaway inflation – as high as 10% – is unleashed in the next 4 or 5 years. One wonder just how much gold Druckenmiller is long…

“The next 3-5 years are going to be very, very challenging … for the first time in a long, long time I’m actually worried about inflation,” says legendary investor Stanley Druckenmiller on the Fed. “I think we could easily see 5-10% inflation in the next 4 or 5 years.” pic.twitter.com/RP0xev407h

— Squawk Box (@SquawkCNBC) September 9, 2020

While more stimulus may not fix the problem, the Fed should still be “open-minded” since people are suffering. Alas, we are far too deep inside the rabbit hole to have a credible solution (as Rabobank’s Michael Every wrote last week), since staving off starvation tomorrow could means dealing with raging inflation for the next ten years.

“The most important thing to do is to have an open mind,” says legendary investor Stanley Druckenmiller on the markets. “If I was Congress, I wouldn’t be in a hurry to do some great addition here.” pic.twitter.com/M0IVt8m9aL

— Squawk Box (@SquawkCNBC) September 9, 2020

After the interview, stock-pumper extraodinaire Jim Cramer Druckenmiller for having the temerity to warn American retirees to take their money and run just because he missed the most artificial rally in history.

stan druckenmiller is very smart. he is right that the market is high, but he did not catch this amazing run. Circe. the stock split bashing is unfair and keeps regular people out of market. You can’t get in without making errors. why not help people instead of scaring them?

— Jim Cramer (@jimcramer) September 9, 2020

Somebody should tell ‘Jimmy Chill’ that brokerages like Schwab will happily sell customers a $5 slug of Amazon stock, no splits necessary. They can do the same thing with Apple and they could have before the comeback.

Of course, Druck isn’t the only one who harbors these concerns. Another skeptic identified by the FT  as Andrew Parlin published a piece where he warned today’s “US stock bubble could be the biggest in history.” Yesterday Jeff Gundlach also chimed in, saying on the latest DoubleLine call that “One week ago today it seemed like stocks were going to infinity” and adding that the S&P 500 is in “nosebleed territory. This is not a cheap market.”

With the BLS’s JOLTs, or job openings and labor turnover survey, coming in with an extra month delay, we already knew that the August jobs data would come in roughly in line with expectations after the record surge in May (if only after the catastrophic April loss of 20MM jobs), and sure enough that’s what the BLS confirmed moments ago when it revealed that in June the number of job openings jumped from a revised 6.001 million (originally 5.889 million) to 6.618 million, smashing expectations 6MM job openings, and at 617K, this was just shy of June’s 630K surge which was the biggest monthly increase since 2015(however, only after plunging by nearly 2 million in March and April). COmbined, the increase in June and July rise in job openingswas the biggest 2-month increase on record.

Job openings rose in a number of industries, with the largest increases in retail trade (+172,000), health care and social assistance (+146,000), and construction (+90,000). The number of job openings increased in the South and Midwest regions.

Separately,  we already knew that the series of 24 consecutive months in which there were more job openings than unemployed workers ended with a thud in March, in April it was an absolute doozy with 18 million more unemployed workers than there are job openings, the biggest gap on record. Since then the the gap has closed somewhat, and in July, there were 9.7 million more unemployed than available job openings (after 11.9 million in June).

As a result, there were just over 2.4 unemployed workers for every job opening, down from 3 last month.

What is remarkable is that even as the number of job openings surged by more than 600K, there was an unexpectedly plunge in hiring, and after the BLS reported of 7 million hires in June, in July this number unexpectedly plunged by a record 1.183 million to just 5.787 million in July, the lowest since April.

This suggest that an odd bifurcation has opened up in the US labor market, where hiring is tumbling even as the number of job openings reverts slowly to pre-crisis levels.

Hires decreased in a number of industries, with the largest fall in accommodation and food services (-599,000), followed by other services (-143,000), and health care and social assistance (-137,000). Hires increased in federal government (+33,000), largely because of Census hiring. Hires also increased in real estate and rental and leasing (+26,000).

As the pace of hiring plunged by the most on record, the number and rate of total separations was little changed at 5.0 million and 3.6 percent, respectively. Total separations increased in retail trade (+112,000) and in state and local government education (+49,000). The number of total separations decreased in durable goods manufacturing (-44,000).

Of these, the number of layoffs and discharges decreased to 1.7 million (-274,000) and 1.2 percent, respectively in July. The layoffs and discharges level decreased in durable goods manufacturing (-40,000), transportation, warehousing, and utilities (-40,000), and wholesale trade (-21,000). The number of layoffs and discharges decreased in the Northeast and South regions.

Finally, while not nearly as large as last month’s record increase, the number of people quitting their job continued its sharp increase in yet another indicator of the strong rebound in the labor market. The number and rate of quits – the so-called take this job and shove it indicator – soared to 2.9 million (+344,000) and 2.1 percent, respectively, as Americans felted emboldened enough to quit their current job in hopes or expectations of finding a higher paying job elsewhere. Quits increased in retail trade (+152,000), professional and business services (+98,000), and state and local government education (+35,000). The number of quits increased in the Midwest and West region.

The Bank of Canada left rates unchanged (at 25bps) and left its bond-buying bonanza unchanged at C$5 billion per week – both as expected – and reiterated its forward guidance (as expected), and the Loonie managed to extend its modest gains from a recent drop to three-week lows…

Source: Bloomberg

While BoC acknowledges the bounce-back in activity in third quarter has been faster than anticipated and as such “core funding markets are functioning well, and this has led to a decline in the use of the Bank’s short-term liquidity programs,” it is careful not to hint at any hawkishness, noting that the QE program will continue “until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”

“As the economy moves from reopening to recuperation, it will continue to require extraordinary monetary policy support. The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.”

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Pledging to keep the policy rate unchanged is “a pretty powerful commitment that they’re likely to reiterate,” Josh Nye, economist at Royal Bank of Canada, said by phone.