The Capitalist Investor - Episode 136

The banks aren’t providing the best guidance right now as we inch towards a recession. Simply put: they’re concerned, cutting buybacks a bit, hunkering down, and building up a war chest in case we repeat 2008. In Episode #136 of “The Capitalist Investor,” Tony and Derek spend time naming key recession indicators and how everything ties together – even employment, although lately it’s been raising some questions. Wherever you get your news, there’s so much to pay attention to these days but this week is all about anticipating slowdowns before the big headlines come.

Outline of this Episode:

  • [2:30] Colossal, complex questions
  • [3:00] The beginnings in the job market
  • [6:35] Homebuilding rate indicator
  • [7:50] Where the pieces connect: the Fed
  • [13:55] The banks’ picture
  • [16:20] LIV News and Crypto

The complexity at hand: job openings and unemployment as a recession indicator

Whenever there has been a recession, historically, unemployment rises. People get laid off, lose their jobs and companies slow and stop hiring. The job market is one of the most crucial indicators of a recession. 

Currently, employment is still fairly high right now. We haven’t seen much of a tug away from job openings and hiring. So, you may wonder why we keep saying we’re heading into a recession, confusing, right? Well, everything affects everything. Pushes and pulls are acting all over the place and slowly tugging us towards an impending recession. Sometimes indicators act as outliers, sometimes they hide the big picture. 

Hitting the job market and looking elsewhere

The theme these past two and a half years is that companies just don’t have enough workers to keep running efficiently. It’s almost like people don’t want to work anymore. Currently, there are a lot of job listings going around because businesses need workers. 
But if you really dive into the jobs that are available on these listings, a majority of them maybe pay $50,000 a year or less. We’re missing people working in those jobs, because they either found others that would pay more or are waiting for one that will. 

These jobs listings we’re seeing in surplus aren’t primarily for the white-collared workers – many of those have and continue to be eliminated. The issue stems from the fact that in many cases, people are now making 20-30 percent more money today than they were three years ago at the same job with the same amount of work and talent. Wages have skyrocketed, and companies aren’t able to bring more employees in the door at that same pay level. 

Earlier this week, Apple, Goldman Sachs, Google, and Facebook announced that they are slowing their hiring. While they aren’t firing people, they are slowing their place. And that’s just the beginning. There’s a shift we’re sensing. 

Eventually, these job openings will need to close – not all of them – but they will eventually wind a bit before we see any sort of drastic effect on the unemployment rate. But the news from these big companies slowing down their hiring is something we have to pay attention to and listen for. Once we see that big unemployment number headline, it may already be too late. Look for the ones that come before it. 

Other indicators we pay attention to

Everything is all interconnected in some way or another – eventually all the slowdowns trickle. Some things we’ve been keeping an eye out on are homebuilding, car repossessions and the rate of the Fed’s hiking. 

Homebuilding is a good heartbeat on the strength of the economy. Building homes, buying houses, selling houses – there’s money flowing all over the place. 

But suddenly, builders are saying they are slowing down dramatically. Commodity prices are finally falling for building materials but so is the amount of people looking to build homes. It’s all slowing and certain areas are in some sort of deflationary phase. Pieces are starting to crumble somewhere and it’s starting in housing – but not without the Fed’s doing. 

The Fed is hiking up rates, fast. There’s been whispers going around of a 100 basis points coming soon. But who knows? At the end of the day, the Fed is ultimately trying to destroy demand. If people don’t want to spend, then the prices of goods will need to come down to move products. They’re unwinding the harm from the past two and a half years and it’s necessary. But we don’t necessarily have a good feeling about the way they’re doing it. 

At the rate in which the Fed is hiking, they are trying to speed up the damage. In the process, they might over-tighten and increase the rate so high and find themselves immediately pulling back to the other direction. It seems like there’s a “lagging” sense everywhere, and they don’t have the timing coordinated well enough. Ultimately, the way the Fed is trying to prevent a recession, just may lead us directly to it. 

There’s a lot to pay attention to and indicators to watch. At the end of the day, the job market is still strong. But as demand continues to wind and other areas begin to slow down, everything’s going to recalibrate elsewhere. 

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