Friday’s unemployment report triggered a global stock landslide as the final straw that broke the backs of world markets!
So much hinged on a single jobs report as the final trigger. Well, a few employment reports arrived like machine-gun fire in one week, and changed the battle, but the latest labor report on Friday, minute as the change was, turned out to be a rocket-powered grenade!
Seeking Alpha says the following about the resulting market tumult this morning:
Thought last week was bad? Think again. There’s some serious carnage out there, and the fallout is quickly spreading across the globe…. A disappointing jobs report on Friday indicated that Powell and Co. should have likely cut rates at their July gathering last week, and sentiment has quickly shifted from a soft to a hard landing- or even an emergency landing.
And there it is—confirmation of the seemingly (to nearly everyone) outlandish claim I’ve been making for months: The Fed would be caught waiting too long to cut rates because of labor metrics that were badly broken by Covid lockdowns and Covid/vaccine illnesses, so we would end up deep in recession before the Fed makes any changes.
The grenade that went off was an unemployment report that triggered the Sahm Rule that I’ve been warning was just about to blow. And now it did, and markets all over the world are running for cover from a US economic collapse.
Economists say the worrying state of the economy now means the Federal Reserve must cut interest rates much more quickly than planned to avoid a huge recession.
Too late for that!
Since the Sahm Rule fully triggered on Friday, as I wrote about in my Deeper Dive in a section available to everyone, I’ve posted at the top of the headlines section (available for free to all readers again today) an interview with Claudia Sahm that was recorded just before the the rule was triggered by rising unemployment on Friday. She explains the exact intricacies of how the rule works and just how precisely accurate it is, tested over the full history of data available. Here is the main takeaway, and it’s big:
What the rule actually says, according to Sahm herself, is that, as soon as we arrive at the benchmark (that we crossed on Friday), it always means we have ALREADY BEEN IN RECESSION FOR THREE MONTHS! So, there you have it—full confirmation from the most reliable recession timer we have—that we have been in a stealth recession (i.e., one not shown yet in GDP) during the months I have been making that exact claim as a lone voice against what “real” GDP was showing.
(Note that the interview with Claudia Sahm was recorded just before we crossed that Maginot Line of the Sahm Rule and with no knowledge that we would cross that level in Friday’s labor report. Because of how precise the rule is in its metrics that had not, at that point, been crossed, Claudia Sahm said she was not, at that point, concerned because we have gotten very close to that point in the past then faded away. However, we just cruised past being close and right through that mile marker and did not fade away … right after the interview. So, we’re there now!)
Sahm also states that the timer is more reliable than GDP where I also stood my ground with few or none joining me by saying recession was here, regardless of what GDP claims about the economy. She explains the political reasons for that as well as the extreme precision of the rule compared to ham-fisted GDP metrics. (And she’s a Fed economist.)
What I want to point out today is the huge cascade of market-shattering headlines and recession headlines that has immediately ensued. (You’ll see a good sampling in the closing section.)
Even The Wall Street Journal is coming alongside me today by finally saying the Fed MUST now “reckon with hard landing.” Yes, it must. I’ve written many articles scoffing at the notion that the Fed was in a Goldilocks scenario that was about to deliver a soft landing by arguing that the Fed’s soft landing would look like this:
Inverted. It’s what happens when you suffer from vertigo land in a fog.
It’s all here today, enwrapped in a massive global stock sell-off that reached historic limits in Japan this morning, triggering circuit breakers to shut panicked markets down. The Dow in its early-morning futures was down by 1200 points in alarmed response. It attempted a recovery from that abysmal start all day, but still ended over a thousand points down (-2.6%). The S&P ended down a whopping 3%, and the Nasdaq did a nose-cone landing into the ground at -3.4%.
Wall Street’s fear gauge launched into a massive sky-busting rocket ride this morning, and US bond yields have plunged off a recessionary cliff for more than a week now as have global oil prices now that many are waking up to see THE RECESSION IS HERE!
Yes, suddenly everyone is screaming “recession” when just three days ago they were all glibly talking “Goldilocks” and “the soft landing is here.” It’s all over the news today. Now they’ll all act like “No one could have seen this coming,” even though I have strained my voice for months to say this is exactly where we’d end up! Many even argued that High-Tech AI stocks were virtually crash proof when I kept saying they’d lead the crash exactly like high-tech did in 2000.
“Oh but 2000 was so much different,” they claimed.
“NO,” I would rebut, “And what is EVEN LESS DIFFERENT than 2000 is how you are now claiming the high-tech leaders cannot crash because they are the companies that will rule the future. In the run-up to 2000, those were exactly the kinds of companies that led the crash as we looked toward the huge shift to an internet-based future economy, which we did get, and it still took those companies TEN YEARS to fully recover from the crash! Present claims were exactly the same looney claims made by the irrationally exuberant back then! You’re copycats!” Eventually, yes, some of those companies led the future, of course; but not until after a huge crash; and, of course, some of them did not survive the LONG crash that came after 2000.
These people never learn a thing, arrogantly thinking we’re immune to such crashes even as they repeat the exact euphoric errors that set up the historic 2000 dot-com bust!
Heck, the Magnificent 7 have already fallen more than $2-trillion! What bigger sign did they need!
So, déjà vu!
The sell-off is a blow to Americans retirement savings since 401(K)s are heavily invested in stocks.
Not mine. I already moved ALL of our 401K money out of stocks and into cash and particularly US Treasuries, as falling Treasury bond rates at this juncture mean rising values for existing bonds that have higher yields. I wanted to be in those bonds before their values started to rise and before stocks fell. (I hope readers here paid attention to the risks I’ve laid out and did whatever was right for their own holdings, and you can send tips for the free-to-cheap guidance you got anytime you want ; )
Listen to how full-on, the mainstream media (MSN as quoted in The Daily Mail) suddenly takes the recession they never believed in to be now:
But the gloomy news does mean that the Federal Reserve will have to cut interest rates in September by a bigger margin than planned, and maybe several times again before the end of the year….
Job growth in the US badly missed expectations in July and the unemployment rate jumped to the highest rate in almost three years….
Many investors think the central bank should have made the move on Wednesday.
The market is now ‘wondering if the Fed is too late in transitioning monetary policy,’ Quincy Krosby, chief global strategist at LPL Financial told CNBC.
All right when GDP tried to make a liar out of me after I claimed the recession had already begun. I’ve said for many months we’ll wind up deep in recession that was already beginning before the Fed finally makes its first rate cut—a recession made deeper by the Fed’s delay as it would be forced to keep fighting the inflation it created and, so, would be late to change its policy rate due to its broken (as in slow to report in) labor metrics. Unsurprisingly, then, people are today already howling for emergency rate cuts due to labor metrics that finally showed up all in one week to do their job!
As well as the huge drop in Japan, stock markets were battered in Europe. The pan-European Stoxx 600 index dropped 1.7 percent to a three-month low, Germany’s DAX shed 1.5 percent, while the CAC 40 slipped 1 percent . In London, the FTSE 100 fell 0.6 percent.
The declines followed Thursday’s retreat on Wall Street after weak manufacturing data raised worries the Federal Reserve may have waited too long to cut interest rates, raising risks of a recession.
Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management, said: ‘I didn’t expect stocks to fall this much.
‘This is probably because there are concerns that the US economy will collapse in a big way, which is the most unpleasant pattern for Japanese stocks.’
José Torres, a senior economist at Interactive Brokers, said: ‘The short-lived satisfaction of Fed Chief Powell communicating decent odds of a September rate cut has turned sour as investors are now panicking that the central bank isn’t trimming soon enough.’
It’s ALL in the news now!
I did a GoldSeek Radio Nugget interview with Chris Waltzek on Saturday, and we talked about this sudden critical juncture the US just hit. I had hoped to place a link here because everything Chris and I talked about is complemented by what Claudia Sahm says in her interview in the headlines section below, and our GoldSeek interview was entirely validated in its Saturday claims by today’s global market news. The interview is not yet available, though, so I’ll have to post it in a later edition and add it here when it is available.
Views: 281