Stocks floated higher yesterday on two perverse gusts of optimism: Google avoided the worst in its antitrust ruling, and weak labor data gave Wall Street hope that Powell will cut rates.
An onslaught of data points shows the labor market is worse than advertised. We apologize in advance for the number of charts we’re referencing today.
Job openings fell to 7.18 million — the lowest this year.
But the latest shocking figure is: “Quits” in construction, a leading indicator, dropped to 0.9%, the weakest since the global financial crisis.
Construction “quits” indicate a slowdown in real estate is underway. (Source: BLS/FRED)
As we noted yesterday, the ISM manufacturing index shrank for the sixth straight month, part of the longest industrial recession since the 1970s.
Goldman warned yesterday that they believe another downward BLS job revision just five days from now will reach 950,000 jobs — the largest revision in 15 years, exceeding last month and August 2024’s historic downward prints.
“This job market is frozen and it’s difficult for anyone to get a job right now,” said Navy Federal’s chief economist. Investors translated that into “Powell will cut.”
The labor market is once again weakening, with more looking for jobs than jobs available for the first time in four years. (Source: X)
What was once bad news is now good — at least for the market.
You’ll recall Jerome Powell’s mantra. The Fed’s decision-making is data-driven.
Of market analysts surveyed, 96% now expect a .25% Fed rate cut on September 17. And the chance of a half-point cut is rising with each data print.
Factories and Tariffs
U.S. factory activity shrank again in August. Orders improved slightly, but supply chains remain snarled, delivery times lengthened, and imports contracted further.
Factory production continues to decline. (Source: ISM)
ISM’s Timothy Fiore put it bluntly: “The manufacturing sector is still in recessionary territory.”
Add in tariffs — upheld one week, overturned the next — and it’s clear that firms can’t plan.
Investors who sold stocks and bonds earlier this week are holding their breath with the realization that uncertainty is the only constant.
Layoffs as Strategy
Salesforce’s Marc Benioff casually noted that AI has replaced 4,000 of its high-paying service jobs. The company delivered a revenue beat and profit surprise.
Similar stories abound: Wells Fargo has trimmed its workforce for 20 straight quarters; Bank of America shed 88,000 jobs in 15 years; Microsoft cut 15,000 this summer.
Once a sign of distress, layoffs are now shareholder catnip.
A World in Debt
Treasury yields tell the real story. The 30-year sits near 5% — an oddity in a Fed easing cycle.
Normally, long rates fall when cuts loom. But bond vigilantes are demanding more compensation for lending to a government that cannot contain its deficits.
The Treasury has already repurchased $138 billion in bonds this year, trying to smooth liquidity.
That’s yield curve control by another name. And it’s not just the U.S. Europe and Japan are trapped in the same paradox: cutting short rates while fighting to keep long rates from breaking higher. The world is drowning in debt, and debt now dictates policy.
Something’s Gotta Give
Goldman warns of stagflation lite: commodities rising while bonds and equities sag.
Grey Swan events will push it further: tariffs, energy bottlenecks, and geopolitical tensions will spark bursts of inflation — but in an economy this fragile, demand destruction follows quickly.
The Fed’s instinct is predictable: cut rates anyway. Trump and Treasury Secretary Scott Bessent are counting on it.
The odds of a 50-point cut have grown dramatically with the weak jobs data. If Powell delivers, capital will stampede into equities to escape inflation. The outcome? The most terrifying bull market in history, a crack-up boom where prices soar not on fundamentals, but on fear of being left behind.
Gold’s Historic Rise
Investors are already hedging. Gold hit $3,630 overnight in Shanghai. ETF holdings for both gold and silver stand at records.
Goldman floats $5,000 gold if Fed independence crumbles. Retail hasn’t piled in yet — when it does, think 2011, when every mall kiosk was buying scrap jewelry.
The rally has surged at its fastest pace in history.
Bread and Circuses
No Powerball winner again pushes that jackpot to $1.7 billion.
But one indicator the circus is slowing: Hollywood box office receipts are the weakest since 1981.
Americans are tuning out of shared stories just as Washington leans harder on spectacle: drone strikes abroad, National Guard theatrics at home. The distractions multiply, but the bread runs thin.
September 4, 476 AD: Romulus Augustulus, last emperor of the Western Roman Empire, was deposed by Odoacer. Rome had debts it could not pay, legions it could not man, and institutions hollowed out by spectacle.
The West today faces its own late-empire dilemmas: labor markets cracking, debts unpayable, governments clinging to tariffs and cheap credit as panaceas. Empires collapse slowly, then suddenly.
As my Empire of Debt co-author Bill Bonner and I will note later today in Beneath the Surface: Rome didn’t fall in a day. But when the cracks widened, the fall was irreversible.
~ Addison
P.S.: While the collapse of Pax Americana seems unlikely, adding up all the breadcrumbs from today’s economic data certainly paints that picture. We see a strong case for a “terrifying bull market” in stocks ahead – driven not by fundamentals, but by a push to get out of the dollar into any asset possible.
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