Wall Street Weekend: Markets have been looking for an excuse to rally
10:25 Share

danielle di martino booth always a pleasure to have you on seeking alpha thanks for joining us really appreciate it well it's great to be here we need to do this more often we absolutely do i agree we should not wait as long between appearances i agree speaking of waiting between appearances a lot has been going on in the world talk to us

Tell us about how you are thinking about things, processing things, waiting for things. What's your take on the state of the world, the state of the markets right now? Markets have been looking for an excuse to rally. And once that mind frame is set,

then it won't matter what happens, good news, bad news. Markets are momentum flow driven beasts and they have done a very good job of absolutely dismissing and ignoring whatever's happening in the underlying economy. And as investors, we should be very cognizant of what makes markets hum and

And what's happening in the real economy, because they're two completely separate ways, separate prisms into the world. So what are you looking at in the real economy? What are the data points that you're most concentrated on and looking for? So I think right now, one of the biggest takeaways, if you're, you know, above the sky flying at 40,000 feet is don't lose your job. Whatever you do, do not lose your job.

When you look at, you know, there was a trend with the Atlanta Fed. I don't like the Atlanta Fed's GDP Now tracker. I think it's a Mickey Mouse model. I shouldn't be disparaging. But the Atlanta Fed's wage growth tracker, that's something I follow really closely. And for years after the pandemic hit, if you were looking for greener pastures, if you were a job switcher, you were getting paid up big time to go job hop, job to job to job.

For the last three months, we've seen that dynamic flipped on its head. So if you're a job stayer, these are two different terms the Atlanta Fed uses, job switcher, job stayer. Right now, you're getting paid less if you're quitting your job. You're getting paid more if you stay in it. Why is that? Because companies are putting a premium on reliability. Companies actually want to see their employees back in the office.

It's companies right now that are in the driver's seat and you have to pay attention to that because it's a narrative shift. And that shows you don't lose your job because it's really hard to find one when you've had nearly 2 million Americans on continuing job as continuing jobless claimants and the highest levels that we've seen in years multiple. It's telling you something that when the quits rate is going down, it's

This used to be Janet Yellen's favorite job market indicator because it was the take this job and shove it rate. If you can't quit your job right now because job insecurity is going up,

which is the opposite of what happened in the aftermath of the pandemic, that's telling you something about the underlying health of the U.S. economy. The only thing that we can rely on is the unreliability of the data, because from the revisions that I was speaking about months ago, it's simply become more entrenched. The downward revisions are deeper than they've ever been in U.S. history. And that tells you that markets are going to key off of

Non-farm payrolls grew by this much. Are bond traders, are stock jocks, are they going to trade off of that headline figure? Yes, they are.

but the actual underlying data because of the magnitude and the systematic nature of these downward revisions becoming deeper and deeper with each quarterly revision, by the way, to the Bureau of Labor Statistics model compared to the 12 million American companies that by law must report head counts once a quarter to the Census Bureau. That's actual hard data on the ground. The divide between the models at the Bureau of Labor Statistics and what's actually happening has never been wider.

Trade off of it. And as I say, my mantra is never, ever applied more. Trade the narrative. Own the truth. Another thing that we talked about last time you were on was Powell and interest rates and fighting inflation. Lots of jawboning since then. What are your thoughts about the Fed, about Powell's role at the Fed, about fighting inflation and the interest rate conversation? What are your thoughts there? And what would you say you're looking towards this summer in the next couple of meetings?

So I think one of the biggest changes in the U.S. economy is the rapidity with which we've seen the housing market weaken.

Nobody was expecting this. This is completely out of left field. You know, we had K Schiller, S&P K Schiller home prices declined for a second month in April. OK, March and April. This is peak spring selling season. And you're seeing home prices month over month decline two months in a row. What does this have to do with Jay Powell? Guess what? Housing's the biggest input to the CPI. Housing's the biggest input to the PCE.

If home prices are falling during peak home selling season, and we know that May was weaker than March and April, that means you're going to have three months in a row of falling home prices. Pay attention, Chair Powell.

It's going to be a lot more meaningful and it's going to be a much greater drag on inflation that home prices are falling for the first time since 05, 06, 07, that you need to shift your focus away from being hyper-focused on tariffs and the potential for bleed through when the largest input to inflation has got a negative sign in front of it. That's going to overwhelm

Any type of, oh, tariffs might cause inflation concerns that Powell is voicing, making it appear that he might be making monetary policy against Donald Trump, which is a big no-no. The Fed's an apolitical, independent institution. It is, Jay Powell's mandated to make monetary policy in the public interest of

and not just be doing things because the president is calling him a loser or whatever he's saying in his non-presidential way. It is Jay Powell's duty to make monetary policy regardless of what's happening in the political arena. And the hard inputs to inflation and the hard inputs to the labor metrics are telling him that monetary policy is restrictive. It's too tight.

So what's your sense of what's going to come from the next couple of meetings? Are you encouraged by what you think might be coming? Are you discouraged by it? I'm encouraged by the fact that we have not one, not two, but three Fed officials who've come out after the latest Fed decision and say, you know what? July should be in the cards here. We're seeing enough on the labor side of our mandate that we shouldn't be talking about September right now, because if we're talking about September, that means that the economy probably needs it right now.

And that July should be a live meeting. So I'm happy that you're seeing enough dissenting voices in order to shift the narrative away from we can just wait. We can sit on our hands. We have plenty of time. We have all the flexibility in the world. That doesn't look like it's the case anymore, but I'm happy to hear Fed officials come out and say it out loud. You make Chair Powell's life a little bit uncomfortable. You know what?

He won't make that same mistake by pausing in July as he did in 2024 and waiting with an unusually large rate cut to come through in September. Let's not wait. Let's go ahead and deliver to the U.S. economy. And by the way, 25 basis points isn't it's just it's a pimple on the you know what of humanity, but it's still the Fed signaling. You know what I'm signaling to say, I hear you.

American working people. I hear you that you're struggling. I want to signal that I'm with you, not against you. It's enough sometimes for the markets and for the economy to get that signal. And what would you say about the dollar these days, how you're thinking about that, how you're looking at it in the short term and long term? So it's interesting because we're guiding our clients right now to behave as counterintuitive, counterintuitively as the greenback has behaved.

So when the Fed goes into a holding pattern vis-a-vis the rest of the world and the rest of the world, central banks are in an easing posture and we see the dollar fall out of bed. Well, I mean, you know, the contrarian mind in me thinks, OK, fine. So if we're tighter relative to the rest of the world and the dollar falls, maybe when the Fed starts to lower interest rates, the dollar is going to counterintuitively rally.

Because it's not been following a script at all. And it's one of the most crowded trades out there is we want to sell the dollar. We want to sell the dollar. Well, what happens if the Fed starts to lower rates and we see the dollar rally?

It can happen. And that's actually how we're guiding our clients into the second half of 2025 is to anticipate a counter trend dollar rally because the dollar has been weakening even as monetary policy here has been tighter relative to the rest of the world's central banks. I'm contrarian in my thinking. Part of that has to do with the fact that, you know, we've seen services disappoint in Germany. We've seen services disappoint in China.

This working assumption that if the United States catches a cold, the rest of the world's not going to get pneumonia has never been proven in the history of mankind. We are the largest economy by a wide margin on the planet. And if our economy is slowing enough to make the Fed start to cut interest rates, you know what? It's going to have ripple effects in the rest of the world economy that we've already seen is slowing despite their central banks already being in an easing framework.

Look for links for stories in the show notes section. Don't forget, these episodes will be up with transcriptions at SeekingAlpha.com slash WSB. And for a full suite of news, analysis, ratings, and data on stocks and ETFs, go to SeekingAlpha.com slash subscriptions.