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“Economics is extremely useful as a form of employment for economists.”
— John Kenneth Galbraith 
Podium-worthy Charts
Jobs data took the gold medal this morning.
The private sector added 444k jobs in January — and the December number got revised up to a whopping 503k. The market reaction? Bonds were unsurprisingly lower, but the yield curve flattened. Stocks were mixed: long-duration tech was up and cyclical small caps were down. All this suggests the market is concerned the Fed will likely get more aggressive and the economy is unlikely to handle it very well.
Takeaway: the risk of a policy error is a little higher today than it was yesterday. Crypto didn’t seem to get the memo, though. Bitcoin up 11%!
We’re getting there: 
Employment is still not back to pre-pandemic highs, but the trend is clear enough that the Fed will feel like it needs to quickly get moving on rate hikes and QT.
If the participation rate was a stock, you’d be buying the break-out. Despite Omicron, workers are finally being lured back into the workforce. This will be one of the most-watched charts at the Fed.
The Amazon economy: 
The top five job categories all scream Amazon. Which makes sense: the retail therapy you’ve been doing doesn’t deliver itself. In the name of fighting inflation, do less of it. Go outside instead.
Retailers expect that if you do go outside, it’ll be to go to a store: 
Inventories have risen the most on record, adding 4.9 percentage points to Q4 GDP. That is demand that has been pulled forward from 2022. Which heightens the risk that the Fed will start raising interest rates just as growth rates start falling.
Because inventories are a reliable lead indicator: 
When inventories are elevated relative to sales, as they are now, growth is about to turn lower.
Credit spreads are starting to price in the risk of a policy mistake: 
Higher employment and growth should make corporate America more creditworthy. But high yield spreads are widening, which suggests one of two things: the economy is not as good as it seems or the Fed is going to overdo it on rate hikes. (Or both.)
Equities are telling the same story: 
Defensive consumer staples have outperformed cyclical small caps by 23% over the past three months. If equities are forward looking (like they’re supposed to be), they are looking past today’s jobs report and seeing downside risks to the economy,
We often get this wrong: 
The market usually (not always) over-clubs it on rate expectations. We’re expecting at least five rate hikes this time around, but, more often than not, it turns out to be less.
The magazine-cover reverse indicator suggests we’ve overdone it again. 
The Economist may be calling the top on rate expectations.
If so, long tech would be the contrarian way to play it. 
This BofA survey indicates tech weightings are at the lowest level since 2008 (and that’s before the Meta miss). If growth disappoints, people will be scrambling to rebuild their tech exposure.
Crypto is not interested in all this nuance of relative expectations. 
BTC and ETH were both up more than 10% on the day. It doesn’t exactly fit the narrative that the rest of the market was telling, but I’ll take it.
Gold metal to the jobs report, silver and bronze to crypto.
Have a great weekend, Olympians.
Multicoin Capital's Kyle Salmani is joining 120+ other speakers at Permissionless to share his insight into investing in the future of finance.
Thursday, February 10, 2022
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