O'Rourke | "The Investing World Is Inside Out Or Upside Down"

09/09/21 08:27AM EDT

This guest commentary was written by Chief Market Strategist Mike O'Rourke of JonesTrading

O'Rourke | "The Investing World Is Inside Out Or Upside Down" - planet earth cartoon

If there ever was a day to show that the investing world is inside out or upside down, this may have been it. The trade war with China continues to go strong with no sign of abating.

Unsurprisingly, the Chinese government crackdown on US listed Chinese companies continues to take a serious toll. As far as American companies with sales or manufacturing exposure to China are concerned, it is as if all is well in the world.

Simultaneously, day after day US companies are reporting significant supply chain distortions and raw materials shortages preventing them from meeting end use demand.

Among today's companies announcing such challenges were Sherwin Williams, General Electric, Pulte Home, Vertiv Holdings and Philip Morris. There is a bitterly divided Congress that needs to raise the debt ceiling in the next month and is nowhere near close to doing so.

AMC Entertainment is pursuing a partnership with GameStop. They are two companies whose only shared trait is social media cult status among ultra-aggressive freewheeling retail traders.

Federal Reserve Officials and members of Congress appear to be the only active investment managers left in the US stock market. Future Hall of Fame athletes are spending their time peddling cryptocurrencies as the SEC is sending out Wells notices to crypto exchanges.

And all of this is happening during the midst of the US equity market marking time at all time highs valuation levels only achieved during the most extreme bubbles of the past century.

As if all of that was not enough, the Bureau of Labor Statistics (BLS) released the July JOLTS data today. There are a record 10.9 million job openings in the United States.

That equates to an astounding record 2.5 million more job openings than that 8.3 million unemployed people in this country (chart below). It is also more than 2 job openings for each of the 5.33 million Nonfarm Payrolls that remain lost since the pre-pandemic peak in February 2020.

Furthermore, if one takes the Federal Reserve's assumption that there have been 1.5 to 2.5 million retirees since the pandemic commenced, there are potentially 3 job openings for each person who remains unemployed.

Although Leisure & Hospitality remains the bulk of job losses at 31%, there are more than enough openings in the space to recoup the losses.

Of the 9 major categories which the BLS tracks, four are closing in on 2 million job openings and another two have approximately 1 million openings each (table below). Amidst all of this, there is actually an ongoing debate as to whether the Federal Reserve should be tapering its asset purchases.

The current Job Openings rate in the United States is 6.8%, eclipsing the 5.2% Unemployment Rate (chart below). Remember that the last tapering cycle in 2014 started with the Unemployment Rate at 6.7%.

Actually, the only debate about tapering is occurring among the policy makers at the Federal Reserve. Everyone else in the real world sees and feels the inflation and the shortages.

Last but not least, we have a Fed Chairman who actually altered the Fed's policy framework a year ago with the expressed intent of creating more inflation.

We have no doubt history will prove this out to be one of the greatest monetary policy errors of all time. In the meantime, everyone keeps dancing simply because the music is still playing.

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EDITOR'S NOTE

This is a Hedgeye Guest Contributor piece written by Mike O'Rourke, Chief Market Strategist of JonesTrading, where he advises institutional investors on market developments. He publishes "The Closing Print" on a daily basis in which his primary focus is identifying short term catalysts that drive daily trading activity while addressing how they fit into the “big picture.” This piece does not necessarily reflect the opinion of Hedgeye.

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