This morning’s US Employment report for November was as we expected it to be 3, 6, and 9 months ago - nasty. We proactively prepared for this by shorting SPY at 874 yesterday in the Hedgeye Portfolio. Now that the alarmists are running around sounding the sirens that this morning’s “news” is a surprise, it’s time to take a breath and consider gravity.
If you took this chart (see below), and struck gravity upon it (turning it upside down), you’ll see how Goldman shakes out with their newfound bearishness of a 9% unemployment rate. The math here isn’t trivial. The Street’s freak-out estimates of 9-11% unemployment rates are conveniently in line with the highs of the mid 1970’s and early 1980’s. You do not need a PhD in math to figure this out. It’s called mean reversion.
My Dad is a firefighter – trust me, he and I know what a real fire is. Before you start chasing fire engines out there today, consider this -533,000 in job losses in context. Inclusive of the upward revisions to October (320,000), the average of the last 3 months has been 419,000. This is in the top 3 of the worst employment prints we have seen since WWII. Are things horrible out there? You bet. But the SP500 is down 49% in the last year for a reason!
US stock market expectations have been burning closer and closer to reality for the last 3 months. This fire has been ablaze for a while here. Don’t get burned by the narrative fallacy of alarmist rhetoric. It’s a year late, and plenty a dollar short.
I’ll be looking to take my exposure to US Equities up (from zero) in the coming sessions.
KM
