This is very weird. Not normal market change.

hey everyone me kevin here the market is

being quite weird right now and i'm

trying to figure out what's going on

because

this morning things were kind of

rallying a little bit as jobs came in

warmer than expected but here's some of

the things that are weird

jobs came in well hotter than expected

and the 10-year treasury is plummeting

bitcoin jumped 500 while at the same

time stocks initially reacted pretty

happily especially

uh some momentum stocks and even tech

stocks and some recovery stocks

and now some of those are selling off

for example

energy stocks like enphase were up a

good chunk whereas

stocks like tesla were up as high as

three percent and now some of these are

down uh either to one percent gains or

teslas in tesla's example down to

negative point five percent so what

happened like what kind of fizzled in

the day

and what is the signal for the future

because

usually and this is the fourth thing

that's weird usually profit taking

happens at the end of a quarter

so if it's profit taking then then it's

also even more confusing like why would

that happen

uh you know on july 2nd instead of on

june 30th so

you've got these really weird things

jobs coming in hotter than expected

leading bitcoin to jump but then usually

you would expect the tenure to go up and

it's going down

stocks you kind of would have expected a

mixed reaction but they were really

happy at first

and now they're selling off and if it's

just people taking profits

then why why would you do that

two days after the half of your mark

like you would have done that two days

ago

so it's very bizarre but i've done some

research

and i think we've got some answers also

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all right so here are the answers that i

found so far

number one in the jobs report when you

dig into the details you go into the

weeds of the jobs report

yes we had 150 000 jobs that got

reported

which was a larger than my range it was

hotter than i expected

it was you know about 50 000 more than i

thought would have been within the

normal reaction range and i thought i

would have seen some kind of

little peak in the 10-year bond data

the 10-year bond is sometimes what we

use to see hey what's going on with

people's inflation expectations it's

used in the inflation breakeven

calculations

and when i first saw the chart the chart

first did this

right here on the right of the screen it

it jumped up

on the first sign of that 850 000

jobs and this is what i expected but i

didn't expect that it would do

this and plummet after that initial

spike so

that's really odd why and so digging

into it what did i find

most jobs are that we ended up gaining

were lower paying jobs and these lower

paying jobs

increase wage inflation more slowly

even though you might hear of bonuses of

people signing up for businesses

average pay according to the labor

report only went up 10 cents

that is a slower growth rate than what

we've been used to

it works out to an annualized growth

rate of 3.9 percent

which is slower than that 4 to 5 growth

rate we've been expecting and been used

to

in wages so in other words even though

we had more jobs

they were at lower end jobs and wages

grew

slower than expected this could explain

why treasury yields are starting to

plummet and you might wonder wait a

minute

why like how does that relate to

treasury yields

well here's how it might signal

substantial further progress

towards the federal reserve's tapering

efforts and

maybe we might start tapering treasury

bonds

while at the same time expecting less

wage related

inflation now these things actually kind

of work a little counter to each other

but how they average out i'll show you

in a moment so here's how to understand

this

if the fed stops printing as much money

it means less cash is flowing into the

markets less money is being spent on

buying treasury bonds

which means generally treasury prices go

down which usually means

higher yields which is kind of the

opposite of what again we would expect

because yields are falling

but but i made a picture that i think

could kind of explain what's going on

so let's jump on over here so here we go

we have

yields so sort of yields expectation and

we have inflation

it affects a yield expectations right

here

and then we have the buying pressure

and it looks like to me that even though

less buying of bonds would create upward

pressure

on treasury bonds because as prices go

down yields go up in bonds you would

expect

yields to go up the only reason these

are actually going

down more has to be because of

lower inflation expectations and that's

because we expect

less money to actually end up in the

economy

that's the only reason that i could see

and and i'm sure there could be others

but based on what i'm researching this

is the only thing that makes sense as to

why

and i'm sure there's there's a lot more

nuance to it in the back end in terms of

what other things are going on

uh you know but it's weird it's weird

and it seems to me like the market

saw a big headline number treasury

yields spiked up

read through the report went oh my gosh

no these are just

lower end jobs they're not creating wage

inflation as much as they had been

so it's kind of a an inflation

inflection point to the downside

so expecting lower inflation but

what does it also mean it also means

we're closer to that substantial for the

progress again

where the fed stops pumping as much

money into the stock market

so you get this sort of dual response of

treasury yields falling and potentially

stocks going

yeah let's pull back a little bit let's

be a little less euphoric here we're

about to have less money in the market

and i kind of align this a little bit

with what i just dealt with at the

airport

there's i went to an airport restaurant

and one of the managers there

talked to me and mentioned here's the

thing what's happening right now kevin

we have so much demand at these airports

but we can only hire back about

five to six people a day and we need

700 people why can we only hire back

five to six because

we have to stagger out fingerprinting

and security clearance appointments with

covered restrictions and people have to

stand separated

and there can only be so many people

getting processed at the same time in

the particular room

and it's a small office because they've

never dealt with this kind of hiring

surge before

so in other words we're not necessarily

dealing

with crappier service at the airports

because there's

just because there's more demand but

it's also because again supply

of people who are able to work at the

airport is being restrained

because our normal hiring systems are

screwed up right now

now we still ended up having more job

hiring but just in the example of

the airport this can actually create a

little bit of a phenomenon that we've

talked about on the channel before

which is when you have a surge in demand

and something like travel people end up

not just paying in higher prices

but they end up paying with their time

via delays

this is very frustrating my flight that

left la

was delayed for two hours i've got i had

plenty of stories on my instagram

you definitely want to watch my

instagram if you haven't watched yet

plenty of stories about that on main

stream

uh so two hour delay uh on uh on a 10 55

pm flight that ended up leaving at like

12 55 p.m

which was a total or sorry a.m which was

totally annoying

but i don't really want to go into

complaining about that uh and then on

the way

back we landed and there weren't enough

gates available

so they made us wait 40 minutes to get

to a gate it was supposed to be they're

like oh we're gonna have to wait 30

minutes for a gate and then of course

that took that got delayed

and so it took 40 minutes it's like ah

okay like i'm seeing what's happening

here

and this frustrates people's interest in

traveling

potentially reducing their willingness

to go back to

traveling as much or maybe they start

delaying some trips which

does what again it delays expectations

and potentially lowers profits for

companies

so put but then we've got more okay but

put that together for a moment

less wage inflation less

potential spending because things are

just

growing slower than expected it's harder

to get things reopened

so more broadly we're seeing now we're

seeing good growth in jobs but again

lower prices lower wages than expected

lower wage inflation than expected

and we're still seeing restrained growth

while at the same time

or we're not seeing the growth that

we're we we hopefully expect uh because

of these supply issues

of whether it's materials or people but

we're also then

indicating that maybe the fed says hey

looks like we need to set up the taper a

little bit sooner which also means less

money

into the stock market but here's yet

another reason which actually reiterates

the others

slower growth for value value stocks

were expected to grow two and a half

times

faster than growth stocks this year

halfway through the year

we're on par with growth stocks in other

words

value stock earnings are coming in way

lower than expected

and so this reiterates the slower growth

that we talked about when we use the

airport example

so bottom line it looks like we're

getting closer to less money being

printed and potentially going into the

stock market especially if they taper

treasuries

instead of tapering mortgage-backed

securities first which ironically

they might do even though the real

estate market is on fire

but maintaining lower rates for the

time being is probably going to be

pretty consistent so we're going to have

those lower rates

but we're going to have less money

flowing in the market

at the same time potentially lower

earnings than we expected

from value companies which means value

companies could trade continue to trade

sideways or downward

and it potentially means that people are

getting frustrated with the reopening

this reopening bubble

it's like man this whole reopening thing

isn't as fun you know the weights are

too long

it's too busy there are too many delays

let's kind of

spread out our spending a little bit

again that again

also depresses that boom that was

expected for value

value stocks have already boomed but the

earnings haven't really boomed

yet yeah they're going to but so far

they're not booming as much as expected

and the market especially the stock

market it's all about

expectations and so then when it comes

to tech maybe that explains why tech

this morning was initially excited but

now it's kind of like

okay you know tech if we end up seeing

lower inflation

is happy because generally tech does

well because people go to growth which

tends to be where tech is in lower

inflationary environments

but if we're going into lower

inflationary environments and the fed at

the same time is then going to print

less money

then it's kind of like oh this is kind

of like the worst of both

so these are this is the only way i

could try to piece together the

weirdness that's happening in the market

right now hopefully it makes sense to

you let me know what your thoughts are

link down below or in the comments down

below and folks we'll see you next one