July’s BLS employment report will be released at 8:30.  Recent data has been suggesting a firming economy.  Job growth is a primary driver of economic growth and data to date suggests one of the greatest issues for employers is finding qualified workers to fill vacant positions.

I have discussed the labor participation rate (LPR) over a gazillion times.  The LPR is hovering nominally higher than its 2016 nadir but is still about 2% lower than its historical average. We can spend hours discussing why the LPR is around current levels but I will write instead that as this level edges higher such will ensure a further strengthening of the economy.

Historically 90% of job growth is concentrated in small business, defined as employing less than 400 people.  This sector was decimated from 2007-2016 for a myriad of reasons including regulatory crushing dogmas that only the largest corporations are/were able to challenge or navigate.

While I will not comment upon regulatory reform what I will again write newly written regulations have slowed down considerably, a major reason why I believe small business and consumer sentiment is hovering around record highs.

During the final two years of the Obama Administration the largest concern of small business owners was not economic fears but for the first time since the 1946 inception of this question was government intervention.

I will argue it is because of the long arm of government and regulatory dictums forced upon society by unelected bureaucrats is a major reason for the populist economic nationalism that is sweeping the US and the other industrialized societies.  As written many times Donald Trump is an unintended consequence of yesterday’s polices.  He is a side effect not the cause.

I will not remotely digress as to whom I think will win in 2020.  I will write the obvious.  There is a stark difference between the Republican candidate and the twenty four Democratic candidates.  Almost all of the 24 candidates espouse a complete transformation of American capitalism and democracy.

Some might take issue with the above statement but the evolving Democratic platform is advocating the abolishment of the Electoral College, the packing of the Supreme Court and the ending of the filibuster, all of which is a transformation of our democracy.  I will not comment upon the abolishment of private health insurance, the climate proposals or the criminalization of oil drilling as evidence of the changes called for in our capitalistic structure.

Personally I do not think society is at this extreme and historically a far right or far left platform is met with electoral doom.  I point to 1962 and Barry Goldwater on the right and 1972 and 1984  (George McGovern and Walter Mondale) on the left.

As noted above the global industrialized democratic societies are rebelling against the unelected administration state.  This is not dogma but an objective observation of recent electoral outcomes.  Why continue down this path of further enlarging the Administrative state if such is what society is rebelling against?

I will remain optimistic about tomorrow but my view would radically change if almost any of the 24 candidates make it to the White House in 2020.

We think we have gridlock and uncertainty today and in 2008-09.  These episodes would be nothing compared to what might arise in 2020.

As noted the jobs data is released at 8:30 and analysts are expecting a 165k increase in both nonfarm and private sector payrolls, a 3.6% unemployment rate, a 0.2% increase in hourly earnings, a 34.4 hourly work week and a 62.9% LPR.

Radically changing topics, the markets reversed a 1.7% low volume advance following a tweet from the President that US will levy more tariffs commencing September 1.  Markets ended lower around 1%.  Treasuries continued their torrid advance falling to the lowest levels since 2016.  Oil tanked almost 7%.

Is volatility returning?  Many iconic luminaries have commented about market imbalances, the result of technical trading mechanics fearing a potential liquidity squeeze.  As noted yesterday it is all about momentum versus value.

According to Bloomberg, negative yielding debt is now over $14.1 trillion including a stunning $2 trillion plus of corporate notes, up $1.1 trillion from one month ago.  Wow!  Will the ultimate outcome be similar to the infamous tulip bulb frenzy?

Most economic textbooks would state negative yields are all but impossible…the ultimate black swan event.

Last night the foreign markets were down.  London was down 1.80%, Paris down 2.76% and Frankfurt down 2.58%.  China was down 1.41%, Japan down 2.11% and Hang Sang down 2.35%.

The Dow should open moderately lower on the escalation of the trade war but this could change radically based upon the employment data. The 10-year is up 10/32 to yield 1.86%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.