Wow!  The jobs data was a complete blow out.  November’s payrolls climbed the most since January.  October’s statistics were revised higher.  The increase in wages is now at a cycle high.  Yes the labor participation rate did decrease by 0.1% but this was more of a function of workers reentering the work force, a sign of strength.

Commenting further about wage growth, for the first time since 1972, wage growth eclipsed mortgage rates for the first time since 1972.  Wow!  The macroeconomic implications are significant especially regarding home values, the asset class most associate with net worth.

Partially because of jobs, consumer confidence also exceeded estimates rising to the highest level in seven month, a point I think is significant given the importance of the Christmas shopping season.

And then there is oil.  Oil surged another 2% as OPEC, led by Saudi Arabia, pledged to cut production by an amount greater than expected.

Three months ago all were dogmatic that a recession was at hand, a view that I did not share.  All became yield curve experts stating that an inverted yield curve has a 100% correlation to a recession.  However these newly minted experts did not mention the time, the degree and what proxies being utilized in this inversion are of paramount importance.  According to a dated Bloomberg report, there has been over 70 inversions since WWII but only 12 recessions.

Historically negative real interest rates are associated with inflationary growth.   Negative real interest rates only occur 0.3% of the time.  The vast majority of the Treasury spectrum has a negative real yield.  Negative yielding debt occurs 0.001% of the time, a statistical nonevent.  Three months ago there was a record $18 trillion of negative yielding debt.

Is money now beginning to be utilized in a more efficient manner…i.e.  increasing economic production versus financial alchemy?

Only history will answer this question.  It is human nature to extrapolate the current into infinity.  Generally speaking for the exception of one year, the growth rate of the last 10 years has been about 50% of the norm since WWII…aka the New Normal.

As we all know change is the only constant.

What will happen this week?   The economic calendar is comprised of a small business sentiment survey, various inflation indices and retail sales.

Last  night the foreign markets were   down.  London was down 0.12%,  Paris down 0.42%,  and Frankfurt down 01.9%.  China was up 0.01%, Japan up 0.33%  and Hang Sang down 0.01%.

The Dow should open quietly lower ahead of week filled with potential catalysts including central bank meetings and America-China tariff deadline.   The 10-year is up 3/32 to yield 1.83%.


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.