Connect with us

Uncategorized

11 Things That 0% Interest Rates Caused

11 Things That 0% Interest Rates Caused

Authored by Jack Raines via Young Money,

In season 9 episode 23 of The Office, Andy Bernard graced…

Published

on

11 Things That 0% Interest Rates Caused

Authored by Jack Raines via Young Money,

In season 9 episode 23 of The Office, Andy Bernard graced us with one of television's most memorable quotes:

 “I wish there was a way to know you're in the good old days before you've actually left them.”

Isn't that the truth?

We experienced a decade of quantitative easing and declining interest rates that culminated with an unprecedented multi-trillion-dollar infusion of capital in 2020. But three years later, the party had to end.

The Fed is raising rates, money isn't free anymore, and companies have to once again rediscover the lost art of "turning a profit." Outrageous stuff, isn't it?

However, we shouldn't cry because quantitative easing is over, we should smile because it happened :) In remembrance of the last decade, I would like to highlight 11 things that were only possible thanks to 0% interest rates.

Enjoy!

1) Day Trading as a Career

"Oh bro, I think $TSLA is consolidating in a bull flag, it's about to break out!"

"Dude, I made so much money on GameStop, maybe I should just quit my job and trade my portfolio full-time." 

"Yeah man, the stock market really isn't that hard. Just buy calls on the stocks that are going to go up."

If you are a dude who was even somewhat interested in the stock market between January 2020 and January 2022, there is a greater than 75% chance you were in a group chat that looked something like this. Believe it or not, it was actually pretty easy to make money buying call options on tech stocks when every single tech stock only went up for like 15 months.

What many failed to realize was that their alpha was really just levered beta, and levered beta works both ways.

If you thought you were getting rich because of your exceptional research, but you were actually getting rich because you bought call options on high-beta stocks during a period of QE-induced irrational exuberance, you will end up quite poor, ironically, due to this same "exceptional research."

Which is exactly what happened, as these infallible trading strategies proved to be quite fallible. 

But don't worry, former day trading extraordinaires, because I have some good news: while the whole stock market thing didn't work out, McDonald's is hiring.

2) Chamath's SPACs

Let me tell you a bit about how SPACs work:

A SPAC is a Special Purpose Acquisition Company. These bad boys raise hundreds of millions of dollars before listing on the stock market as publicly traded bank accounts trading around $10 per share.

SPACs look for private companies to take public, they offer these private companies all of the capital in their treasuries for an X% stake in the company, and they price these deals at $10 per share. For example, your $100M SPAC could take a 10% stake in a private company, and the newly formed, publicly traded company would be worth ~$1B at $10 per share. If the SPAC climbs to $20 per share pre-merger because investors like the deal, the pro-forma valuation is now $2B.

Understand? Good.

Now to Chamath. The self-proclaimed next Warren Buffett had a good pandemic run, one of the best. While he couldn't have predicted the upcoming SPAC bubble when he closed a deal to take Virgin Galactic public in November 2019, he was well-positioned to ride the wave from 2020 through early 2022.

As SPACs grew more and more popular, the Social Capital CEO leveraged his Twitter presence to juice his investments.

After closing a deal for one of his many SPACs, Chamath Palihapitiya would type up a 25 bullet-point "one-pager" explaining why he liked the stock, share this memo with his millions of followers, and watch as they bid the stock price from $10 to $15, $20, and even $30.

With a few keystrokes and the click of a button, Chamath increased the net present value of future cash flows of his investments by billions of dollars. 

Incredible stuff. Unfortunately, a crisp one-pager can't save a mid-tier car insurance company trading at 40x sales.

Fortunately, Chamath likely sold well before the stock crashed. It is important to manage one's liquidity, after all. God bless Mr. Palihapitiya, the grifter that we needed but didn't deserve. Someone put this man in the Hall of Fame ????????

3) ESG Investing

Environmental, Social, and Governance. No one actually knows what any of that means, but you can throw that label on your fund, change your website's color to a shade of light green, and instantly charge 5x higher expense ratios. Don't believe me? Let me show you two ETFs: the first is BlackRock's iShares ESG Aware MSCI USA ETF, while the second is BlackRock's S&P 500 portfolio. Notice any major differences?

No?

Well, there is one big one: the first ETF charges 400% more in its expense ratios. ESG became this funny thing where everyone knew it wasn't really a thing, but everyone was trying to pretend like it was a thing because everyone needed everyone to think that they thought that it was a real thing. Perception was infinitely more important than reality.

The truth is that ESG was really just a side quest designed to make capitalism harder.

The economy was running so smoothly for the last 13 years that one day we got bored and said, "Oh your company is profitable? Cool. Now you have to hire a Chief Sustainability Officer, purchase carbon credits from companies that are actually environmentally friendly, and convince the general public that despite having sweatshops in China, your company is still one of the good guys."

And you know what? Tim Cook managed the impossible.

I personally think ESG was yet another low-interest rate phenomenon, and it's about to take a backseat to other, more pressing matters. Like making money.

4) Venture capital-subsidized lifestyles

Let's turn back the clock to May 2020. You, me, and everyone else are stuck working from our apartments all day every day. Your pantry is running low, but instead of rewearing that disgusting cloth mask for the 27th time as you browse the aisles of your local Kroger, you decide to use one of 27,234 different grocery delivery apps that gives you 50% off all purchases made that month.

Next month, you repeat the process with a different app or different email, and the cycle continues. Venture capitalists poured billions into finding the "Uber of groceries," (and there were a lot of Ubers of groceries) and we consumers benefited by literally getting free food hand-delivered to our apartments.

And this VC-subsidized service wasn't limited to grocery delivery services either! Ubers and Airbnbs used to be half the price of taxis and hotels, and you could whip a Bird scooter around Washington D.C. for $1.50. At some point, however, all of these companies either began charging more money (profitability does matter!) or they went bust.

5) Miami

RIP Miami, 2021-2022.

"Miami is the FUTURE!" yelled an army of tech-bros who ditched California and New York in 2020 for warm weather and zero Covid-restrictions. "This city is full of BUILDERS!"

Well, it just so happens that 1) people have now returned to both New York and Silicon Valley, and 2) most of the "builders" on South Beach were just crypto bros stimulating the bottle service economy every weekend. Miami is a great city, it has great weather, and the beach is fantastic. But the idea that South Beach was going to usurp New York and/or San Francisco as the center of everything was really just a poor extrapolation of Keith Rabois's Covid vacation.

6) NFTs

Folks were really out here paying $500,000+ for pictures of rocks and monkeys instead of, like, I don't know, buying a house? "Oh but bro we get exclusive membership to in-person events." Sick, there really isn't anything better than spending your weekend at a conference full of folks whose only commonality is that they all spent six figures on pictures that looked something like this:

Out of everything that stemmed from zero percent interest rates, NFT culture was the most insufferable. I welcome the second coming of the Great Depression if it means the JPEGs end up worthless.

7) Adjusted EBITDA

As someone who has now taken four accounting classes across my undergraduate and MBA coursework, I still haven't read any chapters on this metric known as "adjusted EBITDA."

I found this to be quite strange, because every earnings report presented by companies that didn't actually have real EBITDA over the last few years included an extra line called "Adjusted EBITDA." And this adjusted EBITDA was always a positive number. Pretty cool, right?

On my accounting midterm in October, I couldn't get my income and cashflow statements to balance correctly. Fortunately, I tapped into my street smarts and added a row for "adjusted EBITDA" where I deducted a few million dollars of expenses and BOOM! everything worked out. I did not make an A on this midterm.

Adjusted EBITDA is a fascinating tool that more companies should have utilized. You literally just take your negative EBITDA and subtract expenses until it's positive, then call it adjusted EBITDA.

For those curious, the adjusted EBITDA of this blog is approximately $1,000,000. For taxation purposes, however, my net income is -$100,000.

8) Work-Life Balance

We had two years of the good life, working 10 hours a week and moving our mice to look like we were "active." With companies desperate for workers and everyone receiving stimmy checks from Donny T and Joey B, the employees had all the leverage.

Work overtime? No sir, my life is about ✨balance✨ now. Bringing one's laptop to Tulum, Cartagena, and Lisbon instead of making the dreaded commute to the office. White-collar America spent 18 months in a labor market facade, the industrial devolution of remote workers refusing to actually remotely work.

It was beautiful, and we called it work-life balance.

And now, with companies cutting jobs and demanding that their employees return to the office, that beautiful, wonderful dream is dead.

9) The Metaverse

Has there ever been more money incinerated on a project that literally no one asked for? After a year of pandemic lockdowns, everyone just wanted to go outside and see their friends again. Meanwhile, Zuckerberg and company thought, "You know what? What if we rebuilt the Sims video game franchise, except we blow $30B along the way?"

Horizon Worlds was such a dud that Meta had to force its employees to use the platform, you couldn't write a comedy script better:

In a follow-up memo dated September 30th, Shah said that employees still weren’t using Horizon enough, writing that a plan was being made to “hold managers accountable” for having their teams use Horizon at least once a week. “Everyone in this organization should make it their mission to fall in love with Horizon Worlds. You can’t do that without using it. Get in there. Organize times to do it with your colleagues or friends, in both internal builds but also the public build so you can interact with our community.”

The Verge

10) Dudes Working Seven Different Remote Jobs

When you are working in an office, you can't really do any other jobs that require you to be in an office, because you can't be in two places at once. And you can't really do a separate remote job from an office either, because it would look pretty weird to your supervisor if you were working for another company from your cubicle.

However, when you're working from home, you can work from home for, hypothetically, as many companies as you want. You can have an Amazon laptop and an Apple laptop and a Google laptop and a Microsoft laptop and a bunch of other laptops, and you can earn like $100k+ from all of these jobs at the same time.

So of course, some people did that.

The thing is, if it's possible to "work" at 10 different jobs at once, it's probably possible for all 10 companies to lay you off without having much of a drop in productivity. Which is, of course, what began to happen.

Over the last six months, every big tech company not named "Apple" has laid off thousands of workers, putting pressure on the remaining workers to up their game. RIP to the 4 job, 14 hour work week. It was fun while it lasted.

11) Cathie Wood

Has anybody directly benefited more from quantitative easing more than Cathie Wood and Ark Invest? Nope.

Four years ago, no one had heard of Ark Invest or its founder. However, Cathie's firm was betting big on disruptive companies across the electric vehicle, genomics, and fintech industries. When the market began recovering from its March 2020 Covid crash, Ark's holdings exploded, and her ETF's price climbed from $35 to $155.

Suddenly, Cathie was on CNBC and Bloomberg discussing advancements in Tesla's self-driving technology and innovations in the blockchain space. Ark gave ambitious (to say the least) price targets, claiming Tesla would hit a split-adjusted $1500 per share (a $5T market cap) by 2026, and bitcoin would one day hit $1,000,000 per coin.

By January 2021, she was averaging $3B in net flows (inflows - outflows) per month, but then the tide began to turn. In 2022, the former high-flyer generated -67% returns, one of the worst performances in the market. To quote myself from earlier in this article:

"If you think you were getting rich thanks to your exceptional research, but you were actually getting rich because you bought call options on high-beta stocks during a period of QE-induced irrational exuberance, you will end up quite poor, ironically, due to this same "exceptional research."

But don't worry, Cathie will be alright. Despite a terrible performance, her fund brought in $1.6B in new capital in 2022, and she's still raking in those sweet, sweet management fees. Shout out to the queen ????

So yeah, the easy money is gone, your NFTs are worthless, and the metaverse is all-but-dead, but at least we helped Chamath and Cathie make some money along the way.

- Jack

If you liked this piece, make sure to subscribe!

Tyler Durden Fri, 02/17/2023 - 07:20

Read More

Continue Reading

Uncategorized

February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

Published

on

By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

Read More

Continue Reading

Uncategorized

Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

Published

on

Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250


Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  

2-US_Job_Quits_Rate-1-2

3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 




From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:

IMG_5092

In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%
IMG_5093_320f22

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

Read More

Continue Reading

Uncategorized

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…

Published

on

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

Read More

Continue Reading

Trending