atlanta jobs tagged interest

I Call BS to the 'Cash on the Sidelines' Argument (Part Trois)

From late August:

* Based on history and as measured against the total market cap of equities, money markets provide far less fire power than is being argued.

* The cash on the sidelines arguments is a message typically delivered in an aging Bull Market.

* Moreover, whenever cash comes into equities from the sidelines it is usually signals a meaningful high or market top....

Yesterday on my fave 1 p.m. daily experience with Guy Adami, Liz Young and Dan Nathan on Market Call, there was a lengthy discussion of the "cash on the sidelines argument."

Let's go to the tape:

What Job Revisions Really Mean (youtube.com)

As well, subscriber Kdog88, noting my statement that cash should be viewed not in absolute terms but as a percentage of total market cap, asked the following in Wednesday's Comments Section:

21 hours ago

Dougie, Welcome back!

Totally agree with your stance regarding cash on the sidelines. This one data point you shared is the bottom line:

“Moreover, and importantly, retail money market funds as a percentage of total stock market capitalization is at a multi-decade low!”

Would love to see this represented in a historical chart if any one here can find it. Thanks!

Here is the answer to Kdog's question in support of my observation that money market funds' total assets divided by the total equity market cap provide less "firepower" than is being argued in the business media:

Finally here is a copy of yesterday's column, "I Call BS to The Cash on the Sidelines" Argument:

AUG. 21, 2024 9:17 AM EDTAn Oldie but a Goodie Over on Bloomberg, Jon and Lisa are discussing whether the next catalyst to higher stock prices may be the $6 trillion of "cash reserves." Several of their panelists are suggesting this to be the case. As noted recently, I call BS to this commonly-held bull market argument: I Call BS to Goldman's View That Cash on the Sidelines Will Buoy the Markets

"O, then my best blood turn To an infected jelly and my name Be yoked with his that did betray the Best! Turn then my freshest reputation to A savour that may strike the dullest nostril Where I arrive, and my approach be shunn'd, Nay, hated too, worse than the great'st infection That e'er was heard or read!" - William Shakespeare

I disagree and call BS to Goldman's view; it is non rigorous and not based on history:

Here is why I believe the "money on the sidelines" argument is flawed. From Dec. 20: * Everyone is entitled to his own opinion but not his own facts * Facts are stubborn things, and whatever may be the wishes of the bulls they cannot alter the state of those facts that retail money market funds are a lot less than commonly discussed and massive migration into equities rarely occurs * Moreover, and importantly, retail money market funds as a percentage of total stock market capitalization is at a multi-decade low! * Finally, most of the retail savings in money market funds are associated with wealthy Americans * That said, and as noted by Bob Farrell, the public typically buys most at the top and the least at the bottom "I've already made my mind up, don't confuse me with the facts." - Plato The "old" argument that money on the sidelines will provide meaningful support of the next Bull Market leg has been bandied about in the business media by "talking heads" and investment strategists over the last few weeks. "You mention cash on the sidelines, which is something we have heard many times with people on this network...." - Melissa Lee, CNBC (July 2023) The argument is bogus and inaccurate — and I call BS to it.

I conclude that although there is likely to be some benefit of excess savings in retail money market funds migrating into stocks — it will not be anywhere near enough to fuel a new Bull Market leg higher.

As well, such a migration rarely ever comes to fruition but it serves as a non rigorous crutch and a rationale to support the recent reset higher in stock valuations. Frankly, it is always an argument made in extended "up" moves in markets. (As an example, here is a August 2021 interview (over two years ago!) with Jim Cramer in which he expects money on the sidelines to fuel the markets. Jim Cramer says cash moving off the sidelines can help keep stock rally alive.

More importantly the data - the amount of money in retail money market accounts are vastly overstated (commonly said to total $6 trillion, but really only $2.2 trillion) - and, as such, is non supportive of the argument of sideline cash as a catalyst.

Let's now go to the facts and data:

Retail money market accounts total only $2.2 trillion (not $6.1 trillion)

The most important chart:

December 14, 2023

Money Market Fund Assets

Washington, DC; December 14, 2023 - Total money market fund assets decreased by $11.55 billion to $5.89 trillion for the week ended Wednesday, December 13, the Investment Company Institute reported today. Among taxable money market funds, government funds2 decreased by $11.36 billion and prime funds increased by $1.38 billion. Tax-exempt money market funds decreased by $1.56 billion.

Assets of Money Market Funds

Billions of dollars

*Change in money market fund assets is primarily driven by flows and can be used as a proxy for net new cash flows.

Note: Components may not add to the total or compute to the $ change due to rounding.

Retail: Assets of retail money market funds increased by $2.92 billion to $2.27 trillion. Among retail funds, government money market fund assets increased by $651 million to $1.47 trillion, prime money market fund assets increased by $3.45 billion to $682.38 billion, and tax-exempt fund assets decreased by $1.18 billion to $110.09 billion.

Institutional: Assets of institutional money market funds decreased by $14.47 billion to $3.62 trillion. Among institutional funds, government money market fund assets decreased by $12.01 billion to $3.34 trillion, prime money market fund assets decreased by $2.07 billion to $265.21 billion, and tax-exempt fund assets decreased by $381 million to $10.41 billion.

ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website.

As seen in the above table, retail money market assets total only about $2.25 trillion — not the "$6 trillion" mentioned by the many.

The "other" monies in money market funds are institutional in nature — and I don't think this money is "hot" money that will move into a climbing stock market.

Retail Money Market Funds Are at a Multi-Decade Low Relative to Total Stock Market Capitalization

To calculate retail money market funds' possible impact we can't simply look at the absolute amount of monies in money market accounts.

Rather, we must take total retail money market funds as a percent of stock market capitalization: TODAY IT IS AT A MULTI-DECADE LOW!

Retail Money Market Accounts Rarely Change Over Time

If you look at history the level of retail money market funds rarely changes:

- The History of Retail Money Market Funds

- The History of Total Money Market Funds

- The History of Money Market Funds (Excel Spreadsheet)

Furthermore, a lot has been made of the near $600 billion rise in retail money market accounts over the last 12 months. However, as noted in Peter Boockvar's chart below, the rise in retail money market funds over the past year pretty much mimics the drop in bank deposits in terms of dollars.

Source: Peter Boockvar

Speaking of my pal Peter, here is what he wrote this morning on the subject of cash on the sidelines:

I will first comment on the 'cash on the sidelines' debate that I keep hearing about and have for many years and the belief on the part of some that it's this pot of dry powder to 'come into the stock market.' There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds. The only time there is technically fresh money is when there is an IPO or equity secondary as new shares are created.

I mentioned yesterday that Friday saw the biggest ETF inflows into SPY since its 1993 inception and here is a chart to visualize. The $20.8 billion Friday inflow was followed by another $10.2 billion on Monday. It finally cooled down yesterday.

Yields on Money Market Instruments and Short Dated Treasuries Remain Near 5%

* With a high, risk-free equity-like return (with no volatility) available in money market accounts, the incentive to move large amounts of retail and institutional into equities is relatively low

"The public buys the most at the top and the least at the bottom."

-Bob Farrell, Market Rule #5

Not only are money market accounts still earning near 5%, but consider the following returns on short-dated Treasuries:

* Three-month treasury bill yields 5.425%

* Six-month treasury bill yields 5.346%

* One-year treasury bill yields 4.973%

* Two-year treasury note yields 4.384%

Though I expect some migration (as seen recently below), a massive migration out of money market accounts and into equities seems unlikely given the alternatives above:

And, as Bob Farrell cites above, the public buys the most at the top.

I expect nothing different in this cycle.

Bottom Line

The size of retail money market funds balances has been greatly exaggerated by nearly a factor of 3x.

In marked opposition to the bullish musings about cash on the side lines, the amount of retail money market funds measured against total stock market capitalization is at a multi-decade low!

As Peter Boockvar observed this morning: 1-1=0. (There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds).

In reaching for an argument to extend the recent bull move, "talking heads" are making an argument that does not conform to the facts, analysis, history or common sense.

Position: None

By Doug KassOct 7, 2024 9:30 AM EDT

The Book of Boockvar

From Peter Boockvar:

Trying to square all the labor market circles/The response to China's new housing initiatives/Other good stuff

As I take nothing at face value when it comes to economic data and markets and need corroboration in multiple places, I have to do the same with Friday's great payroll report, partly mitigated by a 14 yr low in the average workweek not including Covid and a record high in the number of multiple job holders where I don't believe too many people really want a 2nd job if the first one is enough to pay the bills. To confuse us all, including the Fed itself, we have to go back to the early September Beige Book and reread what was said about the labor market. Also, keeping in mind that the employment component in the ISM services index fell below 50 seen last week for September and this comment from SandP Global in the September Services PMI they produce, "employment dropped for the 2nd month running, albeit only marginally. Some companies reported lowering staffing levels in a bid to save costs but others reported staff shortages."

But let's just say Friday's report was the accurate gauge of the health of the economy, then the Fed's attempt at catching the inflation falling knive has just really cut them, instead of waiting for a SUSTAINABLE (I'll say it in big caps again) pace of around 2% inflation before getting aggressive in cutting interest rates. As markets sometimes do take the economic data at face value, it's no wonder the 10 yr yield is approaching 4% again, along with rising commodity prices, particularly oil and the China policy moves. It's still a sale and I still believe 5% will be seen again, timing unknown. And watching the price of gold, it does seem that ever rising US debts and deficits do now matter.

Tell me if these comments sound like to you similar to what we saw Friday with payroll strength, though mostly from healthcare, education, leisure/hospitality and government. They don't and I'm as confused as ever. To confuse you even more though before we get to those Beige Book comments, the payroll establishment survey on Friday had its biggest seasonal adjustment for a September month since at least 1939. https://x.com/FoamOnTheRunway/status/1842351565199528085

Boston:

"Employment levels were unchanged on balance and no major layoffs were reported...Staffing contacts said that job creation had slowed owing to increased caution in the face of economic uncertainty. Employers reportedly became more selective about workers' qualifications and did not face substantial hiring difficulties."

NY:

"Labor market tightness continued to moderate, with ongoing cooling in labor demand and increased labor supply across the District. Contacts at employment agencies noted hiring activity in both New York City and across upstate New York has slowed as firms are approaching hiring decisions with greater hesitancy. Hiring has shifted to be primarily for replacement, rather than growth, and with uncertainty pertaining to the presidential election ahead, many firms have put hiring plans on hold. It has become much easier to find workers, particularly for firms offering remote or hybrid work options. Still, some contacts from industries that require in-person work reported some difficulty finding skilled workers, particularly in the skilled trades. Multiple contacts reported that worker attrition has declined to exceptionally low levels, and job candidates are lingering on the market for longer."

Philly:

"Employment appeared to decline slightly, following modest growth in the prior period. Based on our July and August surveys, full-time employment declined for nonmanufacturing firms and was flat to slightly higher for manufacturing firms, on average. While over half of both manufacturers and nonmanufacturers continued to report no change in employment during the period, a rising share of nonmanufacturers reported a decrease in their number of employees...Staffing contacts continued to report little change in demand. Multiple contacts reported that hiring was broad-based across industries, except for the tech industry. One contact relayed that a tech company had recently laid off its entire recruitment staff. Another contact mentioned that some businesses had slowed internal recruiting efforts, turning to staffing agencies instead."

Cleveland:

"Overall, employment levels were stable to slightly up in recent weeks. Most firms reported keeping their staffing levels unchanged over the recent reporting period, often citing steady demand and a desire not to over-hire for current business conditions. For firms that are adding to their workforce, some reported hiring to accommodate business growth. By contrast, several contacts reported adjusting to weaker demand by leaving open positions unfilled. On balance, firms expected to increase employment levels slightly over the coming months."

Richmond:

"Employment in the Fifth District increased slightly in the most recent period. Several contacts reported satisfaction with current headcounts and were only backfilling for necessary positions. Other contacts were allowing headcounts to decline mainly through attrition. A software company did not expect to increase headcounts due to adequate staffing levels that could handle increases in demand. Finding skilled workers continued to be a challenge. A construction company reported plenty of work but not enough staff despite advertising for open positions. Some businesses reported positive changes in skilled-worker availability."

Atlanta:

"Employment in the Sixth District increased modestly over the reporting period. Most firms continued to report improvements in talent availability. A few noted labor reductions, mostly in the form of cutting regular and overtime hours and, in a minority of cases, layoffs. However, several firms said that further weakening of demand could result in future layoffs. While many firms reported that they will continue to fill vacant positions, several noted that they were slowing the pace of hiring for the remainder of the year. Only a few indicated they would be staffing up in anticipation of future growth."

Chicago:

"Employment rose slightly over the reporting period, but contacts expected job growth to pick up to a modest pace over the next 12 months. Many contacts continued to note difficulty filling higher skilled positions. That said, there were signs of softening in the labor market. Contacts in both the manufacturing and service sectors reported layoffs or shift reductions in response to slower demand. One contact said they were only recruiting to backfill vacated positions, and a fabricated metals manufacturer had paused hiring until demand from the housing sector picked up."

St. Louis:

"Employment has remained unchanged since our previous report. Contacts reported more people applying for open positions. While the majority of contacts noted that hiring pressures have eased noticeably, in several cases employers continue to face challenges filling open positions, particularly for skilled workers. A construction materials supplier noted that finding quality candidates remains an issue. A hotel contact in Memphis reported limited abilities of their workforce was a continuing challenge but it had started to improve with recent hires. While quasi-governmental contacts reported strong recruiting and staffing, business contacts expect slower employment growth the remainder of this year. Contacts also noted they were continuing to reduce employment slightly through attrition, although attrition had decreased considerably since the start of the year."

Minneapolis:

"Employment was flat since the last report. Employers again reported fewer job openings. A small majority of firms reported that they were hiring, but many were replacing turnover, and a smaller share were adding full-time staff compared with earlier in the year. The share of firms cutting workers also grew but remained in the single digits. Overall, firms do not expect staffing levels to grow much over the next six months. A Minnesota staffing contact reported that job orders were down, "and a lot of businesses are getting a lot more picky" about who they hire. Labor availability continued to improve, though labor quality remained an issue. A South Dakota manufacturer said that labor "has undergone shrink-flation. [We're] paying more for lower quality."

KC:

"District contacts reported little job growth over the last month. In the service sector, a slight decline in employment at professional business service firms was offset by modest hiring at consumer-oriented businesses. Overall, business contacts reported their current hiring plans for the remainder of the year will leave their headcount slightly below levels they expected at the beginning of the year, as many firms reigned in their recruiting efforts in recent months. Businesses reported particular weakness in the labor market for entry-level occupations and in the demand for workers with limited experience. Contacts expressed less willingness to hire inexperienced workers as applicant quality improved with greater availability of more experienced workers. Furthermore, contacts noted they posted fewer entry-level positions as they sought instead to reallocate existing employees from business lines with waning demand. Skilled workers in the trades were a notable exception, where demand for workers remained strong regardless of experience."

Dallas:

"Employment was largely flat over the past six weeks. Some firms reported implementing hiring freezes due to economic uncertainty or weak demand, though most view this as a temporary measure and anticipate hiring later in the year. Still some firms noted difficulty hiring for openings ranging from entry-level positions to upper-level management, and especially mid-skill workers including commercial drivers."

SF:

"Employment rose slightly over the reporting period overall. Most contacts across the District cited steady to slightly higher employment levels and improved retention rates, while others, including those in banking and professional services, expanded their payrolls moderately. Nonprofit organizations reported increased hiring to meet the growing demand for community and support services. In contrast, companies in the entertainment and aerospace sectors lowered their headcounts through layoffs. Many contacts continued to note an increase in job applicants, although some cited skills mismatch and difficulty filling specialized positions. Employers continued to see labor turnover slowing, in part due to engaging in more selective hiring and offering enhanced professional development."

What should we believe?

The rally in Chinese stocks was not out of nowhere in terms of cheap valuations and with respect to the dramatic outperformance of US stocks relative to emerging markets for years. I saw this chart over the weekend on Twitter via BoA on EM vs US equity relative price performance, so a ratio chart. Pretty dramatic undervaluation of the former relative to the latter. Want some real values out there, look to EM, we do.

Speaking of China again, we need to check up on what has been the initial reaction to the policy initiatives announced in hopes of putting a floor under their residential housing market. This was a story I found on Reuters, saying "China's home sales rose during the National Day holiday period...state media said on Saturday...During the weeklong holiday period that started Tuesday, the number of home visits, which reflects a willingness to buy a home, increased significantly, while sales of homes in many places rose to 'varying degrees,' state broadcaster CCTV reported...The number of visits to most of the projects participating in the promotions increased by more than 50% y/o/y, it added." https://asia.nikkei.com/Economy/China-home-sales-rise-to-varying-degrees-state-media-says

Maybe in response, iron ore is up another 2% to the highest level in 3 months. Also of note in China, the Macau visitor numbers in the first six days of Golden Week have exceeded 2019 levels. We remain bullish and long some Macau focused casino stocks. https://www.asgam.com/index.php/2024/10/07/macau-visitor-arrivals-reach-915696-across-first-six-days-of-golden-week-already-higher-than-2019/

Iron Ore

Ahead of the CPI report on Thursday Apartment List late last week reported its survey on September activity. Reflecting the seasonal slowdown after Labor Day, new rents fell .5% m/o/m. Versus last year, they are lower by .7% y/o/y. Also, "On the supply side of the rental market, our national vacancy index remains slightly elevated, currently standing at 6.7%." That's the highest since August 2020.

The sun belt locations continue to see the softest rent trajectory as that is where most of the supply has been last year and this year. On the other hand, "the fastest rent growth has been occurring in metros across the Midwestern and Northeastern US. These are markets where steady rental demand is not being matched by supply growth."

Somewhat dated, August German factory orders were weak, falling by 5.8% m/o/m, well more than the estimate of down 2% but partly offset by a 100 bps revision higher to July. This just confirms the industrial recession the German economy is still experiencing. The euro is quietly falling to the lowest since mid August but bond yields are higher across the board in the region following the US selloff Friday and overnight in Asia and the possibility markets have gotten way too ahead of themselves in expecting so many rate cuts.

That said, Governing Council member of the ECB Francois Villeroy said they will likely cut rates again in October. Talk about trying to catch the falling inflation knive. He seems not wanting to wait to see how things play out before cutting again.

Position: None

By Doug KassOct 7, 2024 8:30 AM EDT

From The Street of Dreams

From JPMorgan:

US: Futs are lower amid rising yields. 2-, 5-, 10- and 30y yields are up by 7bp, 6bp, 4bp and 2bp higher, respectively. Oil has added another +2.3%; base metals are higher, while ags are lower. Mag 7 are lower; AMZN -1.9%, AAPL -1.4% and NVDA -1.2%. Over the weekend, Israel launched a new offensive in Northern Gaza (WSJ). This week, the key macro focus will be CPI on Thursday and 12x Fedspeaks throughout the week. We will have a number of Tech catalysts, including: NVDA’s AI Summit (Monday through Wednesday), AMZN’s Prime Day starting Tuesday, AMD’s Advancing AI event on Thursday, and TSLA’s Robotaxi unveil on Thursday. Q3 earnings will kick off with banks on Friday.

and...

EQUITY AND MACRO NARRATIVE: Last week, the SPX finished the week with a +0.2% gain: Tuesday’s Middle East headlines led to a -0.9% selloff, but equities were able to bounce back after a stronger-than-expected NFP release. Notably, commodities staged a broad-based rally with WTI adding +9.1% amid geopolitical escalation. NDX delivered a 0.1% return, while RTY underperformed, falling -0.5%. SPX sector performance was primarily skewed towards Cyclicals with Energy, Tech, Utilities, and Financials all outperforming while Defensives including Real Estate and Staples produced negative returns. The Mag 7 added 37bp as META and NVDA rallied 5.0% and 2.9%, respectively. Friday’s NFP release led to an aggressive repricing in rate cut expectations, which provided a bear flattening in the yield curve with the 10Y yield up +22bps and 2s/10s flattening 15bps. For the November Fed decision, OIS forwards now take 50bp cut off the table vs. ~30% probability of a 50bp cut at the beginning of the week. Credit saw a strong rally with the JULIS index and HY spreads tightening 5.3bps and 19.4bps, respectively. DXY added 2.1% after three consecutive WoW losses.

Feroli’s team now expects the Fed to cut 25bp at the November meeting vs. their prior estimate of 50bp, given the strong September job reports. After the November meeting, the team continues to expect that rates will fall 25bp per meeting until a neutral rate of 3.0% is reached next September. What may lead to a 50bp or no cut scenario? Feroli notes that for the 50bp scenario, we will need to see a very soft labor market report on Nov 1. For the no cut scenario, we will need to see a combination of firm CPI this week and another strong jobs report. Given this updated view, Jay Barry raises his YE interest rate forecasts: he now sees 2y yield finishing the year at 3.70% (vs. 3.40% prior) and 10y yield at 3.9% (vs. 3.55% prior). The team no longer looks for steepening of the curve in the near-term and recommends closing the longs in 3s/20s steepeners.

Where from here? The NFP and U-3 unemployment rate last Friday support the at/above trend GDP growth in the US economy. While the August and September prints undeniably caused concerns over a slowing labor market, the 20bp drop in U-3 rate suggests that the slowdown we saw in job growth this summer seems to be temporary. Looking at the details of the report, the 202k increase in private services employment was in line with the upward momentum in ISM-Srvcs over the past three months. Currently, Atlanta Fed estimates 3Q GDP to track 2.5% (Feroli sees 2.75% in 3Q). This solid GDP growth should continue to support positive earnings growth and therefore drive the bull market. On the other hand, we will enter a busy week of AI catalysts and the beginning of Q3 earnings. We will hear from NVDA’s AI Summit (Monday through Wednesday), AMZN’s Prime Day Sale (Tuesday and Wednesday), AMD’s Advancing AI event (Thursday) and TSLA’s Robotaxi unveil (Thursday). Q3 earnings will kick off with banks on Friday. Outside the US, China will regain attention as onshore equities trading will resume from October 8th.

Position: None

By Doug KassOct 7, 2024 6:41 AM EDT