Jobs, Quits, and why are bank stocks so hot?
a look at the Fed's actions distorting the market
The quit rate is reaching ludicrous levels. The latest data from the US Bureau of Labor Statistics shows that the quit rate is at 3.4%. Nearly off the chart!
At 3.4%, the quit rate represents 4.527 million people quitting their jobs. This was very unexpected by the market. The largest increases in quits were seen in accommodations and food services, health care and social assistance, transportation and warehousing, and finally, utilities. Employees see greener pastures and know that they are in high demand. This is allowing them to switch employers and secure higher pay or improved working conditions. These people are only able to do this because the labor market is so burning hot. It is creating a bidding war by employers driving up wages.
This will eventually lead to many Keynesians claiming “wage-price spiral”. This is the theory that rising prices increases demand for higher wages which leads to higher production costs and further upward pressure on prices. It is then suppose to become a self-fulfilling feedback loop. Followers of Keynes will completely dismiss the Fed’s monetary policy actions as having any sort of influence. This could lead to price controls which would be disastrous. Unfortunately it is already being suggested by poorly educated journalists.
In addition to the quit’s rate running through the roof, job openings are also hovering near highs.
November’s rate of 10.5 million openings is down from the peak and below what was forecasted. However, we are still looking at a serious gap between those on unemployment and employers seeking to hire. In fact, it is the highest on record at 3.7 million more jobs than unemployed workers.
This means the war for workers is still at it’s early stages. Never forget, it is Fed and government policies that alter the economy that create these distortions in the marketplace. The best investors can stay ahead of the game by analyzing what is going on and coming to conclusions about what will happen. Someone who I think is in front of the curve is Greg Mannarino. I’ve only been listening to him for a few days but I think a lot of his analysis is spot on. He was brought to my attention by Harrison Burge, Robert Wenzel’s former research assistant. I think Greg gets a lot of things right and I intend to share some of his insights with you. The biggest one right now is banks.
Bank stocks are on fire. The big driver is interest rates which have been manipulated by the Federal Reserve. First, the market is beginning to price in the first rate hike. With higher interest rates, banks will be able to make more money. Second, the Fed is slowing it’s purchase of long-dated Treasuries. In time this will cause the long-end of the curve to rise creating a larger spread between long-term and short-term rates. By borrowing short-term and lending long-term, the banks will be able to increase their profit per loan as the long end of the curve rises. Investors are beginning to figure this out and rush into bank stocks.
There are a couple ways I am looking to take advantage of the situation. First, I may sell short-dated put option contracts to earn premiums. The second way is to own stock. I would not recommend call options. Some of the banks that I am most interested in are JPM, MS, BAC, and GS. I’m WFC averse due to their past regulation issues, fines, etc. I’m also considering the XLF ETF as it holds a wide array of banks.
