Stagflation Has Arrived, Job Weakness Is Apparent, and Stocks Party On!

Finance U Public Finance U
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Originally published at: https://peakprosperity.com/stagflation-has-arrived-job-weakness-is-apparent-and-stocks-party-on/

Howdy!

After a much-needed back-country vacation, where my phone was an intentional brick, I’m back with another episode of Finance U with Paul Kiker of Kiker Wealth Management.

Today, we dove deep into the current state of the economy, and I’ve got to say, things are looking nuttier than ever. I’m currently struck by the disconnect between the rosy narratives we’re hearing—like Trump’s claims of an economy “on fire”—and the hard data that’s screaming the opposite.

Data like extreme weakness in the employment data and a powerful surge in ‘prices paid’ for services, which are a powerful sign that inflation is back on the rise.

I’m feeling a strong sense of unease, and I know many of you are too, as we keep hearing that something just isn’t adding up.

First, let’s talk jobs. The labor market is showing serious weakness. BLS data indicates job growth is a measly 0.97% year-over-year, a level that historically signals recessionary territory.

Further, white-collar workers are struggling to find employment, with some searching for 60 to 90 days without luck. Where NAFTA stole blue-collar jobs, AI is now stealing white-collar jobs. Talk about bad luck! The non-elite socioeconomic classes just can’t seem to catch a break.

But it goes beyond services. Manufacturing indices are also in contraction, and job openings on platforms like Indeed are down 35% from their peak. On top of that, the BLS had to revise their numbers for May and June down by a whopping 258.

That’s a massive “oopsie,” and it’s no surprise Trump fired the BLS director over it. I’ve always been super-skeptical of the official numbers—ADP’s real-time payroll data seems more reliable, and it’s showing negative prints too.

So, given the labor weakness, how do we make sense of the market euphoria? Despite the many flashing warning signs, retail investors are buying with abandon, perhaps fueled by a belief that the Fed will cut rates and save the day.

But I’m not so sure. Cutting rates might inflate the equity bubbles further without addressing underlying issues. But then again, stocks are at (literally) unprecedented valuations—tech stocks are 2.2 times the S&P 500, higher than the 2000 dot-com peak.

(Source)

Holy smokes!!

I guess “this time is different?” The average investor had better hope so (and ‘hope’ isn’t a strategy, FYI).

Maybe, but history says “No,” quite convincingly.

Companies like Palantir are trading at 300x forward P/E, and a $60 million revenue beat added $15 billion in market cap overnight. Again, Yikes! That’s frothy, folks. I’ve lived through bubbles before, and this feels eerily familiar.

Housing is another mess. There’s a huge gap between sellers and buyers—500,000 more sellers—and sales are slow because prices haven’t dropped. Insurance costs are skyrocketing, with some homeowners paying over half their mortgage just for coverage and taxes. I dug into claims that climate change is driving these hikes, but the data on hurricanes and flooding shows no significant increase. I suspect it’s more about inflation and insurer greed than weather. Meanwhile, household debt hit $18.39 trillion, with auto and mortgage debt soaring. People are hanging on by their fingernails.

Stagflation is the word on everyone’s mind, defined as stagnant growth paired with rising inflation. Think ‘weak jobs’ but also ‘more expensive housing and steaks.’

The ISM services PMI barely shows expansion in terms of new orders, while prices paid are spiking near 70, reminiscent of early 2008. Employment in services is contracting, and new orders are flat.

What ‘stagflation’ means for most Americans is “life is getting harder” – 73% now say that buying a home is tougher, and 65% struggle to pay bills.

I’m heartbroken by stories like a woman facing $2,627 monthly health insurance, forced to choose between her house and coverage, who now says that she’s given up, that the system is rigged against her. This system feels predatory because it is predatory.

Paul and I agreed that it’s time to build resiliency. I’m not saying sell everything, but taking some chips off the table to create a 12-24 month emergency fund seems prudent and wise.

Market cycles always turn, and with margin debt now over a trillion, the fall could be brutal…and fast. I’m counseling my own family to wait out this housing market, rent for now, and prepare for opportunities when blood’s in the streets, as Buffett advises. Whether it’s a deflationary crash or hyperinflation, pain is coming. I believe education and risk management are key—don’t let euphoria blind you.

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I’ve always paid all my bills including medical bills since I think it’s a moral responsibility to do so. But a few years ago, while I had health insurance, I was billed $5,000 for an echocardiogram. They generally cost about $100 - $200. When I tried to protest the bill I was informed that the $5k was the negotiated price between my insurance company and the hospital. And since I had a deductible to meet, I was responsible to pay it and the cost would be applied to that deductible. I never paid the bill, they turned it to collection, and I’ve ignored every bill that has arrived from a series of medical collection services that have bought the debt ?/times over. That was the straw that broke my back about getting shafted by the system.

Since then, when I get any larger, but within the bounds of “customary” price, medical bills I set up a payment plan stretched out over the longest period possible. And I just keep making payments. I wonder when pretty much everyone will stop bankrupting themselves to prop up this crazy system that seems to extract every last dime for both those with and without insurance?

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Do the math… for almost everybody, the deductible is equivalent to or slightly higher than most peoples annual expenses. This really came to a head for me several years ago, when due to travel, I needed more of a scripted medication, and couldn’t get it through insurance. Pharmacy recommended GoodRx, which was cheaper than the deductible through my insurance. It was eye opening to me.

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I generally consider our health insurance to be what used to be called “major medical” when I was a kid. My parents had Blue Cross insurance that was only there for something like an appendectomy, or some such thing. Day to day doctor visits and medication was strictly out-of-pocket. I really don’t count on health insurance for anything other than (hopefully) getting us into the hospital and treated in an emergency.

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The bull case for Palantir is that it’s going to use AI to conquer the world. What Blackrock did for finance with Aladdin, Palantir will do to geopolitics.

Not saying I believe it, but that’s the pitch. If Palantir financializes geopolitics, then it could be undervalued. Also, your life is overvalued in this future scenario, but never mind that.

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The medical guild will do bad things to people who fail to extort the population for appropriate protection money, or otherwise break the racket. Sure would be a shame if you got sick and didn’t have insurance, wouldn’t it?

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Related:

https://x.com/Patri0tContr0l/status/1921938008904794275

https://x.com/sandeep_PT/status/1921878519220424777

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PLTR aka Palantir stock price while insane is a secondary concern. I came up with the concept I call, “Dave Ramsey’s Black Hole” where Dave says “just buy 4 mutual funds …” and his “black hole” is not paying attention to what you are investing in!

Back to Palantir - Palantir is “the patriot act” on steriods. It will be/is gathering of personal information on everyone on the planet into the “Five Eyes” database.

Investors in Palantir are investing in/paying for their future cell in the matrix.

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I worked for a Medicare enrollment company for a brief period of time and it was clear that the system works toward bankrupting everyone – dietary recommendations, medical standard practice, pharma garbage all lead to failing health, empty bank accounts, loss of all assets, and Medicaid.

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From a game theoretic standpoint the convergence of AI trading bots into effectively one strategy is not surprising. When you’re playing competitive, multi-player games against skilled opponents the best approach is to try for the game theoretic optimal (GTO) strategy. The premise of GTO is to construct a decision set that is indifferent to opponent plays which results in zero expected value. GTO is basically maximally defensive and gains an edge (makes money) when opponents make plays that aren’t GTO.

So I expect AI trading would mostly aim to play defensive GTO rather than exploitatively make moves which leave it open to counter-exploitation. Ironically, this situation is one in which every bot basically aims to make zero profit as a target and only profits because other bots aren’t as capable.

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I can agree with the idea of taking profit and creating resilience. I have done this with real estate a couple of times and having the financial and old age security of owning a home outright, and having fall backs on many aspects of life brings a peace of mind worth more than any missed profit potential.

Something that is often left out of the bragging about stock gains convo is the interest the same folks are often paying on their credit cards and auto and boat loans.

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I’m not sure where to put this, but I find it disturbing.

RFK Jr: “We’re developing a universal vaccine at NIH which is a vaccine that addresses the entire phylum of viruses.”

“It’s a vaccine that mimics natural immunity and it is effective against any kind of mutation.”

Here today, gone tomorrow. Hoping this indicates it was an AI generated video.
https://x.com/MAHA_Action/status/1953637171715248399

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Have we heard from Geert lately? This is something he was promoting. He won’t stay quiet.

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The sad thing is, there’s an excellent deregulation solution to cheaper drug prices. End the ban on reimportation. If the US wants to sell a drug to Mexico at 1/100th the price, someone can then sell it back to the US. Right now, carrying those drugs across the border is illegal.

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Do you have a cite for this claim? I know lots of people that cross the border and bring their pharma products back.

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There are some personal exemptions - not in law, but in law enforcement policy.

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You’ve missed a major factor in increasing insurance premiums. In Texas, I’d submit the driving cost is poor development policies encouraging rampant building in areas subject to storm damage.
Two factors there:

  1. Many more new homes/businesses are at risk as people and businesses move to “Red” states. Cities allow/encourage building permits in flood prone areas. Coastal development puts expensive tourist facilities and high end homes in areas subject to storm surge - and, as taxpayers, we pay federal flood insurance subsidies for these affluent to build in hazard areas.
  2. Paving over soils that used to slow drainage in heavy events is putting every structure downstream at higher risk. Near my house, homes built in the 1950’s NEVER flooded for the first 50 years, while corrupt officials allowed developers UPSTREAM to Pave-Pave-Pave. People with homes outside the 500 year flood plain when built are now flooding every few years. To add insult to injury for the responsible middle class homeowners who now own a flood-prone home, high end housing developments upstream are often built around small artificial lakes that are supposed to serve as storm-drainage-control basins. Well, when the drainage ponds couldn’t hold the runoff and rich people’s homes started to flood, the Corp of Engineers opened the gates, flooding middle class homes downstream that prior to these developments were well above the flood lines.
    When we bought in the 80’s, we only considered homes well OUTSIDE the hundred year flood plain After the Corp fiasco, for the first time we purchased flood insurance, although we know a good part of our premium is actually covering affluent homes in higher risk areas who do NOT pay the full cost of their risk.

So again, growth at all costs comes at the expense of the [formerly] middle class people who were not irresponsible when they made decision in the past. Meanwhile, the rich elites gaming the system never reap any consequences.

Higher population densities put more and more people in harms way. I think perhaps we are also getting more outlier events, for example an east coast hurricane coming OVER the mountains, which are again exacerbated by rampant building in high risk areas. It might be interesting to look at Talab’s work on risk from outliers (long tail) in insurance. It’s old and I don’t think it’s been updated.

And you are, of course, right that the ever-increasing cost of rebuilding, well beyond the reported inflation rates, has become a problem. I just discovered that my 40 year old house, built for about $75K, will now cost over $300K to rebuild.
And, of course, if I had to finance a rebuilding, I’d pay well over $1 million. The Banksters strike again. Inflation from money “printing” is killing us.

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Chris, thanks for the climate data! I listened to this podcast in my car, but went back to get screenshots of the climate charts to share them with (data-centric) climate-change believers. Do you have a shareable link for the NOAA chart? I can’t figure out where on their site it is, or if you have to input the dates somewhere. Thanks for Scouting out all of this helpful info for us!

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Double digit % increase in health insurance premiums for people in New Jersey next year. If it’s happening there, most likely every place else also. And don’t dare suppose this is the lingering problems from the vax and/or locking people in their homes and destroying their ability to earn a living for a couple of years!

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