Hey everyone me kevin here mode eurodear, oh dear, the new productivity numbers from the federal reserve were published today for labor productivity and folks deep breath because they were not good. This is where you want to make sure you have life insurance that you can get in. As little as five minutes by going to medkevin.com life folks, look, the federal reserve has consistently been promising that don't worry, yes, wages are going up, but worker productivity is also going up. So as long as worker productivity goes up with wage growth, then we're less likely to see the wage price spiral lead to more inflation.

Let me clarify that going in the opposite direction. If wages go up, so it now costs you fifteen dollars an hour to flip hamburgers instead of ten dollars an hour, then the price of that hamburger has to go up unless the person flipping burgers for fifteen dollars can flip fifty percent more burgers than the person Working for 10 an hour that would be productivity, going up with wage cost and you actually have an equilibrium to where you have a net zero effect on inflation. But if you have to pay 15 but you're flipping the same amount of burgers as the 10 burger flipper. Well, then the price of the burger either goes up or the margin the profit margin.

The company goes down which the company's always going to try to share some of margin loss with the consumer, which means the consumer will eventually pay at least 50 percent of the burden, if not more, if not completely, all of it uh. Since again, that's what businesses do they pass along consumer costs cost to customers to maintain margins, it's very important uh and then you have inflation, and so so far the thesis has been hey, don't worry, productivity is going up. We don't need to be worried so much about wage price inflation, because as long as productivity goes up we're good. Unfortunately, the latest numbers do not look good.

The federal reserve found that non-farm worker productivity in quarter three and these months are very important. Remember these july august and september fell five percent at an annualized rate. That is the largest decrease in worker productivity that we've had in since well. Actually, since 1981, that's 40 years, the largest decrease in annualized uh and quarter over quarter worker productivity that we have had in 40 years.

At the same time, q3 wages jumped by 1.5 in just the quarter from where i mean that's, that's like a six percent. Annualized rate, right from where we were a year ago, wages and incentives grew 4.6 wages. Excluding perks, grew 4 compared to a year ago, and some companies like tesla and chipotle have raised prices to manage higher wage costs and it's not just tesla chipotle. It's.

It's almost. All companies are raising prices, so when you bring this together, it's like wait a minute. These both indicate the potential for more inflation lasting longer, which is not good. Now the increase in wages itself isn't as scary, it's when you pair it with low productivity and that's what we just got in this last report.

Now we have to think logically here, because the emotional reaction is to say: that's it. The market crash is coming, inflation is out of control which, in fairness, it is jerome. Powell literally yesterday used the words to get inflation under control, which means it's out of control right. It's the first time he's uttered those words and transitory.

Inflation has now turned into eventually transitory inflation right, but anyway, which we kind of predicted that the fed would kind of change their tune in that direction and they did. But anyway, we have to use logic and reason to dig into this. Why would productivity go down in q3? Ask yourself this: why could possibly productivity go down in q3, when companies keep talking about worker productivity, going up kathy wood at arc? Invest talks about productivity going up, so why is productivity going down in this report? Well, in my opinion, it could potentially have to do with the fact that in q3 we had a substantial increase of covet cases think about this in q2, which is april may june. Nobody was really worried about the delta variant.

Nobody was really worried about the delta variant until the end of july. So q2 was april may june. In april may june, worker productivity increased by 2.4 at an annualized rate. Then the delta variant comes around and we lose worker productivity by about twice that towards the negative five percent annualized rate, but in q3 we also saw covered cases skyrocket.

Take a look at this daily new covet cases per million people. What do you see? These? Are the these are the seven day average lines here? The u.s is the light blue line here. You see our winter spike right here, but take a look at exactly where this spike was folks, literally smack dab q2 july august september and by the time you get to october, it's basically already back down to uh. You know april loves so q or this being q3 right, so q3 got devastated by a surge in delta cases, uh and a lot of fear.

The increase in cases likely resulted in. We saw this in more restrictions and precautions more mask wearing more covet testing. More screening more sick days and guess what happens when people spend time at home, they have to go, get covet-tested, they have to go, get their vaccines, they have to. You know they have to get their masks or wear their masks or deal with all this crap right or spend time even worrying about it.

Well, obviously, then, that's time you're, not spending on being a productive worker, and so my best estimate here is that this fallen. Worker productivity is not necessarily a sign of a potential market crash coming or market collapse. It is really a symptom of the delta variant, and so this means we're actually in this market still getting crappy data from q3 thanks to delta, but right now it actually doesn't look like we are going into any kind of coveted winter again. Please knock on wood, though we do not see a cove winter again.

That would be very, very bad. Okay, i want to keep the stethoscope away, although it's kind of cool, it's like abalone oops. You can't really see it, though i don't think. Oh, oh yeah! Now you can look at that ooh, that's nice! That's i paid good money for this because you know stock doctor, but anyway, it's also worth noting that hours worked increased at a 7 rate.

Last quarter, that's up from 5.9 percent. The pace logged in the second quarter. So so far, this hasn't really been an issue of salaried employees, working less uh. If we're actually working more, it's actually that productivity has just gone down, and we really think this is potentially because of covid now, if this trend continues and we have bad productivity in q3, that's gon na be bad.

That's going to be bad for inflation and it's going to be very bullish for crypto. I am bullish on crypto for about the next nine months, because i do believe that once inflation reflects down, there are going to be some risks to cryptocurrencies, but until then i think there are way more positive catalysts than negative catalysts. I am also again happy to say, since some of you know that i was on margin again for a brief period of time. I am out of margin again, so i'm very happy about that and uh and building up uh some positions again, where i did a little bit of trimming so uh and and of course, if you ever want to know all of my buy and sells everything that I'm doing not meant to be copy, just meant to give you an idea of where i'm looking for deals or opportunities check the programs linked down below i'm building your wealth, but am i just speculating that covid was the issue? Well, it's worth noting this jp morgan released a set of business surveys and they found that business momentum actually bottomed in q3 in august, which is really interesting because, again, if business momentum bottomed in august and were up from there, then again that potentially reiterates that this Was all covered based? This is a little hard to see, but basically, what you want to look at is see the 20 at the bottom and that massive fall off the chart.

Yeah, look to the right of that look, more kind of where that blue line is going up again under that orange line and that little bottom that we see right there. The summer was really productive. That's the pmi, the producer and product manufacturing index. This is good producers manufacturing index.

This is good, but we bottomed out there in august and we could already see in september and october that inflection up - and so this is a report here again by jp morgan, showing that uh, we essentially bottomed in terms of slowing momentum, which is very good. We got that behind us, so this is just another example and a little bit more evidence to reiterate that yeah. This is probably a all covert related. I hope so, but it's a warning that we want to win that we want to be careful of anyway.

Tomorrow we got big jobs data - let's talk briefly about jobs data, because we've got some big expectations from tomorrow. In fact, i'm going to pull up the economic calendar and the projections for tomorrow. So tomorrow we have non-farm payrolls and private payrolls manufacturing payrolls. We get a lot of things.

What we're expecting is the unemployment rate to go from 4.8 down to 4.7. We are expecting average hourly earnings to, instead of being up 0.6, like they were last month to be up 0.4. That would be an annualized inflation rate of 4.8 in wages. We are expecting the uh total figure of non-farm payrolls to come in at 450 000.

We - and that is uh compared to the prior release of 194 000, which was a complete disaster. We are expecting the labor force, participation rate to raise or rise point one percent, so one tenth of one percent to 61.7, which is still a pretty low number, and then we do next wednesday get cpi data. We're actually expecting a high headline, read of 5.8 percent. So tomorrow my expectation is oh and it's worth seeing the labor force participation rate as well.

I'll show you this in just one second, but it's worth noting that tomorrow, when we get this jobs report uh, if we get a number that comes in above 700, 000 uh, 700 000 jobs, i think that's going to be bullish for the economy, picking up and Potentially more tapering the pace of tapering continuing or even perhaps accelerating, i think, if we get a low low read like we did last month because of the september jobs report, we could end up with something like 200 000 jobs. Again, that's not going to be good! That might actually lead the fed to slow down their taper a little bit which, usually, if the numbers come in too hot tech stocks fall because people are worried about like overheating and then interest rates going up sooner. If it used to be that, if the jobs numbers came in too low, then that was good, because that would mean that more cheap money would be coming. Our way and tech stocks would go up, but that's recently changed to where the market's almost kind of wanting rates to go up a little bit to quell inflation, since it is lasting longer, and so i would argue - probably good news might actually be good news tomorrow And if we could just like meet expectations that probably be the best case scenario just keep away from the the extremes to both sides.

That would be my expectation, no guarantees. Obviously, now it's also worth looking at the labor force participation chart, since you may not have seen this before this - is the labor force participation participation chart. Excuse me it's from bloomberg. Thank you bloomberg.

It is uh showing the surveyed read in the purple line and the actual read in the blue line and uh. So you can see we used to be at labor force participation handsomely here around uh. This would be like 20, 15, 16. 17.

18. Pretty much regularly around a 62 and a and half half percent and we've really plummeted to 61 and a half. So it doesn't seem like that. Much when you just read oh labor force participation is down two percent, but two percent's a lot because remember if you have a workforce of 150 million people, two percent is three million people right.

Ah, two percent: there we go. That's three million people. Three million people is literally like an extra 250 000 jobs every single month for a year so that labor force participation number. It matters a lot.

It feels insignificant, but it actually matters a lot. So i will see if we get a beat on that, we'll see what happens with the inflation number so far. 10-Year treasury yields are actually falling and that's possibly because the bank of england, who is widely expected to raise interest rates, decided not to raise interest rates, which was a real big shocker this morning. In fact, the 10-year treasury right now take a look at it here.

10-Year treasury, sitting at 1.53, we in april, ran up to about 1.75. Recently we ran to about 1.691.7. It's come down a good chunk, especially after that uh that that uk surprise or i should say bank of england - surprise so a little bit of a shocker there. But we could continue to see yeah see, look at this 10-year treasury of falls.

Is investors digest fed decision as well? We could potentially see yields actually continue to rotate down. Ironically, as as maybe we expect the recovery to be slower, inflation to be a little bit longer lasting, but not the point of hyperinflation to where the bond market is indicating any real signs of concern. The bond market seems to be pretty happy with where it is, which is below historic levels right now, anyway, in fact, you could just click on the 10-year and then just go out to the five year, and you could see how we're below historic levels worth noting That at the end of 2019, we did sit around the 1.8 to 1.9 range, so again, at 1.53, we're still decently below where we have been so we're expecting less inflation in the bond market now than we did even before the pandemic kind of worth. Noting not that the 10-year treasury bond is the perfect measure of inflation anyway, i think a better one to look at would be the 10-year break, even which you can look up by just typing, into google, st louis fred, st louis fred's ten year break.

Even this takes the difference between the tips and the ten year, which this would show a little bit higher of an inflation expectation. This is the better way to say it, and here it makes more sense right that we're expecting more inflation than we had before. Uh the pandemic that makes more intuitive sense right, so there's more here at play and because you're seeing such a discounting in tips as as more people buy it. The yield continues to go down on it, because the demand for treasury uh, insured and protected securities is going up, demand goes up, price goes up, yield goes down and, as yield goes down on the tips, because more people are buying it, and the 10-year treasury goes Up you get this widening and that widening is measured by the 10-year break-even inflation rate.

It's just basic: it's literally the difference between the 10-year rate and the tips at which the tips is negative right now, that's why the number the reading is 2.56 because you're like negative one percent on tips. Well, but anyway, it does show you that inflation expectations are indeed higher now than they were before so uh. I'm i'm glad we moved on to sort of the 10-year break, even rather than just the 10-year, but the point is nonetheless, the 10-year is down from 2019 uh people are not jumping up and down for uh dumping, the treasury bonds, because if folks were expecting high Inflation, like really expecting high inflation, we would expect people to say why would i have a 10-year treasury bond? That's going to pay me 1.53. Let me dump that and sell it.

When you sell it, the price of bonds goes down. More selling pressure means price goes down and then yield goes up, but we're not really seeing these get dumped. So you really see that that debate and that massive argument we have in the market right now on inflation. But anyway, tomorrow's going to be a big tell productivity numbers were a disappointment, but probably because of covid, and then we have expectations that we went through for job numbers tomorrow, which will be very interesting to pay attention to.

I expect to be awake at 5. 30 a.m, to cover them hopefully, anyway, thank you so much for watching the video and folks we'll see in the next one goodbye.