Huge Jobs Surge Stuns Markets: Is Economy On Fire? | Adrian Day
is the economy heating up faster than expected can we expect inflation to heat up faster than expected what is the Fed going to do next what should investors do next Adrien day it’s going to break this down for us he is the president of Adrien day asset management and the portfolio manager of the europacific gold fund welcome back to the Show Adrian happy New Year well Happy New Year David to you and and all your listeners a tremendous jobs report came out on Friday the unemployment rate fell to 4.1% non-farm payrolls increased to 2
or by 256,000 rather in December up uh a lot from the previous month and also higher than the medium forecast of 155,000 and so the feds looking at this and perhaps they’re they’re thinking of pausing those are the statements made by several fed members on Friday including Austin gouby uh Chicago fed president what is your take on first of all the data that we got today is this Topline jobs numbers indicative of a stronger economy in 2025 or is there more to look at under the hood yeah I mean there’s no
question this number was was was very strong much stronger than people expected as you say and and also um significantly in in my view um most of those jobs 220 something thousand 223,000 were private sector jobs and that’s a bit of a change because one of the things I’ve talked about uh many times including with you is is the fact that you know most of the new jobs are government and part-time and now we’ve got um apparently 2 23,000 new private sector jobs I will make a few points if I may um to be the Debbie down not the
Debbie Downer glass half full person I mean you know look first of all we’ve got a low labor participation rate we’ve talked about that it didn’t change but it’s it’s it’s low and you know the average uh hourly work week is 34 hours so that’s across the board that’s not with the new jobs that’s 24 hours across the board so most people are not working a 40-hour week um I think the other significant thing is continuing claims are up let’s not forget that so we’re making creating new jobs But continuing claims are now at a
three-year high it’s taking people longer to find a new job so when people quit or are fired either one um it’s taking 24 weeks on average to find a new job and that’s the longest since the beginning of 2022 but I think two other things are even more significant because you know what I’ve said so far is maybe a little bit sort of nerdy or in the weeds we look at the ADP jobs number yesterday uh and and ADP and the Bureau of lab statistics are have been quite different for quite some time now they
used to be very similar but they’ve been quite different for a while but the ADP said 122,000 private sector jobs were added the Bureau of Labor Statistics says 100,000 more than that almost double so something somewhere is not right the ADP number was below last month and Below expectations and then lastly I think the most important thing David and we’ talked about this before is we’re going to get revisionist of this number we know they we know they are uh we’re going to get provisions and and the
bureau statistics reports are becoming me in my view less and less reliable and it’s not just my view you know um what’s her name Michelle Bowman the the uh uh Federal Reserve Governor uh earlier in the week um or yesterday in fact she said let me quote it here uh labor labor market reports have become increasingly difficult to interpret um I I I mean I think that’s absolutely true so that they they’re more unreliable in themselves but on top of that we know we’re going to have revisions and if you look at the last
couple of years go back to the January 2023 we’ve only had three months where there have been an upward revision the rest of all being downward revision so I don’t think it’s at all unrealistic or or or anything else conspiracy or anything else to think that we might get downward revisions to this to this number well absolutely but and the the the other thing I wanted to bring to your attention is I’m just looking at this um well CNBC compile this TR but this courtesy of the US Bureau of Labor Statistics if you look at the non-farm
payrolls additions in the last um two years or so it there looks to be some sort of seasonality factor involved in the past you’ve had jobs added the most in Q4 or the beginning of q1 right January and then February and January as well I I I so I don’t know if this is just a winter thing well of course you know certainly for December you’ve got you’ve got the additions of of of um you know Christmas workers people hire uh and and I didn’t see a breakdown I’m sorry but I didn’t see a breakdown in the B numbers for how many were you
know uh holiday workers I didn’t see that but clearly clearly somewh um but I think that graph you that table you just showed as interesting David because obviously 2022 beginning of 2022 we had a big spike in jobs you know after after the end of lockdown and covid and all that but you know it’s by no means you know it’s by no means steady but it looks to me like a pretty downward downward move and E even if you take out that February 22 which which is a peak it still looks as though we’re trending downwards not upwards
admittedly the last couple of months have been strong but let’s wait for those revisions that’s what I would say let’s wait for the revisions I you know so yes yes this is stronger than I thought um and and again when you say generally about the economy being stronger I I keep coming back to this point you know we talk about these long and variable LS and we seem to have forgotten about that we’re all in so much of a hurry these days but you know the FED started hiking in what was it March March of
2023 that was the first hike and the average lag time between the First Rate hike and the onset of a of of a of a recession is 27 months we’re not even there yet on average and the fact for the average and the fact that we had Ultra excessively low rates sorry that’s toogy but ultra low rates for so long means that more and more households individuals households corporations were able to refinance at low r rates which to me suggests that the lag from raising rates back in 22 and 23 we forgotten
about raising rates um the lag time is going to be even longer than average so I don’t think I don’t think it’s let’s just say this I don’t think it is abundantly clear and certain that we have escaped a recession I’ll put it that late what is interesting to me is the strength of the US consumer retail sales have continued to go up and you recall Adrien that consumer um products for loans credit cards mortgages those rates haven’t followed the FED funds rate as closely yet meaning there’s like you say there’s a leg even with consumer
products why are people spending money even though uh consumer rates haven’t fallen very much yet no absolutely people are the strength of a consumer is is surprising to me a couple of points so I mean as We Know is an average and um uh you know averages can be deceptive if uh yeah um average should be decep yeah absolutely there’s always the rich pulling up the average right there there’s the wealthy people propping up spending in the economy that’s always the defaults I mean they shot up last
month credit card defaults so but the defaults on loans are definitely moving up um you know the amount of debt that was taken on this Christmas was um very significant but it was less than last year un less than two three years ago so you know I think people are beginning to a lot of the consumers are beginning to slow down yes um but but yeah I I I I I agree with your general thing that your general thesis that consumers have been stronger perhaps someone might have expected them to be uh um and the and the other thing you
mentioned earlier inflation I mean there’s no question in my mind that you know inflation is beginning to pick up again um you know just looking at just looking at the numbers for the last sort of you know five months we’ve had again not every month higher but it’s been you know the trend line would definitely uh be upwards and you probably noticed in the University of Michigan consumer consumer confidence survey um inflation expectations are up meaningfully um I take those with a little bit of a pinch of sot because
they they they asked they broke it down they asked uh they broke it down by party affiliation and which is I mean which is interesting because the Democrat uh has flipped completely from thinking inflation was completely under control but now that Trump’s coming in they have uh their their expectations have gone way down and and Republican expectations have have have gone up I mean have gone up Democrats gone up and Republicans have gone down um but but but there’s no question in my mind that inflation expectations generally are
moving up and among the third um we know this Jan pal said it last month and we saw it in the minutes that came out whatever it was last week um the the the FED members see that the risks to inflation are now significantly on the upside so they haven’t necessarily changed their outlook for the next 12 months but in terms of where the risks are they have changed those significantly I am just wondering why the markets reacted as negatively to today’s job num as they did like you say the inflation
expectations um May may not have changed in the jobs report I’ll let you comment on that but inflation expectations have been going up for quite some time it’s not like a new phenomenon that happened last night and so what would the markets reacting to either you know it’s a forward discounting mechanism they’re either expecting lower economic growth or they’re just expecting fewer rate Cuts because of today’s jobs numbers which is it what’s your interpretation I I think they’re definitely expecting
fewer fewer rate Cuts I mean I think we can absent something between now and the end of the month we can take we can take rate cut in January off the table and I mean I think it was clear that the Fed was Jan Po and the FED they were looking for a reason not to cut this month and I noticed this before because here here here here’s the FED funds rate um I I mentioned this uh on another one of my shows this is the this is they’ve only cut by what 100 basis points so far and if you take a look at the last three
cutting Cycles they’ve cut by at least 200 basis points 200 in 2019 500 in the Great financial crisis two uh 500 600 basis points uh during the tech bubble and then uh Doom bust uh you know not not much in 96 but that wasn’t a recession and so the question is whether or not this is just a pause or a stop Al together I I think it’s a pause the FED is really I mean we we’ve I mean the fed’s in the dilemma and they’ve been in the Dilemma for a long time but the the parameters if you like are are getting
narrower and narrower um the FED as I mentioned clearly is concerned about upside risks to inflation and Jerome poell repeated several times that inflation was not down to where they wanted it it it was more stubborn than than than they thought it would be and when when when the third particularly Jan Powell has sted his reputation on the fact that we’re going to get inflation under control uh you know that’s our number one goal because it affects everybody and so on and so forth um you know with inflation if inflation
begins to tick back up it’s going to be difficult for them to ease suddenly rapidly and significantly but having said that you know you’ve got the other side of the equation if if um if the economy does slow and not just that but we’ve also got the funding you know the funding problem of the US Government which which is uh something else we got a lot I think is Stephanie bomboy pomboy sorry let me just see 10 trillion maturing debt this year um and 4 trillion of that is longer term load 6 trillion is
bills so she estimates an additional 80 billion of interest expense just from the maturing bills not from any new not from any new um uh new insurances is and so you know those are things that the FED has to be has to be considering uh on the opposite side of the equation so if inflation and it was really interesting to me that the last couple of weeks um Jerome Powell has mentioned yet another in gaug of inflation measure of inflation uh the the market based core pce which apparently is showing
inflation more under control than the core pce yeah um and it it seems to me that they are searching around for a measure that will show show people that inflation is indeed under control let’s bring sorry no no my apologies go ahead no I just going to they know they know and I would certainly say myself that in that inflation is not where they wanted to be uh and and it the last last half year has been very very stubborn we’ve seen very little movement downwards if you take a look at the BLS uh inflation
chart here with the breakdown um you can the last inflation report was dominated by shelter uh shelter remains high as you know shelter is measured by owners equivalent rent which is a you know a survey of what what homeowners are charging for rent we expecting to charge for rent that remains High uh energy is still in negative growth territory right negative you know it’s it’s negative than previous months but it’s not it’s deflating um and other items are going either staying stable or going down so
it’s really just shelter driving it up I mean what what what’s your outl going forward which of these components do you think will be most affected by economic growth and also the Trump tariffs that we haven’t talked about yet yeah well obviously things like shelter shouldn’t be affected by Trump tariffs too much um uh and and and the problem is as you say and I understand this these things are just so so complex um but shelter which is a major part of the CPI uh in fact if I’m not mistaken I think it’s the largest single component
of the C CPI but certainly it’s a major component and yet it’s something that is I nearly said made up I don’t want to sound frivolous about it but it it is not something that is but is objective and scientific and and and um observable so so that that is a problem when that’s your major component um but I think we’re seeing we’re seeing a lot and let’s not forget wages you know in in the last in the jobs report this morning I think we had a wage rates up an an annual average of 3% at a 3 percentage rate uh uh 3
percentage annual rate so wage rates are beginning to move up uh that’s going to have an impact really across the board um okay well let’s move on to Commodities actually Trump tariffs input costs uh for everything Commodities being one of them [Music] um goods and services uh well imported goods not so much Services uh but do you think that uh base Metals Commodities all those things will be affected by tariffs if let’s say protectionist measures are implemented and trade is a little bit more closed off yeah no
absolutely I mean we’re already seeing well for various reasons we’re already seeing a whole bunch of Commodities moving up in the last uh last few days last week last few weeks um natural gas of course oil is being dragged along uh copper is up in the last week Lumber of course because of um you know the horrible fires in in Los Angeles but we we’ve had uh you know we’ve had we’ve had we’re seeing an increase in in in commodity prices the threat of the threat of um tariffs will want people who have
near-term needs import now rather than waight for those tariffs to be imposed and so that also puts upward pressure on Commodities there’s no question that if if if tariffs are imposed and you know there’s so much discussion about it as to what they’re going to put it on and who they’re going to put it on there was a new a a new round of leaks from Trump advisor uh today so it’s not clear it’s not clear who and what is going to have tariffs imposed but but certainly tariffs generally are going to make um commodity
prices go up because we import so much of our Commodities but in in the you know that’s in the near that’s in the in the first stage but you know if prices move up then um you know maybe demand for those products go down so it’s not it’s not a simple question that you put tariffs on and inflation moves up and everything else stays the same so ultimately then today’s jobs numbers did they change your investment Outlook or priorities for 2025 at all well I mean I should be saying yes but but no not really one of
the things that’s most interesting to me David or most significant is that you know here you had jobs much much stronger than we than than expected as as we’ve discussed much stronger um and the the odds of a rate cut in dece in January going down even further than it was going into this meeting and and the number of rate cuts and the speed of rate Cuts in the next year going down and yet gold is moving up you would expect other things been equal you would expect gold to fall meaningfully on on on The Narrative of
of deferred and slower rate cuts and yet it moved up and it moved up significantly what that tells me is that there is a lot of of of buying a lot of buying power uh for gold and I’ve kind of made this point that all of the all of the groups that were buying gold over the last two years and the reasons they were buying gold um the reasons haven’t gone away you know you look at central banks of course which were the number one buyer of gold over the last two years and when President Trump or incoming president Trump says that if
people move away from the dollar he’s going to impose 100% tariffs on all of their goods I don’t know about you David but that doesn’t make Brazil or South Africa say oh well maybe maybe we we W turn away from the dollar if anything it makes them want to speed up their purchases of of of gold in my view and we’re seeing that the last couple of months numbers from uh from the world go Council actually had a reversal we had a bit of a decline in in in Gold purchasing in in July August September but it’s it’s reversed and China’s back
in the market so the reasons that people want to buy gold I just said central banks but the reasons people have been buying gold um have not gone away and if anything have been reinforced the the the issue of gold uh let’s talk about gold for just a bit now so gold has been rising in tandem with stocks and I’ve noticed this and mentioned this several times my show already if one were to just objectively look at the performance of gold versus stocks actually let’s do that right now and if one didn’t have
let’s say a history of studying gold for many years one might conclude that gold is another risk onplay I mean just look at that correlation Adrien it just you keep going back it started in 2022 it went down when gold it went down when stocks went down in 2022 the bare Market of 22 and then it followed the stock market up um I mean maybe there’s a third variable here that’s creating this correlation it’s not causation here but I wonder if gold is now just behaving as a risk onplay is that what’s happening I’m not
sure that’s what’s happening there there’s two two additional factors one factor of course is the in we must never forget this the enormous excess liquidity that was pumped into the world’s economies over the last 12 years and that money has to go somewhere so that money goes to Gold it goes to stocks it goes to bonds it goes to bitcoin you know everything everything gets a bit of that of that um of that liquidity but I think the other the other factor is we just mentioned central banks so the people that were D
the people that have been driving gold for the last two plus years two and a half years but people have been driving gold’s price number one central banks number one number two cons Chinese consumers that’s more in the last 12 15 months not the last two and a half years but the people that have been driving gold have been buying gold not because the US Stock Market is or isn’t going up not even because the dollar is or isn’t going up not because of the inflation rate in the US or the unemployment rate
in the US they’re not those those economic factors and Market factors are not what’s been driving the gold price but I think I think what you what you’re looking at is um you know those factors have been affecting us buyers and that’s why us buyers have been very very you know really quite weak in the gold price if one were to speculate where Capital flows might end up in 2025 would they be towards more defensive assets or more risk on assets or perhaps uh in cash money market funds while rates are still high yeah I I mean an
awful lot depends I I I don’t want to I don’t want to bug the question but an awful lot depends I think on on really how president Trump’s you know first few months first six months really play out um and and and that that’s that’s not clear to me at all but I think absent um let’s say absent things going a lot a lot smoother than people are thinking or you know some complete sort of crazy blowup um I can’t help thinking that money is going to start rotating into more defensive into more defensive um assets into value oriented
stock into income oriented stocks but just generally more defensive uh let’s take a look at what happened during the last Trump presidency there have been periods of volatility throughout 2017 and 2018 pullback here in 2018 this is when uh 20 F cut rates 2019 and then pull back here in 2018 um but more or less there was a the general direction of the stock market during his last presidency was up now Adrian there was volatility whenever he announced tariffs here’s my theory for what may happen this time Adrian is that the markets may
not be as sensitive to the implementation of tariffs this time for two reasons one uh last time it was new so you know markets didn’t like protectionism this time markets have priced that in and keep in mind Biden didn’t remove most of these tariffs he doubled down on some of them if anything and during Biden’s presidency we had a you know huge Bull Run in 2023 so I I don’t think that tariffs this around are going to be very bearish for stocks as they as they progress uh do you agree or disagree well I partly agree there’s no
question you’re absolutely right and we need to remember this when a when a thing is first introduced you know there’s much more of a shock value it it it has a much greater impact we kind of get used to it after a while I think an awful lot depends on the form of tariffs and who they’re on and that we just don’t know I mean if for example uh and and and and president Trump is is what’s the word threatening I guess or promising if you like it threatening to do a lot of his by executive action if you know the day
after he’s elected president he were to say 100% tariffs on everything from all of the Brick Nations I think that would be a disaster for the US economy if he says we’re going to you know widen the widen the tariffs on the sensitive National Security Chinese products I don’t think that would have much of an impact at all so and there’s a huge there’s a huge um uh there’s a huge amount of room between you know just very very targeted tariffs on National Security that have National Security but you know but start putting 20% tariffs
on French wine and cheese and um you know I I think that would have an impact this is a of news that came out today uh Trump seeks Putin meeting as Biden Administration announced 11th Hour Aid package to KF this came out today president like Donald Trump floated the possibility of a meeting with Putin to end the bloody mess in Ukraine um he wants to meet and we’re setting it up Trump said during a Thursday press conference so let’s assume that at some point in the next couple of months there is an agreement reached to end the war
in Ukraine um I I’m not saying it will happen happen and I’m not I don’t know what the details of this deal may be but let’s let’s assume for the sake of argument that it happens what happens then to Gold what happens to stocks I don’t think much happens to Gold frankly or to stocks I don’t think much happens broadly because you know geopolitical events don’t really have a huge lasting long-term impact on on gold price we’ve seen this over and over over again and if you look at when Russia first invaded Ukraine gold was up
strongly in the weeks while they were massing their while they were massing their troops and tanks on the border moved up a little bit more after they actually invaded and within six weeks after the invasion gold was right back to where it was uh before they started um massing their troops and and that’s a typical pattern for geopolitical issues they they tend not to have lasting impact on on the price of gold um so you don’t think gold is currently pricing in a geopolitical risk premium that disappear look there is a geopolitical
risk premium it’s a positive not a negative I mean a positive for gold not a not a negative for gold I just don’t think it’s a big factor I just don’t think it’s a big factor and again to get to my fundamental point the major buyers of gold are central banks going to stop buying gold because there’s a peace treaty in Ukraine I don’t think so and we certainly haven’t seen you know the rumors of it uh we haven’t seen the se you know the the uh I think it’s true to say a little bit of easing of tension in
the Middle East that hasn’t had any negative effect on the price of gold okay let’s finish off then on gold stocks um now into actually let’s let’s take a look at the Russell versus 2000 uh Russell versus the SV I’m going somewhere with this you can see that over the last couple of years five years even the outperformance of the um the large caps has been Undisputed versus the small caps and midcaps have we witnessed a similar similar phenomenon within the gold space with the large caps the newans and the barracks of the
world outperformed the Juniors well Barrack has outperformed unfortunately um but but I get your point yeah yes except that is that is normal in a new bull market for gold um and and and my thesis my thesis is that the last two years of Central Bank buying and um and and Chinese consumer buying were simply a Prelude was simply an nerve if you like because the economic factors that generally are in place to start a gold bull market were not in place so in my view we’ve only just seen the beginning of that of that
new gold bull market you know when the FED started cutting rates and and so in a beginning of a bull market it’s always the case that that money goes first to to the large miners um and the large royalty companies that is that is that’s normal and we shouldn’t expect anything different this time so you know I think money will flow down let’s not forget the gold stocks you know the XU if you look at the xcu it’s up L 25% in the last 12 months yeah yeah that’s not chicken feed it’s certainly not the kind of Leverage
we expect on gold but it’s not chicken feed well when you see speaking of baric I’m just going to use them as an example since we brought it up when you see a chart like this Adrian when the gold price went up 30% last year 32% over the last 12 months and the the the stock price of baric is down 10% um in the same period what do you what what do you do with that information do you rotate to the small caps the Juniors do you double down on baric yeah no I I I think people look and say well why is Barrack down when EO Eagle is up
yeah why is Barrack down when the xcu is up and and there are clear reasons you know barck has been under pressure particularly from Mali but other places as well um so I I don’t think that means let’s not buy Barrack let’s buy Consolidated moose pasture instead I don’t I don’t think that’s the lesson you know the Juniors and and of course there’s inter Medias and there Juniors and then of his explorers but their day comes later on in a bull cycle so so 2025 is that the later part of this bull cycle is that the is that the time to
get get into the intermediates or not oh oh into the intermediates probably but not the Juniors no again I think this book I think this the if we want to call it a traditional gold bull cycle the traditional gold bull cycle has only just begun the last two years were a total anomaly with gold going up when the dollar was strong when the economy was strong when the stocks were strong that’s a total anomaly so so you so if the gold market bull rally is still in its infancy are you then sticking to the
large caps mostly well sticking um we’re emphasizing I would say we’re emphasizing large caps because they are the not only the first to move but the Sher to move um at the beginning of a gold cycle so sometimes this year we’ll start moving we’ll start increasing our exposure to the intermediates to be uh you know more Junior producers but I think the the the real small gaps is it’s going to be at least another year before they all move but I think one last thing if I may mention bar mention the the one lesson from that is that we
need to be increasingly selective I think in in in what we’re buying you know like Neo for example I mentioned has done very very well and barck has done very poorly ago is now the second largest by market cap so larger market cap than than barck so I I think the lesson there is just to be a little more selective than perhaps we have been in the past with the big gaps and not you know they’re not all the same very good Adrian appreciate your insights thank you where can we learn more from you oh
uh Adrian day.com okay we’ll put the link down below follow Adrien there appreciate it Adrien take care well thank you very much and have a good weekend you as well and thank you for watching don’t forget to like And subscribe
