Mary Reichard, Host: See you next time the world and everything in it: Monday money beat.
Nick Eicher, Moderator: Let’s talk business, markets and the economy with financial analyst and advisor David Bernsen. David, of course, is the head of the wealth management firm, The Bernsen Group. he is here now And good morning, David.
David Bernsen: Good morning Nick, nice to meet you.
Eicher: Okay, let’s start the next story. of wall street journal, there is talk from the Department of Labor about unemployment insurance claims. U.S. jobless claims rose sharply last week, rising by 28,000 seasonally to 261,000 in the week ending June 3. This is the highest level since the fall of 2021, according to the Labor Department, the newspaper said. So what do we know? Is it a sign of a cooling labor market? Should this be a concern? What are you saying?
Bernsen: Well, certainly not in a week. If it lasts her 3-4 weeks, it’s probably because it was her first spike. Now, point out that everyone who predicted worsening unemployment over the past year and a half is just dumbfounded that weekly claims have remained so low. is important. And about 20, 25,000 more than expected last week. And what trendline levels have they stayed at so far. But that was the first week they did it. So we learned long ago that there can be very large chunks of this data point, so it’s much better to follow something like a moving average. So next he waits 3, if not 4 weeks to see if a trend is forming.
Eicher: Do you have anything to say about your relationship with the Fed? I know you’re watching these futures markets to see what the Fed will do, if they do something like a prediction market, but since we talked about this , I’m wondering if anything has changed in the last few weeks.
Bernsen: Well, first of all, to make it clear that futures are not just predicting the market, but because they show what people are doing with their real money. is important. Well, this is more of a price discovery mechanism than a prediction market. And at this point, it’s not really 90%, much less 100%. And let’s just call it weird, stubborn, on the contrary, 25-30% pricing. But at this point, the implicit probability that the Fed will do nothing at this week’s meeting and neither cut nor raise rates is about 75%. A few weeks ago that number was much lower. So the odds have changed dramatically, but not with certainty, to a point where interest rates are expected to pause this week. But conversely, the chances of the Fed raising rates again next month are about the same, less than 65%, of 65%. So, if the dominant futures implied probabilities are correct, there will be no rate hike this month and another rate hike next month. Of course, we still have 4-5 weeks. In fact, at this point, I think we’re six weeks away from the Fed’s meeting in July. And in the meantime, many things could happen that would cause the Fed to change its mind and perhaps hold off rate hikes. But that’s at least what futures markets reflect. And that’s what we expect at this point.
Eicher: So David, what’s on the market? What’s the market story this week?
Bahnsen: Well, the market looked okay for quite some time, but the reality is that there are only about six or seven big tech companies doing very well, and underneath the surface it’s actually a lot more disruptive. was. The market has been pretty good over the last six or seven trading days, and some of the big tech companies, but if anything, some of the really overpriced AI and artificial intelligence stocks have actually fallen a little bit lately. are doing. week. But the financial situation is starting to improve a bit, which is probably a good sign. But again, none of the Dows, Nasdaqs, or S&Ps are moving to see corporate profits spill out of bed. And if corporate profits don’t fall significantly, it’s a move to counter a recession. So the market could be wrong here. But the market, for the most part, seems to be stuck there, not in the range we’d like it to be, and yet it feels like it’s facing a very shallow recession, or a recession at all. Either you don’t or you act like you don’t.
Eicher: David, let’s move on to questions from listeners. I’m Jonathan White from North Carolina. I have a question about his fertility. Read on to see how he set this up. First, fertility rates, the United States and Asia, and retirement ages have been in the news a lot in recent months, and of course in France, too, there was an article in the April 538 issue titled “Why does population aging happen?” it was done. It will not destroy the American economy. And one of the key points he makes is that even with all the negative effects of a shrinking workforce, per capita wages could actually rise, which is very good news. This suggests that So what Jonathan is saying is that I’m very interested in your views on declining fertility and aging workforces in the economy in general, and specifically on that premise of his Section 538. .
Bernsen: Well, I think it’s helpful for WORLD listeners to hit a reset button of sorts and ask themselves what economic growth is all about. And it is the production of goods and services that meet human needs, we are growing economically when we are creating a higher quality of life for ourselves and those around us, and, of course, freedom exchanges and mutual cooperation. We don’t produce for nothing, we produce because we meet a need, and we produce for other people who have their needs met, and this virtuous cycle and robust economic activity exists. And which of these is your demographic? I love it. But you don’t want that at the expense of people under 40 or under 30, do you? The prime age, the age when you can produce the most goods and services, and here again we are talking more economically. Humans are more economically productive at age 35 than at age 5 or her 85. And there is no dispute about this. Now, the question of per capita income is the funniest argument I’ve ever heard. Because it is true that if there are three people, the wage per person will be higher. In that sense, I don’t understand the concept that per capita wages are unmeasured and economic growth is unmeasured. We are talking about this kind of society that we are aiming for. So I think what we see in Japan as a reference point is exactly where we stopped having children. But there were already quite a few middle-aged and elderly people who were suffering from a decline in productivity. The 80-year-old and her 75-year-old still have consumer needs, but their ability to innovate, such as new products and services, has diminished. In other words, no one can avoid the fact that an aging population without an increase in the younger generation will adversely affect economic growth. And that’s a completely uncontroversial claim.
Eicher: Well David, Jonathan actually had a second question in the email. So let me ask you a question and see what you say about this. But he reads on CNN that, contrary to his conventional wisdom, the US economy is doing well with record low unemployment, rising real wages and a decade of low inflation. Farid Zakaria said the budget deficit fell from 15.6% of GDP at the end of Trump’s term to 5.5% of GDP at the end of last year. Jonathan David, I am interested in your thoughts on his quotes, especially the budget deficit compared to his GDP. So what do you say about it?
Bernsen: Well, I mean, you see, the fact of the matter is, I’ve said it over and over again, that those who base all their economic criticism on inflation are preparing themselves for a debate of justice. is there. There is no doubt that inflation has fallen significantly. There is no doubt that our country has a record low unemployment rate, but there is a downside in the sense that we have a very high level of unemployed employment. And that speaks to another economic problem. But the question of budget deficits and their percentage of GDP, this is a really weird argument. Because they have very little income, very, very, very, very, very, very, very, very, get a percentage at the time of the end of the coronavirus, at the time of the budget deficit Because we are. Some would argue that spending is very high, but that’s a baseline to compare the non-Corona world we’re in now with when we were there. So the budget deficit as a percentage of GDP is of course well below that level, but no serious person would think so. The question is, without COVID-19, without war, do we want to continue to run a deficit of over $1 trillion a year with nearly $32 trillion in debt? is. It’s the absolute amount that matters here, but it’s still absurdly high.
Eicher: Okay, David Bernsen is the Founding Managing Partner and Chief Investment Officer of the Bernsen Group. His personal website can be accessed at his bahnsen.com. Of course you have to spell your last name correctly to get to the right place, BAHNSEN, go to bahnsen.com and you’ll find his weekly Dividend Cafe. This is a note for high school graduates and you should read it. Well worth the read. It can be found at dividedcafe.com. David, thank you very much. I hope you have a wonderful week.
Bernsen: Thank you very much, Nick.
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