I received numerous emails from Michigan fans Saturday night and they all said the exact same thing.
You’re welcome.
Penn State is playing in the Big 10 Championship! What a Day to be alive!
I thought ex-Bears coach Matt Eberflus was the most dazed and confused a coach could look after a game, but then I saw Ryan Day. This guy’s cheeks get more red as his confusion spikes. He was totally lost while his team was in a fight with Michigan. Careful Buckeyes - you don’t want to lose to Michigan twice in one Day!
Unfortunately, my brother and I had already convinced ourselves playing in a conference championship game wasn’t really a reward. It’s just one more game where players might get hurt, or banged up, or tired, or not prepping for the real playoffs, etc. We reached this conclusion ahead of the Michigan drop kicking of OSU, so of course we were promptly rewarded with an extra game against the #1 team in the country.
I can already hear the furious typing on keyboards in Columbus. “Hasn’t OSU beaten PSU eight straight years?” Absolutely, but since when has rationale thought prevented me from chirping?
As a close James Franklin observer, I can recognize coaching befuddlement better than most.
Which is what made seeing Ryan Day’s confusion all the more delicious.
Last Week This Morning
- 10T: 4.21%
- 2T: 4.18%
- SOFR: 4.57%
- Term SOFR: 4.53%
- Durable Goods Orders m/m: 0.2% vs 0.5% expected
- GDP: 3.5% vs 3.7% expected
- GDP Q4 modeling forecasts are diverging
- Atlanta Fed Nowcast: 2.7%
- NY Fed Nowcast: 1.8%
- Bloomberg Nowcast: 1.8%
- St Louis Fed Nowcast: 1.3%
- Bachman Nowcast: -1.0% (yes, negative 1%)
- PCE Inflation Data
- Core PCE m/m: 0.3% as expected
- Core PCE y/y: 2.8% as expected
- Personal Income: 0.6% vs 0.3% expected (read: inflation)
- Personal Spending: 0.4% as expected
- James Franklin sat his TE 5 yards short of setting the Big 10 record for yards in a season, but called 3 consecutive passing plays to end the game? This culminated in a TD as time expired. It was already a blowout, why not take a knee? And if you’re going to pass, why not put the TE back in and let him go for the record? In the face of this lack of class, I can’t imagine why most people hate him.
- I opened a FanDuel account to make one single bet - Oregon over James Franklin
FriDAY’s Jobs Data Decides if the Fed Cuts
Last week's inflation report didn’t move the needle one way or another. All data points came out as expected and suggest the last mile of inflation is going to take a while. But it didn’t send up any red flags, either, which is why yields fell. There was a lot of momentum heading into that report and markets were on edge about a surprise to the upside.
This all means that FriDAY’s jobs report will dictate whether the Fed cuts on the 18th. I think the bias is slightly tilted towards cutting, which would allow the Fed to save face after it projected 1% of cuts by year end just two months ago. But if it’s a gangbuster’s number, they will hold off and start fresh in January.
How quickly do animal spirits translate into increased hiring? I’m not sure it’s as quick as the market thinks. Unlike Michigan owning Ohio State, everything on the Trump 2.0 agenda is a hypothetical right now and hiring splurges are more likely to come with increased certainty.
TuesDAY
The JOLTS report I hate so much but Powell frequently cites is back to pre-pandemic levels in terms of both job openings and quit rates. I think optimism from a Trump win may cause this to move sideways rather than continue to fall. But that’s not the same as re-accelerating.
FriDAY
These are the two reports that matter this week. NFP and Unemployment. My gut is that >200k locks in a pause, <130k locks in a cut, and anything in between is a toss up.
Last month’s 12k was weaker than losing as a 20 point favorite at home against an unranked opponent, even after accounting for a Boeing strike and a hurricane. The problem is that those two explanations are so cognitively easy to grasp that the market is overlooking the risk of a structural slowdown. We lost 28k private jobs last month. Why is no one talking about this?
The consensus forecast is for a gain of 200k jobs. But if we adjust up the 12k to 50k to account for the Boeing strike, did the hurricanes really cause 150k fewer jobs than expected to be added? I think we might see another disappointing print.
Dr. Berger included this graph in a LinkedIn post a few weeks ago, highlighting the relative size of the government’s workforce. I think his intent was to illustrate that the government plays a relatively small role in the overall labor market picture. The blue line is all government (15% of total labor market) and the orange line is just federal (2% of all labor).
But I had a different takeaway: doesn’t this imply all the government hiring over the last several years is having a disproportionate effect on the alleged strength of the labor market?
Government hiring over the last year has contributed 487k of the 2.178mm jobs…that’s 22%. If total government labor is historically about 15% but new hiring is 22%, then government hiring is contributing 13k jobs per month more than its proportionate share.
That might not seem like a lot, but if you add that to the 68k monthly revision lower already in the bag, the monthly NFP is overstated by 81k per month. That means a 200k print is really more like a 119k print.
And if you add in healthcare (heavily subsidized by government spending), then 65% of all new hires fall into just that one bucket.
After more adjustments than Ryan Day makes in the 4th quarter, we are left with just 42k per month of non-government subsidized job gains.
Rates
CME futures put a Fed cut on December 18th at 66%, about the same odds as Ryan Day will be fired. As we’ve discussed, 60% is the magical threshold. I expect to have a lot more clarity after Friday’s reports.
The market exhaled a little following the Core PCE prints and yields fell. Current T10 technical levels:
Upside 4.51%/4.70%/5.02%
Downside 4.02%/3.56%/3.25%
Bloomberg had a good article on the amount of money pouring into T10 option contracts for January/February at strikes of 4.45% - 4.75%. We saw the knee jerk reaction to a Trump win a few weeks ago even though there was a 50% chance of his election.
I think traders are looking ahead to inauguration and trying to hedge that same sort of emotional, kneejerk reaction to a singular event, like having to play Michigan to end the season each year.
The Week Ahead
Huge week. Heavy data week with fresh inflation data and several Fed speeches scattered throughout including a speech from Fed Chair Powell on Wednesday.
And then Saturday I suddenly have a reason to be glued to the TV!
All this smack talk is probably going to karmically result in Penn State having to play Ohio State in the playoffs…in which case I will use FanDuel to make my second wager ever.
