Christmas party chatter

It's that time of the year, what are people talking about?

There were a couple Christmas parties this weekend. It is always fun to get out with friends and catch up. I have been so busy the last few months that I haven’t had a chance to catch up with most of them until this weekend. It is the best time of the year.

The first topic of conversation was how easy it has been to make money this year. I am not talking about how easy it has been to be a doctor, lawyer or venture capitalist. They were talking about how easy it has been to make money in the stock market. After all, if you look at the chart of the Mag 7, it has been easy. Even with the sideways move from July through October, the last month has been extremely easy,

A couple guys, who like to take more risk and are good at it, were telling me about the money they have been making in PLTR or XRP. You don’t tend to see 3-5 baggers in a matter of months, or even weeks. Of course, I always caution these vertical moves often end badly, however, these days, with maybe the exception of SMCI.

I saw this on X and I couldn’t believe it. It is one thing for XRP, which has legitimate use cases but also has a growing supply of token over time, to go vertical. Even that doesn’t make complete sense to me. However, here is a meme coin, a joke, that in the last 6 weeks has accumulated a $300mm market cap. What do you think? Too much speculation? Is it too easy?

Perhaps this is a sign that monetary conditions are too easy? If $300mm can go into Fartcoin? Well, if you look at the Bloomberg Financial Conditions Index, it is getting close to where it was in 2021. No amount of rate cuts or QT has really done much to alter the path of the financial conditions. Jay Powell tells us we need to cut rates because the FOMC is worried about financial conditions. What are they worried about? That they aren’t as easy as 2021?

On to another subject of conversation for the evening - the labor market. While none of the people I spoke to had lost their jobs, thankfully, layoffs were the topic of conversation. Boeing letting go of 10% of the workforce, Cargill laying off 5 % of the workforce, AMD 4%, CVS 1%. Other firms were laying off workers, only in the hundreds, because they are not returning to the office. It was very ironic actually. With all of the discussion, on the one hand, of how easy it has been to make money, there is another discussion of people getting laid off. The juxtaposition doesn’t seem right. The look below is some of the other labor data we got last week besides the non-farm payroll. Job Opening & Labor Turnover ticked higher though it has been on a trend lower. Challenger layoffs rolled back over even though it has been trending a bit higher. Nothing that looks too dramatic, but nothing going in the right direction.

ISM data this week was also not particularly compelling either. Manufacturing is getting a bit better, but services are starting to struggle.

Looking at average hourly earnings and average weekly hours, things appear to be okay. Earnings have picked up while hours are holding in.

If we multiply out the hourly earnings and hours worked, we get a good proxy for income. As you can see, this income tends to lead personal spending. Spending has held up even as wages have fallen. Perhaps because meme coins are making people money. This is something we should be worried about.

Using some charts from Nancy Lazar at Piper, she looked into the non-farm payroll data a little more closely. Private payrolls have been in a declining trend for some time. While that headline number on Friday looked good on the surface, perhaps the labor market is not as strong as we think

Another chart from Nancy and I have seen this get some airtime on X too. The duration of unemployment has been moving higher. People on unemployment are taking a lot longer to get a job. Another sign that things may not be that good out there.

What has been holding us up? Government jobs. Look at how the size of government has grown relative to the private sector. Go watch the Rand Paul video about how the US Postal Service is looking to add 190k workers to the permanent roles even though volumes are down 80% and the service is losing $9.5bb this year. Maybe the DOGE is onto something. If the DOGE starts cutting here, which is the only place we have been seeing growth, what will happen to the labor market?

This matters because the labor market matters as much to the housing market as mortgage rates do. The MORT*JOB Index is a geometric index of mortgage rates and unemployment. You can see when I invert it, it does a good job of laying out the direction of the NAHB national real estate index. As this index goes higher (higher cost of capital and higher unemployment), housing struggles. Many are counting on the housing market being strong in 2025.

If housing struggles, orders struggles and profits will struggle. What does that mean for those stocks that have been making it look easy for folks?

It is amazing what you can learn when talking to people at the Christmas party.

Stay Vigilant