Haters Gonna Hate

I am getting old. I am so old in fact, that I remember the days gone by where the USA had to really do something to piss off Canada. I mean something like enact a tariff, elect an orange man, or something of that nature. Today though, apparently all the USA has to do to draw the hate is employ a lot of people!!!

By now we have all had a chance to digest the blowout jobs report from Friday from the South. And what a blowout it was. As one would expect off of a report like that we saw bond yields hike up faster than a skirt in a windstorm. The Canadian dollar also found that lower was the path of least resistance, and dropped on the day. The consensus for the report was somewhere around 141K new jobs, and the actual number was around 254K. And yes I know that number will be revised lower in later months. How could I not know? That is all anyone seems to focus on lately.

Now, personally I don’t want to live in a world where we start shitting on a good report. How can creating jobs – income if you will, be viewed with such vitriol? Why are we like that as humans? Why are we mad that a whole bunch of people got a job, can feed their family, pay their rent and enjoy life? Why are we literally shitting on someone’s happy dance? Of course, the happy dances have stopped from Realtor Tok as of late. Maybe happy dances are a zero sum game? Maybe we will have to dig into that mathematical equation in another blog?

A 5 year GOC yield that was 2.671% only a few weeks ago, is now hovering nicely around the 3.047% range. That represents a yield bump of 37.6 bps in three weeks. In percentage terms, that is 14.1% in just 3 weeks. All of this rise comes as central banks around the globe are doing everything they can to talk rates down.

I draw a few conclusions and a few questions from what has transpired in the last few weeks:

1. First and foremost, the number doesn’t matter. Yes, there was a lot of jobs created in the USA last month. However, the reason we saw such volatility around the report wasn’t because of the actual number, but because of what the expectation of the number was. Mr. Market was only expecting 141K jobs, and instead got 254K jobs. If the market had been positioned to expect 255K jobs on the report, we would have seen a pretty muted reaction. It isn’t what it is, its what it represents. This jobs report came only a couple weeks after Uncle Jerome scared the pants off the entire world with his emergency 50 bp rate cut. In everything financial it matters not the actual result, it only matters how the players are positioned going into it. This applies to jobs, GDP, inflation – basically every report. Do look at the number, look for the gap between what the market expected, and what it got.
2. Something is haywire and wonky. How did we need 50 bps of emergency cuts 2 weeks ago, but now jobs numbers blow past expectations? Are we using 1950’s methodology in a 2024 hiring and employment landscape. With the employment numbers being revised constantly, it tells me that the way we are calculating jobs ( and perhaps other economic factors ) is not in real time with how the world works anymore. If you want to test that theory, go look at the inflation reports. No way in hell is inflation in Canada 2% right now. Maybe governments need a re think on how we release such vital numbers? Maybe politicians need to spend less time thinking about re election, and more about the constituents that elect them?
3. It is looking more and more like the central bankers of the developed world have lost control of the bond market. Most Central banks you are familiar with are cutting overnight rates – the rates variables and adjustable debts are attached to, but the short and long end of the curve keeps marching higher. While I lost faith ion government years ago, it appears the money markets either A ) don’t believe inflation is dead, or B ) don’t think the government can get spending under control, or C ) BOTH. This could be a larger problem than inflation to the fiat money system – aka the entire foundation our economy is built on. If markets have lost the faith, or are questioning their faith at this point, the bond market could be in for a rocky ride. The less faith that we have, the higher rates go. The higher rates go, and the less faith the market has in the governments ability to service the debt, and around and around we go.
4. Look inward. Oddly enough, every story I see out of Canada press in the last few days is ‘blaming’ the US’s fantastic jobs numbers on higher rates. Okay, sure. Maybe, just maybe the fact that we let housing prices get out of control has something to do with it? Maybe the fact that monetary policy has been a disaster in Canada for years had something to do with it? Maybe letting in millions and millions if people in 2 years without enough housing stock had something to do with the financial problems we are facing? But, oddly enough, when the US had some rocky times in 2007 and 2008, and rates got cut in Canada, no one seemed to mind the countries being so closely linked then did they? No one seemed to have a problem with Big Brother shitting the bed when it benefited them financially through lower rates. If you are gonna have an opinion, at least be consistent.
5. And finally, because I haven’t pissed off enough people yet, lets look at another factor……RBC, BMO, CIBC, Scotia, and TD. What do all these have in common? Well, they are banks of course. But the other thing that these 5 things have in common is that they have set mortgage rates at the fattest spread to bonds in the history of the market. Doing so has allowed them to rake in billions of dollars in profit. Right now, banks are literally printing money with these insanely high spreads between bonds and mortgage rates. Perhaps, just for a minute we could call that out? Anyone? Bueller? Of course criticizing a Canadian Bank or calling them out on their bullshit is something we are just not allowed to do. It would be like asking CTV news to give a fair report.

Make no mistake about it – mortgage rates didn’t have to rise over the weekend and into today, but the banks hiked rates to protect their insanely high margins. Banks could have easily absorbed the increase in bond yields over the last couple of weeks – not all of it, but about two thirds of it, and still have had historical profitability – but they chose shareholders over mortgage holders. They chose profits over people, and they chose to pad their own pockets instead of making sure you had a few dollars in your pocket. That was a choice, and the Canadian Banks did what they always do – they made sure they were looked after.

I find in finance we always look for a scapegoat. It is always someone else’s fault, but never our own. This week we found it easy to point a finger at a US jobs report. We like easy things because they make sense to us. It is easier to simply point at something and say ” Ah ha, that’s it”. It sucks to research something, argue with people, try to prove a point, and on and on. It is just so damn easy to lay blame at someone else’s feet.

I sincerely hope that you were not one of the haters who was shitting on a blowout jobs number. I can promise you I will never be mad at someone else’s success. But please, if you were the one who was blaming a US report for rates going up, I better hear you shouting from the rooftops when it benefits you later on.

I hope to be out later this week with another post, but that will be weather dependent. As the US Gulf Coast prepares for what will be a monster hurricane , we are likely to lose power and internet. Models that are used to predict hurricanes seem to be much like models that predict finance – they just aren’t as good as they used to be. Haters are always gonna hate, but for now, preppers gotta prep.