Upscale Peruvian Cuisine - All Positions Wanted

Stocks fought back on Friday to end the day higher but essentially flat on the week.  Financials showing most of the life as the recent positive stress tests, and the supposed better NFP report on Friday helped to drive investor dollars into the banks.  Other sectors in the S&P tossed and turned.  Tech which has been on a roller coaster of late - managed to rally once again but the Nasdaq stopped short at piercing resistance.  Energy stocks continue to suffer as the price of oil drops causing more pain for energy investors.   As discussed ad nauseum - there are a number of factors that are playing out here.  Artificial intelligence and cyber security names continue to do well and should not be overlooked.  Healthcare, consumers staples, consumer discretionary, industrials spin their wheels while Utilities are under pressure as the rising rate story gains steam.
 
Ok….so if you picked up the WSJ on Saturday morning - you would have been met with this headline:
 
“US Jobs Growth Picks Up, But Wages Lag Behind. Employers added 222,000 jobs in June and unemployment ticked up as more people joined the joined the workforce”.
 
So I have a couple of things to say.
 
First of all more people didn’t join the workforce - more people joined in the EFFORT to find a job - thus the UPTICK in the unemployment rate.  Next - Thursday’s ADP employment was a real disappointment while Friday’s NFP report showed marked improvement….that should leave everyone to question the veracity of either report. 
 
On the face of it - Friday’s report suggesting an increase of 222k jobs vs. the expectation of 177k jobs might imply that the U.S. job market is roaring back to life but let’s not throw a ‘welcome home party’ just yet…...Contrary to what Paul Ashworth - Chief US Economist at Capital Economics had to say -
 
“This report is another illustration that the real economy is in good health.  The only disappointment is that wage growth still shows few signs of accelerating.”
 
Many are left to wonder…..Is it really another illustration that the real economy is in good health?  Paul - take a look at the article…..it  features a picture of a ‘help wanted’ sign…read the sign……
 
“Cvi.CE 105 - Upscale Peruvian Cuisine - All positions wanted.  Please apply inside”. 
 
Is this the sign of a robust US economy?  Job creation at an upscale Peruvian restaurant?  Is it the ‘upscale’ part that suggests better days ahead?    Expect to earn $3/ hr plus tips if you're the waitress or waiter or maybe $10/hr if you're the cook - all with zero benefits….no health, no 401K, no nothing.  These are the types of jobs that the US is creating. And then you want to know why wages are stagnating?  Why there is no growth in wages or why the economy is still stuck in reverse? 
 
The article goes onto say that we’ve added 16 million workers since the Great Recession (or the 21st century Depression).  Isn’t that grand?  16 million workers in mostly minimum wage jobs because that is what is happening. Read further into the article and you get another example of what hiring really looks like….
 
“In the US central bankers SAY that wages should heat up soon, because more employers are struggling to find workers…"

- How many months have we heard that song and dance?   The Central bankers are out to lunch.  If we are really  near full employment, then there should be strong competition for labor - yet all we see month-after-month are stagnant wages……which must mean that the 100 million people who were thrown out of the labor force during the Great Recession are still hanging around and willing to work for less…..because they have NO choice……There is no need to have wages pick up anytime soon - because we are not creating significant enough jobs and when we do - there are hundreds of applications to choose from- so Where Exactly is the Upward Pressure coming from?
 
In fact so many jobs that used to be great middle-class jobs are gone….and where did they go?  Think the Philippines, India, Taiwan - next time you call American Express or Visa or MasterCard - because you have a question about your account - ask the customer service rep - where he or she is located?  And then think about why you are speaking to someone in that part of the world -
 
Get this - Over the weekend I met a young man with a thriving internet based digital advertising business…..This guy is just killing it - life couldn't; be better, the sun is out and the water is warm………and guess what?  He does not have ONE US employee, NOT ONE.   He outsources everything to the Philippines and pays CTS on the Dollar for his workers.  I mean when we discussed it - he told me that he pays each employee $500/month or $6k/yr -  (which is 40% greater than so many Philippine's).  The same employee here in the US would cost him $70k or $80k/yr - So DO THE MATH….THOSE JOBS ARE NEVER COMING BACK TO THE US, NEVER.  He gets 10 employees for the price of one US employee and doesn’t provide any benefits.  And by the way - these are tech jobs, they are customer service jobs, they are coding jobs, they are perfectly decent jobs - that will NEVER come back - Wake up - the world is a different place.  So instead WE create low wage/minimum wage PART TIME service sector jobs……HELLO!
 
Now while algo’s loved the headline report, the logic in those headline reading algo’s can’t decipher the meaning of the article, all it does is read words……it doesn’t get the tone or implication of the words….so they buy Thursday’s dip…..But sometimes it isn’t what it appears…..Look at bit closer at the report…..Manufacturing jobs only grew by 1000!  So what are the other 221k jobs?  Healthcare, social work and other service sector PART TIME jobs….
 
Enter Bryan Health Hospital network in Lincoln Nebraska - the article goes onto say that they have over 200 openings for ‘ENTRY LEVEL cafeteria workers, Janitors, clinicians, nurses and other medical professionals’……and are surprised by the lack of talent……Well - here is a news flash......What is Bryan Health looking to pay?  The article does not indicate…Let’s not even discuss the entry level cafeteria workers or janitors….let’s skip them for a min…...Clinicians and nurses and other medical professionals are not going to work there for minimum wage - nor should they - so I guess Bryan Health has to pay up for qualified, educated professionals - and if they did - watch how fast they would get talent.  Now while I have never been to Lincoln, Nebraska - my gut tells me that it is not the most exciting place in the country - but if you want to attract talent - then make it worthwhile for the talent to be attracted…….It’s all about supply and demand…..(Eco 101).  Raise the rate to a living wage and watch how fast ‘talent’ appears.
 
Now to be fair - the article did say that Bryan boosted wages by 3% this year and 4.5% for higher demand jobs (no indication what those base levels are) but they did say that they are considering raising the wage floor from the current $11/hr to something else - not identified. 
 
(Again do the math….$11/hr x 40 hrs - assuming it is a 40 hr week - = $440 Gross pay/week.  So after taxes the employee goes home with $375/wk or $1500/month or $18k/yr - that is BELOW the poverty line……   But chances are that the work week is less than 30 hrs/week - this way they do not have to provide healthcare benefits to anyone..and so the math gets worse……I mean come on…..when are we going to discuss what is really going on?
 

Now this week is full of excitement   - Jeb Hensarling (R- TX) announced that FED chair Yellen is due to present her semi-annual monetary policy report (aka Humphrey Hawkins) to congress on Wednesday July 12th.....This is part 2 of her presentation on the state of the economy and it could become a bit contentious.  Remember - we are in a tightening cycle - and that translates into higher revolving credit card costs (think Macy's, Bloomies, Target, Nordstrom's,  Home Depot...etc) as well as other adjustable rate debt.   Expect some of those clowns in Congress to ask questions that they don't understand...but hey - it's reality TV at its best.....
 
Next up - Earnings are about to kick off and Friday brings us the official kick off with the big banks....JPM, WFC, C and PNC.  Remember - earnings are history.....pay attention to the future guidance, listen intently to these CEO's and CFO's discuss the state of the economy and the state of their businesses. 
 
Eco data gives us Wholesale Inv - expected +0.3%, the FED's Beige Book on Wednesday- expect that report to detail the 'robust economy', Thursday brings us PPI of 0%, Ex food and energy of +0.2%, and final demand y/y of +1.9%.  and Friday gives us CPI of +0.1%, Ex food and energy of +0.2% and y/y of +1.7%.  Retail sales of +0.1%, Ex autos and gas of +0.4%, Ind Prod and Capacity Util of +0.3% and 76.8% respectively.    
 
US futures are UP 1pt.  Oil is lower by 0.44 cts - at $43.79 -  after having gotten clocked again last week.  Last week's low of $43.78 is where it should find some support - but if it breaks here then next stop is more like $42/barrel (June lows).  There is (was) a major oil conference in Istanbul on Monday....Saudi Armanco CEO admitted that he is becoming 'increasingly worried' about the longer term outlook for oil....but has pledged to invest some $300 billion over the next decade to secure their position in the oil mkt. 
 
Gold is also down $2.50 at $1207/oz...breaking the lows of May and looking to test $1200/oz.  A failure here could see Gold go to $1150/oz in short order...if it holds then look for it to churn as it tries to stabilize. 
 
In Friday's note I said
 
"Watch to see if the S&P is able to regain its footing and trade back up and thru 2414......my sense is that it will not (at least for today) as we move into the weekend and there is more to come out of the G20."
 
Clearly I was wrong as the S&P traded up 15 pts to end the day at 2426.....as the algo's embraced that 'better than expected NFP report'.....something I was betting against.  The fact is that the weight of rising yields will become a direct headwind for stocks... UNLESS of course earnings just 'rock the house off its foundation'  ...... Any sense that earnings  are killing it will allow investors to ignore rising rates in favor of an improving economy......but if earnings miss and guidance is less than robust expect investors to re-evaluate.   
 
Overnight - global mkts all moved a bit higher....Nothing really dramatic out of the G20 except Trump's idea of developing 'an impenetrable cyber security unit' with our friends in Russia.....an idea that got the whole world laughing.... Trump is some comedian - isn't he?  Protests in Germany over upcoming elections in September as Angie's bid for a 4th term comes under pressure caused some concern, but nothing permanent.   FTSE +0.03%, CAC 40 + 0.22%, DAX + 0.39%, EUROSTOXX + 0.32%, SPAIN -0.24% and ITALY + 0.55%
 

Take Good Care
KP

Linguine w/Summer Zucchini 

This is a simple dish to make –

Linguine, green & yellow zucchini, garlic, Vidalia onion, s&p, olive oil, Fresh shredded Parmegiana cheese, and a bit of butter.

Slice the zucchini's into rounds and set aside. 

Heat up a large sauté pan – add some oil and fry the zucchini rounds in the pan - do not overcrowd - let them get golden on one side and then flip and repeat.  When done - place the zucchini on a plate covered with a paper towel  - sprinkle with the fresh grated cheese and repeat until you have fried all the zucchini.

Next - in the same pan and 3 cloves of chopped garlic.  Allow to cook for a couple of mins.   While this is happening - peel and dice the onion.  Add to the pan…stir to coat – turn heat to medium and carmelize the onions. 

Bring a pot of salted water to a rolling boil and add the linguine.  Cook for 8 mins or so…taste – you want it to be aldente.  When ready – strain – reserving a mugful of the water – and add directly to the sauté pan with the zucchini.  Mix well – add in two handfuls of the shredded parmegiana and mix so that the cheese melts.  If it appears to dry – add back ½ the mug of pasta water – stir to coat.

Serve immediately with your favorite white wine.  Always have extra cheese on the table for your guests.    

 
Buon Appetito.