Moneybeat: The latest jobs report and the TXSE

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: Alright, so not just a better-than-expected jobs report for May, but way better.

BAHNSEN: Well, we’ve seen this now for a number of months, where on an individual month you’re getting a number that is higher than expected, and then the last month, it was much lower than expected. And I’m kind of back into the framework with the month-to-month jobs numbers that I’ve been for years with the weekly unemployment claims numbers. And that is trying to look at three average, three in a row averages, kind of a rolling average. In the case of the jobs report, three months, in the case of jobless claims, three weeks. 

But it’s smoothing out a lot of the volatility in the numbers, because this volatility here is pretty extreme. To have had such a big miss last month, and then to be at 272,000 that we show that we saw on Friday morning, a good 100,000 higher than expected. And so obviously, a lot of it is unavoidable. It’s a tough thing to capture the jobs data of a population of 335 million people, and there’s models and there’s assumptions and things that go into it, and it’s going to have some lumpiness. But clearly, the trend has been this way for some time. No matter how bothered some people get when I say it, it’s a pretty good jobs market.

EICHER: One of our perennial topics is labor force participation rate. What’d you see there?

BAHNSEN: The participation rate fell two tenths, and so it’s back at 62-and-a-half. And 62-and-a-half is, you know, exactly where I do not want it to be. 66-and-a-half is where I’d love it to be. I don’t think it’s going back there, Nick. If it does, it’s going to take a very, very, very long time. But a month-to-month number on labor participation is not necessarily something I’m as concerned with. That’s more structural. That’s more of a secular thing. The month-to-month data is more the new jobs created, new jobs lost, what sectors. You know, a lot of people were looking at some of the big jobs number months and saying, oh, a lot of them are government jobs. That doesn’t count. Which, of course, it does. 

Government jobs are, unfortunately, I would say, 20 something percent of the economy, but it speaks to just the relative nature of employment versus unemployment. But this particular month, the exact number was 100, and let me get this right, it was 100, and 165,000 expected, 229,000 actual. So of the 272,000 jobs, 229,000 of them were in the private sector. So yeah, that element, clearly, I think, confounds some of the critics this month. Labor participation rate was not good, but it’s not going to be good anytime soon. And I’m very sad to say that.

EICHER: Saw this story in The Wall Street Journal about an effort to stand up called the TXSE, the Texas Stock Exchange, as a competitor to the New York Stock Exchange and the Nasdaq. How seriously do you take this?

BAHNSEN: I think it’s a real thing. I think that you do see some of the real players that trade a lot of volume going along with it. Do I think it’s going to be a major culture shifting, market shifting, paradigm shifting, moment? I don’t, but I also don’t think it’s a publicity stunt. There is something behind it. I’m a big free market guy who loves competition, and so if there are more exchanges, I’d see that as a positive thing. What I think it ended up being is this Texas Stock Exchange making a message to the New York Stock Exchange to not do what the NASDAQ Stock Exchange did. 

What the NASDAQ did is say you’re not gonna be able to list with our exchange if you don’t meet certain diversity and equity type quotas in your board and in your hiring. And this type of proactive and preemptive move could just sort of force the hand of the big board, which the New York Stock Exchange is exponentially more significant than NASDAQ to say, don’t be acting like NASDAQ, because what NASDAQ did was very, very stupid, very counterproductive, and this Texas Stock Exchange might just serve as a good governor—no pun intended—to others from behaving in the same kind of woke, very, I think, counterproductive, anti meritocratic way.

EICHER: Well, David anything. We missed last week that you think is worthy of note?

BAHNSEN: Well, I think that when you look into the market, it’s become almost the story. One could argue. I talked about this a lot in my dividend cafe over the weekend, that what’s happening with Nvidia and what’s happening with two or three technology companies is becoming the story of the market. And I do not say that as a good thing. Nvidia, right now is worth more than Walmart, Amazon and Netflix put together. It is trading 89% above its own 200-day moving average, something no company has ever come close to doing. You know, Apple at one point for like 24 hours, traded 60% above its own 200-day moving average; Nvidia has been above 89% for—I mean, this is just it’s something you’ve never seen before. So I think the market is setting itself up for a real danger zone. Three companies are 20% of the market, five companies are 28% of the market. So there, there’s a top heavy thing going on right now. And yet, when I talk about the market being so expensive, Nick, those 10 companies are trading at 31-and-a-half times earnings, and the rest of the market is trading below 18 times earnings. And so I still think there’s plenty of really good value out there in the market, but right now, we’re kind of in this zone that looks very 1990s to me.

EICHER: Well, David, by reminder, when you say things start looking like the 1990s, what does that say to you?

BAHNSEN: Well, it doesn’t say anything about timing. It just simply says that these things don’t generally end well. And in the famous tech boom of the late 1990s we now, with the gift of hindsight, know that it peaked in ’99 and then it crashed in 2000. And that a very profitable and successful technology sector went down 70% for the next 15 years. I’m not expecting things, the famous line about history doesn’t repeat, but it rhymes, I think is appropriate here. I’m not expecting things to play out exactly the same. But I would say that a lot of these things, Nick, are more than just the 1990s. They’re tulip mania from hundreds of years ago. They’re Nifty 50 from the 1970s. They’re dot com from the 1990s. They’re the housing bubble that ended so violently in 2008. Booms are part of human nature. Bubbles that come out of booms are part of human nature. And, yeah, they don’t end well.

EICHER: Well, David, let me go back to the Texas Stock Exchange. The Journal said that the major feature of the Texas exchange is that it’s all going to be virtual. So maybe for defining terms this week, talk about the meaning of that in comparison to say, the historic New York Stock Exchange, physical space on Wall Street.

BAHNSEN: Well, the New York Stock Exchange is completely virtual—I assure you. It’s a museum now, but it wasn’t for a couple 100 years. You know, my wife and I toured the New York Stock Exchange a year after 911 on the floor of the exchange, and there were still hundreds of people on the floor, passing tickets, writing orders on a piece of paper, handing them off to what are called specialists who make a market in given stocks, and they’re there to facilitate orderly trading. And that was, you know, little bit more than 20 years ago. A few years after that, it was obsolete. Now, I’m on the floor of the stock exchange quite a bit, because I do television appearances there, and it exists for people like me to go do television appearances. It’s literally just a museum. I mean, the entire stock trading has been electronified for over 20 years. You still need orderly making a market, but these specialists that are there to help facilitate, and it’s something called a specialist who’s making a market, versus with the NASDAQ, it’s over the counter, so it’s a different mechanism, but it’s still computerized. It still does not involve a person. Now there’s people behind the computers, but what was physically happening on the floors of exchanges has long been quite different. So, I’m sure the Texas Stock Exchange will seek to implement a lot of the technological efficiencies that the New York Stock Exchange has long had.

EICHER: Ok, David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group.

David is author of Full Time: Work and the Meaning of Life, fulltimebook.com is where you can find out more.

Thank you, David!

BAHNSEN: Thanks so much, Nick.

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