Up for Inflation, Down for Stocks and Bond Values

Who would have thought, in an investing world where the techiest people who built the high tech that both ran and drove the stock market explosively, that it would be laid-off tech employees who express a “sense of impending doom” over job cuts? The answer to that would be anyone who lived through the dot-com bust at an age that was paying attention. And that’s where we are today, according to a story about the sad faces of techies, who face the highest layoffs since 2001.

As they struggle to find new positions, they are also being pressed to accept pay cuts. It’s that dismal for those in the big-money realm.

Since the start of the year, more than 50,000 workers have been laid off from over 200 tech companies, according to tracking website Layoffs.fyi. It’s a continuation of the predominant theme of 2023, when more than 260,000 workers across nearly 1,200 tech companies lost their jobs.

Apparently all the announce cuts are starting to bite, and it’s the biggest of big names—the Magnificent Seven—who are leading the layoff race:

Alphabet, Amazon, Meta and Microsoft have all taken part in the downsizing this year….

All told, 2023 was the second-biggest year of cuts on record in the technology sector, behind only the dot-com crash in 2001…. Not since the spectacular flameouts of Pets.com, eToys and Webvan have so many tech workers lost their jobs in such a short period of time….

It’s a particularly confounding situation for software developers and data scientists, who just a couple of years ago had some of the most marketable and highly valued skills on the planet, and are now considering whether they need to exit the industry to find employment.

And that's during a period of record labor tightness!

Taking stock of tech

Not too many would have thought that Big Tech would be leading the stock market down either; but bad news this week of a tightening job market during a losing inflation fight pounded stocks and bonds down along with rate-cut expectations while oil prices rose to make inflation worse in the days (and likely months) ahead.

Treasury yields went up again Friday, solidifying a year high, and even Janet Yellen had to concede higher yields and permanently higher inflation may be the new normal she thinks we have to adjust to.

The White House released its budget proposal on Monday. It was larded with higher interest rates as far as the eye could see. And today, Secretary of the Treasury Janet Yellen was asked about that….

“I think it reflects current market realities and the forecasts that we’re seeing in the private sector, that it seems unlikely that yields are going to go back to being as low as they were before the pandemic,” Yellen told reporters, according to Bloomberg.

Gee, wasn’t it just a month or two ago she was announcing “mission accomplished?” It sounds like they used the world’s oldest trick for accomplishing the mission: change the goal!

“It’s important that the assumptions that we built into the budget are reasonable and consistent with thinking of the broad range of forecasters,” she said.

In other words, she’s saying the White House accepts that this is the new reality because inflation will keep forcing yields up. While this level of interest on bonds is not bad in itself, it’s terrible for bloated government funding, but I’m pointing it out more for what it implies about Biden’s real new view of inflation.

Here is Wolf Richter’s summary of the situation:

By now everyone sort of knows that inflation has been re-heating in a very disconcerting way for months, and that the inflation saga is far from over. There are all kinds of discussions about the future of inflation in the US, and it seems there is a rough common denominator forming: The future of inflation in the US is more inflation – more than there was before the pandemic, when the “core PCE price index,” the Fed’s favored measure, rarely went above the 2% line, and then only briefly and by a hair….

The thinking is that fiscal priorities are fueling inflation, that the monstrously ballooned and still ballooning debt since the beginning of the pandemic needs to be dealt with through inflation, and that the time has come when the price of free money becomes known.

And this higher inflation means that interest rates will be higher – not only “higher for longer,” but higher without going back down to where they’d been in the years before the pandemic, so higher forever?

Yes, we now know what the cost of free money under our very brief experiment with liberal Modern Monetary Theory is: This inflation.

So, stocks down, bank and tech stocks especially down, rate-cut bets down, bond prices down, which means bond yields up, interest on the US debt up, inflation up, and dollar up (hinting at more tightening—as in rate hikes—in store); and oil went up. And that reverse repo facility that buffers bank reserves that I’ve been talking about? Way down last week. It took a $100-billion draw in the last few days. Even AI stocks did nothing but heave last week.

But, hey, Nvidia’s up. So, the market is now almost down to the Magnificent-One. That sometimes indicates the last rung on the melt-up ladder. As a result of rapidly narrowing leaders at the top (unless you mean leading the return trip down), the S&P just ended a second week down. Ah well, they only have to wait until this coming week for Powell to sound all soft and cuddly, sending them back up while also sending inflation up more quickly if he does because that is the trap the Fed is now thoroughly caught in, likely a big reason Yanet Jellin’ is now saying that bond yields will be permanently up.

There’s just so little chance of any other path now that central bankers are finishing off their job of destroying the nation’s economy with a wrecking ball. It’s been a long project, but we’ll soon be able to yell with Yellin, “Mission accomplished!”

“I think the other issue here is not just the 2024 and 2025 [dot plot], its the other issues that the Fed is thinking about which includes that the market is too frothy,” Wizman said. “For that reason it could signal that it thinks long-term interest rates should be higher.”

I’ve certainly promoted the view on Goldseek Radio that the Fed is more likely to tighten than to loosen, even though Powell seems to have a special knack for sounding soft. I’m looking at what they will have to do to undue the damage from sounding soft at the start of November that caused financial conditions to run looser. I’m looking at what Powell will HAVE to do to fight down resurgent inflation, which is what I continue to maintain his battle will be—tightening until he breaks things.

Last week was just full of a lot more news that emphasizes the near inevitability of that path, as even Yammering Yellen seems to be admitting without quite saying it because that would be admitting the opposite of “mission accomplished.”

“Mission extended far into the future.”

The Producer Price Index (PPI) for final demand jumped by 6.9% annualized in February from January…. Part of this was driven by a renewed surge in energy cost. But the other part was driven not only by surging costs in services – we knew that – but now also by surging costs in core goods, and that’s very disconcerting…. What the PPI is beginning to outline is that core goods prices deeper in the pipeline are raising their ugly heads again – potentially leaving us with hot services inflation that is no longer counterbalanced by disinflation in core goods.

So, up, up, up for inflation, and down, down, down for stocks and bond values.