The Investor’s Read: Jobs, Market Sentiment + the Fear Paradox

Patrick (00:48)

Hey everyone, welcome back. This is the Perpetual Wealth Podcast. I'm Patrick Donahoe. It's been a minute, but we're back. We had our first episode in several years last week, and we have another one for you this week. There is a lot going on in the economy, in markets, in personal finance. And so we're gonna dive into some of the latest reports, latest numbers, make sense of it, and help you to Really position your financial life to achieve as much success as possible.

 So let's dive in. So, you know, I think that this past week has been interesting when it comes to some of the reports that have come out, both in the actual stats themselves, but I would also say in the narrative that we are typically fed by the news cycle. So let's start with  the jobs report. 

So the jobs report came in on July 2nd, they added 57,000 jobs versus the expected, which is 114,000. Unemployment went down to 4.2%. And we're gonna get into it, but there are some details as far as these reports as and also with revisions to the previous month's reports that are actually really concerning. 

But regardless, the news responds in a specific way or has an impact on the response with specifically investors and markets. And so the market jumps right after that, hitting new highs. And then we have, you know, the inflation numbers. We talked about that last week. But the services PMI index, which is another benchmark for prices, is at 54. And this is indicating that there is still expansion.

And then also, even though we had the FOMC, the Federal Open Market Committee meeting, the Federal Reserve, Walsh, Kevin Warsh in his first meeting, as chairman. Powell is actually still part of the committee, but it was a meeting itself, but then the minutes were released this week. And so there's some interest in the minutes that we're gonna talk about. 

But ultimately, the labor statistics are what's really concerning and the irony is that markets went up because of it. All right, so let's kind of get into it. So 57,000, that's you know, that's the actual okay on the surface, you know, you would think that is this good? Is it bad? 

So I think one thing that I really want to emphasize on this show going forward is anytime we're talking about news headlines and statistics and narrative, especially if it's a repeated narrative, that is a red flag to be cautious in what is being communicated and why, and what isn't being communicated that would point to the full story. And so you'll see some of that in this episode.

So let's go look under the surface. So this is what's interesting. Jobs lost as part of this indication. Obviously, jobs are gained, but there's jobs lost. Okay, so this is the third largest drop since early 2024. 507,000 jobs lost. Okay. Now you look at household survey jobs, jobs lost, you know, up to date.

It's pointing to 1.7 million. Okay, so that's year to date. The labor participation rate is also down, largest on record. And and this is what's interesting. I'm not getting into all the details, but I'm trying to just communicate that what we read on the surface isn't necessarily what's going on beneath. 14 of the last 17 months has been revised.

Downward. So what that means is when there is an employment number that is, you know, part of the monthly release as far as jobs are concerned, okay, there's a revision that happens the subsequent month. And 14 of the last 17 months, there's been a revision downward. So what that means is there's a positive on the surface, but then the revision shows that it's actually worse than was communicated through the news cycle. 

Okay. All right. So let's look at where the job market is right now. I think jobs are important because number one, our economy, how growth happens, one of the ways growth happens is through spending. And jobs are really important in that regard. So when there's job loss, there's typically a contraction of spending, and that impacts the economy in man many ways, impacts business decisions, et cetera. 

So let's get into where there were gains. So there were gains in healthcare and social assistance. Okay, so forty six point six thousand. And that carried nearly all of the job growth in 2020, 2025. but you know as far as where it's going right now, it's actually much lower than compared to twenty twenty five.

Then you look at financial activities. retail trade is down. So retail seven and a half thousand, and then information jobs out there down nine thousand, and then leisure and hospitality down sixty one thousand, which is another indication. What's interesting about the report is many of the explanations had to do with AI. 

Technology is actually leading all sectors in job cuts this year. All right, so same month, two different surveys, two stories, up 57,000, okay, is what we hear in the news headline. That's what markets are responding to. But when you actually go beneath the surface and look at household studies and surveys, it's 507,000. Okay, so that is pretty significant.

and then let's look at inflation. So, like I said, there are some, I would say, narrative regards to how things are going. And it really comes down to the fuel prices, war, conflict in Iran. There was some hope when this MOU came out, a memorandum of understanding, that said that there would be a ceasefire, straight up from Oze would open up. 

But a memorandum of understanding is not a contract. It is not an official agreement. It just kind of lays out parameters in a sense of what the agreement will consist of, but it's not official. And we just learned recently that the ceasefire was compromised and there's now conflict, blah, blah, blah. So when the news came out that the MOU was there, oil prices shot down.

Now they've actually come back, and that's a big indicator of where prices were earlier in the year. And so really looking at what you're seeing here, there's expansion, but it was also contingent on some of the prices, especially fuel prices, energy prices, being a lot lower. So we'll see what happens in the subsequent quarters. All right, now let's get into you know what this actually means, right? So if you look at this you know specific

Measurement of prices. Okay, it's kind of the purchasing and supply, and it's you know surveying a bunch of businesses. Okay, and it wants to understand, if there's new orders, if it's the same, if the new orders have increased, what's the anticipation of the future? Okay, and there's expansion. Okay. 

And so we'll see what happens in the subsequent quarter in relation to where energy prices go, which obviously is a big expense when it comes to business supply. So anyway, markets are at all-time highs, right? It's a really interesting way to identify the news and then how the news influences the short-term volatility and short-term values in the market, whatever index it is. 

And then obviously you have the new Fed share and his kind of hawkish, we want to get to 2.0 inflation. What's interesting about the FONC minutes is you had a lot of I would say punting narrative and language. I would say first off, just given where prices are and where inflation is, the likelihood of rates going up now is much higher. 

And if you look back before Warsh was sworn in, when Powell was still in charge, most of them did not think that that was the case. And so it's just interesting to see how just a few months and especially conflict like with Iran is impacting kind of what’s going on, especially in the summer where people are trying to take time off and spend time with family and all this chaos is ensuing.

So it's interesting to see where this inflation number is. Now, as I've mentioned in podcasts of the past, this was years ago. If you really understand the debt-based economy that we're in, we have to have printing of money, we have to have expansion. Because if prices start to go down, there is a huge impact on human behavior, there's an unwinding. Just imagine, if A house went up for sale, then it gets reduced even more and reduced even more and reduced even more.

It's kind of like there'll be a lot of waiting until to see how low it actually goes. Okay. Whereas it's a different human behavior when it comes to bidding up the price of something. So I'm not gonna get into that today, but really looking at how debt is paramount to our economy, okay, there has to be this expansion. So there's going to be inflation. Now it just comes down to how much. And obviously, the last five years there's been a ton.

Especially coming off of all of the stimulus that went into the pandemic. But anyway, Warsh has a tall (order) we have a ton of national debt, we have a ton of social security obligations, Medicare obligations. It is unprecedented. It just is a massive, unfathomable amount of debt and subsequently interest. 

And so you can imagine that, you know, Trump and the administration want to keep interest rates low because those debt obligations would just continue to skyrocket because the interest on that debt is essentially being paid for by more debt. So it's just a really interesting dynamic as far as markets being at all time high, looking at where interest rates are, looking at other signals. So let's keep going. You know, if you look at

Other aspects of the minutes, the FOMC minutes, you see, you know, inflation was obviously top of mind. You have, you know, I would say the majority of I think there's 13, the majority of this committee is wanting a potential rate hike by the end of year. And then AI was a big discussion point.

And it was a very small statement as well, which was interesting. So we'll see, we'll see what continues to happen specifically in September when the decision is made as far as to you know, keep rates the same or or hike them. I think the conflict in Iran is gonna play a big impact or play a big role in that decision.

But let's into where markets are because I I look at essentially what happens in the day-to-day life of an American, of an individual that goes to work and spends the majority of their time producing, making money, earning money, and essentially delegating savings to markets. And you have interesting behaviors in markets because you have these long-term investors and then you have short-term investors. So, what's really fueling the markets right now, and it really is volatility.

if you look at where markets are and how they're shifting, it's gonna be interesting to see how it pivots. Now the impact that this has on longer term investors, we're gonna get to in a second because volatility is not your friend. Consistency is your friend. So the typical you know individual I would say is looking at their statements, looking at their brokerage account, their 401k, looking at markets. 

And it's this kind of helplessness as far as what they can do can do, which is very little. But then you also have, you know, those that do understand the market, they're educated, they can position accordingly, they understand the narrative, they understand that markets are just as much about human behavior as it is about the actual dollars and cents.

And so this is where, again, education is really important because the more educated you are, the more control you have, especially over your emotions. And this is something that you know I've I've understood for years and studied a ton, which is just human behavior in general, which is paradoxical to logic. And doesn't matter who you are, it doesn't matter if you're an engineer or a statistician or an economist, you're subject to these human instincts, human behavior elements that impact your decisions.

regardless of how much you understand about the logical side of things. So this is an interesting graph. I think it's been super helpful to me, but if you look at what I would say the biggest opportunities are paradoxical or are juxtaposed to the emotions that indicate the opposite. So what that means is, you know, looking at this this screen, when there's maximum euphoria, when there's maximum like hype,

And beyond excitement, there's this tendency to feel that you can't lose. It just keeps going up and it keeps going up. And you put more in, you put more in. But this is the height of when you should be selling. And then the opposite is when people give up. Beyond fear, it's capitulate capitulation, is where when destitute, that destitute state of mind, that's the best time to buy.

Right. So if you look at that and then you you know start to understand that there are indexes that are out there that measure this CNN you know fear and greed index is something you should benchmark just to you know if you're curious if you're curious or interested in this, just bookmark the CNN fear and greed index. Right now it's pointing to fear, which is really interesting, okay, because we're at all-time highs in the market. So and then there's other surveys as well, the VIX is another indication.

the volatility index. So anyway, if you really look at what's going on in the market and what you can expect, there is a lot of volatility, a lot of swings. And this is not your friend because the more volatility you have, the lower net returns you're going to have, right? So even though the S P is averaged, you know, let's say 12% over the last 40 years, if you factor in volatility, it usually carves out a couple hundred basis points. 

Okay. And not gonna get into that today. But then you factor in inflation, you know, real returns, factor in taxes. Okay, essentially there are a lot of short-term gains at the expense of long-term investors. And I would say one thing which is just a really interesting dynamic, especially from a financial standpoint, is what happened at the end of Q2.

So it was this rebalance of ⁓ pension funds, leveraged ETFs, and it was the biggest in history. $165 billion was essentially taken out of certain sectors and rebalanced. Now, what that means is you have funds like a pension fund that has a performa and they essentially have an asset allocation. 

They have a certain percentage here, and every quarter, and sometimes just depends on ⁓ the nature of the of the fund, there has to be a rebalancing. And so what happens is there was a sell whether they wanted to or not. And $165 billion leaving at right at the end of the quarter, that's one of the big impacts when we saw that massive loss that took place right at the end of June.

So the idea and really what I'm trying to get across is there's a lot going on in markets. You know, there's 24 hours a day, seven days a week, news cycle that is vying for people's eyeballs and attention. And you have headlines and you have dramatization, you have facts interwoven. but at the same time, really where markets are right now is in this big speculation. Okay, whether it's the Schiller index at 42, whether it's ⁓

Sectors having these big booms and then kind of a shift over to another sector. There's a lot going on that is frustrating to people when it comes to their personal finances because they're doing their nine to five, you're saving, doing what you've been told, and essentially are getting negative results with where you're investing and saving your money.

So one of the reasons I bring all this up is because, I would say a big a big part of why we make investments, why we set financial goals, why we do certain things is to achieve an outcome. And it's the feeling or state of you know being that's associated with that outcome. And human beings are naturally driven to be independent, right? To be free. And it's just a natural drive, a natural compulsion that we have. And right now, being dependent on what happens with certain things in the market, with inflation, with prices, with taxes, people feel vulnerable. 

And I would say, you know, the clients that we meet with day in and day out, it is this feeling of hopelessness and anxiety and seeing the news headlines and knowing that there's not much they can do about it. And when that impacts your state of mind, it impacts your family, it impacts your job, it impacts your clients, it impacts customers, it impacts those you associate with. And so really taking back control

isn't just about making investments, because market-based investments are are probably ⁓ essential for your situation, whether it's your pension, whether it's your retirement account, or whether you ⁓ have a specific education and merit and experience behind where you you know where you buy and and trade securities, whether it's stocks or bonds or or otherwise. And and so really looking at how do you mitigate those

I would say moments when markets shift, expectations don't necessarily line up with the original intention, this is where understanding what those emotions and feelings are is important and then setting up your financial life accordingly. And so this is where I would say, you know, the big thing that we've discovered over the course of twenty plus years doing this is that there are specific feelings, specific states that people want with regards to their finances or let me actually restate that. 

They want these states as a result of what their finances are doing. And so there's four specific states. We call them dimensions. The first one is certainty, the second one is vitality, and the third is independence, and the fourth is freedom. The idea behind these states is essentially to establish what your financial life needs to look like in order to have this degree of certainty, right? 

Where if things derail, if the market goes sideways, if your job goes sideways, if there's disruption, which is an inevitability, okay, you have certain things in place that will buffer that. What that does is kind of leads to this quote that I like from, gosh, I can't remember there's many people that have said it, but it's the the quality of your life is in direct proportion to the amount of uncertainty that you can comfortably live with. 

And what that means is, you know, it's like uncertainty, which is excitement and adventure and new and novel. Okay, there's kind of this, I would say, ratio, right? So the more certainty you have, the more of that you can comfortably live with. And so the idea here is what does that foundation look like for you? Is it cash? Is it insurance policies? Is it job security? Is it cash flow from investments?

Okay, so it depends on who you are, what the individual situation is. But in the end, this is the end state that people are seeking. But once they go beyond that state of certainty, it now comes down to vitality, which is like taking that certainty, taking that foundation and thriving because of it. And the idea in the end is to be independent. I think this is where the compulsion to want to retire, not work anymore, not have to do something, is when you become independent of trading time for money, where assets are paying some, all of your lifestyle expenses. 

So achieving that, having that type of benchmark or measurement in your finances, I think is vital. But also you have to have a foundation of certainty to achieve that. And then freedom is this next state. And I think freedom is where it's a really interesting, I would say, mental and psychological dynamic when you do achieve this degree of independence where you can go where you want.

You don't have to ask permission for it. I don't believe that's freedom. That's independence. When you get to freedom, something shifts where you essentially know that you're taken care of. Maybe even a future generation is taken care of. And so your mind shifts to contribution, right? What can I give back? How can I leave my mark on the world? How can I leave my legacy? This is the whole, you know, pull for generational wealth. So I think these are the states that we've seen over thousands and thousands of households that people want to achieve and their goals.

Their numbers are a proxy for these specific feelings. Okay, but if you're you know looking at the market every day, looking at your 401k statement, looking at your Twitter feed or your X feed or your Facebook or in and you're seeing kind of what's going on in the world, that gives you a sense for kind of where you're at in in these financial dimensions. And perhaps it's time to to really look at, okay, if I'm getting so freaked out about

knowmy accounts going here and the market doing this and prices doing this. Okay, let's take a step back and look at your personal finances so that even though that happens, you essentially know that you're okay, you're taken care of, you have a strategy in place. Okay. That's I think the idea of all personal finance is to essentially establish that structure so that it produces those type of emotional impacts. And it's not just one time, it's the maintenance of it as well.

So let's recap and then we'll wrap up. So jobs report is really important at the same time. Looking at the news headline associated with the report versus the actual comprehensive report gives you an idea of how the whole system is doing. I think this is important because the job market, the employment market, it's shifting. And just as much as there's concern, okay, typically you have that paradox.

There should be some excitement as well because there's opportunity. Because the majority of people, they're not as in control as they think they are, especially when it comes to you know fear-based news, which is the majority of the news cycle. And so how they respond to it is typically not going to benefit them in the long run. So the idea is when you really look at those negative hoop news lines, specifically the jobs report, where's the opportunity? Where's the opportunity to

capitalize on something that somebody else is not capitalizing on. Right now AI is the big thing, but AI has zero value unless it's applied, right? So how can you apply it? And AI, I believe, is a a complement to human nature, not necessarily a replacement of it. So how do you utilize it to make an even greater impact? Because the more impact you can make, the more you get an exchange, that increases your wealth, increases your income. So the idea is like looking really at the silver lining, which is typically the opposite of what is being specified in the news headlines. 

Next is the market whipsaw. You know, the market is reactive. Okay. And for a number of ways, we mentioned a few here, one of which is, you know, whether it's prices or whether it's a jobs report or whether it's you know news with oil prices or Iran or deals and politics. 

Okay, so you have the initial kind of whipsaw, but the you also have kind of like what will occur over the longer run both take into consideration and understand that just so that you're not caught with these anxious things going on that take a lot of time to unwind so you can get back to your normal reality and produce for your job or be there for your kids or grandkids. Okay. So it's really this kind of emotional understanding of what happens when news headline says this, market cycle says this,

This is well how the response is, but is that a rational response? Typically it's not. And then I'll kind of end with an idea of where we're at as our independence day kind of wraps up. But my brother's birthday is on Independence Day, so we celebrate him, celebrate 1776. I think that was just a period of time that I don't think most people can understand and can't be empathetic to, unfortunately. 

And this is where it really leads to some interesting dynamics when it comes to how people interpret the United States, how we've been raised, the opportunities we've been given. And you can't fault them for it because I really believe that to really understand a certain thing like independence, you have to have experience on the other side of it, dependence. And there's not many people specific you know, especially listening to this show that have ever been subject to being hanged or shot in a line, because they're going against the king. people there that have been enslaved, right? 

And do not have freedom, right? Freedom and slavery, those are two opposite ends of the spectrum. To fully understand freedom, I would say you have to understand what slavery is or being in bondage. So in the end, I feel that independence, really understanding the history goes a long way in understanding human behavior because governments, democracies, you know, different political structures have been tried to be instituted for a long time since the beginning of recorded history. 

And and looking at what the founding fathers did for ⁓ our structure is is brilliant, where they understood human nature. They understood that there would be corruption. They understood that there would be, you know, people that are self-serving and self-interested. ⁓ but they also you know understood that

This is kind of a good thing as well. When people are given reign to pursue their interests, which typically is gain and thriving, which is all instinctual, there could be unintended consequences if civil liberties aren't protected. And think that's why capitalism works, that's why a system of government works. It's never going to be perfect because human beings are totally imperfect. 

And the way in which we behave, regardless of how much science and logic and understanding we have of reality, it's we're still gonna behave like animals sometimes. And so you have to have those governance systems in place. ⁓ and so really looking at what we have, it's it's a huge blessing to be in the United States, huge blessing to, you know, be able to start a business, be able to say what you want to say. And I know that some people are calling that a curse. but I really believe that, you know, our experience in life, the optimal experience, is contingent on the degree of freedom and independence that we have. 

And so I celebrate that. Hope you guys had a great week to do with your family and celebrate it as well. And you know, the cheers to financial independence. I believe that we are in a time where we have the opportunities to set ourselves up, so that we're not dependent on having to do something to earn money to pay for even our sustenance level, okay, let alone our lifestyle. But we are in a time where there's a lot of opportunities and it's really exciting. So hopefully you guys are capitalizing on those. Hope you are protecting yourselves from what the news headlines want you to instinctually react.

And really understand the scope of the personal finance world and are doing what's necessary to just to position yourself for success. That's the whole objective of this show. Hope you guys are on that path. Don't forget to subscribe. We have a newsletter as well. Just go to perpetualwealth podcast dot com and we'll see you on the next episode. Thanks for watching or listening. My name is Patrick Donahoe. We'll talk to you next time. Bye.