Mayday! Mayday! The markets pulled back after a dismal labor report. Yield starved bank stocks led markets lower as the Dow fell 31 points on heavy trading to 17,807. The yield on the 10 year dropped to 1.7%. For the week the Dow fell about 0.3%.
Just when things began to look up the horrible May jobs report hit the wires. Only 38,000 jobs were created even though the unemployment report fell to 4.7%. The gurus were surprised because they had forecast that 162,000 new jobs would be created. The recent strike at Verizon caused information related jobs to tumble and this along with job losses in mining and manufacturing sparked the worst job report in 6 years. The good news was that wages were up 2.5%.
Bloomberg estimates that China now has about $2.4 trillion (with a capital “T”) worth of bad corporate debt which is about 25% of their economy. Ouch! Recent efforts by the PBOC to repackage small bits of this debt, while hopeful, are only getting interest from regional gubment banks and not private investors. The fear is that these banks will bear the burden if the repackaged loans falter. My guess about private investors is that they prefer to move money out of China instead of investing in Chinese “junk” bonds. What is interesting about China is that while it ranks 2nd in world in GDP it only ranks 8th in terms of market capitalization meaning that Chinese investors have limited internal opportunities to invest. By way of comparison, US market capitalization is about $20 trillion compared to China’s market cap at under $900 billion.
With car sales in the US at a record and cost of new vehicles rising, the average car loan has now crested $30,000 in size, takes 68 months to pay back and the monthly payments are averaging $503 per month. Maybe while we invent self-driving cars we can also invent cars that “self-finance” too.
Gold shot higher in the weak labor report because it lessened the odds of a rate hike this month. Gold closed the day up $34 an ounce to $1,246.