foxex: Why the jobs report hurt stocks

Insight after the bell

By Caleb Silver, Editor in Chief

Friday:

Markets crushed after solid jobs report
Tales from the Crypto Crypt
What could bring on the next crisis: Ray Dalio
Chart: Indian rupee at an all time low vs. the USD

#1 Why stocks tanked after an upbeat jobs report
T.G.I.F! It was a bruising week for U.S. markets as the DJIA fell 1.2 percent in the final two trading days of the week - mostly because of good news about the economy. Weird how that works, but let's dig in.

The monthly non-farm payrolls report was out this morning and the big takeaway is that the unemployment rate in the U.S., at 3.7 percent, is at its lowest level since December of 1969. Fewer jobs were added than expected, but that could have been impacted by Hurricane Florence and other events that disrupt job seekers from looking for work or companies from hiring. The key takeaway is that the U.S. economy is strong, and that has all kinds of ripple effects.

Why it Matters: The monthly jobs report is kind of a messy metric given how the labor dept collects the data. If you are really interested, read more about it here. Investors should not get too hung up on it unless it takes a dramatic and unforeseen swing one way or the other. Think of it as just another data point in the overall health check up for the economy.

Given that, we have experienced very healthy job growth for the past nine years and most people looking for work, are finding it. That said, wage growth has barely budged in decades while almost everything else has become more expensive.

For investors, low unemployment and strong job growth usually translate to higher interest rates as the Federal Reserve tries to keep the economy at a low simmer. Guess what? Interest rates are rising and the Fed plans to keep hiking the federal funds rate, which affects everything we finance or borrow like our homes, cars, and credit cards.

What's Next: Another rate hike by the Fed in December. Book it! The big money already did given the market sell-offs of the past few days. Bank stocks have been one of the few sectors to evade the sell-off. Why? Because banks loan money, and higher rates are good for business.

Look at XLF, the financial services ETF over the past five days and you'll get the picture.
Read More:
How The Unemployment Rate Affects Everybody
How Inflation and Unemployment are Related
What The Unemployment Rate Doesn't Tell Us

#2 Tales from the Crypto Crypt
This shouldn't be news to anyone at this point, but it's worth noting that the cryptocurrency bloodbath has become even more gory of late. It's crazy to think that just a year ago we were in the throes of a full-blown mania. We knew it wouldn't last - manias don't, but the level of decimation has been profound.

Why it Matters: Pension Partners did the math, and they show that the major cryptocurrency tokens are down an average of 74 percent since the beginning of 2018. Bitcoin, the most popular of the cryptocoins, has fallen a little over 50 percent, while Ethereum and Litecoin are down 70 percent and 74 percent respectively. Ripple is an outlier as it is higher than it was a year ago. But it nearly tripled in value in January, and then came tumbling down to earth as the mainstream investors shunned the entire sector.

You are likely hearing about how big investors and institutions are making big crypto bets. The Yale endowment fund is reportedly investing in a fund that includes crypto, and Ric Edelman, the well-known financial advisor is also getting in the game, according to reports. This should not be a sign that it is OK to start putting money into this game. Yale has a $30 billion dollar endowment and can afford to experiment with crypto investments. We'll never know if Yale is buying coins or investing in blockchain technology, so don't assume the water is safe for swimming. If you want to experiment with a tiny piece of your portfolio, have at it. But this is not a sector for long-term investors.

What's Next: You will hear more noise and reports about whether this is the bottom or not for Bitcoin and its ilk. It's not the bottom. We don't know when or where that will occur. No one does. The anniversary of the Satoshi Nakamoto white paper that kicked this whole thing off is coming up at the end of October. That is not a sign to invest. It's just a fun anniversary about a mythical person or group of people who kicked off a movement and an investing frenzy that is still unfolding.
Read More:
The 10 Most Important Cryptocurrencies Other Than Bitcoin
Explaining the Crypto in Cryptocurrency
Why do Bitcoins Have Value?

#3 Dalio: What the next financial crisis will look like
Ray Dalio, the legendary founder of Bridgewater Associates and author of "Principles: Life and Work," as well as his new book on understanding debt crises, is many things: A billionaire many times over, a conservationist who is passionate about protecting the oceans, a student of financial history, and a best-selling author. He was good enough to visit us at Investopedia to talk about his new book on debt crises, because like us, he is passionate about financial education. His book dropped on the 10-year anniversary of the financial crisis (well-timed, Ray), and we spoke about what could trigger the next crisis. We'll link to a couple of the videos from our conversation, but for those of you on the run, here are a few key bullets:

Historically low interest rates in the U.S. and other major economies. This forces central banks to be buyers of government bonds instead of issuers.
Exacerbating income inequality that leads to the rise of populism. It's happening everywhere - from the U.S. to Europe, and now Brazil.
High asset prices relative to interest rates: See the U.S. economy and our stock markets.

Here are a couple clips from my recent interview with Dalio: Enjoy!

Ray Dalio on whether we are repeating the financial crisis

Ray Dalio on whether we are safe for a future crisis

Ray Dalio breaks down the "holy grail"

Chart of the Day: Indian rupee tanks against the dollar on monetary policy outlook
The Indian rupee hit another all-time low against the U.S. dollar on Friday, trading at slightly more than 74 rupees to the dollar. The chart below shows the USD/INR currency pair's price action over the last two years, which displays the U.S. dollar's spectacular strength against the Indian rupee, or conversely, the rupee's extreme weakness against the greenback. The Indian currency's precipitous decline started to accelerate at the beginning of this year, when the exchange rate was only around 63 rupees to the dollar. While many major currencies have been weak against a surging U.S. dollar this year, the rupee's weakness has been exceptional.

Helping to fuel the latest fall for the rupee was a surprise move by the Reserve Bank of India (RBI), which had been widely expected to raise the benchmark interest rate on Friday. Instead, the central bank surprised to the dovish side by opting to keep rates unchanged, which led Indian financial markets, including equities and the rupee, to plunge further. The RBI's lack of action to defend its currency and fend off rising inflation was a shock that the rupee did not need, after already having lost nearly 15% of its value, year to date. The rupee's bleeding will almost certainly slow at some point, but if central bank inaction continues to rule the day, India's currency could have significantly further to fall.