Moneybeat: Common grace economics

LINDSAY MAST, HOST: Coming up next on The World and Everything in It:

The Monday Moneybeat.

JENNY ROUGH, HOST: Time now to talk business, markets, and the economy … with financial analyst and adviser David Bahnsen …

MAST: He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

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

MAST: So there was a lot going on last week. Let's start with the stock market. On Friday, it tumbled after the jobs report came out showing that hiring was much weaker than it has been. Just 114,000 jobs added, much fewer than had been expected, and then unemployment also rose to the highest level since 2021 how ominous is this report?

BAHNSEN: Well, I don't think that ominous is the word I would use, but I do think that there's a number of reports out there that, with this one factored in, start to provide some early fodder for elements of economic slowdown. But let's start with what you asked about regarding the stock market. It's really important to note that the market had been down by the same amount on Thursday, and even worse in the NASDAQ, and that's all before the jobs report. And so this is something we're talking about a lot lately, that with valuations like you've had in some of these big cap tech names, you don't need a bad jobs report. You don't need bad economic data to drop hundreds of points, because these things have been very overvalued. And really, Friday did kind of catch everything. But, you know, the NASDAQ had been down over the last three weeks, 2,000 points. It's now down over 10% in three weeks, and a lot of other things were up in the market. So I want to be careful to avoid making the stock market story and the economy story one in the same.

I think, I think that there's some different things going on there and and yet, the jobs report on two different levels was concerning. 114,000 jobs is below expectation. This comes off of another jobs report the month prior that have been soft, but then the unemployment rate itself ticking up to 4.3%. You, you just have a number of reasons to believe that the lag effect of tighter monetary policy may be having an impact into the real economy.

MAST: David, I'm no economist, other than being a home economist, but I've noticed that these reports often get revised, and many times it seems like it's for the worse. So why the revisions afterward? And what does that mean about what we know in real time?

BAHNSEN: Well, over longer periods of time, the revisions tend to not be for the worse or better, they tend to even out over a long period of time. There have been more that were revised downwards than upwards as of late, but that we're talking about, I think it's something like seven of the last 11 reports, so it's not an overwhelming majority, but nevertheless, that's a sort of necessary evil in data collection, because these are moving parts. There's complicated elements to surveys, and there are seasonality factors that make it tricky. I can't predict if these numbers will get revised downward or upward, but I don't read a lot into that, to be honest. I think we take the data as it comes, and then we look for verifying data, and that's why the ADP report, the weekly jobless claims, we have a number of different ways to measure the labor market, besides the monthly BLS report.

MAST: Turning to the Fed, it met last week and did not cut interest rates, but there was talk of the potential for multiple cuts in the future. That was before the jobs report and the market turbulence on Friday. Can you explain what the meeting means, both for now and then if cuts do come?

BAHNSEN: Well, cuts are certainly coming and and so it's completely, totally priced in at this point. There's a 100% chance of a cut in September. In the actual financial market, real futures transactions, about 78% is implied probability of a quarter point cut in September. But then that means that there's a 22% chance of a half a point rate cut. I would imagine they'll stick with just a quarter point. I think this Fed tends to be more measured. But then we get to December, and now you're talking about a very, very good chance of a by then, that there will been three cuts. And so the odds of softer rate policy coming are very, very high.

The big question mark, really, for markets will be 2025, what the Fed will do going into next year. And this is where there's a lot of confusion in the way people think about financial markets is they think, Oh, well, higher rates is bad and lower rates is good. But most of the time, when the Fed begins cutting rates, the markets don't like it. And you say, Well, why wouldn't the Fed like lower rates? Well, they surely do. But the reason that rates are being cut is the issue. There's something to do with economic softness, maybe like what we saw in the jobs report on Friday, for example. And so if the Fed is cutting rates and playing catch up to a weaker economy, that could be weighing on corporate profits, and the market wouldn't like that.

So all that to say for listeners, the Fed is going to be cutting rates by end of the year, and they're going to be cutting rates next year, the question will be if they're playing catch up, or if they are reasonably ahead of the curve, and listeners don't know the answer to that. I don't know the answer to that. And you know who else doesn't know the answer to that? The Fed.

MAST: A two-parter here for Defining Terms, David. You wrote in WORLD Opinions recently about a Parallel Economy and the arguments for and against it. Could you first, define what a parallel economy is and then walk us through your thoughts on whether it's a good idea to pursue it?

BAHNSEN: Well, I think that defining a parallel economy is sort of part of my critique is that I don't think it actually exists. But what those who use the term are referring to is some version of a substitute economy, an insular economy, where a particular group would decide that they want to as much as possible, try to limit economic activity to people of their, you know, kind of niche. In the context we're talking about, over the last several years, Christians trying to have a parallel economy where they're only transacting with other Christians or or conservatives trying to only transact conservatives, stay clear of all the woke stuff, or cancel culture stuff, or some of the various hot topic cultural issues that surfaced out of 2020 for example, there's been other examples of versions of parallel economy in the past that didn't involve a faith niche or a political cultural niche.

For example, certain African American communities have talked about trying to create a parallel economy to support fell other black owned businesses, things like that. So that's what one means by the term. But again, my critique comes from the fact that it not only is something that I don't believe is necessary or advisable, it isn't possible, and it isn't even remotely possible. It isn't like, well, we could get 95% of our transactions done just with other believers. And so we could be only buying Christian coffee and Christian chicken and Christian eggs and and we would be free of, you know, supporting non-Christians in commerce, because in the interconnectedness of our modern economy, our supply chain, there we should be so grateful that Jesus said to us to be in the world, but not of it, because being in the world necessarily involves so many millions of ways in which our economic activity is touching others, and the transactions that we're doing or touching, transactions that others are doing, that simply couldn't be parallelized.

And so the point I made in the article for world is that this is the reality of the economy, and it's a good thing that God, by His grace, bestowed upon us out of the fall, out of the Garden of Eden in this concept of original sin, I believe there is an antithesis between those who are of the Lord and those who are not. And yet God, to preserve us, to help us flourish, allowed that even those who are not of the Lord, can do good heart surgeries, can make good dinner, can create and innovate as as part of God's creation, as part of God's mankind contribute to the economy. And so there is a sense in which this notion of common grace is so important, and I don't think we need to fear it. I don't think we need to flee from it. And that's what I mean in terms of the parallel economy that it not only doesn't really exist, it doesn't need to.

MAST: Okay, David Bahnsen is founder, managing partner and chief investment officer of the Bahnsen Group. You can check out David's latest book, Full-Time: Work and the Meaning of Life at fulltimebook.com Have a great week, David!

BAHNSEN: Thanks so much. Great to be with you.

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