Signals and noise

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MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and advisor David Bahnsen. David heads up the wealth management firm the Bahnsen Group, and he is here now. 

Good morning, David!

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

EICHER: Well David, let’s begin with the obvious headline—with energy stocks on a big run and oil prices jumping on the Iran situation last week (and today, wow, it's going to be very interesting and important day given the rescue of the pilot and the warning the president has given to Iran).

Now, of course, we’ve seen things like this before, where geopolitical events can move prices pretty quickly in one direction or the other. But it’s really tempting to treat energy as purely a geopolitical story—but you argue in Dividend Café that’s exactly the wrong way to think about it.

Tell us why.

BAHNSEN: Well, what I’m acknowledging is that some of the recent move is obviously connected to the tailwind of what is happening in Iran, and that there are geopolitical events from time to time that can either serve as headwinds or tailwinds to the energy story.

But then you become a trader, and you become, in your investment thesis, somewhat enslaved to the headlines. The headlines are extremely volatile and unpredictable themselves, including in this very moment we find ourselves in with the Middle Eastern tensions. This thing could go on for four more months, it could be done in four more hours, and it, you know, has a whole lot of possibilities in between those things.

And believing that energy investment at a high level, just broadly defined energy investment, is a good or bad investment based on whether or not there’s a supply shock out of a geopolitical turmoil event, I think is very dangerous, and I think it misses a much larger point about the way God made the world and the way economic growth comes to be.

That essentially what we have properly understood historically, physically, and certainly economically—and again, I tie all these things, Nick, to creationally—is that economic growth comes from energy being transformed, and that as it is transformed, things in the physical universe become more valuable, that it unlocks value.

And we see this in a very obvious and profound level with coal in the industrial revolution, and we understand what electricity has meant, but we can talk about it with oil and gas, and there are unbelievable world-changing events in the energy world that have come from oil and gas. But by and large, I really believe we need to understand the importance—not just in a moment where there’s a supply shock in the Strait of Hormuz—but permanently understand, because in times of peace, in times of geopolitical bliss, there are people that have spent the last six to ten years trying to take away our abundance of energy, and what that means is take away economic growth.

And so I’m connecting a lot of dots here, but none of them are unimportant.

EICHER: Oh, absolutely David, and there’s quite a lot to get to, so let me move to the jobs report. I actually pulled a year’s worth of these government reports—just to try to put together for myself kind of a coherent, fuller picture.

Because when you look at the March jobs report headline that came out Friday, it really looked strong in the sense of beating expectations—but the month prior was negative, and we’ve been talking now for a while about labor shortages and labor participation issues. So really, instead of my take, let me ask for yours—when you zoom out over that year, where do you think we really are right now in the jobs picture?

BAHNSEN: Well, there—look, the labor participation force and the JOLTS, the job openings, those are two very different things, although they can overlap to some degree.

But the labor participation force declining is a very long-term story that has played out over the last 17 years and shows no signs of getting better, and does show plenty of signs of worsening. And it just simply refers to the amount of people that become kind of permanently removed from the labor force.

The job openings, when they get higher than what are people are looking for jobs, that may not necessarily be about labor participation force, but it may be about a surge of employers needing part-time work, needing temporary work, or just hiring a bunch of new positions.

In 2022 you saw a lot of that, but remember there were a lot of layoffs in the COVID moment, and so out of the reopening of our economy, it increased a lot of demand for labor, and then you had a limited supply—whether or not that was permanently out of the labor force, or a reflection of all the people that took government money in 2020 and '21 and the extended unemployment and so forth. There was a mismatch there that was very problematic.

So I have most of my focus professionally and ideologically, is on these longer-term issues that bother me a great deal, and then there's various historical anecdotes that we could look at.

But I think you’re asking about right now, where are we? And the jobs report that came out Friday on the holiday had a headline of being above expectations, which was true. 

It pains me to hear 178,000 being an above-expectation number, because we really want to see 200 to 250 as kind of the baseline. But then you look under the hood, and it was no less than three reports I read this weekend all indicating that the entirety of the upside surprise came from the very sectors that are the most often revised. And I think that this report is probably set up for a future downward revision.

But any headline of higher-than-expected job growth, considering the vulnerability that we’ve been in and so forth, I think is a good thing. 

And the weekly jobless claims continue to not be moving higher, indicating that we still seem frozen where there is not great new hiring, but there is not yet great firing. And that’s the issue that I just pray doesn’t break, because once employers decide the economy is precarious enough, we need to start laying people off, that obviously is generally the precondition to recession.

EICHER: Well David, there was not a ton of commentary on the jobs report, and one of the few I saw was in The Wall Street Journal. It made the point, digging into the March jobs numbers, that one of the bright spots was the decline in government jobs. Meaning that to get to the positive—private, productive-sector jobs had to outpace government losses. 

So maybe I’m just looking for bright spots there, but do you find yourself agreeing with that argument?

BAHNSEN: Yeah, but let’s be—in the right context I do.

I mean, there’s two sides to the coin. If all you had in job growth was governmental jobs, like in a real hyper-Keynesian moment, then that should be less encouraging than otherwise would be. And likewise, if a lot of the job losses are highlighted in government jobs, that should be less encouraging than otherwise from the vantage point of productivity.

However, in this particular case, a lot of the governmental jobs are people taking early retirement, not moving the productive parts of the economy. And you also then do see the positive job growth that’s offsetting it, largely in hospitality, and food and beverage, and other service spaces that are lower wage; technology—and then this is a thing that just, the tariff fans should be so unbelievably chastened by—is the manufacturing jobs just continue to be going down, not up.

EICHER: We haven’t talked about the Fed in a little bit, so I took a look at the FedWatch futures—looking forward across the rest of this calendar year 2026. I have to say, I was surprised to see that the markets essentially are pricing in zero rate cuts at all for the entirety of 2026.

Do you actually agree with that—that the base case right now is just a hold on an interest rate we all know remains restrictive?

BAHNSEN: Yeah, it’s kind of asymmetrical, where the base case in the futures market continues to be that there will be no change. There’s a slightly better than 10% that there will be one cut, and slightly less than 10% that there will be an increase.

And so it’s essentially the futures pricing and the idea of it all staying the same.

It’s extremely rare for me to be taking a position outside of the futures, but I continue to believe that Chairman Warsh—at whatever his first meeting is, the timing of which is a little unclear right now because of what Senator Tillis is going to do to hold up the nomination until they stop this nonsense against Chairman Powell—but I still think Warsh will end up getting installed around the end of the May meeting, going into early June.

And I honestly, Nick, would just be shocked if he doesn’t cut rates at his first meeting. I’d be shocked. But the futures are saying he’s not going to.

EICHER: Yeah, but he’s got to have the votes to do that, he can’t just do it by himself.

BAHNSEN: Well, that’s theoretically true, but there is no precedent at all for the committee going against the chair.

So that is right—it would be a pretty interesting thing, what it would mean to the legitimacy and the mandate of the chairmanship, if in his very first meeting he was voting with the minority when it’s never happened in Fed history.

So we may get a little more Fed drama. For those of us that have felt like we were kind of past it the last couple of months, we may be getting more of it. We’ll see.

EICHER: Yeah, we will.

David Bahnsen is the founder, managing partner and chief investment officer of the Bahnsen Group. He writes at DividendCafe.com and for WORLD Opinions.

David, I hope you have a great week, and I trust you had a wonderful Easter rejoicing in the truth that Christ has risen.

BAHNSEN: Amen. Thanks so much, Nick.

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