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Who Wins During Stagflation?

Jim Collins is baffled by the markets' reaction to the latest U.S. non-farm payrolls report.

TheStreet’s Jim Collins took no prisoners with Friday’s new job report.

For the record, the U.S. labor market added 194,00 jobs for the month, which underperformed economists’ expectations. On the upside, the nation’s unemployment rate slipped four-tenths to a pandemic era low of 4.8 percent, with the number of unemployed persons falling by 710,000 to a still-elevated 7.7 million.

Collins sees the report as an unmitigated disaster.

“We are in the Bizarro World,” Collins wrote recently on Real Money. “This morning's [Friday’s] job report was an absolute stinker. Huge miss on the headline payroll number, weak participation rate, which flattens the unemployment percentage, and the grinding increases in wages that are true of every major corporate cost these days....The conclusion is simple – stagflation.”

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Friday morning, when stocks were up modestly, the yield on the 10-year UST had also jumped sharply, which appears contradictory. “The weaker than expected jobs report - as Jim Cramer always notes, non-farm payrolls is THE most important data of any month - and stocks rise and bonds fall,” Collins said. “What is going on here?”

“On such a disappointing print, stocks should be falling, and bonds should be rising (yields falling),” he said. “But the opposite is occurring. I attribute that to the weird cult of Janet and Jerome that has enveloped Wall Street. Janet and Jerome have never created a job. She's a long-time government functionary, and his background is in private equity, which typically destroys more jobs at acquired companies than it creates.”

“But that's who we worship these days – it’s such nonsense.”

While the S&P 500 did eventually end Friday modestly lower, the truth, according to Collins, is that the U.S economy is gripped by a case of stagflation not seen since the 1970s. “That may help stocks on a nominal basis, but on a real basis it really only helps companies that benefit from inflation,” Collins said. “Commodities and lightly-processed commodities, such as fertilizers. And the shippers of those commodities, both energy and dry bulk.”

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