Working Through the Fake 'Boom' Times

Walmart will pay for college... An employee's market... Fewer jobs and fewer people seeking them... Working through the fake 'boom' times... When unemployment benefits run out... The most likely outcome...

In late July, Walmart (WMT) took an extraordinary step...

The giant, ubiquitous retailer – whose blue-branded storefronts, wide aisles, and shelves stocked with just about everything – announced it will pay 100% of its employees' college tuition.

The announcement hit us over the head like a large stimulus check.

What seems like an out-of-this-world concept is now written in the employee handbook for the nation's largest private employer...

Roughly 1.5 million part-time and full-time Walmart (and Sam's Club) employees (and any future ones) can go to college right now and not pay a single dime... That's pretty staggering if you think about it.

What a bonanza to anyone willing to take advantage...

And as I (Corey McLaughlin) will explain in today's Digest, this move could be a sign of a big corporate trend to come – for an economy that will need juice in the months and years ahead... and it signals more inflation on the way too.

But first...

Walmart's decision didn't happen from nowhere...

Since 2018, the company has offered to pay the college tuition of its employees for a "$1 per day fee" to attend one of 50 different college programs after 90 days on the job.

But even those slim barriers are gone now... The cost is $0... and employees are eligible for the benefit on their first day of work.

Why the changes now?

Walmart executives did not decide this purely out of the kindness of their hearts. No, there was a significant catalyst... the economy and today's job market in particular...

According to the announcement published on Walmart's website in July about its updated Live Better U ("LBU") education program...

The LBU program was initially designed after consulting with experts, reviewing other employer-provided education programs and studying the research around what helps drive completion rates among adult working learners. This helped guide the initial $1 a day approach, but the economy and job market have changed, and Walmart is always looking for new ways to encourage more associates to pursue further education.

In other words, they need workers... and because of this, the company is willing to pony up bigger benefits to lure people into working in their stores... and maybe developing into management or other roles.

Walmart is also adding offerings for degree certificates in business administration, supply chain, and cybersecurity. Said Lorraine Stomski, Walmart's senior vice president of learning and leadership (interesting title!)...

Our education offerings tie directly to our growth areas at Walmart, and what better way to fill the pipeline of future talent than with our own associates.

A lot of other companies and industries today are in the same boat, though not all are capable of doing what Walmart is doing – investing what it says will be $1 billion over the next five years in career training and development.

But the point is, sometimes an economy favors the employer, sometimes the employee... Today, for a variety of reasons, it's the employee...

Ten million jobs are available today in the U.S... 8.4 million people are unemployed...

That's according to the latest data from the Bureau of Labor Statistics ("BLS"), released on Friday.

In typical circumstances, these numbers would signal a booming economy... and they do, to some degree, reflect that.

In similar times, companies would hire the unemployed, perhaps offering higher wages or extra benefits to lure them on staff.

This part of the equation is happening today... as we see with decisions by Walmart... and its retail competitor Target (TGT), which announced a nearly identical free college tuition benefit last month.

In May, fast-casual dining company Chipotle (CMG) notably raised wages to $15 per hour on average... and raised menu prices some to cover the costs – which is the other side of this story, inflation.

But today, 18 months on from the start of the pandemic, a significant chunk of workers who lost their jobs because of the ensuing shutdowns still haven't returned to the workforce... Not necessarily because there are no jobs, but because many have essentially been paid not to work.

With the fake money comes the fake boom times. And, in fact, last month's job growth slowed significantly. As Stansberry NewsWire editor C. Scott Garliss reported on Friday...

The Bureau of Labor Statistics' nonfarm payroll data for August showed 235,000 new hires versus the expectation for 733,000 and the prior month's upwardly revised 1.05 million. That's a signal the pace of economic growth is slowing.

We hesitate to read too much into the government numbers...

There are always nuances that they don't cover, and this type of economic data is backward looking, but the numbers do show some important points about today's economy...

First, as Scott wrote on Friday, sectors like retail, restaurants, and hotels took a big hit in August from any recovery they might have been enjoying. As Delta variant numbers grew in different parts of the country, jobs numbers were hurt.

The U.S. retail sector actually lost 29,000 jobs in August, and "leisure and hospitality" didn't add any new workers after averaging 350,000 new hires for the previous six months. From Scott...

Those two numbers combined would have added 379,000 jobs back to the headline figures. That means a number around 614,000. That would have kept pace with the average gain of 586,000 we've seen since the beginning of this year.

That squares with about 400,000 people telling the BLS that they couldn't work due to "pandemic-related reasons," pushing that total up to 5.6 million.

Point being, "COVID sensitive" industries like in-person shopping and eating and drinking had an outsized influence on the latest jobs numbers "miss"...

Overall, there are still 5 million fewer available jobs compared to the start of the pandemic...

And at the same time, according to BLS data, there are 4.9 million more people who aren't looking for work than there were before the pandemic...

Some retired – 3.6 million people retired during the pandemic, 2 million more than expected in the same time frame. Some quit and haven't gone back – resignations are up 13% over pre-pandemic levels.

That suggests ongoing problems... or at least a new reality. No doubt "work from home" trends – which we wrote about extensively in spring 2020, like those "work sheds" – are here to stay...

Technology has kept a lot of companies alive during the pandemic, yet it's also a deflationary force – allowing more to be done with less.

Add it all up, and there are fewer jobs and fewer people seeking them...

But that may change soon. As in, this week...

You may have seen the news that all those enhanced unemployment benefits that went into effect in March 2020 expired yesterday (on Labor Day, ironically).

More than 12 million people who were collecting unemployment insurance as of mid-August will now lose the extra $300 per week they were getting...

The group on unemployment includes 5.4 million people covered under the Pandemic Unemployment Assistance program, which supports freelancers and gig workers, and 3.8 million under the Pandemic Emergency Unemployment Compensation program, which covers long-term unemployed.

The think tank Century Foundation estimates that 7.5 million workers lost benefits altogether when they expired yesterday.

So, in short, people should want to go back to work again... and while there are fewer jobs available than there were 18 months ago, there are more openings too (1.5 million)... and private benefits to be had, rather than government ones.

When it comes down to it, there are a few likely outcomes from this scenario...

Fortunately, for motivated, nimble workers, there are opportunities to be had.

For instance, if I were a college-aged kid or adult wanting to change careers, I'd be eyeing up Walmart or Target for a part-time job today...

It used to be you that worked these kinds of jobs so you could pay for school... Now, you can work these kinds of jobs and your employer will pay for school...

It might take a few years to complete a degree, but the commitment will pay off in the long run.

What's more, some in-demand fields also have immediate openings today, if you know where to look.

The cybersecurity industry, for example, has more than 400,000 openings today.

In 2019, there were 1.4 million software engineering job openings in a field that pays a median average wage of $110,000 per year, according to the BLS. And these jobs have only become more important in the "work from home" world.

We just need to connect the dots...

One small software engineering firm in Baltimore, for instance, will train people from any walk of life on how to "code," pay them during a two-year apprenticeship program, then guarantee them a job paying nearly a $100,000 salary at the end of it.

Unfortunately, everything we've written today also points to one thing that can really eat away at your nest egg or investment portfolio of any kind: inflation...

In this environment, companies can go on with fewer employees than they'd like (but they take on the risk of struggling to keep up with demand and passing on supply shortages).

The alternative is to raise wages and add extra benefits, while also dealing with the lingering pandemic supply-chain issues... a combination which in most cases will inevitably lead to higher prices.

But here's the problem for anyone with a simple understanding of budgeting... Prices are rising faster than wages. According to the BLS, the average annual wage gain is 4.3%. The latest inflation reading is 5.4%. On balance, that is a pay cut.

And, in the meantime, the Federal Reserve will wait until it reaches some vague level of "maximum employment" to turn off the "easy money," near-zero-percent interest rate faucet again...

So, we land just about where we don't want to land...

Everything will be more expensive... wages, prices, stocks, college...

And anything that can't be nailed down to the ground will become less valuable, relatively speaking.

That includes dollars. This multidecade trend will not break today. We'll continue to get less bang for our buck than we did 18 months ago.

Eventually, on days like today, we'll be longing for the times when a gallon of milk went for $2.99.

At the same time, anything that is nailed down to the ground (or found in the ground) will become relatively more valuable – assets like gold, silver, art, and real estate.

These are things you want to own during inflationary, or fake boom, times.

This is when the value of real physical assets sparkles, as well as when the stocks of companies with strong pricing power can afford to raise prices, can still enjoy strong demand for their products or services, and can reward their shareholders.

On the real estate point in particular...

You might think today's slowly recovering job market, disappearing unemployment benefits, and the expiration of other benefits like eviction delays are cause for concern, specifically in a housing market that has seen huge tailwinds over the last year...

You might think real estate prices should cool off soon... but that would be a mistake, according to the folks behind our True Wealth Real Estate newsletter.

For one thing, today's job market, as we've explained today, gives the Fed an excuse for keeping its current, real-estate-friendly policies going, even in the face of higher inflation.

And second, as our colleagues Vic Lederman and Steve Sjuggerud will explain in a pair of special guest Digest essays over the next two days, there are bigger forces at play when it comes to higher housing prices.

Stay tuned for more details starting in tomorrow's Digest.

What if the Fed Gets It Wrong?

Clocktower Group's Marko Papic tells our editor-at-large Daniela Cambone he is closely watching when the Fed's taper will end, which will likely signal the rise of interest rates. If the central bank misjudges this, it can come with harsh consequences.

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

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In today's mailbag, a variety of feedback on the "wealth gap," inflation, socialism, and Dan Ferris' latest Friday Digest... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I think to decry the increase in the wealth of the top 1% of earners or of owners is misleading sometimes, and one of those times is now. The reason for the increase is often due to newly soaring stock prices in which the wealthy are invested, and accordingly, Jeff Bezos has become the world's richest man in the last year.

"As you undoubtedly know, the smaller the group that you choose to include as the 'top' few, the greater their per-person ownership of the nation. However, one percent is a broad group including many persons who labor hard every day at long hours – persons like my friend, a surgeon. You will never have surgeons unless you allow them to make a high income, because their lives are too grueling for most people to cope with, beginning from long years of training while impoverished, with delay of developing ordinary American family lives, followed by long hours in the office and O.R., with exhausting night work when on call. This lifestyle prevents many of them from participating in common American pleasures... You belittle this when you complain about the 1%. Most of the top 1% are business persons or professionals with commitments to their work that dominate their lives, like my surgeon friend, and without such commitment their employees and coworkers would lose their jobs.

"If you want to criticize the wealthy, or to criticize our society because of the increase in the wealth of the superrich, then you should identify the specific features of our economy that you consider to be unfair or morally wrong involving the accumulation of wealth, so as to be fair to those who have earned their lesser wealth by virtues of skillful commitments to others. 'One percent' is misleading. Don't you really mean to decry the top 0.001%?" – Paid-up subscriber Roger V.

"There is no question that inflation hurts the middle to lower class a lot worse than it does the wealthy. The $1.9 trillion ARP and the other stimulus plans have created an inflationary bubble as these payments were given to everyone regardless of the pandemic's impact on their personal finances. Therefore, this was just 'found money' for a large portion of the recipients. This additional money along with unrealistic low interest rates has fueled the flight to risk assets.

"At some point in the future, the unrealistic valuations on both homes and risk assets will turn around and hurt the 'last man standing.' These stimulus bills and uncontrolled government spending by both parties cannot go on forever and the accumulated debt of the federal and state government will need to be dealt with. This can only result in hyperinflation or debt cancellation." – Paid-up subscriber William B.

"People will never learn Thatcher's statement about our running out of other people's money. That is why democracy and republics run out of money – is that we think the money comes from somewhere. But it cannot come from 'me'! – Paid-up subscriber Jim C.

"Hey, Dan, Soros doesn't make public statements to try and convince people on some form of lofty morals or publicly useful insights. He has positions that will do well if people continue to be reluctant to believe that Chinese stocks are too risky relative to others. Just follow the money like he does." – Paid-up subscriber Bill W.

"Soros is a sleezebag of the worst ilk. He will lie when making an investment. It would not surprise me if he is buying Chinese stocks and wants to temporarily drive down the market. He will change his tune after he has completed his purchases. This is nicely summarized by his 'changing his mind' quote." – Paid-up subscriber John K.

"What you are discussing in your column is the 'Hegelian dialect'. As the German philosopher has written all things tend to their opposite. This is the part of the dynamics that causes perpetuity, to an extent." – Paid-up subscriber Rich B.

During the 1980s I lived for a short while in Poland, very soon before the fall of communism. Life was difficult with shortages of everything, all of which gave me a fairly negative view of state-run economies. Oddly enough, my Polish cousins, who lived considerably longer under this system, though they don't speak about it often, don't have much bad to say about communism. One supports Russian president Putin, of all people, saying that he acts as a bulwark against western expansionism seeking to privatize, under western control, Russia's vast oil reserves. Another states that with his current labourer wages he would never be able to afford the spa retreats periodically afforded him under the communist system. He also states that Poland was not badly off until one Polish president accepted US development loans, after which all foreign currency had to be used to repay these loans.

"During the 1980s, I also lived in France at a time where I as a foreign worker had to book a time at the post office to make long distance calls. Two years ago, I returned to France on vacation and was astounded at how this socialist country had leaped into the future, its standard of living superior to North American standards by a considerable margin.

"In general, I do not like most of the actions taken by the new Chinese President Xi. I have also suffered reverses in the value of my China investments as a result of his recent various crackdowns. In this case however it is hard to critique his stated goals of protecting individual privacy from corporate overreach, and of sharing more equitably the benefits of the wealth created by these large Chinese corporations. It's not great for investors like me, but it may be better for individual Chinese, and I wish Western governments showed the same concern for their citizens. As for the benefits of free markets, I agree completely with Dan Ferris that the Reagan-Thatcher free-market reforms are great for investors. I'm just not sure they're that good for anyone else." – Paid-up subscriber David D.

"George Soros criticizing warning about a 'one-party state'? I thought I was reading The Onion for a second. Getting harder and harder to parody those folks." – Paid-up subscriber Gary S.

"Thanks. This is a very good wake up call to me to not let my biases rule my financial decisions." – Paid-up subscriber Ravi S.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 7, 2021