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Bernanke: "Long Live the Carry Trade!"
The jobs report turned the market hard on Friday. A 2 big figure gain
on the Euro and $50 on the gold price tells it all. Based on the
employment data it is very hard to believe that US interest rates can
remain at zero for much longer. But that is exactly what is going to
happen. The carry trade is alive and well and will resurface as a
dominant market factor. It is just going to take a bit for the power of
zero cost debt to start driving the money flows.
My totally non blue chip economic forecast for GDP goes as follows:
4th Q 2009 = 4%
1st Q 2010 = 4.5%!!
2nd Q 2010 = 2.5%
3rd Q 2010 = 1%
4th Q 2010 = 0%
These numbers are not too far from the thinking at Goldman. They see
things chugging along and then slowing. My numbers are more extreme
then theirs for end of 2010. My guess is that we are going to hit a
wall sometime around mid-year. By then most of the monetary and fiscal
stimulus will be gone. Without the oxygen we are are going to stall.
Bernanke has stuck to his guns and set out a timetable for the end of
the Agency purchases as “March”. This certainly means that there will
be no increase in the Funds target until at least then. After that it
gets a bit murky. The Fed Funds Futures closed Friday at levels that I
think are a pretty reasonable assessment of what might happen. My read
on what those numbers say:
-It is a pretty decent bet (70-30) that the Funds rate will be increased 25BP by June.
-It is almost certain that the Funds target will go up 25BP by August of 2009.
Let’s say that that is wrong. Take a scenario with a more
extreme outcome than suggested by the futures market. Assume Ben shows
his muscle and tightens the Funds rate by a whopping 50BP by September
1st. Who cares? That is nothing.
So now it is September 2010, the economy is again clearly decelerating.
Unemployment will be at best 9%. Does anyone think that Bernanke will
increase rates by more than 50BP given the economic backdrop that he
will be looking at? Not a chance.
When people get to understand that this low rate environment is going
to be with us for a long time, the seduction of the carry trade will
again be the dominant theme.
The price action on Friday killed the leveraged players. I talked with
a lady on Friday night. She runs big money in liquid macro trades. She
got beat up. She said,
“ The carry trade is like an orchid. It looks beautiful, but when you get too close it smells like rotting meat”.
The rest of the conversation was about timing and entry points to put the trade back on. Nothing has changed.
»
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It's all bull shit
all further analysis is masturbation
we've been swallowed by a boa constrictor
digestion is underway
"Bernanke has stuck to his guns and set out a timetable for the end of the Agency purchases as “March”. This certainly means that there will be no increase in the Funds target until at least then."
IMHO
Bernanke is sticking to his script and promising a timetable for the end of the Agency purchases as "March" until his reconfirmation as Master of Dollar Doom is done. Then, in a perfect logic cycle he will declare "things have changed" (ie he is now confirmed as opposed to not-yet-confirmed). Since his confirmation, in keeping with the fabulous track record of the Fed of "foreseeing things", can only be considered "an unforeseeable disaster" - then QE will be jacked up hard by Bernanke to compensate for the disaster of him being re-annointed.
Ipso facto quantor litmus destructibus est
Namke von Federlein
North American(sans Mexicrapico) Autarky solves everything.
Bye Bye Asia
However, wars of gigantic violence may ensue.
I suspect we will pull up the ramps (declaring it all in response to things "they" all do to us) and go back into the isolationist mode that was the most frequent way we looked at the world throughout our history.
That will mean we see an increase in jobs as we remanufacture...albeit to a smaller market at smaller wages...but everyone will have the dignity of some work...it will be just like 1947 -1952 for three decades until a new generation forgets and or repairs and then starts the cycle over again
Buenos Aires Ben will raise rates the nice way or the hard way.
The carry trade, properly done is based on more than just interest rate differentials. You need compressing credit spreads, reasonably stable equity markets, a falling or steady VIX, stable or at least orderly FX markets with stable volatility, investor demand for Emerging Markets and so on. So far thats worked and so has the carry trade but if you base your expectations solely on the FED keeping rates low for longer than anticipated you're asking to have your head blown off by the market.
some interesting analysis from ECRI
http://www.npr.org/templates/story/story.php?storyId=121087285
http://www.businesscycle.com/news/press/1645/
Leo - by any chance have you read Amity Schlaes' "The Forgotten Man"? Seeing as you are fan of Brookings, I would doubt it, but it makes clear that UNCERTAINTY is a major factor in private sector growth. When you have an activist Administration - and who (besides maybe Brookings) would deny that we do - business owners, especially small to mid-size enterprises have a subconscious desire to hunker down and constantly await "the other shoe". Obama, very much like FDR, engenders this survival response amongst entrepreneurs who aren't privy to most favored status, i.e. most of them. Again, you seem like a likeable sort, but an incredibly pie-eyed little true believer.
Check...thats what I hear all over. CEO's waiting for the other shoe to drop and despising all politicians and the financial industry
Ben will not raise the overnight (usually, but can be 30-60 day terms) lending rate unless the 3 month treasury bill rises. The fed follows the 3 month treasury bill, not vice versa. If we were indeed in an expansion (or heading into one), the Fed would "set" interest rates, or the Fed Funds rate, under the 3 month T-bill to encourage borrowing via a spread. Currently the 3 month treasury is near zero and the Fed Funds rate is 0 to 0.25%, effectively 0.25%. This is deflationary. The Fed is offsetting this (so the banks won't all fail immediately) by paying the banks a quarter point on excess reserves via congress authorization (on the backs of middle class). If the world (not the Fed) decides that it wants a higher rate of return on 3 month cash (because things start to pick up) the Fed will follow the rate up and increase the overnight lending rate. This is how it normally would happen. In reality, the Feds counterfeiting operation is broken, i.e. 1) toxic assets still on banks balance sheets and 2) consumer broke and deleveraging. So they are more likely to raise the interest paid on excess reserves if congress will allow them to do so (steal more from taxpayer). Banks can just sit there while there balance sheet unwinds and the middle class rots. Also note, toxic assets are becoming more toxic, and consumers are experiencing no wage inflation while at the same time paying more for energy and food. In the end, the Fed will likely NOT raise short term rates in the next year, but will this allow the supply of money (debt) to run rampant? No, the counterfeiting machine is broken. The Feds purchasing of MBS is only preventing the mortgage market from collapsing right now while at the same time weakening the dollar (further killing the middle class). The Feds relatively small monetization of 300 bill treasury purchase is simply being used as excess liquidity to gun equities higher. Problem is, that when cash flows in the real world are decreasing via job losses and corporate bankruptcies, someone will sooner or later HAVE TO SELL, and when the selling really kicks in, it won't stop.
In the interim, the govt is attempting to replace a small part of the Fed's counterfeiting operation with "stimulus". This could be inflationary if 1) the govt issued its own cash and 2) the stimulus was big enough. Since neither is the case, the govt is simply creating more debt and allocating it in an inefficient manner, like the govt usually does. How much more debt US debt can the world withstand? I say not much more because EVERYONE can not be an exporter at the same time, and countries will be forced to buy their own debt just to stay afloat. In the meantime, interest expense goes up, up, and away. The only thing holding this together is the Fed and primary dealer henchmen. But a wildcard as always is one derivative, or more specifically, interest rate swap blowup to be caused by a "disagreement" amongst nations about how much US debt is worth. The clock is ticking.
Thank you John. Enjoyed the clarity of the post and obviously agree with your analysis
I think maybe you guys think that the very low interest rates are getting converted into many very real loans to those many real economy investments that show great liklihood of generating real rates of return and from there ...actual real economy growth in excess of defaults, workouts and bankruptcies?
Hint: They are not. Not this "economic recession" Not this time.
Sorry
Was just reading a report on India's food price inflation and the consequent rise of hunger among the poor. Perhaps genocide is one of Zimbabwean Ben's ultimate goal. Hoocadanown
This is Japan on steroids. The FED will n.o.t. raise interest rates for the next 2 years, they have repeatedly been very clear about that. Jawboning yes, actions no. What Ben hopes to accomplish is a "managed" USD slide, with neglible equity fall. He will not succes but boy does he try.
Gold settle is the canary, regardless of price. On outstanding contracts COMEX will be blown to bits by March at the latest, and when that happens all sorts of shit will hit all sorts of fans. On that fallout alone USD can rise from whatever low base it is then, and then QE 2.0 will start. Moreover, Ben can argue by then that higher interest rates "will be detrimental going forward bla bla bla". IMHO Ben has 2 objectives only: lower USD and even lower USD.
The Fed will not raise rates, however the markets will. Especially with the amount of debt that has to be refinanced. The Fed will be in a reactive mode, not in control, when all of the recently issued treasuries come due in the next two years and they can find no buyers.
You're missing the fundamentals on the ground.
The "jobs" report was a total massage by the BLS to forestall complete collapse. For a better U3 number, substitute the ADP payrolls report which was a more realistic -109,000.
And every other fundamental indicator was negative.
My completely unscientific forecast is:
Q4 2009 = 2.5%
Q1 2010 = 2.0%
Q2 2010 = 1.5%
Q3 2010 = (1.5%)
Q4 2010 = (2.5%)
1932 here we come.
Please read this comment from the Brookings Institution, Positive News in the November Employment Report:
Brookings is a non-profit organization that delivers excellent impartial analysis. If you doubt we are turning the corner, read the above comment carefully because it clearly demonstrates that fundamentals are improving in the US labor market.
Leo,
Good data.
But, I am reminded of a scene from the capital building, where the congressman all nod in unison to good data. The point being, is that they just need to ask one question about the data provided, to reveal more of the truth.
The Brooking's technique used is common, provide some good facts, and then draw a conclusion. However, the conclusions provided are not justified based on the data presented, or context of a new paradigm. The conclusion is really just an opinion, and many times upon closer inspection, are full of holes.
Based on our understanding, just ask some logical questions and see if the data provided addresses them.
For example:
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The unemployment rate is down. OK why?
Perhaps, some unemployed people are not being counted? maybe falling off of the roles?
If employers cut any more, they cannot operate effectively?
Increase in employment activity is due to stimulus?
Are these questions properly addressed? No not really.
What we do know is that we no longer have a functioning economy, and data garnered from this "thing", is perhaps not valid in terms of comparing historical trends. That is why many of the actions the Administration and FED undertake do not show results. The policies do not address root cause, and worse, skew any data derived from this new thing that they have created.
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Increase worker income will not increase spending, unless the worker is able and willing to spend. Meaning, de-leveraged of debt and unwilling to save.
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The reason temp service are up is that companies do not fell confident enough to hire direct, or a direct hire is just too expensive. So this is a result of companies trying to save costs, and not a sign of recovery.
The key here is the word they used was healthy. Well what does this mean? Why don't just give me the percentage or the actual data, rather than use the word healthy? Also stated, "based on past experience", but we have good reason to doubt that the past is relevant to our current situation.
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Anyway, I do not wish to be pessimistic in my outlook. However, we need to dig a little deeper when presented with strong conclusions.
Mark Beck
Leo,
Please read about the retail industry.
Please have the neice of some Senator do the same before they do a write up for the Brookings Institute....an institute famous for foreign policy analysis and given that consulting revenues and donations are down ...now trying to expand like all the other think tanks are.
If you have ever invested to own, roll up and flip in the Temporary Staffing Industry, you would know that November is the peak season for retail and warehouse pick pack and ship jobs in the temporary hiring industry....every year since World War II. Even in recessions...its the best month for those jobs and tons of them.
In fact Leo, the number reported as added this year is low
Oddly, the amount of overtime and hours worked in warehouses, retail, trucking, light manufacturing, packing plants, paper product plants, coupon and advertising flyer print companies, pallet making plants and shrink wrapping plants and temporary security is also at its peak in November and December. ALL ARE SEASONAL and often temporary workers at MINIMUM WAGE. EVEN THE PERMENENT EMPLOYEES ARE VERY LOW PAID IN THOSE INDUSTRIES.
Here is a clue: Go to the mall. Look at the Holiday Hours posted on every store window. Compare and contrast to the typical hours. Multiply by all stores across the land.
Now...here is where economics gets really confusing: If those stores do not sell as much as they did last year...all those hours are an expense without a corresponding increase in profits....so cash is tighter and ability to pay back is lower and since retail often is underwater from January until Black Friday (the day they often cross over into the BLACK for the year) they have to cut back on people and staffing and new inventory even more than ever before.
All these jobs go out the window on December 24th and some in the weeks before that.
Notice also that the prime sectors we need to increase to signal a real recovery (manufacturing, IT, etc jobs) went down and temporary and business service jobs (the ones whose peak is November every year) went up and notice the whole BLS report in total was contradicted by IRS Tax Receipts data, Trim Tabs and ADP data?
Wow...who could have thunk it...the unemployment number has to be ...like... analyzed before trends are announced.
Next...notice the retail season sales reports are pointing to a less than stellar buying season?
And please answer my questions in the post above....those are the questions that have to be answered to factually support the thesis you proposed about a rapid recovery in the unemployment data.
Leo, you will not find many, if any, corporations, public, or held by PE firms, planning on rapidly increasing employees based on any data they can find. The logistics and demand forecasting models and functions of the huge and sophisticated companies do not predict an uptick. DuPont makes plastic and nylon and coatings and finishes that are on everything and they do not predict an uptick....and they have to know. 3M makes very basic things and they do not predict an uptick. Air Products and Dow Chemical produce raw ingredients needed in everything...and they do not predict an uptick...so much so that none of the above are ordering raw material at a growth level. But the Brookings Institute...a non profit known for attributing peaceful intent to Putin...does...and you take their word for it?
Honestly, if there was a plausable scenario behind your thesis, I would support it for I have no vested interest whatsoever in anything but a good economy (I do not trade or invest in stock markets...I own companies I can control or nothing). I not only cannot see a way such optimistic forecasts as Bruce or yourself has made on this thread can come true....I cannot find any logically supported way it is reponsible for thinking there might be. None based on the on the ground reality of the cash flow situations of consumers or companies. The real economy still runs on cash. Make the case that is increasing and we can talk about gdp and employment growth. In an economy driven by the 73% of gdp that consumers purchase...tell me how incomes and consumer credit and ability to take on more debt than 124% of annual incomes are going to increase anytime soon and I'll believe what you are predicting
Listen to the investor guidance reports out of large corporations that buy from small companies that hire people....hear them talking 4.5% growth in the next quarters? Their jobs depend on giving pretty accurate forecasts.
Why listen to a think tank?
Go to Kohls or Target this week at 8:00PM. The stores are empty considering it is a Holiday Season. Thats more accurate data than the report quoted above.
Hope a different perspective on this helps
Wondering, thanks for the post. I am not very familiar with the construction of the employment reports and the dates that are covered in the jobs report. What date do you expect the employment number to be released that will demonstrate that all these jobs were transitory (in other words, what date do you expect to be proven right)?
andrew,
I suspect it will be "corrected" often in the months ahead to demonstrate that things are "working"
One thing I would keep in mind is that the BLS issues an advisory letter each October indicating which assumptions it has made during the year may get corrected when the "final numbers" are issued the following February/March. This last October they indicated that they have been underestimating unemployment by some 800,000 so far this year. So thats one "adjustment" we already know needs to be incorporated.
The truth is that U1 is both based on a "survey" and based on an estimations and based on seasonal adjustments and influenced by political considerations.
U6 is a bettter indicator of the health of the economy, imho
Thanks for this information. Great to see a perspective like yours. For me, your 'boots on the ground' information is more important than anything a think tank could come up with.
I must be a lousy writer. Folks seem to be missing my point here. Yes I see growth in the immediate future. But mine is most certainly not a bullish outlook. Far from it. I think we are going to be bouncing back and forth around zero growth for the next five years. That is why I think Big Ben is going to keep rates at historically low levels for a very long time to come.
Bruce,
Very classy reply to a reply by me that was not classy. Please ascribe that to my anger at what I see is a very costly delay to wrestling with core issues by our leaders and a set of choices rooted in self interst that will grind away at out middle class and our young in the decades ahead.
I am sorry. Thats one of the most likely long term scenarios I see as well.
I think the first and second quarters will be much lower (+/- 1.5% once all the later in the year "re-statements" and adjustments are re-calculated) and the out quarters as you predict
Bruce, I get a chance to see business planning processes for 2010 for about 50 mid sized companies and I get exposed to the demand forecasts of about a dozen of our core companies in basic manufacturing, tech, utilities, agro chem and chemicals. I do not think there is a sector they do not consider, cover or have to make informed estimates about...and all are at the raw material or basic building block of the economy level. In every corner of the nation and globally as well
It is a uncertain, problematic, cash constrained, purchasing constrained, headcount reducing world out there.
I do not interact with traders, exotic financial instrument folks or the quants and the investment bankers only when its time for a merger, divestment or acquisition...although I was an analyst and a IB ages ago so I make no claim to have a good grasp at the level of sophistication I see on this site. I do have to have a decent grasp of what is going on in the world....and if I do not I wind up suffering for my poor decisons...so I come at these discussions from a different view than many others on the site.
I do respect the idea that I am often wrong, have a ton to learn and that we are all just trying to make sense of the chaotic data streaming at us 24/7.
Thank you Bruce. And once again, kudo's for a classy response
Thank you, Wondering. You seem to be looking at the same things I see.
The question remains unanswered, Leo-Bruce . Where is this growth you foresee coming from?
The growth I see occuring today and for the next few months has been 'bought' by stimulus. It has not been paid for. In some ways this is like stocks. If a company has a terrible quarter, then a year later reports ok numbers, people look at it and say, "Wow, compared to last year they are doing great!"
Same thing for US GDP. We are going to be comparing growth to a year ago, so the numbers ahead of will look good.Its about the comps.
I, for one, do not think that growth will be sustained without the non stop Bernanke life support efforts.
Thanks, Bruce. I agree that BB has to supply " all the ZIRP you can slurp" for some considerable time yet. I just don't believe we're gonna see the growth you see. Doesn't mean they won't report some, though ...
Thanks for the reply, Bruce. I think where our opinions differ is just whether or not we have reached past the point of diminishing returns on "all the ZIRP you can slurp". Completely agree there will be no rate hike for some time -just don't see growth resulting. Doesn't mean they won't report some, though...
Leo, Thanks for the info from Brookings. I have no qibble with this. I think the current quater is +4 and we can grow more in the 1st Q. So you and I are on the same page for the next 4-5 months. After that I do not see the basis for more growth.
If we get another stimulus package the drop off could be delayed for a while. But not long. The stimulus can't be very big this time. Even the White House understands that solvency is now the issue facing America.
So if we can't add to the debt we have to keep the cost of debt low, ergo my scenerio that we do not leave Bernanke's near zero interest rate policy.
PS: If Bernanke were to chime in on this discussion who's forecast would he back, yours or mine? Answer mine. So if it turns out you are the right one we are going to be in one hell of a pickle. If GDP averages 3.5% in 2010 you will have the ten year at 6% by year end. What would that do to the growth forecast. Answer: Bury it.
Non-profit? Brookings Institute has always been by definition an agenda based think tank with a craving for a greater understanding of human population control. I'm just an equity index futures trader, and have been for nearly twenty years. After a look back on history I noticed that a non-profit policy consulting firm during a time where most members of every US presidential cabinet have been communist or Marxist communists... stinks like the fanatics cowing the extraneous and peaceful 'silent majority'... peace-loving Germans, Japanese, Chinese, Russians, Rwandans, Serbs, Afghans, Iraqis, Palestinians, Somalis, Nigerians, Algerians, and many others did nothing while the fanatics lay waste to their future and their children's future. It's the fanatics and their agendas, who threaten our way of life.
Comedy gold here folks
laughing swordfish - the BLS lies
Lol Leo - but a "nonpartisan" institution read their report and based on these lies the "nonpartisan" institution says things are getting better, see
Please stop spamming ZH with your inanity.
Should we trust Brookings? Rand? NWO propagandists.
Politics control
These are not the droids you seek
Verbal fellater
Non-profit? Brookings Institute has always been by definition an agenda based think tank with a craving for a greater understanding of human population control. I'm just an equity index futures trader, and have been for nearly twenty years. After a look back on history I noticed that a non-profit policy consulting firm during a time where most members of every US presidential cabinet have been communist or Marxist communists... stinks like the fanatics cowing the extraneous and peaceful 'silent majority'... peace-loving Germans, Japanese, Chinese, Russians, Rwandans, Serbs, Afghans, Iraqis, Palestinians, Somalis, Nigerians, Algerians, and many others did nothing while the fanatics lay waste to their future and their children's future. It's the fanatics and their agendas, who threaten our way of life.
Leo,
The only way that happens is if consumers start buying at double digit growth rates month over month.
Please tell us how that is going to happen?
Let's just do the math. If 73% of the economy was consumer purchasing and 18% of a 130 million person workforce are now unemployed....you now expect the remaining 100 or so million to buy at rates so much higher than the 130 million person workforce bought at pre 2007 that millions will be magically re-hired so that unemployment will get down to 7% in about 9 months???
And you expect this to happen when wages are not increasing, nor work hours per week, nor credit card balances, nor housing prices, nor second mortgages, nor home equity loans. Nor is any other nation in the world doing well enough to purchase our goods or services
Leo, how come no one forecasting significant growth in 2010 can ever answer the question: Where is the additional and new consumer capacity to spend coming from? Not desire to spend....capacity to spend.
Once again, it takes $8 of new and additional credit/investment to produce $1 in additional gdp the following year. This year saw major decreases in lending and no turnaround by the banks back to their traditional role as lenders in sight.
Where and how do you see growth coming from?
We all wish it would happen. We all want it to happen
How will it happen?
You wonder for good reason.
Let's remember that employment is almost universally recognized as a *lagging* indicator. Suddenly, out of the blue, we have a marked improvement of the BLS employment numbers. What were the events in the market that preceded this improvement, since it's a lagging indicator? Who was posting good sales numbers consistently such that they can take on employees? Consumer confidence has been flat to falling. The shipping indexes have been falling. Does it make sense that employment should then be improving?
There was an Epic Fail in Black Friday sales numbers for a reason. Remove the L from BLS and you have the picture.
We will make new equity lows according to my charts and my USD indicator has been giving BULLISH warnings for several months and am still expecting a dollar rally.
My indicators can identify trend changes before they occur.
They warned me of an impending market crash back in early *2007*
http://www.zerohedge.com/forum/market-outlook-0
US interest rates up, USD up, Yen down, Yen was carry trade 2002 & 2007 and the transition was choppy. The global economy doesn't believe this is a sustainable scenario. Cash for clunkers may have been fathered by Chinese for cheap, i.e., free scrap metal. Pantry is empty. Can't sell the kids. Won't sell my dogs. Better learn to trade the only growth industry, money... and my e-mini Dow futures.
Copy paste much?
Orint all the print that is fit to print is a better way to say it. I'm published and have reverse merged & vended assets into registered pinksheet stocks; one of which was a publication OTC (traded as high as $7.50. Until the government pays you to hold a near worthless currency, then you tell the children of the 1 in 6 Americans whose parents struggle with a food crisis every day that it's ok to dumb down, and quash the conversation of every boot-strapped creative thought they've ever heard. Maybe they should go back to the video games, the canabis co-ops, and the television; and avoid thought provoking freedoms. One in six people are undernourished... starving the developing brains. Think about 'copy paste much' while waiting for the US gov't to pay you for holding a crappy currency. Thanks for your prompt response. England does not have a first amendment.
"Based on the employment data it is very hard to believe that US interest rates can remain at zero for much longer."
The trouble is -- the reported unemployment number is total BS. The Shadowstats.com guy, John Williams, was on the Financial Sense Newhour this week. He details why the BLS (Bureau of Lies and Statistics) numbers are contrived crap.
Williams estimates the real unemployment number this month to be around 500K jobs lost.
Bruce,
Uncle Ben is hoping that some sort of wealth effect develops where housing prices and stock prices carry the momentum forward so consumption doesn't drop off again. I think you are overly pessimistic on the jobs front, however. A year from now, unemployment will be closer to 7% than 9% in the US. Before I get the chorus of "where will the jobs come from?", I think they will come from IT and renewable energy, but mostly from traditional small and medium sized companies hiring again as credit finally flows their way.
What are the companies that use IT professionals, and what does their recovery look like? Banks? Financial institutions? Academia? (It surely isn't going to be manufacturing.) Where are these "renewable energy" companies? What's their head count? If any of this were true, and I doubt seriously it is, we're still talking peanuts in the job market. Credit flowing? From where? The river Styx no doubt.
--Dubious
I respectfully disagree Leo. This is a jobless recovery--we won't see 7% in real terms for years to come.
Howard_Beale,
All you need is a string of positive employment report to reach 8.5% by mid-2010, so 7% by next September/October isn't far fetched. Too many of you are convinced that this will be another jobless recovery. You might be very suprised in the next few months.
I would love to agree with you, Leo. But let us not forget the next act waiting in the wings : State and local deficits. Only a signifigant Stimulus II in early '10 will keep tens of thousands of these jobs in place. States and locals are just about furloughed out.
Local government jobs will have to be axed signifigantly, that's for sure.
And a Stimulus II containing a big kicker to the States is not an automatic.
I agree that we might see a reported 8.5% or better employment report. My only question is will it be fact or fiction? After all we see that private and public accounting for unemployment diverge. I know I have a hard time trusting gov numbers. After all if you think the CPI is a good indicator of inflation then I have a large amount of housing property in the American SW to sell you.
Half of the released economic reports are adjusted at a later date. Triumphant thoughts are more important than the facts.
Jnfortunately for everyone who believes either the zero rates forever scenario or the full steam ahead scenario, the reality is that to keep the economy growing at even the 2.8% rate of Q3, fiscal and monetary policy must not only keep up the same pace of stimulus as in 2009 so far, but stimuli must be increased. With the minority repubs raising the deficit rhetoric, democrats will be in no mood to raise spending once midterm elections come into focus (that's why they're pushing for $170B more fiscal stimulus now before the new year). Keeping rates at zero won't work. China is quickly moving to a near balanced trade position globally and won't be buying U.S. securities at anywhere near the pace it has in 2009. Japan, the EMU and the UK are in worse debt positions than the US is. The rest of the developing world isn't big enough to make a difference to the US debt position. Q4 growth will surprise on the low end of excessively bullish estimates based on rising social mood. 2010 forecasts for just a moderation of growth to 1% or 2% are also overly optimistic. The Great Ben of Oz himself notes that real GDP needs to grow 2% to keep unemployment flat. Expect 12% unemployment rate (U3) by Jan. 2011 and fall into GDP decline by second half of 2010. The problem remains one of US solvency, not liquidity. More debt adds to the problem. Obama's choice to keep most of the Bush econ team and enhance the more debt policy will be his downfall, and is not what we elected him to do.
Many good points. Some thoughts:
China and the USD:
Obama went to China, and if you can believe it, was even a greater fool than Geithner on his trip. The message to China should have been one of fiscal responsibility and support for a strong dollar. And what did Obama say, I am increasing troop levels in Afghanistan? Well, what ever he said, actions speak louder than words, and his actions are one of dollar debasement.
So yes, the burning question is who will buy all of our debt in 2010, if not ourselves? Treasury auctions should be monitored with great earnest, because any sign of failed auctions will require prompt action from the FED to, once again, buy our own debt. Unwise! But, what choice do they have?
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Interest Rates and unemployment:
IMHO, the FED does not care in the least about unemployment. Really, what employment increasing economic strategy has the FED promoted, other than to perpetuate the myth, that a recovery could be jobless. A blatant attempt to remove any remaining obligation to promoting full employment.
The FED's focus is on Bank profits and solvency. Therefore, to me the questions about low interest rates or what the FED may do in the future, should be asked in the context of; What is the best situation for the Banks? Look for your answer there. Its that simple. If financials turn around, the FED may increase rates.
Mark Beck
"The problem remains one of US solvency, not liquidity. More debt adds to the problem."
So true. And with the added commitment to the Afghanistan conflict, the Health Care bill (emphasis on the bill), Cap and Trade, a second stimulus package, and probably a bunch of other obligations I can't think of, it is only going to get worse. Now, how is the Fed going to be able to justify a rate hike? How will the US pay for the added interest this will incur?
I'm not the brightest bulb on the tree, so creditors in China and elsewhere have to be asking the debt rating question, even if Moody's and S&P are not.