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Hot Employment – Cold Bernanke?
I was surprised with last week’s Non-farm Payroll numbers. They were
much hotter than I expected. My own number was (as usual) in the bear
camp. I was looking for a flat to down number. I don’t really have much
faith in the numbers we are getting. That said, the data showed a lot of
new jobs were created. From David Rosenberg yesterday:
The raw
data showed that 919,000 payrolls were somehow created in October,
which therefore would have made this the second strongest October in the
last 11 years — in October 2009, the tally in the raw nonfarm payroll
data was 646,000 even though the economy then was accelerating at a 5%
annual rate. The data bear no resemblance to the reality of an economy
barely growing at all in real per capita terms.
I share David’s view that the numbers do not add up given the broader
macro picture. So I was left scratching my head. I still am, but I would
like to add something to the discussion and pose a question. Two recent
emails:
A new address for
me. I woke up 6 weeks ago and said fuck it. Put my stuff in storage and
moved to Houston. I got a place to stay and a job. So I am starting
over, again.
Ian
BK: Ian is a plumber who worked for a big construction company
south of Tampa Fl. Steady work as Fl. boomed. Then he got laid off and
maxed out unemployment waiting for a recovery that did not happen. He
scrambled for cash work to stay alive. When the benefits ran out the
only option was to move to where there was work.
Simon got a job
after nearly two years. For years he helped people to get a mortgage.
Now he is working for a company that has customers who can’t pay their
mortgage. He doesn’t make as much as he used to but at least he has
benefits.
Aunt Edna
Do these comments mean anything? Not really. Two stories in the wind of
130mm. These two people were motivated to change what they were doing
when the crunch came. The crunch was the end to EU benefits.
Over the next few months close to 5 million people will be looking at
the end of their checks. There will be a range of outcomes as this
happens. Some will not find work and their status will be tenuous.
Others will figure out how to get by with less and find work off the
books. Still others will take jobs that are available even if they have
paychecks well less than they did two years ago. This has the potential
to create some tremendous “noise” in the economy. It also might create
some head fakes in the markets.
Consider a scenario where the end of EU pushed a good number of people
back into the workforce over the next few months. Yes, they would be
taking jobs at the Wal-Mart and Duncan Donuts, but they show up as newly
employed. On NFP Friday the only thing that counts is the top line
number. I pose the question: What happens if we get hot numbers that
average 250k for the next three months as the EU issue sorts itself out?
My first thought is that this could be an explosive combination with Mr.
Bernanke’s QE. If just 20% of the 5mm find something to do for a
paycheck over the next six months while our boy Ben is pouring gas on
the fire the economy will flare up for a bit. An improvement in the jobs
picture will be very noticeable in the bond market. It could be the
basis of a hiccup in all manner of commodities prices. The most
significant would be in the cost of energy, food and gold. Should things
work out like this it would shine a terrible light on QE. The policy
would be indefensible given the backdrop of an improved labor picture
and a sharp ramp up of consumer prices. Bernanke would be forced by the
markets and the public to back off and moderate the QE program. He has
said they would fine tune QE as information on the economy becomes
available. Most people read that to mean that QE-3 was a sure thing. It
could also mean that he would back off if there is demonstrable evidence
that QE was not really necessary.
But here is the real world scenario. Forget about some noise we may get
from a few months of distorted employment numbers. What is really
happening is that a very significant number of the 5mm will be hitting
the skids in slow motion. Their consumption will fall substantially and
we will probably see an increase in food stamps at the same time
payrolls are rising. Those that do get a job will have after-tax income
not too far from the unemployment checks they were getting. Net-net
disposable income will be in decline. In this outcome the best that one
could hope for is a few years of growth a point or so above zero.
There are many possible paths in the future. Something along these lines
is just one. Should something like this happen we would find ourselves
sometime this spring or summer with a busted and disgraced QE effort.
ZIRP might still exist but the Fed’s ability to push the economy further
using monetary policy will be exhausted. I can’t imagine that QE will
end quietly. It will go out with a bang. When it is gone it will not
return for a long while.
Bernanke got head faked a few months ago when Greenspan said that the
economy had, “Hit an invisible wall”. He over reacted and teed up QE as
a result. Once it was out there it was impossible for him to back off,
even though the economic evidence suggested caution. As a result, we get
a half assed QE compromise that will accomplish little but to stoke
some commodities fires.
QE-1 was an emergency measure that achieved the objective of stabilizing
the economy during the “emergency” of two years ago. We may very well
find ourselves in another emergency later in 2011. The economy may need a
shot in the arm. But the botched introduction of QE-2 will make it
impossible for Bernanke to roll out a sequel.
Bernanke is an academic. He has no experience in markets and therefore
has no sense of market timing. He completely blew the timing on this
one. QE-2 will go down in history as a failed policy effort that
backfired. When/if we need QE in the future it will not be available as a
policy tool. Bernanke’s botch job has tied the Fed’s hands for at least
a decade.
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I dunno Bruce, I think a lot of people misread QE. It's not really designed to stimulate the economy, it's a defense play designed to provide liquidity when banks lock up (via govt spending). The hope is that things stabilize, banks come back to life, then QE can be reversed (that's a topic for another day -> messy bond markets).
Where Bernanke makes a mistake (a big one) is that he thinks the problem is primarily banks not lending due to the trouble they've got themselves in through gambling on badly rated derivatives. He thinks that papering over the holes will lead to sunny days. I don't think he's realized that when the peons are in the shit for long enough, they go through a fundamental psychological change and lose appetite for risk (borrowing).
Even if QE 'works' it won't necessarily return us to business as usual (case study: Japan). Bernanke trying harder than Japan will just lead to more lost decades. [Edit: and for the record, I don't view these decades as lost. Go to Japan, people are getting along just fine. What folks need to realize is that govt debt to its central bank doesn't really count as debt. Scratch it from the equation. There's not really a problem here, this debt should be re-categorized)].
I don't buy that Bernanke's a complete idiot. He's just doing what his brief tells him to do: maintain stability of the banking system. Jobs? Not really on his radar. My read of QE2 is that it's a pre-emptive strike. The Fed knows how bad the banks are and how much worse they're about to get.
End story, I'm cautiously buying the USD/EUR. I say 'cautiously' because I do see a major Black Swan in the form of SDR2 or a China-led revolt leading to abandonment of the USD altogether as the world's trading currency. If that happens, say hello to shock inflation.
This is a terrific piece and extremely plausible. If we take it at face value, it suggests a collapse in the housing market because these are not the types of jobs that allow for home ownership. It also suggests a collapse in the global economy because like it or not, the world is still surviving on the US consumer teat.
The problem is that alot of these jobs are dependent on the consumer to some degree, so when it becomes apparent that daily trips to Dunkin Donuts will have to be cut out, that job goes away.
Although inflation was devastating in 1922 I believe a major contributing factor to the Weimar hyperinflation was the goverment paying extended unemployment support to 2 million workers in the French occupied Ruhr Valley, during that period the mark "REALLY" crashed and burned.
I think the continuing collapse of collateral/capital in the US banks require the Fed to continue QE programs, regardless of the consequences to us.
We lost trillions already! thanks to him and his predecessor and his primo henchman over at Treasec, Hank Paulson, who has managed like all the others to have stolen away like thief in the night with the wealth. We likely have two generations of permanent declines in the middle classes, without paradigm changing discoveries that will put 20,000,000 people in the disUnited States to work, starting today.
Of course we are 'lost' if we don't respond to his moves which are anything but boneheaded. Those who have shorted the buck, bought gold and silver, went long paper assets and commodities have had the same shot at the window of opportunity that the truly well-off have had.
Long-term is now redefined as 'within the next 30 days'.
Yes, he is beholden to a few hundred families and they can be damned proud of what he has done for them, transferring trillions from the great unwashed to this despicable elite who know no boundariesand have left tens of thousands of towns in North America without a country.
Fuel is over $3.00 plus a gallon again so the Consumer will have no new normal just survival mode. Supply chain costs are going up since deflation prices to consumers reality cannot happen. The inflationary policies of the FOMC will have a amplification effect as in the sound of snap as in a tree covered in freezing rain. How do I know? I see it all around me happening.
Actual wages support Consumers. When they figure this out that the Consumer sets the wage rate things will turn. Until then nothing can change since the private sector Consumer cannot afford services inflated set by policy beyond their means. Deflation is a poor tax on the rich not the other was around.
‘Keynesian Endpoint’. Government Accountability Office (GAO) reported in January 2010 states the following: "In our Alternative simulation, which assumes expiring tax provisions are extended through 2020 and revenue is held constant at the 40-year historical average; roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020." Extending tax cuts won’t solve anything. Hayek referred to as "the fatal conceit," thinking they have the knowledge to fix and plan the economy. They can and will only make matters worse.
http://finance.yahoo.com/banking-budgeting/article/111250/new-ways-bankers-are-spying-on-you
Vegetables on a plate is all you are in the FOMC NWO since day one for countless decades.
Kopelman said his firm represents many bona fide small businesses whose owners earn enough to face higher taxes under Obama’s proposals. “They’re concerned,” he said. “Some are going to spend less, they’re going to save less, they’re going to invest less.” There raining down on us and without fail on the current trend the Hill is consuming all. When one of our Corporate suppliers runs out of net working capital we have to buy it and you can see a end point coming from a micro and macro perspective. Sooner than we can calculate....
First, this highlights the problem with counting jobs for unemployment instead of looking at aggregate income from same. A million Wal-Mart greeters will not provide enough demand to be meaningful, especially if they've been living dole check to dole check or on consumer credit.
Second, yes, this is why Bennie decided to spoon-feed $100Billions instead of slamming the whole works into America's arm in a Custer-like stand. If he doesn't pay attention to my first point, he'll insure a huge dip by pulling the teats out of Dimon, Pandit, and Moynihan's mouths too early.
Fifty years from now, if the world still exists, this period we live in will be known as the dark ages for fiat currency schemes. The cleanup crews will be shoveling up the ashes and shouting " what were they thinking " ??
We have know for at least 3 years now (longer actually) that we have structural issues with the economy. Inflexible labor markets, tort, high cost of employment, health care costs, pensions and out of control government spending, etc.
We have tried gimmicks like TARP, stimuli and now QE. None have worked because they are the wrong solutions to the problems. They have made bankers rich however.
Make no mistake, food and energy price controls are in our not-to-distant future. That will sure make things better ... :-) /s
We have spent trillions and have made the problem worse. Maybe some adults could take charge and put policies in place that would make things better. Like Churchill supposedly said, Americans will always do the right thing, after they have tried everything else. Let's hope we have some time to make this the case.
sschu
the cause of the deception is someone trying to get away with something for nothing. trying to circumvent the principle of the value for value deal. part of the kleptocracy. this is the among the worst examples of covert market influence at work. this issue is worth investigating.
http://covert2.wordpress.com
You still write as if Bernanke doesn't know exactly what he is doing.
"He Overreacted", "botchded job", "Head Faked", 'no experience in markets', "is an academic", "no sense of market timing".....and on and on....
Have you ever considered that Bernanke is doing precisely what he needs to do: protect those he was hired to protect (the rich and famous, who arguably have done splendiferously these last two and half years) and therefore you need to 'read him' in that light?
Those who consider this shill for the wealthy of this world are either completely naive, ignorant, or have an agenda that isn't forthcoming.
I will send him your words.
I think he just screwed up. He is an academic. He does not believe he is doing this for the exclusive benefit of a few hundred insiders. He thinks he is doing the right thing, but he is wrong and history will prove it.
But if you are right and his actual agenda is narrowly aligned to benefit the financials then we are lost.
The greatest amount of evidence points in that direction.
It is the distrust in the financial and governmental systems that are keeping "the classes" apart. And, I think the so called "ruling class" like it that way ... until the masses revolt and start burning the Hamptons.
I still think Ben can defend qe to infinity with the arguement that the economy/markets are front running it. As soon as they pull the plug on his printing press, down down asset prices will plumet, and they know it. Tell me how we are going to pay the interest on the US debt without growth again?
Devaluation & inflation, QE(N+1)
An important post, Bruce. We have to ask the naive questions. What industries are recovering? What regions? I don't see it. There is plenty of background noise from essentially unproductive health care and government jobs, but that will wash out eventually.
I still think social security receipts are the best measure here. Don't think that will recover anytime soon.
As you probably know, Bernanke worked at South of Border. If I knew how to photo shop, I'd be all over this one:
http://upload.wikimedia.org/wikipedia/commons/a/a3/South_of_the_Border_s...
Also, thanks for the well-reasoned review.
Helicopter Ben makes Joe Isuzu sound honest.
Our Muslim President goes to India with a few dozen american
businessmen .. then last night we find out that Harley-Davison
will be moving to India ... >>> cheap labor ...
Whay Obama says and what He does are the opposite..
more american jobs lost....
you are a typical ignorant american asshole.
.....driven by fear... bent on 'exposing' Obama as a muslim, as though that in itself would indict him of... something... so when/where does he go to the mosque jimbo-jammer? The White House basement?
Hi from Bali, which is in Indonesia. You don't know where that is, do you jimbo? Get a fricking passport and live a little man.
Trust me, there are people here in Indo just like you who think he's in bed with.....Israel. That's right the Muslim fanatics hate him too. Does that surprise you? Btw most Indonesians love him, secular as they mostly are. We just watched several hours of Obama's arrival (from India) on Indonesian national TV. It was great!
People intent on perpetuating all this hate based on religion; maybe it's you believers who are the problem.
Fed Action Gets an Unexpected Endorsement From India
http://www.cnbc.com/id/40079208
Obama Backs India for UN Security Council Seat
http://www.cnbc.com/id/40062833
think of the trip to india as one big roadshow to sell products for ge, boeing, and chertoff naked body scanners.
Still don't see though how people who were formerly making 50k plus have to permanently settle for jobs that makes way less be any good for the economy.
In the world that we has presented itself to us, we, as a country, are in a competitive situation and we are tearing ourselves apart, forcing ourselves to lose without even seriously entering the race.
Our cost of money is low, but the amount of money that we owe is very high, so the overall drain on the economy is very high.
The cost of government and regulation is very high relative to what we produce and what can pay for the goevrnment.
Our corporate overhead structure is bloated and uncompetitive caused by a fat cat club at the top that give themselves and their cronies disproportionately high salaries and benefits ... but they argue they need it to keep up with the Jones' and they deserve it ... but compared to whom? Their competitors? And instead of fixing the system so that the bloated overhead comes into line and the bloated CEOs and parasite classes taking a cut to make the country competitve, they whine that our labor cost is too high and that they need $2/day labor to compete and grow ... so as a result, all of the value adding work (the work that actually grows an economy) goes to China ... or some other low labor rate country.
It is the system, stupid. People would not have to make $50k or more if the overhaed costs on their lives was lower ... but what does the stupic Fed want to do? they want to make the overhead costs on people higher, so they are forced farther into poverty and the fat cats are able to more easily exploit them.
It is a bottomless pit of depravity.
I think that it is better that they be earning some lesser wage, than sucking on the public teat via unemployment insurance. That seems to be a benefit to the economy, off the bottom as it were.
You are right. And it is happening broadly I suspect. What it means is that thre will be no return to what we once thought as normal. We are not as rich as we once thought. It means the economy will be in the dumpster for a long time to come.
Yeah, I tend to look at both the total employed and the average earnings, in order to get a better idea of the total economic impact of the labor market.
http://www.bls.gov/news.release/empsit.t17.htm
http://www.bls.gov/news.release/empsit.t19.htm
It isn't. That's the point.
QE 2 be or not to be ?
Would you rather they stay on unemployment benefits? I realize your scenario does not get the employment base back to the purchasing power it had in 2007, but any pickup in pay over the unemployment benefits they are currently receiving is a net positive to where we stand today. Not to mention that moving from public assistance to private sector employment carries additional benefits, such as reducing the tax burden in future years to pay for additional handouts...this can lead to increased confidence by businesses, which can lead to more hiring, which will lead to the return of higher paying jobs as the labor market tightens up.
So, I hear you that it's not as good as immediately moving back to where we were three years ago, but I certainly think it's better than where we are today.
The temp jump could be due to election jobs Bruce ? those jobs are gone now too atleast for another 18 months. Maybe we should have elections every 12 months.