In today’s world of flexible just-in-time production, hours-based labor scheduling and gig-based employment patterns, there is really no such standardized labor unit as a “job”. In that context, a simple paint-by-the-numbers exercise demonstrates the foolishness of the Fed’s obsession with hitting a quantitative “full employment” target.
There is a deep irony embedded in the Fed’s savage assault on savers and its delusional doctrine of interest rate repression. While this actually results in monumental windfalls to speculators and the one percent, it’s all justified in the name of boosting the labor market and the wage bill. All this money printing has been for naught. Notwithstanding the 9X eruption of the Fed’s balance sheet from $500 billion at the turn of the century to $4.5 trillion today, growth in the most basic measure of labor input - total hours worked - has come to a grinding halt.
Had a sinking feeling about the economy of late? It may not be your imagination. Economic indicators have flashed yellow for much of 2016, and the latest jobs report shows further depletion of the work force and a dearth of job creation. That trend, says one major bank, may be attributable to President Barack Obama’s signature legislation.
There is another cycle here that is much more influential on the current market dynamic and should be much easier to spot.When the Fed talks up the economy and promises rate increases, the dollar usually rallies. When the dollar rallies, U.S. multi-national corporate profits take a hit, and the market falls. When the market falls, economic confidence falls and puts pressure on the Fed to maintain easy policy.This is a loop that the Fed does not have the stomach to break.
If you think the Federal Reserve’s goal is to maintain or repair the U.S. economy, then you will never understand why they do the things they do or why the economy evolves the way that it does. The Fed’s job is not to protect the U.S. economy. The Fed’s job is to DESTROY the U.S. economy to make way for a truly global system.
The BLS JOLTS (Jobs Openings and Labor Turnover) report came out today. The BLS claims jobs openings are up. Based on an alternate reports, I suggest opening are not only down, but falling steeply. The implications are huge, so let’s dive into the discrepancies.
In a surprising twist, today's JOLTS report revealed that while job openings continued rise, and in fact hit a record high. actual hiring slowed down substantially: at 5.092MM new hires in the month of April, this was the lowest since September of 2015. As the chart below, which correlates the 12 month change in NFPs to hires, the labor market may indeed be rolling over.
Based on a new report by Fathom Consulting, it appears that China is also dramatically misreporting what may be the one most critical for social stability metric, its unemployment rate, which when stripped away of the political propaganda, is more than three times greater than the officially reported rate. According to Fathom, China's underemployment Indicator has tripled to 12.9% since 2012 even while the official jobless rate has hovered near 4% for five years.
Anyone hoping for some clarity on the Fed's next steps from Yellen's speech later today, don't hold your breath. If anything, Yellen will do more of the same, which as BofA summarizes, is the following: "It is fair to say that many clients are a bit confused and frustrated with Fed communication. The Fed seems to be constantly changing its focus from one meeting to the next. They seem to regularly promise hikes, only to back off at the last second."
"The average and median lead times between the peak in margins and the onset of recession are nine and eight quarters, respectively. This would imply that the economy could enter recession as soon as the second half of this year."
The rift between the preparedness-minded and those not is age-old. Humans aren't wired well to respond to future risk that isn't visible as an immediate threat. And temperamentally, we prefer good news over bad, so we seek to overweight the former and discount the latter. Who wants to stress out about what "might" happen tomorrow, anyways -- can't we just enjoy life today? But to fail to plan for the needs of the unprepared is, in itself, a plan to fail. After all: it's a grasshopper nation, and we ants are too few.
The right question to ask is not what happens to stocks when the Fed starts hiking rates, but what happens to stocks when the Fed is hiking rates during an earnings recession. And, as BofA claculated recently, "Hiking during a profits recession usually hasn’t ended well." The details: "The Fed has only embarked on a tightening cycle during a profits recession three other times, which typically spelled downside for the S&P 500."