The Fed is now pre-occupied with an unanswerable and fanciful question, according to Jon Hilsenrath’s pre-meeting missive on the Fed’s current monetary policy “debate”. Figuratively estimating the number of angels which can dance on the head of a pin, Fed officials and economists suppose they can specify the the appropriate money market rate down to the decimal place for virtually all time to come... Of course, every one of these three magic numbers are perfectly arbitrary, academic and silly. Due to the structural failures of the US economy owing to decades of destructive Washington policies, the “unemployment rate” today is not remotely comparable to what was being measured in the 1950s and 1960s when today’s Keynesian theology with respect to the Phillips Curve, Okun’s Law and full-employment policy was being formulated.
After the surge in prices in April, May's Producer Prices fall 0.2% MoM (compoared to a +0.1% expectation). Year-over-year inflation rose 2.0% (down from last month's 2.1% and missing expectations of 2.4% significantly). This is the first MoM drop since Febuary for the headline and core numbers as it appears vehicle rental appeared to see prices implode. PPI Ex Food and Energy (core), saw prices rise at 2.0% - the fastest since May 2012.
Yesterday's market action was perfectly predictable, and as we forecast, it followed the move of the USDJPY almost to a tick, which with the help of a last minute VIX smash (just when will the CFTC finally look at the "banging the close" in the VIX by the NY Fed?) pushed the DJIA to a new record high, courtesy of the overnight USDJPY selling which in turn allowed all day buying of the key carry pair. Fast forward to today when once again we have a replica of the set up: a big overnight dump in USDJPY has sent the dollar-yen to just over 102.000. And since Nomura has a green light by the BOJ to lift every USDJPY offer south of 102.000 we expect the USDJPY to once again rebound and push what right now is a weak equity futures session (-8) well above current levels. Unless, of course, central banks finally are starting to shift their policy, realizing that they may have lost control to the upside since algos no longer care about warnings that "volatility is too low", knowing full well the same Fed will come and bail them out on even the tiniest downtick. Which begs the question: is a big Fed-mandated shakeout coming? Could the coming FOMC announcement be just the right time and place for the Fed to surprise the market out of its "complacency" and whip out an unexpected hawk out of its sleeve?
In President Obama's speeches this year, a steady theme has been creating jobs and economic opportunity for Americans. Yet during the more than five years Mr. Obama has been in office, young people have been especially hard-hit by the slow and virtually jobless recovery. On a deeply human level, it's profoundly sad. The message to Obama - "The bottom line on labor: Make something less expensive and businesses will use more of it. Make something more expensive and businesses will use less of it."
Just how badly is Generation X doing? Bad enough to turn around the entire concept of middle-class prosperity in America - one where every next generation should do better than the preceding one - on its head. "Only one-third of Generation X households had more wealth than their parents held at the same age, even though most earn more, The Pew Charitable Trusts found." And there, in a nutshell, is your so-called recovery: two thirds of an entire generation - one which is in its prime working years - doing worse than the one before them!
- HSBC 175K
- Goldman Sachs 175K
- Citigroup 185K
- JP Morgan 200K
- Deutsche Bank 200K
- Bank of America 225K
- Barclays 225K
- UBS 230K
Every now and again the apparatchiks who dutifully tend Washington’s statistical sausage factories accidently let loose a damning picture of what actually goes on inside. In that vein the BLS has just published the equivalent of a smoking gun. Namely, a study showing that in 2013—the year of 32% stock returns—the business sector of the US economy generated no more labor hours than it did way back in Bill Clinton’s blue dress period (1998) yet purportedly produced 42% more output in real terms... Stated different, the truth about the Fed’s dangerously misguided ZIRP policy is that it generates a ZIRP economy.
“We apologize for this error. We have recalculated and confirmed that the actual index indicates that the economy is accelerating,” said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “Our research team is analyzing our internal processes to ensure that this doesn’t happen again,” he added.... “We are committed to maintaining the integrity of this report,” Holcomb said. The error resulted when the software incorrectly used the seasonal adjustment factor from the previous month.
Presenting today's rhetorical pop quiz: spot the odd labor market out, dominated by the financial industry, also known as the place which has benefited by far the most from QE, which may have failed most of America, but certainly has unfailed America's financial industry, where things have never been better.
The last time we looked at the rather unpalatable issue of soaring bacon prices back in March, it was the direct result of exploding, no pun intended, prices of lean hogs stricken by the aptly named porcine epidemic diarrhea (PED) virus, which killed up to 7 million pigs and pushed the price of pork and its derivatives to record highs. We have bad news: according to Reuters an Indiana farm has become the first to confirm publicly it suffered a second outbreak of a deadly pig virus, fueling concerns that a disease that has wiped out 10 percent of the U.S. hog population will be harder to contain than producers and veterinarians expected. That's right, the PEDv, aka pig diarrhea bug, is back, and this time it may have mutated.
We are confused: on one hand the Fed is injecting hundreds of billions of liquidity into the market, boosting the S&P to all time highs and making the rich richer (Piketty taking Excel lessons from Rogoff notwithstanding) while the economy remains stagnant because, according to the BLS, inflation is too low, and as everyone knows the biggest lament of the impoverished middle class is that "the value of my dollar isn't being destroyed fast enough for me to feel confident about the future." On the other hand, the very same Federal Reserve Bank (of Chicago), just announced that as a result of "prices continuing to increase between 3% and 33%" (!), beginning May 27 it is hiking the prices in its cafeteria. So, clearly prices are rising at a 33% clip due to, how does the IMF put it, lowflation, right? Oh, and harsh weather.
With everyone focused on what is undisputedly the next mega credit bubble in the form of student loans, the topic of college education, and specifically its utility, has gotten much press coverage over the past month. As we summarized most recently two days ago, the key variables involved when calculating the costs and benefits revolve around whether one uses (generous amounts) of student loans and what area of specialization one picks. But according to a recent report published by the Center for Economic and Policy Research there is another, perhaps more important variable when it comes to getting the most out of one's college education: race.
During the bubblicious years from 2000 through 2014, while Wall Street used control fraud and virtually free money provided by the Fed to siphon off hundreds of billions of ill-gotten profits from the economy, the average middle class family saw their income drop and their debt load soar. This is crony capitalism success at its finest. The oligarchs count on the fact math challenged, iGadget distracted, Facebook focused, public school educated morons will never understand the impact of inflation on their daily lives. The pliant co-conspirators in the dying legacy media regurgitate nominal government reported income figures which show median household income growing by 30% over the last fourteen years. In reality, the real median household income has FALLEN by 7% since 2000 and 7.5% since its 2008 peak. Again, using a true inflation figure would yield declines exceeding 15%.
Hardly surprising given the surge in beef and pork that we have been noting, but according to the latest inflation data from the BLS, meat prices spike by almost 3% in April - the most since November 2003 (this is also the 2nd biggest price spike in 34 years!) As we noted previously, this soaring food price inflation is not about to stop anytime soon...