Unemployment

Sharp USDJPY Overnight Sell Off Pushes US Equity Futures Into The Red

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?

Two Thirds Of Gen X Households Have Less Wealth Than Their Parents Did At The Same Age

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!

Hiring In The US Remains Far Below Pre-Recession Levels

As the chart below shows, while the US may have, somehow, recouped all of its post-recession job losses as was widely trumpeted everywhere on Friday, it sure didn't achieve this courtesy of a vibrant hiring labor market. In fact, as the chart below show, while the US may have recovere its annualized job change number, per the non-farm payrolls survey, of just about 2.4 million, or about 200K per month, the pace of US hiring is still just about half of where it should be based on the pre-recession trends.

Obama Unveils Student Loan Debt Bubble Bailout

"The challenges of managing student loan debt can lead some borrowers to fall behind on their loan payments and in some cases even default on their debt obligation," notes the always astute White House... and so it's time to do something about that... by bailing the bad debtors out with US taxpayers money. As we have been vociferously warning, not only has the student loan debt bubble expanded massively (as the easiest credit substitute for real-world working and unemployment) but delinquencies on the 'easily available' credit is soaring with "consequences such as a damaged credit rating, losing their tax refund, or garnished wages." Consequences, as we have been taught now, are not acceptable for this administration and so President Barack Obama will issue an executive action on Monday aimed at making it easier for young people to avoid trouble repaying student loans.

The US Labor Market In One Chart (According To The Fed)

Having spent the last few years blowing away the importance of the unemployment rate propaganda as participation rates have now become mainstream media discussion points, we were not surprised when the Fed admitted that it uses a "dashboard" of various employment measures (even if the world watches payrolls data as if there life depended upon it). As The Fed's Jim Bullard shows in his latest presentation, there are 13 variables the Fed follows. As the following chart shows, the surge in temporary help services hardly supports the great news that Friday's jobs data appeared to be (given stock market reactions).

The "Hidden Cost" Of Distraction

The ever-rising ranks of youth unemployment coupled with the increasingly cheap and easy access to "distractions" from the dismal realities of life (if one is not a wealthy leveraged shareholder) mean a lot of potentially productive time is totally and utterly wasted in this world... how much time? As The Economist joking notes, the loony music video “Gangnam Style” surpassed two billion views on YouTube this week, making it the most watched clip of all time. At 4:12 minutes, that equates to more than 140m hours, or more than 16,000 years (the equivalent manpower it would take to build 4 Great Pyramids of Giza or 20 Empire State Buildings). The opportunity cost of watching PSY’s frivolity is huge, but humanity has at least been entertained.

Frontrunning: June 9

  • Attorneys Known for Large Civil Settlements Line Up to Sue GM Over Company's Handling of Defective Ignition Switches (WSJ)
  • Pakistani Taliban attack airport in Karachi, 27 dead (Reuters)
  • U.S. Official: Sgt. Bowe Bergdahl Has Declined to Speak to His Family (WSJ)
  • Ukraine Gas Talks Resume in Brussels to Avoid Cut-off This Week  (BBG)
  • China's Central Bank Flexes Muscle (WSJ)
  • China says Vietnam, Philippines' mingling on disputed isle a 'farce' (Reuters)
  • World Needs Record Saudi Oil Supply as OPEC Convenes (BBG)
  • Kraft Raises Prices on Maxwell House, Yuban U.S. Coffee Products (BBG)
  • United Continental: One Sick Bird (WSJ)

Socialism Comes To Seattle

Economic science has long shown that labor is not magically exempted from the laws of supply and demand. Therefore, minimum wage laws hurt rather than help workers, especially those with few skills or those just starting out, who are on the lowest rungs of the ladder. If one wants to raise youth unemployment and price unskilled workers out of the market, there is no surer way than introducing a minimum wage – especially one that is far higher than what the market can bear. Seattle is one of the few municipalities in the US boasting of an openly socialist council member, Ksahma Sawant. One of her central demands was the introduction of a $15/hr minimum wage in Seattle. The city council has now bowed to this demand, a decision that is likely to prove extremely destructive, especially to small businesses. Seattle seems eager to become the next Detroit.

There Is No Tradeoff Between Inflation And Unemployment

Anyone reading the regular Federal Open Market Committee press releases can easily envision Chairman Yellen and the Federal Reserve team at the economic controls, carefully adjusting the economy’s price level and employment numbers. The dashboard of macroeconomic data is vigilantly monitored while the monetary switches, accelerators, and other devices are constantly tweaked, all in order to “foster maximum employment and price stability." The Federal Reserve believes increasing the money supply spurs economic growth, and that such growth, if too strong, will in turn cause price inflation. But if the monetary expansion slows, economic growth may stall and unemployment will rise. So the dilemma can only be solved with a constant iterative process: monetary growth is continuously adjusted until a delicate balance exists between price inflation and unemployment. This faulty reasoning finds its empirical justification in the Phillips curve. Like many Keynesian artifacts, its legacy governs policy long after it has been rendered defunct. 

Why Janet Yellen Is Hoping California Chrome Wins The Triple Crown

With The Fed tapering proceeding as scheduled and complacency having reached 11 on the Spinal Tap amplifier of over-confidence, Janet Yellen and her fellow PhDs have one last best hope... a second-half pick up to magically confirm escape velocity and 'prove' monetary policy is not simply the enrich-the-rich scheme we all know it is. For that reason, we suspect Yellen, Lew, Obama, and every bull out there will be screaming "move yr arse" to California Chrome in The Belmont on Saturday...During years when there is a Triple Crown winner, the U.S. economy has averaged 4.85% growth in real GDP.