Demographics

A series of crises, the latest being the ominous developments in the Ukraine and further evidence of disappointing growth in China, have rattled financial markets. Of course, with all major central banks at amazingly easy policy stances, the bet continues to be that the latest uncertainties will also pass. That may be true once again. But, as Abe Gulkowitz lays out in the inimitable style of his The Punch Line letter, one must recognize that many of the serious flaws uncovered in each of the predicaments will linger for years to come and that the policy remedies have at best covered up the fundamental issues without completely resolving them.

Despite the Happy Talk,  Unemployment Is Still High

There probably isn’t a more over-used phrase thrown across the media landscape than, “It’s different this time.” One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear. Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. These precarious times leave many scratching their heads. Expressed another way, When everyone is on the band wagon – except the band. You had better take notice.

We have long been pounding the table (certainly since mid-2012) that the US labor market has become a place where mostly older workers - those 55 and over - are hirable - something which has nothing to do with demographics, and everything to do with excess worker slack, and an employer's market to pick and chose those workers that are most qualified for a job since older workers have the same wage leverage as younger ones: none. February was merely the latest confirmation of just this.

This week saw the continuation of the "bad news is good news" theme as one economic report after another came in far below expectations. The question remains whether it is actually all just a function of the weather? Of course, there is something inherently wrong with driving asset prices higher based on hopes that a weaker economy will keep the Fed's "liquidity fix" flowing to drug addicted Wall Street traders. Under that theory, we should be rooting for an outright "depression" to double our portfolio values. But, when put into that context, it suddenly doesn't make much sense. Yet that is the world in which we live in...for now. Therefore, as we wind down the week on this "options expiry" Friday, here is a list of things to think about over the weekend.

Many have opined that while the unemployment rate may be 6.6%, down from a peak of 10% three and a half year ago, the so-called recovery sure doesn't feel like one: after all so many Americans are still struggling to find work and as so many complain, employers are simply not hiring. Well, as it turns out, all those complaining are absolutely correct....

Today, more than 10,000 Baby Boomers will retire.  This is going to happen day after day, month after month, year after year until 2030.  It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it.  We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep.  Even if we didn't have all of the other massive economic problems that we are currently dealing with, this retirement crisis would be enough to destroy our economy all by itself.  During the first half of this century, the number of senior citizens in the United States is being projected to more than double.  As a nation, we are already drowning in debt.  So where in the world are we going to get the money to take care of all of these elderly people?

Fed Chair Janet Yellen will deliver her inaugural monetary policy testimony on February 11 and 13. Her prepared remarks will be released at 8:30amET and the testimony will begin at 10amET. Goldman, unlike the market of the last 3 days, believes that Ms. Yellen is likely to "stick to the script" in her first public remarks since taking over from Bernanke but they look for additional color on the following issues: (1) the recent patch of softer data; (2) the Fed's thinking on EM weakness; (3) the hurdle for stopping the taper; (4) the amount of slack in the labor market; and (5) the future of forward guidance.

Gloomy commentary on the world's ageing population appears overdone. We look at key silver linings and the significant investment opportunities ahead.

So what happened to the unemployment rate that it dropped so fast it surprised and embarrassed even the "venerable" Federal Reserve, which had initially expected a 6.5% unemployment rate some time in 2015. To get the answer we go back in time to the last (and only previous) time when the US unemployment rate dropped from roughly 10%, which was in June 1983, to 6.6%, which took place three and half years later, in December 1986 - let's call it the "Reagan Recovery" in short.

• Here is why AAPL bounced off $500: Apple Repurchases $14 Billion of Own Shares in Two Weeks (WSJ)
• German Court Refers OMT Decision to Europe's Top Court (WSJ)
• Inflation Fuels Crises in Two Latin Nations (WSJ)
• U.S. job growth seen snapping back from winter chill (Reuters)
• Google to own $750 million Lenovo stake after Motorola deal closes: HK exchange (Reuters)
• Frigid Winter Spells Trouble for U.S. Economy (BBG)
• Winter Games to open, Putin keen to prove doubters wrong (Reuters)
• Regulators Ready to Proceed on Bank Leverage Limit (WSJ)
• Abe Eyes Window for Biggest Military-Rule Change Since WWII (BBG)

Once again the smell of NAPALM is in the air

• Only time will define Bernanke's crisis-era legacy at Fed (Reuters)
• Record Cash Leaves Emerging Market ETFs (BBG)
• Investors Look Toward Safer Options as Ground Shifts (WSJ)
• Fed Policy Makers Rally Behind Tapering QE as Yellen Era Begins (BBG)
• Rating agencies criticise China’s bailout of failed $500m trust (FT)
• Russia to await new Ukraine government before fully implementing rescue (Reuters)
• U.S. readies financial sanctions against Ukraine: congressional aides (Reuters)
• Companies resist president’s call for minimum wage rise (FT)
• Secret Swiss Funds at Risk as Italy’s Saccomanni Visits Bern (BBG)
• Top Democrat puts Obama trade deals in doubt (FT)
• Erdogan to Give Rate Increase Time Before Trying Other Plans (BBG)

While the world may be reeling in the aftermath of a horrible week for markets, which following today's largely expected $10 billion additional taper announcement, is only set to get worse (because, oops, the global economy turned out to not be in escape velocity mode as everyone simply confused the artificial level of the S&P 500 with economic output, as usual), one entity is delighted by the recent surge in volatility and market uncertainty: CNBC.

The Federal Reserve is the primary engine of income/wealth inequality in the U.S. Eliminate "free money for cronies," bailouts of the "too big to fail" banks that own the Fed, manipulation of markets, the purchase of impaired private assets at high prices, and all the other tools of financialization the Fed wields to enforce its grip on the nation's throat--in other words, abolish the Fed--and the neofeudal structure that feeds inequality will vanish along with the feudal lords that enforced it. We don't need to "fix" things as much as remove the obstacles that are blocking the way forward. The Federal Reserve is the primary obstacle to reducing income/wealth inequality.