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The rectangular red box is zero interest rate policy (ZIRP), which is 6 years old this month.\u00a0 If we play it straight we would be expected to believe what the mainstream believes, that the \u201cGreat Recession\u201d is a thing of the past and that something built of abnormal policy can proceed per normal metrics and assumptions when abnormal policy is removed.\u00a0 I don\u2019t buy it.<\/p>\n
As noted recently, like Agent Mulder \u201cI want to believe\u201d<\/em> because frankly being a gold bug or a non-conformist in this environment flat out sucks.\u00a0 As I have noted previously, it is much better for my family\u2019s situation if gold goes back to the hell it came from and the US economy really does continue onward and upward, post-policy.<\/p>\n But then I look at the chart above and wonder why the rectangular red box is still there.\u00a0 I wonder why new QE is enacted every time the S&P 500 takes a routine correction or \u2018Jobs\u2019 drop below 150,000.\u00a0 On that subject, let\u2019s move on\u2026<\/p>\n From a December 5 New York Times article entitled Big Job Gains and Rising Pay in Labor Data<\/strong><\/a>:<\/p>\n \u2026the improving job market finally delivered a sharp jump in average hourly earnings for ordinary workers that was double the anticipated 0.2 percent increase.<\/em><\/p>\n \u201cIn one line: spectacular and, more to the point, believable,\u201d said Ian Shepherdson, chief economist at Pantheon Macroeconomics.<\/em><\/p>\n \u201cWe\u2019ve had strong hiring indicators in a number of surveys, and lower jobless claims, so sooner or later, we were going to get a blockbuster number.\u201d<\/em><\/p>\n At Biiwii.com I sometimes make fun of the robo quotes trotted out by the mainstream media, but the above is simply a guy telling the truth about what he sees on the surface.<\/p>\n In economics most things cut both ways, however, and Friday\u2019s report was no exception. The steadily improving labor market makes it more likely the Federal Reserve will start raising short-term interest rates sooner rather than later, which could lead to some turmoil in financial markets in the months ahead.<\/em><\/p>\n It is called balance, but the US balance sheet is out of whack now in its debt-to-GDP and is still trending toward more debt per GDP unit measure.<\/p>\n On Friday the Treasury bond market threw up a lung on the short end of the curve (yields spiked), yet the long end was relatively stable.\u00a0 This is in line with an \u2018as good as it gets\u2019 backdrop we have been discussing.\u00a0 The Fed funding mechanism remains at around 0% while less strategic parts of the curve (2 year through 5 year for example) get hammered in yields while 10 to 30 years, where long-term loans that effect economic growth are made, remain stable.\u00a0<\/em><\/p>\n Some experts now argue that the Fed may move to raise its key interest rate lever as early as March next year, but most are still sticking with midyear.<\/em><\/p>\n I would simply ask \u2018why?\u2019.\u00a0 To keep up appearances of being in control?\u00a0 There is no [new and readily apparent] inflation, on which the Fed has a target along with employment.\u00a0 Why risk the worst implications of the chart above?\u00a0 A moral sense of responsibility to savers and paycheck-to-paycheckers, after 6 goddamn years of punishment?\u00a0 Please.<\/p>\n In addition, some of the worrisome signs that have haunted the monthly jobs report for years have not gone away.<\/em><\/p>\n The proportion of people in the labor force was unchanged last month and is stuck near multidecade lows, an indication that few of the workers who gave up the search for work during the lean years are likely to be hired anytime soon.<\/em><\/p>\n In addition, about 6.9 million Americans are working part time because they cannot find full-time positions. The broadest measure of unemployment, which includes these workers, dropped to 11.3 percent, down 0.1 percent from October.<\/em><\/p>\n Mr. Shepherdson cautioned that he wanted to see the stronger hourly wage gain in November \u2014 up 0.4 percent after an anemic 0.1 increase in October and no gain in September \u2014 continue for several months before he would be convinced higher wages were here to stay.<\/em><\/p>\n \u201cI\u2019ve had my fingers burned before,\u201d he said.<\/em><\/p>\n Of course there are always going to be reasons to continue to be cautious about raising interest rates.\u00a0 But I think it is curious how we never see charts like the one above among those reasons.\u00a0 It continues to indicate \u2018all or nothing\u2019 for the Fed\u2019s bailout operation.<\/p>\n What we have going is FrankenMarket II and a FrankenEconomy.\u00a0 The US has successfully re-flated using abnormal policy tools and the fallout is something for future hindsight.\u00a0 All I can tell you is that we knew something was wrong with Alan Greenspan\u2019s FrankenMarket and this was addressed well in the 2008 liquidation.<\/p>\n At that time the mainstream media were busy extrapolating normal metrics as well.\u00a0 Only after the fact did they put soup lines on the cover of Time Magazine and come up with terms like \u201cGreat Recession\u201d.\u00a0 The \u201cGreat Recession\u201d ain\u2019t over, but in the developing \u2018as good as it gets\u2019 environment, actively fighting the good stuff can get you killed because the interim boom has been the anti-bust (Heavenly \u201914 vs. Armageddon \u201808).<\/p>\n The November data alone isn\u2019t enough to shift the Fed\u2019s thinking, said Guy Berger, United States economist at RBS. \u201cIn all likelihood, we will see faster wage growth over the next six months, but as far as the Fed is concerned, one month alone could be noise,\u201d he said.<\/em><\/p>\n \u201cOur view now is that the first rate hike will come in June.\u201d<\/em><\/p>\n Or it could come sooner or it could come never.\u00a0 In conventional economics wage growth = inflation as spending drives up costs of goods and services.\u00a0 Wage growth had been a missing ingredient in the positive picture.\u00a0 Will it drive up energy and materials that are currently selling at deep discounts?\u00a0 If so, then commodities are a buy.\u00a0 I have my doubts.<\/p>\n Although the prospect of higher interest rates tends to make investors more cautious, both stocks and bonds rose modestly on Friday, with traders figuring a better job market and better-paid consumers outweighed whatever cooling effect higher borrowing rates could have.<\/em><\/p>\n Higher borrowing rates are antithetical to what has built the recovery, which is the suppression of interest return on debt.\u00a0 Meanwhile, the debt keeps rising right along with the recovery.\u00a0 Talk of rising interest rates means talk of increased debt servicing costs.<\/p>\n Although government number crunchers try to adjust for seasonal swings like hiring by stores ahead of the holiday, retailing still showed unusual strength, adding 50,000 workers in November. That was more than twice the average monthly gain of 22,000 retail workers over the last year.<\/em><\/p>\n Well, it\u2019s seasonal but it is also in line with our view above about US \u2018services\u2019 sectors [in an earlier segment, NFTRH 320 had discussed general global and US investment objectives based on currency exchange rates and related import\/export dynamics].<\/p>\n Manufacturers, often seen as a bellwether of swings in the broader economy and a source of good blue-collar jobs, particularly for men, hired 28,000 workers in November.<\/em><\/p>\n We will dutifully watch Semiconductor book-to-bill ratios and form conclusions about future ISM reports based on that.\u00a0 From there, we will indeed use the data as a bellwether on the broader economy.\u00a0 The negative b2b may be the first inkling, but it needs to become a trend before we extrapolate future ISM and economic weakness.<\/p>\n The NYT article goes on and on, with political types throwing their $.02 into the discussion.\u00a0 Rather and suffer cranial meltdown, I\u2019ll just move on as I do not suffer discussion through a political lens well.<\/p>\n Bottom Line<\/strong><\/p>\n In 2008 the Bernanke Fed instituted a massive bailout of the very financial institutions that wrecked the country.\u00a0 TARP, ZIRP and QE\u2019s 1-3 were injected into the economy and have come at the expense of regular people\u2019s savings and taxes.\u00a0 Throw in the genius of Operation Twist, which \u201csanitized\u201d inflation right out of the picture (as easy as selling short-term T bonds and buying long-term T bonds) and bring it forward to today\u2026<\/p>\n We have normalizing \u2018jobs\u2019 and a normalizing economy.\u00a0 We have normal articles in the normal mainstream media.\u00a0 It\u2019s as good as it gets my friends.\u00a0 But it has been created against a backdrop of still increasing debt-to-GDP and that is probably the \u2018tell\u2019 about where all of the policy distortions have roosted.\u00a0 It is only different from the Greenspan inflation in that government credit has largely replaced commercial credit on this cycle\u2026 and that it is a much bigger future debit now.<\/p>\n [end excerpt]<\/em>\u2026 NFTRH<\/a> continues to follow the progress of the economy by tracking the same indicators that gave us a heads up on a coming bout of strength two years ago.\u00a0 The Fed has worked hard to bail out the corporate financial structure, with a side effect that is finally being felt on Main Street, USA.\u00a0 With the economy finally improving to the point of a critical mass of mainstream recognition, it is time to be watching the indicators for the answer to the simple question, \u2018Real or Memorex?\u2019<\/em><\/p>\n Subscribe to NFTRH Premium<\/a> for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart and trade ideas or the free eLetter<\/a> for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com<\/a> and Biiwii.com<\/a>. <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Now it gets interesting because early in the bailout process the Fed talked about achieving certain employment milestones before hiking interest rates.\u00a0 Here we are at the 10th consecutive month with 200,000+ job gains (321,000 in November) and the jobless rate down to 5.8% and still there is a question on when or whether ZIRP […]<\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[1840,4273,4223,5092,4785,5383,5442,5324],"class_list":["post-30736","post","type-post","status-publish","format-standard","hentry","category-general","tag-biiwiicom","tag-gary-tanashian","tag-jobs-report","tag-nftrh","tag-notes-from-the-rabbit-hole","tag-quantitative-easing-qe","tag-the-federal-reserve","tag-zero-interest-rate-policy-zirp"],"yoast_head":"\n![\"b2b\"](\"\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2014\/12\/b2b1.png\")
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