| MARKET ROUNDUP | |
| Dow | -278.87 to 17,856.85 |
| S&P 500 | -29.78 to 2,071.26 |
| Nasdaq | -55.44 to 4,927.37 |
| 10-YR Yield | +0.128 to 2.24% |
| Gold | -$30.80 to $1,165.40 |
| Crude Oil | -$1.14 to $49.62 |
I get tired of writing this every month. But the latest U.S. employment report was another blockbuster …
The economy created a hefty 295,000 jobs in February, far above the average prediction for a rise of 235,000. That was also up sharply from 239,000 in January.
Job growth was widespread by industry. Food service and restaurants added 59,000 workers. Professional and business services added 51,000. Construction added 29,000, while health care added 24,000. Retail gained 32,000 jobs, and transportation and warehousing tacked on 19,000.
The unemployment rate sank to 5.5 percent from 5.7 percent. That was below the 5.6 percent estimate of economists, and the lowest since May 2008.
If there is a weak link, it was wages (again). Average hourly earnings rose just 0.1 percent, down from 0.5 percent in January. That leaves wages up just 2 percent from a year ago. The average workweek also held at 34.6 hours for the fifth month in a row, while the labor force participation rate dipped to 62.8 percent.
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| The strong employment numbers mean rates will rise sooner rather than later |
In the immediate aftermath of the release, interest rates shot higher across the yield curve. The yield on the 5-year Treasury surged more than 12 basis points to 1.7 percent, while the yield on the 30-year bond jumped 12 basis points to 2.84 percent. The yield on the 2-year note also surged to 72 basis points, roughly triple the level of a couple years ago.
The dollar also caught another bid, with the Dollar Index rising to 97.70. That’s its highest level in almost 12 years. I’ve argued the buck is wildly overbought, that policymakers here are starting to push back against the advance, and that growth overseas is picking up in many places where currencies have weakened. But that certainly didn’t matter today.
As for stocks, they got pasted across the board. The reasoning behind that move? Wall Street woke up and said: “Uh-oh … maybe this Do-Nothing Fed is actually going to start doing something!” But beyond those immediate market reactions, what does the latest news say about the longer term? Clearly, it increases the chances of something I’ve been warning about for several months – a “Bloody Wednesday” for the markets.
The Fed simply cannot keep holding interest rates at 0 percent if job growth is ramping higher. Nor can bond buyers keep flocking into very low yielding (or negative-yield, in some places!) fixed-income securities!
| “The Fed simply cannot keep holding interest rates at 0 percent if job growth is ramping higher.” |
The capital markets could be forced to adjust – fast – to earlier-than-expected initial rate hikes … or more hawkish-than-expected rhetoric from Fed officials. That means more dislocation-style moves, like what we saw today in interest rates, currencies and stocks, could be looming! The best strategy in that situation? Stick with highly-rated stocks in economically sensitive sectors, while avoiding those vulnerable to Bloody Wednesday-style shocks.
Longer-term bonds also look like a sucker’s bet here. I provide more specifics in my Safe Money Report. Many of the moves we’re seeing now were predicted (in advance) there.
So what do you think about the latest jobs news? Is it really as good as it looks on the surface? Or do the same skeptical arguments some of you have made on the website for several months now still apply? Is the likelihood of an interest rate-related shock increasing? Or do you think the Fed will still sit on its hands? What market reactions are you anticipating? These are very important questions, so be sure to share your thoughts over at the Money and Markets website!
| Our Readers Speak |
The discussion on Obamacare is still going strong at the website, and I’m glad to see so many of you added your comments.
Reader Richard P. said he wants to see a government-directed program, rather than one that involves insurance companies. His view: “The only sensible solution is single-payer, free healthcare for all (as in England), paid for by the government via higher taxes, of course. No insurance companies are involved. Why is this solution which is that of most advanced countries not even discussed?”
But Reader Jim believes that would result in an even more troubled system than we already have. His take: “I don’t want the government involved in my healthcare on any level. If you want a system that features hundreds of billions in fraud, waste and sub standard treatment than by all means get the government to do it.”
Meanwhile, Reader Donnell J. weighed in about interest rates and the risk rising rates pose to the banking system. His comments: “Could you tell us about the $231 trillion in derivatives the U.S. banks are trading, and also the $191 trillion traded on interest rates not going up? What happens if for some reason the fed raised the interest rates?”
Thanks for the question, Donnell. You’re absolutely right that the major U.S. banks have huge exposure to interest rate fluctuations via the swaps, options, and other derivatives they trade with other institutions and offer to their corporate customers.
The problem? It’s nearly impossible to get solid disclosure about what kinds of moves can cause what types of financial damage – until it’s too late! That’s just one reason I’m not a big fan of the U.S. megabanks. Any other thoughts you want to share on these or other topics? Then use the website link here.
| Other Developments of the Day |
 Apple (AAPL, Weiss Ratings: A+) will be added to the Dow Jones Industrial Average, replacing AT&T (T, Weiss Ratings: C+). The move will take effect after the stock market close on March 18. Much more money is indexed to the S&P 500 than the Dow, but the move clearly reflects the increased dominance of Apple and the fading prestige of AT&T.
If you have any thoughts on these stories, don’t forget to use the website to share them.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 53 comments }
Amazing! The unemployment rate fell yet again, but so did the labor participation rate. Theoretically, the unemployment rate could fall to zero if everyone who is unemployed quits looking for work.
Hi!, Patrons Of Money & Markets Et. Al.:
How many years has the FED./US government consortium ignored savers regards interest rates earned from the banking system etc.; so that cheap money can be made available to corporation to buy back their stocks and government to finance its’ debt with depreciated $’s? What would therefore cause these two instrumental agencies of $ devaluation from low interest rates to change their coarse? Will they start to feel sorry for those who are locked out of making money on their savings throughout the US banking system etc. or continue their same policies into infinity as promised? Sure, bank savers would appreciate making some money on their money but that attempted policy change would likely have to face FED./US government style opposition such as has continued for the past 6 – 7 years would it not? The past attacks on savers have been so relentless that what hope should savers actually have towards seeing this trend reverse and for what apparent reasons to which they could pitch in their loyalties? The past wait and see attitudes in my opinion has gotten savers nowhere and the past is the past isn’t it never to be recaptured towards garnering anything better than the low rates to -zero rates imposed & endured!? Of coarse the elite 1% has definitely prospered via cheap money given to them by their first use of the inflated funds; while the lowly Middle Class of the US is striven to merely tread water at best or otherwise have their finances waterlogged via inflation etc.! We hem, haw & complain about the corruption to whom is listening to US besides we ourselves, friends, relatives & neighbors until we are blue in the face but who has it been who has allowed their US Constitutional rights & privileges trampled upon year after year for the past 100+ years by the FED. in league with the US government policies of debt plus interest on that huge debt we owe back to the FED.? Can anyone of US see ourselves in that respect, by viewing ourselves in the mirror, past, present and future?
RUSS SMITH, CA. (One Of Our Broke, Fiat Money Corrupt States)
resmith1942@gmail.com
Amen, brother
Agree 100%!
Russ, you told it exactly as it is. If President Obama, gets his way with five million more illegal voters in this country then liberal’s like the head of the Federal Reserve, and those in the White House will keep everything just as it is now. The top 1% will keep getting more wealthy on our buck until we become a Banana Republic. That is just as our third President, Thomas Jefferson, warned us would happen as far back as 1802, if we ever allowed the big banks to print and control our currency.
Between the sronger than expected economic news and the Fed’s increasingly hawkish tone, interest rates are nuturally begining to raise on their own. This is the way it usually happens and the Fed will adjust to the Markets, eventually.
To Richard P re a single payer “free” health care system run by the federal government
Yep, Just like the V.A.
Just get the frigin feds out of my life
I have 2 Brit friends who work here in the US. They don’t understand why we can’t figure out the healthcare issue. They like their system in the UK (despite what you hear on Fox news). They have a good working model that keeps prices down and satisfaction up and all we have to do is copy it. They’ve even offered to help us fix our system, but we refuse to accept their help. It’s kind of sad, really.
I am curious to know if the employees in the Brit system can be fired for corruption and/or not doing their job.
I am retired, and so I don’t know much for sure about the employment market. But I have to wonder about the numbers. Are these ‘jobs-created’ numbers full-time jobs, or full-time equivalent jobs? My brother works for a big box sporting goods retailer in a growing Montana town. He sees jobs being created in his area, but they are all part-time positions.
Full time positions at his store have been eliminated, due to the Obamacare insurance constraints. Most full-time employees have been converted to part-time, and part-timers have seen their hours cut back drastically. There are now many more people working at his store, but almost all are part-time employees. Could the numbers be misleading us?
The average work week was 35.6 hours or thereabouts. Unfortunately, Obamacare only further entrenched the employer into our health care, where IMHO there’s no reason why my employer should be my defector healthcare provider.
Let’s get rid of the tax break given to employers to subsidize insurance and get everyone into the individual market, and go from there.
It really is strange that our employer has become our healthcare provider. I think its kind of an historical accident caused by government wage controls during WW II. They couldn’t offer higher salaries to attract better workers so they offered perks instead.
Where are the “good jobs”. That means decent paying jobs with benefits. That might mean like the manufacturing jobs that were outsourced by the millions by our corporations, government and wall street banks. Can a country like the United States be strong economically if it has a relatively weak manufacturing sector? I doubt it!
Economically, the U.S. reminds me in some ways of a dying man who is still moving about, but is on his last few breaths. When he goes, it will happen suddenly – with or without some fuss.
Your statement that “The Federal Reserve that utterly failed to anticipate or prevent the housing and credit market meltdown…” I think is to some extent a misstatement because, it is my belief that the Federal Reserve along with others, deliberatly CAUSED the housing and credit market meltdown! If you take a good look at all that lead up to the crisis and how it was responded to, it is pretty obvious what they did. And, I think it is wholely impossible for anybody to be that stupid!
Also,I had been reading about what was happening and what was comming, included your own writings, for at least two to three years before the whole thing blew up.
It really is a pitiful state of affairs when the smartest people in government can do something so stupid we can plausibly ask whether it was done on purpose or not. You are right. Many, many commentators warned us in advance of the housing bust.
Hi Mike,
I would like to know if the people that have two jobs, which they need to make up for the income they made with one job pre 2008, are being counted twice in the statistic for number of jobs help by people. Participation number in the work force.
There must be a lot more of these part time jobs to make unemployment so low at 5.5%.
The majority of people are not living like they used to.
Is anyone comparing the number of boomers retiring each month to the weekly jobs being created? My opinion is that most of these new jobs being reported are due to that reason. Why else is the participation % going down. Plus the new hires are coming in at a lower pay which keeps the wage inflation down. With the stock markets skyrocketing the past 5+ years, more boomers are retiring.
I think you are onto something there. The number of boomers retiring has to be several thousand a day.
The reality is OVER 300K americans retire each month OVER 300K americans reach the young adult working age each month (18) then we have the thousands of foreign born that come here legally each month and the thousands and thousands of illegals that jump the border each day and of course lets not forget the 250000-300000 people each month that lose their job and then the govt comes in with their bogus numbers and tells us we are at full employment when theres a paltry 295k jobs created oh yea they call it hefty even though the majority of these jobs are part time.
Short term, interest rates are going to fall, no matter what the Fed does. The ECB hasn’t started printing Euros yet, but when they do, the dollar will get even stronger and bond yields even lower. What would you rater invest in, a Euro bond paying negative interest or a U.S. Treasury bond denominated in strengthening dollars vs a weakening Euro?
Math seems to get harder every day. With job growth of 275K and a break even point of growth, per the Obama admin at 150K , how in the heck can the labor participation rate continue to fall? Math is hard but it’s not this hard. These numbers don’t add up. There’s no doubt we’ll see some pretty significant revisions in the numbers provided. With that said the labor market is improving, but the rate is no where near inflationary.
They say there are three kinds if lies: White lies, damn lies and statistics. Well, the unemployment rate keeps going down with more people getting hired every month. If this is true then why is the labor participation rate falling every month? How on earth can things really be getting better if fewer people are participating in the work force, month after month. Somebody is telling lies somewhere.
The Fed will find reasons not to raise rates until we see clear sign that inflation is headed above their 2.0% target. In a world where many nations are lowering rates or doing their own versions of QE, holding still near zero is enough to send the dollar soaring which is already hurting imports. Any rate increase would only make the matter worse. Since the Fed has two major objectives to control inflation and stimulate the economy, the Fed will try to counter the dollars recent rise. This means they will soon state there will be no rate increase.
IMHO the Fed waits until Sept to raise rates. When they do, we may have a repeat of the end of QE (think October correction), but no “blood in the streets.” The utilities sector is already correcting in anticipation of the rate increase. I own a PIMCO CEF and have watched discounts to NAV grow wider, pricing in a rate increase. PCI is now yielding over 9%, way above its historical average.
After the market corrects, institutional investors will take advantage of the selloff and begin buying. When retail investors realize the sky isn’t falling, they jump back in, just as they did in Oct 2014.
AMATEUR PILOTS
Harrison Ford, the late John F. Kennedy Jr., and the late John Denver all were skilled private pilots. Outside of the military, its near impossible to log enough air hours to get your skill level up to expert level ( professional grade). It takes thousands of hours in the air and few have the time or money to pursue it to that extent. Private pilots who fly for recreation do so because they enjoy the flying experience and are reasonably good at it.
Still, it “pays to know your limitations” and above all, to remember private aviation ( especially fixed-wing single engine aircraft ) remain high risk activities. Helicopters are much more dangerous and prone to mechanical or pilot error ( crashes). Accidents are very common, especially over mountain terrain ( erratic air currents). There are very few occasional pilots who live well into old age.
C’mon Mike! The only thing we have proven to be “productive” in is dropping people from the unemployment rolls & into the workforce participation pool. In the last year we have created the most bartender & waitress (sub minimum wage guaranteed) jobs in the history of the world. These folks will be far too busy trying to put hyper inflated food on their table to buy homes, or expensive consumer goods, or “stawks”, etc. But hey, food prices don’t count do they? They are, after all, too “volatile”.
There is, however, some silver lining to the non-inflationary inflation of our recovery-less recovery. First, we have smoke & mirrors Arimax14 reporting formula to show the sheep how much better their doing in re their slave wages (.01% up, never mind that hunger in their belly). Second, with the gas price savings they’ll receive for the vehicle they can’t afford to own (unless of course they can get one of those fancy sub-prime 200 month long car loans), they’ll surely be able to afford all sorts of extravagance (especially in combination with the EBT card benefits they now qualify for). Third, there is the fabulous benefit to the Limousine Liberal crowd of knowing that America’s exponentially growing homeless population will at least always appear clean & well groomed lest they loose their fine service employment. Finally, as our poor are made more “presentable”, perhaps we will desist from making it illegal to offer them a meal & a bed in many jurisdictions.
One thing is for certain: No one can deny America has come a very long way from its initial celebration of the power & productivity of the individual to the strength of “group grope Globalist diversity”. See De Tocqueville’s “prophecy”.
Remember that all increase in employment in “Service Industries” is funded on the backs of the “Productive Industries” (those that actually make things). Government (that is, political) policies since World War II have been angled to drive productive industries out of business or to other countries. What we are seeing now is a kind of “last gasp” before the final collapse and death of the United States that used to be.
You sure missed the mark in recommending the ETF OIL in your Safe Money Report list of recco’s. . It tanked big time.
Harrison Ford was lucky no one was playing golf where he landed. The area around Santa Monica Airport i completely residential and when a pilot runs into trouble whether because of pilot error or mechanical problems crash landing is a matter of LUCK!
Why are some investment magazines RED FLAGING some of ETF’S, REIT/MORTGAGE Back Securities, The Utility/Telecom and The Preferred Stocks.
Does the job report list only filled jobs ? We have a lot of trouble finding anyone who actually knows how or wants to work.
I have seen figures that only about 62% of working age people, 16 to 52, in the U.S. are employed. That does NOT seem to me like a healthy employment figure, or a healthy economy in an age when the government promotes inflation and higher costs of living. It means that over a third of that population is being supported by workers, many of them, no doubt via welfare of some sort or via crime.
Keep on warning us about “Bloody Wednesday”. You’ll be right eventually. Of course, it could also be a Friday, or . . . I’m sure you’ll take credit for it! lol
Regarding the 3/6 Jobs Report, note what Paul Craig Roberts says about the report,
Wait, the “blockbuster” news was 295,000 new jobs created in the month of February, while two days ago it was announced Initial jobless claims climbed to 320,000 in the period stretching from Feb. 22 to Feb. 28. Sure looks like a giant backward step of 25,000 jobs in just the last week to me. Who gets credit for this continuing fiasco?
One thing to remember about GOVERNMENT data releases. They tend to be doctored to make politicians look good. Trust them at our own risk.
What are we supposed to do with our bank accounts? Take the money out and then what? We’re not getting any interest but where do we put it? Under our beds? Pat
As many have pointed out before, the unemployment figures are misleading and are manipulated by the government. A case can be made by looking at your data. Doesn’t it seem reasonable to expect a rise in wages and weekly hours worked when the unemployment drops below six percent or so. One would expect in those circumstances that the ratio of jobs to workers is on the rise putting employers in the position of having to lure workers into the work force by paying higher wagers or by working existing employees overtime. Yet we see the opposite…or am I missing something?
‘Don’t think your missing a thing, Paul. We are in a period of DEflation, and nearly everything government agencies do seems to add to deflation. Obamacare, for example. A rise in interest rates would also be deflationary, since it would slow business investment and reduce profits.
Federal Reserve Bank of New York 33 Liberty Street New York, NY Wednesday, June 03, 2015 4:00 PM – 6PM–10,9,8,7,6,5,4,3,2,1- We have liftoff. The button has been pushed and the WORLD will be effected as narrated by Orson Welles
Even if inflation goes above 2%, the Fed. will be still reluctant to increase rates. It’s a
global economy and therefore one need to see more growth worldwide (affecting US economy) if not, rates will stay low for a long time, which I believe will happen as personal and Government debt levels have increased since 2008. A little inflation is good and the Fed
will camouflage the risk of it.
Two words for those who want a totally government run health care system: “Veterans Administration”. Two words of caution for those lauding the unemployement level “workforce participation.” We are turning into a nation that relies more and more on fewer and fewer working people to support a larger and larger government and non-working population. This can not be good.
Donald, you understand! As for the VA health system, public attention is on it, so the politicians will do things to make it “look” better, at least. But improvements will likely come at the cost of lower service elsewhere. Or higher taxes and government debt for your kids and your kids kids to pay for.
Harrison Ford made a basic error in executing his recent forced landing in California.
When you have an engine failure below pattern altitude, unless it’s vary unusual
circumstance, you never try and turn back to the departure runway. You risk a low
speed stall and going in nose first for a fatal crash. The proceedure is turning only
thirty degrees left or right of your present heading and picking out a clear spot to put the aircraft down under full control. He was very lucky that his course reversal worked out
and he got it down in one piece. We wish him a fast recovery.
Apparently everyone who is paying attn and Market and even the FED knows the numbers are worse than bogus except for…Mile Larson who is all excited by them! Is he a paid shill for the PTB? Maybe he’s just a laughing stock
WHAT HAPPEN TO THE 700,000 people who fell 0ff the unemploymernt lists? I guess the government just forgot about them or just doesn’t care. ( VERY SAD)
what happened to the 700,000 people who fell off the unemploynent list? I guess our government just forgot about them (SAD)
The jobs numbers may be factual or not. That’s beside the point because no doubt unemployment has decreased from 2008. No doubt the economy has improved. The question is by how much.
With regard to the raising of rates, what’s the big surprise? Supposedly, “the market” does not like uncertainty. Well, it seems that the “investors” should already know that the raising of rates, minimal as it may be, are is on its way. This June or September, what the difference? Whatever the correction will be will probably be like the end of QE, i.e, taking the lollipop away from Wall Street. The “investors” will have their fit and shortly there after the bull market will continue on its merry way.
Having lived in New Zealand with their government run health care, I was really hoping that it wouldn’t happen here. Everyone in the health care industry is a government employee (I’m an RN) and the Doctors are salaried employees. No incentive to work hard. When I worked in surgery, no matter how many cases were left to do, and since the doctors did the minimum of what they had to do, the unfortunate patients toward the end of the schedule would be cancelled. So too bad for you especially if you had to take time off from work–not our problem. Call the office and reschedule. Is this what we’re in for here with a government run health care? I hope not.
The job report numbers are certainly encouraging, but there is another possible negative besides the feeble wage growth. Over 700,000 ran out of unemployment benifits so unless a lot of them reenter the workforce the job partication continues to erode. Do yoiu knoiw how the number is determined and how accurate is it? If it is reasonably accurate, then the workforce is still decreasing which is not a good trend.
For Mike Larson’s edification since he constantly is cheerleading the govt. and the economy
John Williams of ShadowStats.com
Mr. Williams shares the following with us.
– Sharply Widening Real Trade Deficit Should Pummel First-Quarter GDP Growth
– Nominal January Trade Deficit Narrowed with Collapsing Oil Prices, but Exploded versus Fourth-Quarter Numbers, after Inflation Adjustment
– Add-Factor Biases Boosting Payroll Growth
– Drop in Unemployment Rate Was Due to Unemployed Giving Up Looking for Work, Instead of Finding Work in Surging Employment
– February 2015 Unemployment: 5.5% (U.3), 11.0% (U.6), 23.1% (ShadowStats)
– Real Construction Spending Remained in Low-Level, Fluctuating Stagnation; Monthly and Annual Changes Holding Flat
– Annual Money Supply M3 Growth Jumped to 5.7% in February, Highest Since June 2009
– 2014 Federal Obligations Approached $100 Trillion at Year-End 2014
If interest rates are going up wouldn’t that mean the fed’s are going to have to pay more on the national debt?