It’s the best of times in the job market, judging from the latest government figures.
Market Roundup
But it’s the worst of times in oil and credit, judging from the carnage I’m seeing on the screens in front of me.
Let’s start with the Labor Department news. The agency reported that the U.S. economy added 211,000 jobs in November, slightly above economist forecasts. October’s figure was revised higher to 298,000, while the unemployment rate held at a seven-plus-year low of 5%.
Job growth was fairly healthy by industry, with construction adding 46,000 jobs, food service adding 32,000, retail adding 31,000 and health care adding 24,000. As you might expect, mining was the weak spot at minus-11,000 while manufacturing shed 1,000 jobs.
Average hourly earnings rose a respectable, if not spectacular, 0.2% on the month. And while labor participation remained weak at 62.5%, it actually ticked higher by one-tenth of a percentage point from October.
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| Jobs growth has set the Fed on the road to a rate hike, but there are still other concerns in the economy. |
Does that mean a December rate hike from the Federal Reserve is a “fait accompli”? Well, policymakers don’t gather for their two-day meeting until Dec. 15-16. But this was the biggest remaining data point before then, and it definitely gives the hawks cover to push aggressively for the first raise since June 2006.
On the other hand, things couldn’t look worse in the energy and credit markets. Crude oil prices sank as low as $39.60 a barrel today after OPEC ministers meeting in Vienna did nothing to stem the bleeding.
Not only did the cartel refuse to CUT its 30 million barrel per day output target, OPEC officials actually admitted they’re producing more like 31.5 million BPD … and suggested that will continue for the foreseeable future. So essentially, oil ministers RAISED their output goals into a market that’s already swimming in crude.
Falling energy prices are clearly putting pressure on oil-sensitive credits. But the deterioration in credit is spreading well beyond oil and gas companies, with indebted companies in other industries increasingly running into trouble, too.
The Financial Times reported today that we’ve now seen $1 trillion in U.S. corporate bond downgrades this year. Total ratings cuts are up 72% from a year earlier.
What’s more, actual defaults are running at their highest level since the tail end of the credit crisis. And yields on the lowest-rated tranches of junk bonds have surged to six-year highs.
Today, the stock market could care less. The Dow Industrials jumped by as much as 380 points after ECB President Mario Draghi essentially said “Oops” for yesterday’s selloff, and asked for a “do-over,” in a New York City speech.
| “Things couldn’t look worse in the energy and credit markets.” |
Quite frankly, this is an amazing dichotomy. Widespread carnage in credit has always been a leading indicator for economic growth and stock market performance, in my experience. And when I see central bankers so worried about a one-day, 251-point Dow selloff that they feel they have to “clarify” their comments a mere 24 hours later, I don’t grow more confident. I worry even more that they’re losing control — and they know it.
My advice continues to be “Invest cautiously.” If you’re going to be long stocks, be long higher-yielding names in less-economically sensitive sectors. One of my favorites is in the Safe Money Report, and it just hit an all-time high today.
Balance that out with a high cash level, and downside plays targeting vulnerable stocks or sectors. And definitely keep a close eye on the credit markets — if the behind-the-scenes turmoil continues to get worse, you’re going to want to dial down your stock exposure even more.
Now let me hear what you have to say. Is the labor market in good shape here? Or are the government numbers failing to adequately capture what’s happening on the ground in your neighborhood? Do figures like the FT‘s alarm you? Or should we just stop worrying about the credit and commodities market and buy a bevy of stocks? Share your thoughts below.
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The complicated interactions and relationships between policy moves in Europe and the U.S., the capital markets, and the underlying economy were front and center at the website in the past 24 hours.
Reader Big M. said it would be nice to have a market driven by fundamentals, rather than repeated central bank interventions. The comments:
“Mario Draghi and Janet Yellen should not have control of the market in the first place. It’s called the free market! Maybe if government got the heck out of the way, the market would correct itself.”
But Reader Dave said it’s unlikely that they’ll back off: “Yellen and Draghi, who have been printing funny money for years, are the financial puppets and will direct the Fed and ECB to do what their masters will order. The Dow is at least 40% overvalued and zero interest rates for the last 10 years meant that retirement accounts have been making ‘zilch.'”
Reader Louis P. weighed in on the economic outlook, suggesting things aren’t as rosy as they seem: “Nothing goes up forever. This market has been going up and up, fueled by ridiculously low interest rates and the printing of money. The outstanding debt levels are spectacular (national, state, county, municipal, personal and corporate). The amount of derivatives, from what I read, far outpaces the levels that existed before the recession of 2008.
“Now, most experts talk about the risk of massive inflation ahead. But it appears to me that, in the short term, the real risk is deflation, which would cause massive unemployment and all the problems that it entails.”
Finally, Reader Frebon offered this take on what might happen if the dollar rises and corporate profits come under pressure as a result:
“Screw the multinationals. They have used the free money for stock buybacks, investments overseas, and keeping their money offshore. There has been no need for the low interest rates except to artificially increase PEs and let the market go on a tear.”
Thanks for weighing in. It’ll be interesting to see what the Fed does in a couple weeks, now that the ECB has weighed in and the jobs figures look strong enough on the surface to allow Yellen to hike rates. I believe we’re in for a period of heightened volatility no matter what, with equities catching on soon to the turmoil that’s already riling the credit markets.
Any other thoughts? Then don’t be shy. Share them here at the Money and Markets website.
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Authorities continue to probe the backgrounds of the husband-and-wife attackers in the San Bernardino massacre. They reportedly had thousands of rounds of ammunition, multiple weapons, and a dozen homemade pipe bombs in their car and home — raising suspicion they may have had other attacks planned.
U.S. exports slumped 1.4% to $184.1 billion in October, the worst reading going all the way back to the same month in 2012. That drop outpaced the 0.6% decline in imports, causing the trade deficit to widen to a greater-than-expected $43.9 billion. The strong dollar and weak foreign growth are key reasons for the lackluster trade picture.
The cost of hosting the Olympic Games is out of control these days, and Brazil is buckling under the weight. The country is in the midst of its worst recession in decades, and is rapidly scaling back plans for the 2016 summer Olympics as a result.
Staffing at the games will be cut, as will spending on catering, transportation, cleaning, and other operations. One report even suggests athletes will have to pay for their own air conditioning.
What will likely happen next in the California investigation? What do you think about the disappointing trade figures? And how about the Summer Olympics — will Brazil pull off a successful event or will infrastructure and operational problems taint the 2016 games? Let me hear about it below.
Until next time,
Mike Larson
P.S. Larry Edelson’s VITAL new report, “Supercycle Bonanza!” could prove to be the most PROFITABLE report you read all year.
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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.
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If the fed actually has the guts to raise rates, this would be historic, but not for the reason you think. It would be historic because this would be the first time ever the Fed was ahead of a rate cycle. They’ve always been too late to raise rates, then overdo it. Remember, Yellen says their targets have not been reached, and now the farce of the low participation rate due to aging population has been debunked. Also since Bernanke, the fed has been overly political, i don’t think they will raise rates.
The San Berdoo shooters were terrorists, just they planned to get away and go on a further rampage. Probably set off by the Paris attacks. House full of ammo and bombs are not the signs of people that had a really bad day at work ad wanted to get even. There were reports that the pair had been in contact with people on a radical watch list and yet they flew under the radar. And like the 911 attackers they came here legally, he born here, she on a visa. The terrorists don’t have to sneak in, we invite them in. Just like Clueless Leader who wants to being in thousands from Syria. OH yeah we the people said NO but are ignored and the UN High Commission on Refugees says that is the worst thing to do, leave them near their country not half a world away.
We have officially entered The Twilight Zone. I swear I heard the Attorney General of the United States say she had prosecuted forty one people for trash talking Muslims and anyone who did so in the future would also be prosecuted. I heard another government spokesman say that the terrorists aren’t Muslims because real Muslims do not embrace a religion that promotes violent conquest. It was also announced that a group of Syrian refugees were to be resettled in Redlands, California. I’m as tolerant as the next person but if these people cost me The First and Second Amendment I’m not going to think well of them. Jim
One talking head after another is telling me I need to send my nineteen year old son to Syria. I profoundly disagree. This didn’t work. In Afghanistan or Iraq. They his behind the rocks and shot at us until we got tired if it. I could care less if ISIS is in Syria. It’s ISIS in America that concerns me. In the past when we have faced existential threats we knew what to do about internal security. During the Civil War Lincoln suspended Habeus Corpus, rounded up the Rebels, and released them when the War was over. During WWI Wilson arrested and detained tens if thousands of Germans and let them go when the war ended. Another progressive scion, FDR, interned hundreds of thousand of Japanese and released them when the WWII was over. They reacted by volunteering for the 442 Regiment, the most decorated unit in the Armed Forces. We should now round these people up and intern them until the war is over, simply as a matter if our physical safety. We have plenty of empty FEMA camps.. It’s not like they are hard to find. How many of our fellow citizens have to die before we come to our senses. We must come to the realization we face an existential threat, and it must be dealt with accordingly. Jim
If Putin wants Russia to get involved in Syria, let the fool have it. Maybe he will get his country as involved in all the Middle East mess as our fools did in the last few decades. Then maybe we can give it a rest.
MIKE,
IN READING YOUR ANALYSIS YOUR CORRECT ON SOME OF THE ISSUES THAT YOU WRITE ABOUT BUT THERE NOT THE OVER BEARING ISSUES THAT DETERMINE MARKETS BEHAVIOR AND BECAUSE OF THAT I BELIEVE THAT YOU MISS THE BIG PICTURE OF WHATS GOING ON IN THE ECONOMY AND MARKETS AND MISS MAJOR MOVES BY BEING MYOPTIC.
KEN JACOBSON
I have been puzzled by Yellen and Draghi for some time until it hit me today. I couldn’t remember where I had seen this game before when voila!!!!! They are found on street corners in every city playing 3 card monty and taking the suckers money. Now, giving them some credit, they don’t hit and run like the street corner hustlers, but stick around and manipulate things so it appears everyone is a winner. I have been withdrawing from the market for the past 3 months and will be 50% before the end of the year. Winter is Coming.
Mike, I think you put too much emphasis on oil prices and the causes of credit deterioration. There are plenty of independent indicators that suggest other factors are at work and more potently than $40 oil. What surprises me is the pundit optimism a year ago on the benefits of lower oil prices (consumer budgets, oil and gas as feedstocks for chemicals, oil and gas as components of cost of goods sold and of SG&E, and the benefits of becoming more nearly energy independent) and how they seem to have lost sight of their original optimism. It made sense to me than and continues to. If I were a stockholder of SeaDrill or Chesapeake, I’d have different view but the big picture doesn’t support the pessimism that’s so wide spread.
All the Weiss analysts were predicting strengthening of dollar against euro,The opposite happened on this Thursday. ! Where to now ?
John
Jim One day does not make a market.
What was the job growth after deducting the Birth / Death ratio? Just go back to 2008 up to today and subtract out the B/D ratio!! Then subtract out all part-time job workers who work < 30 hours a week and who want full time jobs. Yea, we have a great job [ lie ] recovery. And no I don't think The Fed will raise rates . . . just look at what happen when Europe went NATO [ No Action Talk Only ]!
JOB GROWTH ???? When and If EVER We return to Manufacturing Jobs, then and only then can We say, Other than Government Hiring is where most of this Job Growth will be Located. More Government More Trouble!!!!!
Every government jobholder ( and I admit to having been one for awhile) is a person who is part of the taking economy, not the productive economy. Those jobs are paid for with money that is extracted from those who actually make, or at least sell, things or sevices. Government, as we have evolved it, is predicated on the idea that people need to be controlled – that they can never learn to control themselves and cooperate with other people unless some elite controllers take responsibility. That way lies slavery, not freedom. Our educational system, of course, is designed to foster that idea from a young age, so that the controlling elite can maintain their positions.
My gosh, you sound like an Austrian Founding Father. Love it! Jim
Agreed. Point of meditation and consideration; People realize and understand working for nothing is slavery…so the elite say.. Let us pay the people so they feel free and prosperous. Then let us take the our money’s back through sly schemes so that at the end of the day they have worked for us for nothing. Quote of meditation and consideration; “Diligent hands will rule, but laziness ends in forced labor”….. Solomon. Research of meditation and consideration; Search and read many of President’s Lincoln quotes and warnings to us and for us. Question of meditation and consideration; Where do we stand as a nation and a people? Thank You to everyone for sharing your thoughts and posts as we walk through these changing times together.
Mike, I ask you again to quote these criminals job numbers as “alleged” numbers.
These are the same creeps who lie, lie,lie, again and again.
Me thinks that you make to much currency so you dont understand what is really going on out here. I am doing O.K. but I look around to see a nation of sheeples just baarely making it.
Most are waiting for friday to eat. Free range debt slaves.
Yes, Yellen and company will raise rates. They are good at doing the wrong thing at the
wrong time. They are also influenced by the fat check that they take home for selling there souls
Obviously, Draghi is willing to repeat his “whatever it takes†line as many times as it takes to continue his “rock star status†with the markets. Never mind that talk is cheap….whether he can actually back up what he’s saying is another matter…..
He must be the president of Yellen’s plunge protection team…….
Yesterday, he tried a different line and the markets tanked! So…today, Draghi has returned with the tune that has turned out to be a winner for him…and the markets loved it!!??
Without him, I think the markets would have gone down again today due to the positive jobs report. After all, the current theme is “good news is bad news.”
Most people would say that inflation has been fairly low to moderate over the years, but… I needed a few little repairs to my house – things that won’t even be visible, for the most part. The bill is going to be about 1/3 of what the whole house cost me about 40 years ago. Even the smallest inflation adds up over time, and the Fed wants 2% on average. Thank the Lord it has been officially less recently. As a retired person, I couldn’t afford to keep my house up, if we have more inflation, and most of those Trillions haven’t even shown up yet in prices.
Should have done those repairs 20 years ago, Chuck.
Marvelous insight, Phil!!
Any homeowner out there knows that the “repairs and maintenance” issue of owning your own home is an ongoing battle. The repairs Chuck speaks of may well have not needed to be done 20 years ago.
Chuck’s comment speaks to the experiential presence of inflation in our economy, in spite of the headlines saying “no inflation.”
Your comment, Phil, involves sarcastic absurdity…………..drivel??
I have done other repairs over the years, Phil, including a new roof and two HVAC replacements.
On the topic of Oil and Credit.
I am of the opinion that these two sectors of the market are linked by the supply and cost of oil and the resultant petroleum products. Our response to $100+ barrels of oil was to develop technology for freeing the reserves that we had known about for the past 40-50 years. That added supply brought the price per barrel down to $75, which was not a bad market price. Obama responded to this by having EPA add all sorts of new regulations in his effort to prevent global warming. The Keystone XL pipeline was also prevented by executive order. The result was a bumper year in wheat production going bad because it could not be shipped because the oil took precedence. The window of opportunity has closed with the new government in Canada.
On the other side of the world Saudi Arabia did what any good company with market share and clout would do. They reduced the price of oil beyond the domestic producers’ ability to compete, especially with all the new regulations that had been conveniently added. The oil exploration companies are now closed, bankrupt or both. Mike, the data on the credit markets that you reported must be readily available, so it goes without saying that Saudi Arabia is reading the same reports that you are.
It is my opinion that they are waiting for an inflection point to be reached where our economy is swallowed by this debt you mentioned. At that point, with us on our knees, they will be in a perfect position to close the tap to a mere trickle as they did 40 years ago and then recover all those profits from the years of pumping cheap oil. I have seen this scenario play out more times than I care to think about. This is what happens when you care more for your profits that you do for the market that makes them possible.
Merry Christmas anyway to everyone who posts on this blog and to the good folks at Money and Markets/
Very, very accurate analysis. Merry Christmas to you as well. Jim
is anybody noticing that the Stock Market and the price of Gold are moving in the same direction….whats up with that?
Zero to no inflation. Blast the discount rate to 2.5% overnight and in sixonths crash it back to zero, continue on this cycle or one without uniform for 9 yrs. Scrutinize the percentages of reserve cash by daily closing receipt on a percentile of the major institutes. Pay close attention to increasing supply of crude on lower demand.
Blast out discount rate to 2.5% and make 9 yrs of speculative announcements of the possibility of a small rate decrease on the horizon?
Admit it, Mike, you’re wrong again. While you’ve been urging people to hoard cash, the market sprung back in spectacular fashion. My advice is still the same: Go long the stock market, despite the naysayers (like Mike). Invest in high quality stocks (especially during the dips) and don’t freak out over every bump. You’ll be rewarded in the long run. Cash? That’s for wimps.
Mike,
Your job figures are rigged the same has gold and silver, in fact every think is rigged, you must admit Mike nothing adds up, 40 odd million in food banks.
Unfortunately, we are fixed on the short term oscillations of job growth and give them more weight than deserved. Christmas temporary hiring from the Post Office to retail is what is going on. Real full-time hiring is not what is happening, and GDP growth is due to more government deficit spending and more credit card spending (consumption)_that masks the decline of real growth from the private, productive sector. Don’t look for any real recovery until all our layers of government stop imposing regulation totaling $1.7 trillion on business making it almost impossible for new businesses to comply let alone compete due to expense or to create new jobs.
One thing American Muslims need to do, and do immediately, is to denounce the terrorists using their religion for political purposes. If they do not, then maybe the rest of us are correct in lumping all Muslims with ISIS, al Qaida, and such. We would have good reasons to do so.
Sorry, but the revised October jobs figure of 298K can’t be anything but fantasy. The growth numbers just don’t support it. I bet it’s the birth-death adjustment again. That will be the next scandal of “official” statistics, like when we discovered that the NAHB and the NAR delivered inflated house sales volumes for several years, only to be uncovered in 2009.
You got it right Mike.
The Fed will start clarifying their statements during the night since foreign markets will tumble and they’ll try to stop that too. They are crazy! I really think that there is no one in politics who has the slightest idea how to build a strong economy because it’s as simple as running a home budget but once it get’s out of line it becomes an unsolvable problem like the government sponsored mess we face now.