Friday’s U.S. unemployment data showed that job growth was better than estimated. This is insignificant as long as the FED has signed on to a continued dose of quantitative easing. In the eyes of the FED and its dual mandate, the 9.6 percent unemployment rate is a problem. As the economy improves, the unemployment rate will be sticky to the high side as more people re-enter the job market. If the FED solely focuses on the rate, there is no question that the FED will remain aggressive in pumping up the volume of liquidity. The U.S. action is not being positively viewed and the Germans are voicing the loudest criticism. In an interview widely broadcast throughout the world, German Finance Minister Wolfgang Schauble called the U.S. policy “clueless.”
In Saturday’s New York Times, President Obama had an op-ed in which he cited the United States’s need to double exports by 2015. At the same time, Secretary Geithner maintained the mantra of a strong DOLLAR policy. What needs to be addressed is that if U.S. exports are to become more competitive to boost sales, either the DOLLAR must depreciate or wages must decrease on a relative global basis. The easiest path from a political perspective is for the DOLLAR to depreciate and Geithner better get with the program. Geithner’s constant repetition of his strong DOLLAR MANTRA is being ridiculed as it flies in the face of the road that the FED has walked down. Again, we criticize all of Washington for its inability to coordinate policy as the different policy makers seem to all be singing from a different song sheet.
While U.S. data was better, the German factory orders were much weaker than expected. Analysts were mixed as to why factory orders fell so dramatically. Some blamed the incipient austerity in the PIIGS while some Germans pointed to the recent strength in the EURO as the main culprit. During the weekend, the Greeks went to the election booth and the regional elections were mixed, but the Socialists appeared to poll strong enough to prevent the sitting government to have to call new national elections. Another important concern in the Euro arena is the Portuguese debt situation.
Last week the 10-year Portuguese/BUND spread went out to record highs. However, on Friday the Chinese leaders were in Lisbon and made noises about their desire to buy Portuguese debt. If this proves out then the BUND/PORTUGUESE spread should narrow. If not then we will know the Chinese statement is mere noise and we can look forward to greater stress in the European sovereign debt markets.
If favorable news cannot remove the recent stress in the European sovereigns it will be time to worry about the PIIGS again. This week brings the G-20 meeting and we advise all to pay attention to what evolves from the conclave of world leaders. Let the posturing begin.
Tags: Bund, Dollar, Euro, exports, Fed, G-20, Germany, PIIGS, President Obama, Treasury Secretary Geithner, unemployment, Wolfgang Schauble
November 8, 2010 at 7:59 am |
Speaking of the unemployment data figures, here’s another view of that number:
(US) ShadowStats.com comments on US October employment data
– US Job creation data was largely the result of “seasonal-adjustment gimmicks”
– Says that according to “statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (counting multiple job holders more than once), showed a seasonally-adjusted monthly employment loss of 330K in October.”
– 9.6% unemployment rate was 8.7K shy of rounding to 9.7%. (9.64%)
– U6 index of underemployed was 17.0% (adjusted)
– Sees the true ” SGS-Alternate Unemployment Measure” was 22.5%
November 8, 2010 at 10:24 am |
Michael, Thanks for the reminder regarding the household survey. Perhaps the folks at Labor could send their formulas over to their counterparts at USDA to help smooth out thier stocks report and yield estimates.
November 8, 2010 at 1:41 pm |
Mike–certainly won’t and can’t argue the point.The data is so “funky” but that is what the market works with so all we can do is be prepared and be ready to trade/invest in the picture that we see and analyze—let the desk jockey’s do the rest and hopefully we will be able to take advantage of any price distortions that arise.The best analysis over the years has been the Liscio report which actually bothers to measure payroll taxes in real time to get a handle on the tone of the job markets