Notes From Underground: The Jobs Report Was Not Data Dependent

Wow! That was a serious miss by the forecasters on job growth as only 20,000 new jobs were added. The huge miss will prove to be an aberration but doesn’t matter at all. As I pointed out in Thursday’s blog — as well as on the PODCAST Peter Boockvar and I recorded with Richard Bonugli from FRA, the ECB’s pivot toward liquidity addition via cheap bank loans has forced the FED into a policy of “watchful waiting.” And Chairman Jerome Powell reiterated that stance in his speech Friday night as he stressed the need for caution in the search for normalization on rates and the balance sheet.

Many FED members have begun to discuss the headwinds mounting from the slowdown in many important global economies, especially major exporters. Powell noted that the idea of make-up strategies deserve, serious attention. He said, “They are largely untried, however, and we have reason to question how they would perform in practice.” The MAKE-UP strategy would be an effort to ensure that if the inflation level of 2 percent was not met for several reporting periods then an above level would be allowed for a period in order to smooth out the data and effect a percent level through the use of some stochastic model.

On its face it appears to be an enhanced form of “forward guidance” based on the inflation mandate, which would allow the FED to remain easier for longer in an effort to meet the elusive target. This will be a part of discussion going forward as the FED attempts to keep U.S. rates from rising faster than the ECB, BOJ, BOE and others. The DOLLAR would become too strong if the FED keeps tightening liquidity while other banks remain in massive easing mode. Enjoy the podcast.

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28 Responses to “Notes From Underground: The Jobs Report Was Not Data Dependent”

  1. kevinwaspi Says:

    Yra,
    Nice piece you recorded with Peter and Richard. Following up on that, and in advance of this evening’s “60 Minutes” broadcast of the Monetary Wizards (Present and Past), I re-read the March 8 Ben Hunt piece, “Fiat World”. I attach the link to it here for Notes readers (https://www.epsilontheory.com/fiat-world/ )
    2+2 does indeed equal 5.

  2. ShockedToFindGambling Says:

    It seems to me that the end of the govt. shutdown in Jan. should have lead to stronger than expected hiring in Feb.

    A lot of companies are dependent directly or indirectly on payments from the govt. and some would have waited to hire.

    Also, the shutdown created a lot of uncertainty, even among those not directly affected.

    i didn’t see one pundit mention this.

  3. Michael Aaron Temple Says:

    Yra
    In effect, the Fed is tightening by its pausing while ECB eases again. A stronger USD is de facto tightening. As soon as US stocks roll over again (whether it is days/weeks/months/quarters from now—I believe it is a matter of weeks), I think Mr. Powell may find himself being barraged by the marketplace with desperate pleas to CUT.

    Suddenly, NKorea detente/bromance has gone Phht!!
    Might Xi just walk away from Donald and his trade war?

    Might the European slowdown begin to be reflected once more in the “lack of earnings” by Fortune 500 companies with substantial Euro operations?

    It is amazing that 10 years after Lehman, ECB is still pursuing massive QE. At least the Fed got off the stuff for a 2ish year period,

    But, now seems like we are all crawling down the rabbit hole once more.

    USD may be the least ugly sister….But, as kevinwaspi highlights in his link to Ben Hunt/Epsilon, we are all FIAT EARTHERS these days.

    Best

    Mike

  4. asherz Says:

    In your podcast with Boockvar, you ask, why anyone would hold a 10 year treasury and not move into a two year or better yet out of dollar assets altogeter. No one asked the obvious follow-up question from both of you. Move into what? Euro assets? Yen assets? Yuan assets? Remember whatever it is has to be big enough to accomodate the size of demand. The moderator had his prepared script. He has to be flexible enough to ask questions not on his bullett point list.
    We’ve talked about an answer here before. No need to repeat.

    • TraderB Says:

      Let’s assume we are on the brink of a recession and we are going to have another decade of global QE, ZIRP, NIRP, MMT, etc.

      When we get to the 9th inning of fiat credibility, we will have a massive steepening break in treasuries. (And gold explodes)

      If this is only the 4th inning, then we have the opportunity right now to lock in 2.5% interest rates for multiple years of low inflation where the interest rate could be back near zero. If you believe that is a likely scenario, then buying duration in US Treasuries will payoff well. It is actually very good risk/reward when you look at it from that perspective.

      • yraharris Says:

        TraderB—don’t assume a recession.Also why do you believe it is the 4th inning—the world wide performance of bank stocks has me thinking late innings and the bullpen is a spent force

      • Trader B Says:

        The economy we’ve created needs low rates in order for everyone to spend more and live in debt. There is no way back from the moon. We just keep flying this thing until it blows up. The populist uprising and the growing war on capitalism are signs that we are inching closer to a debt jubilee.

        I would agree that we are closer to the 9th inning than the 4th. If the unhappy ending to this story is imminent, what is the potential catalyst?

    • yraharris Says:

      asherz–bring the rally in the silver market to ascertain the obvious answer.The Chinese keep buying Gold as they know—surprised they have gone to a bi-metal approach for it would rectify the colonial machinations of the Brits.The Chinese do not forget the colonial abuses of the western powers—it is time for XI to forge the cros of gold speech

  5. Rohr (Alan Rohrbach) (@MacroMeister) Says:

    Hi Yra-
    Your excellent thoughts on the USD and sharing the nature of the MAKE-UP strategy notwithstanding, this is all totally laughable.
    A Fed that is still not seeing its inflation target is basically suggesting a de facto temporary higher target? Can this be anything other than a return to Bernanke and Yellen-style ‘normalcy bias’ (pure smoke to help the lumpen proletariat feel things are all OK)?
    Concern about Friday’s NFP is also silly in the context of most of the other data, and shows the myopic market view of most participants .
    And as far as that USD strength, Asherz has it exactly right… where else is anyone going in a world where the rest of them haven’t liberated their economies with regulatory and tax reform?
    China has reverted to a top-down structure that can’t possibly win once we cutoff the cheating (remember the Japan Scare of the 1980’s), and the Brexit negotiations illustrate the EU fixation on its dirigiste regime even if that stifles any chance for them to be an economic leader.
    Hate Trump for his offensive style, but don’t doubt he has liberated Keynes ‘animal spirits’ here in a way the others seem to not even allow is possible.
    Best-
    AR
    p.s. to ‘Shocked’- The shutdown mucked with the sheer data collection. That’s how we get +304K at the height of the shutdown and only +20K last month. I warned my subscribers in January that we wouldn’t see ‘normalized’ data again until the April releases. Right now the markets are pure psych, and that ‘global weakness’ fear doesn’t tend to get turned around for a while once it rears its ugly head.

    • yraharris Says:

      Alan–thanks for the very solid post.You covered a great deal of ground .The FED’s inflation target is pure smoke and mirrors and is only meaningful for those too complacent to search further.Criticize China but XI is a Stones fan—Time Is On My Side as he hums As Tears Go By

    • ShockedToFindGambling Says:

      Rohr……good point.

      Maybe employment numbers are pushed back a month. Jan may have reflected Dec, and Feb reflected Jan.

  6. Chicken Says:

    Whatever happened to the bear market, taking an extended breather? 🙂 I’d like to see another decade of growth to halfway make up for the damage done by the FED’s financial crisis.

    • yraharris Says:

      Chicken–I’d love to see quality growth and less de bt.The problem for developed economies is the growth is dependent on continually bringing demand forward that is financed by debt which results in the repeat of balance sheet recessions[Richard Koo]

  7. GreenAB Says:

    @TraderB: “I would agree that we are closer to the 9th inning than the 4th. If the unhappy ending to this story is imminent, what is the potential catalyst?”

    The only catalyst I see is a significant rise in inflation. It´s the only thing that would keep central banks out of the markets. Any other catalyst like some kind of financial crisis would lead to even more CB buying of paper assets. But that alone doesn´t pose a problem.

    I´m not old enough to remember double digit inflation. Anybody has an idea what could ignite such thing in todays globalized (=defletionary) world?

    • TraderB Says:

      Core CPI (Rent, food, and energy) appear to be headed lower. Seems like a lot would have to change to see double digit inflation.

      • TraderB Says:

        I have no clue what could ignite this. Interested to hear ideas.

      • Chicken Says:

        Right, when demand is pulled forward as it were for decades by using every conceivable accounting gimmick, even to the extent of subsidized labor aribtration, debt thus rises beyond sustainable levels.

  8. Chicken Says:

    RIP, Alan Krueger.

    • ShockedToFindGambling Says:

      I had a conference call with Krueger around 2011…..seemed like nice guy…..too bad.

      • Chicken Says:

        I wonder if he knew in advance Cboe would step away from trading imaginary currencies.

  9. the bigman Says:

    Trader 8 I was but a lad during the double digit inflation but certainly energy prices(read oil) were a major factor at the time. Don’t see oil shortages or a return to $100/barrel in the near future nor do I see inflation- see Japan. Waiting for infaltion may be the same as waiting for Godot Right now there is too much money chasing too many goods.

  10. kevinwaspi Says:

    Folks,
    I was around, and experienced first hand double digit inflation. I well remember a new 1969 Corvette cost $4781 (still have the window sticker if you’d like to see a scan, email me). I well remember an inferior version of a Corvette that had a base price of $13,965 in 1980 (no window sticker, no purchase thank you).
    I well remember the appointment of Paul Volcker, with the explicit mandate to kill inflation. I well remember crowding around the Dow Jones “Broadtape” at 4:15pm each Thursday to get the release of M1 and M2 for the week. I well remember the painful reaction when you knew that the big jump was going to be met with tighter rates. The inflation then was obvious. Society was at risk of rebellion from it, and the man brought on to kill it had the balls to act boldly. That is the last Fed Chair to have done so.
    The inflation now is no less harmful, but harder to ‘measure’. Do you buy your own health insurance? YOU know inflation! Do you pay college tuition? YOU know inflation! Do you pay property taxes? YOU know inflation! Do you buy beef? YOU know inflation. Did you buy a new car lately? YOU know inflation. Why do you think a majority of consumers lease cars now, because they cannot afford to own them? Why do captive finance companies offer 84-month term car loans? YOU know inflation! The Carbocaine that has been injected into your gums (you work in the financial sector) has numbed you and many to the inflation drilling into your teeth. You have been able to raise your family (not without two spouses working though) and survive the drilling, but the local anesthetic is about to wear off. Once the “service sector” weakens, and the 10+ year central bank miracle ends, you’ll notice that $44,600 base price on your new 4-Series Bimmer. You’ll notice that $35,710 annual cost of sending Jr. to a State University. You’ll notice the $1.5T student loan debt, and you’ll factor that into your $1000+/month property tax bill.
    YOU’LL KNOW INFLATION.

    • TraderB Says:

      The prices of these things you mentioned are being directly and indirectly propped up not just by monetary policy but by Trillion Dollar deficits. The Fiscal side of this is the other key ingredient to the 10+ year miracle. The revelation that this can all be sustained for a lot more than 10+ years is called MMT.

  11. Chicken Says:

    Perhaps if the FED can keep workers traumatized, prices will be restrained.

  12. Chicken Says:

    Perhaps if workers are kept traumatized, prices will be restrained.

  13. kevinwaspi Says:

    Trader B—– You are right on target. Lose monetary policy AND lose fiscal policy (the twin wars, one in Southeast Asia, one on poverty, both lost) during the ’60s caused the debacle, led to dropping the gold peg in ’71, and released the titans of inflation. So here we are with $22+T ‘official debt’ countless amounts of off balance sheet debt, and the waiter is approaching the table…..
    That is EXACTLY what I meant by “You’ll know inflation”. The end of the party is always the payment part, and this bill is a screamer.

    • Chicken Says:

      My revelation entails the occupants at said table vomiting their assets simultaneously at projectile speed. Inclusive of their shoes, bathwater, etc.

      We had a taste of this about a decade ago and surely there are astute “preppers”, so what’s different this time around?

      TIA, Kevin

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