Notes From Underground: At the Fed, Jobs is Priority Number One

There was another round of somewhat positive unemployment data on Friday. The U.S. release was tepid but juxtaposed with the Canada data it would seem robust. The Canadian jobs number was dismal on its face as 213,000 jobs were lost and the unemployment rate jumped to 9.4% from 8.6%, although a slight increase was expected (around 8.9%). The U.S. unemployment rate dropped to 6.3% from 6.7% with a slight gain in nonfarm payroll of 49,000, although much of that was in public sector employment. Average hourly earnings rose 0.2% but of greater interest was the increase in average hours worked, which reached a highest in history according to the Liscio report at 35 hours.

It seems that firms are stretching workers’ hours rather than taking on new employees in an effort to meet current demands. The overall picture for the U.S. was mixed, which kept upward pressure on the 30-year bond yields. Surprisingly, the U.S. DOLLAR was weak session as the major currencies — including the Canadian dollar — strengthened.

The anticipated short squeeze, which has been the key story in the mainstream media, failed to materialize after some initial dollar strength. In technical terms, the Dollar Index  — along with the EURO currency — had outside reversal days as new highs for the week were made but the Index and the EURO both closed outside the previous day’s highs and lows. This was happening even as U.S. Treasury Bond Futures closed on the weekly lows.

Again, it is critical to watch the 30-year for it has been the LEVER that has given a lift to the DOLLAR. The world is searching for yields in a global investing environment drowning in nominal negative yields approaching $15 trillion and growing. A key to this search is the Japanese yen in which large pension funds and insurance companies seek yield around the world, which results in a weaker YEN against a myriad of global currencies.

Before the late DOLLAR selloff, the YEN was prepared to close below the 200-day moving average for the first time since last June, which proved to be a short-lived signal. Will the DOLLAR/U.S. BOND correlation begin to breakdown in the face of massive fiscal deficits financed by FED largess? The media is concerned about the rise of potential inflation but NOTES remains more concerned about Chairman Jerome Powell’s continued emphasis on REAL UNEMPLOYMENT BEING 10%.

An interesting twist to the POWELL employment concern arose with a Larry Summers  op-ed in the Washington Post that warned about the negative outcomes from a TOO LARGE STIMULUS PACKAGE. He warned that a stimulus built upon massive money transfers may impede “our ability to build back better through public investment.” Summers wraps his argument in the greater concern about future inflation, which the Biden economic team heavily criticized.

There was a Financial Times story following the op-ed titled, “Democrats Hit Back at Summers After Criticism of the Stimulus Bill.” An unnamed Biden administration official criticized Summers, saying, “worrying about ‘overheating’ when the job market recovery has stalled out is foolish in the extreme. Of course there are risks associated with going big, but as we’ve said all along, those risks pale compared to the risks of going small. As Summers himself should remember.”

Jared Bernstein, a long-time Biden economic adviser and member of the CEA was adamant that the entire team was behind the size of the proposed stimulus. Bernstein summed it up, per the FT: “He also said Summers was ‘flat out wrong’ in suggesting the administration was underplaying inflation dangers.’ Janet Yellen is our treasury secretary, OK? he said referring to the former FED Chair.’ She knows a little something about inflationary risks and has tracked the economic issue forever.'”

The concern for all investors in dollar assets is that the Biden administration is laser focused on JOBS, with Powell acting as the Social Justice Minister and maintaining that real unemployment is 10% while inflation is not a primary concern.

Yet Summers also seems to be missing the point on unemployment. He provided responses to questions about his op-ed, which you can read here. We’ll look at these more in depth at a later date.

FED FUNDS RATE WILL NOT BE BOOSTED any time soon but the question that will be at the forefront of NOTES FROM UNDERGROUND will be: HOW LONG DOES THE FED ALLOW THE CURVE TO STEEPEN and enacts Yield Curve Control? For me that is key to the dollar and of course precious metals and commodity prices. Currently, U.S. EQUITIES are the most prescient as fiscal stimulus coupled with a large pool of domestic savings are riding the wave of a FED induced sea of liquidity.

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23 Responses to “Notes From Underground: At the Fed, Jobs is Priority Number One”

  1. Asherz Says:

    What is the number One DATAPOINT to the denizens of the Eccles Building in determining Fed monetary policy? Is it inflation? Is it employment?
    My answer is the STOCK MARKET! They will never admit that the tail is wagging the dog.

  2. Chicken Says:

    All conspiracy theories have been officially debunked.

  3. Michael Temple Says:

    Asherz is right. It’s all about the stock market.

    I think any Fed move towards YCC comes AFTER, not BEFORE, a big drop in stocks.

    Even though Biden’s $1.9T stimulus may pressure bond yields, the fiscal stimulus probably further emboldens stock traders.

    And if the Treasury balances begin to decline precipitously from a record $1.6T, this will add further turbo charging to the economy, harming bonds.

    I foresee a replay of 1987 (gosh, I am old). Bond rates rose inexorably that year, but stocks shrugged it off as it was a sign of expanding/reflationary economy….until it didn’t.

    Too much FX focus has been on DXY which is Eurocentric. Europe may be having as bad or worse a “Covid” than the US, helping to keep the Euro in check vs USD.

    Asian currencies, however, continue to pummel the USD.

    “Smart” cookies, such as Drunkenmiller, see this crystal clear.

    However, Mr Market still more obsessed with DXY.

  4. Leslie Philipp Says:

    At what point do creditors ask for more?

    When does the risk of monetary inflation demand higher rates?

    Are the Bond Vigilantes gone the way of the dodo?

    • Yra Says:

      Leslie—the bond vigilantes can trade it but the fear of the FED keeps all players except Druckenmuller on the side of short -termism as 120 billion in monthly purchases switching to longer duration will be painful

  5. Arthur Says:

    Macro Man Druckenmiller (20 min video)!/goldman-sachs-interview-with-hedge-fund-legend-stanley-druckenmiller-20210205

  6. kevinwaspi Says:

    I’m with Asherz and Michael Temple on the belief that the fed, treasury, administration, and every central bank in the world is only focused on stock markets. Trump’s outsized belief that the economy was just perfect so long as the Dow was setting more highs is now eclipsed by the powers in control. To me, the tell is the lack of issuance of 50-year and even century bonds by the treasury. If they or the fed were really worried enough about long rates so as to engage in YCC, treasury would be issuing 50-year and even century bonds. The average maturity (not duration) of total outstanding treasury marketable securities is currently only 62 months ( Over 16 trillion of the outstanding treasury debt is composed of bills and notes, with only 2.8 trillion in bonds ( These are stunning figures, given the oversubscribed issuance of corporate century bonds, and even those of Australia and Peru in the past year.
    And at what cost you ask? The 100-Year High Quality Market (HQM) Corporate Bond Spot Rate is currently at 3.15% (
    NOT issuing 50s and 100s is ignorance at best, malfeasance at the outside!

    • Yra Says:

      Prof—a really good and important post maybe there is a seat for you on TBAC—I know Summers won’t be getting one

  7. Arthur Says:

    Four geopolitical scenarios (videos from CSIS)

  8. ShockedToFindGambling Says:

    Yra- good article.

    EURO chart still looks like a H&S top and $DXY sill looks like a H&S bottom, but as you pointed out, outside days and most oscillators turned…….sentiment remains heavily bearish the USD.

    Summers article gives Republicans some cover, to oppose the size of the bill.

    Almost infinite spending/money creation ends badly……just a matter of when.

    Look at this chart…..hit the MAX button to show recessions……the Yield Curve is doing exactly what it’s done going into previous recessions’

    • Yra Says:

      Shocked—I agree with you that Summers gave the Republicans some cover.I wonder if the noble prize for economic eugenics recipient is just so pissed that he will never be the FED Chair as he was anointed to be in 2013 but blocked by Senators Warren,Brown and Republican David Vitter prevented his being named as they told Obama white house it would not happen–just hypothesis on my part but steeped in research.On the Yield Curve and past recessions –we have never experienced this at the lower zero bound in the language of Bernanke so historically there is no precedent

      • ShockedToFindGambling Says:

        Your point- On the Yield Curve and past recessions –we have never experienced this at the lower zero bound in the language of Bernanke so historically there is no precedent

        True, but I believe every recession since 1980 has started a lower level of Treasury rates than the previous, and the progression of the steepening yield curve looks eerily similar to what has happened as we entered all previous recessions, since at least 1980.

    • Pierre Says:

      Shocked, good call on hitting the “max” button, I see it clearly.

  9. The Bigman Says:

    Or are the BVs the ones hammering the short end and selling the long end to steepen the curve and force YCC? And are the first languages of these BVs Russian and Mandarin?

  10. Financial Repression Authority Says:

    […] LINK HERE to the Blog Post […]

  11. Pierre Says:

    Am I the only one that finds it odd that the stimulus bill for
    COVID 19 is 1.9 Trillion?
    Did they just pull this number out of thin air?
    Next year when COVID 20 hits, I’m looking out for a 2.0 Trillion package.

    To me, the 30Y will find resistance at about 2.25. It will get interesting fast if it blows through this level.
    Correct me if i’m wrong.

  12. Richard H Papp Says:

    I agree with Pierre because we are about 3 points (3 X 32/32) from the 50% retracement level of the 10/2018 bottom. In addition, from
    8/2019 to 3/2020 there was substantial back and forth price movement in the long this level in a 7 to 8 point range. It is convenient to look at the 2.25% Bond of 2046 with a 50% retracement area of 104-105. Similar numbers can be figured out for the futures in Chicago.
    But if 2.25% level does not hold, Katie bar the door!

  13. Michael Temple Says:

    For all the erudite comments here on this blog, it all gets lost in the noise of Elon now shilling for BTC and even gold.

    While we all parse everything Jerome and Janet May say, the day trading armies will follow Elon into battle as he now sets his sights on BTC, and quite possibly gold.

    Of what consequence are the bond vigilantes when Elon has Twitter to announce his newfound religion of BTC and, possibly, gold.

    Stay tuned, that is for sure

    • TraderB Says:

      Everyone is losing faith in the financial system and in the value of money (as they should). Instead of buying gold, people are buying tokens on a digital network that requires miners all over the world to run scripts on machines that require lots of electricity in order to verify transactions on an ongoing basis.

      In 8 years when the reward for mining has been eliminated, Bitcoin owners will need to find another way to financially incentivize those miners to secure the network. The digital currency (BTC) will never be able to used for smaller transactions. So it is essentially (at best) just going to be a digital store of value.

      I don’t understand why people are storing their value in something unproven and speculative as opposed to just buying GOLD. People are buying it on margin (at crazy implied interest rates) and exchanges like the WinkleVi are passing that benefit along to the holders of BTC and other tokens in the form of 6-9% interest rates.

      It is very frustrating to those of us who have been predicting this moment for 10+ years now and have been expressing that view with metal.
      Perhaps we just need to be a bit more patient.

      • Asherz Says:

        Trader B,
        What you are missing is that you think smart money is not buying gold because the price is depressed. I think it is obvious that PM price suppression has been going on for some time. We now are beginning to see the early stages of Gresham’s Law, bad money driving out the good. The bad money is paper gold which is many times the presumed underlying metal. The good is physical gold. As more investors understand what is happening you will have a rush for delivery of the metal. Many will be left holding the paper bag. BTC is in its own bubble and will never substitute for a 5000 year old store of value and currency that you can hold in your hand and not a cypher on a computer.
        A little more patience.

      • ShockedToFindGambling Says:

        Trader B and Asherz

        I think the problem with Gold is that there is no shortage……record production last year.

        To get a shortage, you need a huge shift in investor sentiment, which with stock markets near all time highs, is not happening.

        The other problem with Gold, is that when the stock market crashes, it usually takes Gold with it, initially.

        The BitCoin phenomenon is beyond my comprehension. It seems worthless to me……really has no economic use that I can see…….how can you transact with something that can lose 10% of it’s value in 5 minutes?

        At least you can plant Tulip Bulbs.

  14. BT Says:

    Agreed- BTC and altcoins don’t make any sense to me either. I worry when this mania in the market, BTC/TSLA ends and we get a multiyear recession people will lose faith in capital markets. This will keep the stock market multiples down for awhile until trust has been restored.

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