|Dow||+58.69 to 17,958.79|
|S&P 500||+3.45 to 2,075.37|
|Nasdaq||+11.32 to 4,780.76|
|10-YR Yield||+.05 to 2.307%|
|Gold||-$15.70 to $1,192|
|Crude Oil||-$1.09 to $65.72|
The U.S. Federal Reserve has trotted out excuse after excuse for keeping interest rates pegged at crisis-era levels. It has done so despite the fact we left the worst of the crisis behind a half-decade ago, and the fact we’re doing much better here in the U.S. than the rest of the world.
Today, its last excuse got blown out of the water!
Just look at the November jobs report, and what it showed:
==> Job growth surged to 321,000 last month. That crushed the average estimate of 230,000, and was the largest one-month gain in almost two years.
==> Not only that, but October’s figure was revised up 29,000 to 243,000, and September’s result was revised up 15,000 to 271,000.
|November had the largest one-month gain in job growth in almost two years.|
==> The unemployment rate held at 5.8 percent, far below the 6.5 percent to 7 percent targets the Fed used to bandy about as potential triggers to start tightening policy.
==> Most notably considering the Fed’s latest, greatest focus on wages, average hourly earnings jumped 0.4 percent. That was double the forecast of economists, and the biggest gain in 17 months. The average workweek rose to 34.6 hours, too.
Look, I know that many of us aren’t seeing as much economic improvement as we’d like in our cities, our neighborhoods or our own lives. The U.S. still faces structural problems with large budget deficits, political dysfunction, excess regulation and overall debt holding us back.
Heck, we just poked our head above the $18 TRILLION debt mark in late November. That’s unacceptable over the longer term, and it’s a challenge no administration has been able to tackle for several years.
But these figures put us on track for the best year of job growth since 1999. That’s 15 long years ago. We’ve also now seen the longest stretch of 200,000+ job growth per month since 1994.
More importantly, BOTH of those years marked the beginning of major Fed rate-hiking cycles. The Fed raised rates six times, pushing the federal funds rate from 4.75 percent in early 1999 to 6.5 percent by the middle of 2000. And the Fed raised rates seven times in 1994 and early 1995 — ultimately DOUBLING the funds rate to 6 percent from 3 percent.
So I ask you: Could we soon face a “Bloody Wednesday?” A day where the Fed is FORCED to shock the markets and hike rates at the end of one of its two-day policy meetings? You’re darn right we could!
There is absolutely, positively, ZERO justification for zero percent rates. None. That means the clock is ticking, folks. With two-day policy meetings starting in 2015 on Jan. 27-28, and following in March (17-18) and April (28-29), there are plenty of opportunities for the Fed to start moving. And I bet they will!
|“The market is going to have to come to grips with a tighter Fed.”|
That’s why Eurodollar futures, which track expectations about future Fed policy, got hammered right after this number came out. Lower Eurodollar futures prices come hand in glove with expectations for earlier, or larger, future Fed hikes. It’s why yields on 5-year Treasuries are hovering around the 1.65 percent-1.7 percent mark, far, far above the 2012 lows of 0.54 percent.
Bottom line: The market is going to have to come to grips with a tighter Fed, regardless of what kinds of asinine easing moves the European Central Bank or Bank of Japan cook up! So make sure you’re prepared for that eventuality, too.
How about your take? What do these stronger jobs figures tell you about the state of the U.S. economy? Does the Fed need to get out of emergency mode and start normalizing interest rates? Or are the threats from lousy overseas economies too severe to allow that to happen? What do you think this means for the dollar, for stocks, and for bonds in 2015? Let me and your fellow investors know at the Money and Markets website!
|Our Readers Speak|
Vladimir Putin’s latest machinations. Mario Draghi’s monetary madness. You sounded off on those topics and more at the website in the wake of my last few columns.
Reader Tommr said that the threat of dumping Treasuries — whether it’s Russia or China doing the selling — simply won’t work as a retaliatory measure in response to Western sanctions. The comments:
“I don’t believe that it gives any country leverage to threaten to sell a horde of U.S. Treasury bonds. The Federal Reserve would buy all of them with its Air Money. Japan tried to play this card in 1987 and it totally back fired on them. They still have not recovered!”
As for the euro currency, Draghi’s monetary policy, and the economic impact of Putin’s pressure on Eastern Europe, Reader Jeff said: “Would I buy the euro right now? — Hell no! Putin’s economy is crashing due to oil prices and global sanctions but the euro is only propped up by fake-money policies like what you describe (and which are also in play in the U.S.).
“Investing in the euro right now is like investing in the hope that Putin will not try to retake the rest of Ukraine, Belarus, Latvia and many other former Soviet satellites. When he does that, and when Europe has no money to support its own defense, what is going to happen to investments in Europe? I’m not going to answer this because you already know.”
Reader Syd added: “Couldn’t agree more about Draghi-Mania and the failed policy of the ECB. Of course it is designed to boost the economies of France, Italy, and Greece, but the banks there are still not issuing loans to small and medium sized entrepreneurs in these countries. On the other hand, ECB policy does nothing for the countries with stronger economies with sometimes negative interest rates like Germany.
“Draghi may postpone the ultimate fall of the euro. Germany will reluctantly play along for the sake of European unity just as they have with the western sanctions against Putin. But this cannot last forever.”
Finally, Reader Craig B. said the best way to capitalize on the current environment is to buy what’s beaten down before it bounces back. A key opportunity right now? Energy stocks! His comments:
“The Energy Select Sector SPDR Fund (XLE) is down 20 percent since June when oil started to roll over. Oil moves opposite to the U.S. dollar and is very responsive to changes in the exchange rate and the U.S. Dollar Index.
“So, better buy some energy stocks, as the whole sector is in a major correction for now. If you hesitate, you are then acting against central bankers, who always have ‘one more QE’ in the wings or even lower interest rates (pull a rabbit out of their hats). Before you know it, the energy sector will be back on track and headed up to a more moderate price level. Every correction since 2011 has been a V-Shaped recovery. Why would this one be ANY different?”
Thanks for all the comments, and be sure to keep them coming at the website!
I do happen to believe that energy shares may be in the process of carving out an intermediate-term low. And as much as I’ve been on board with the idea of a dollar rally against the euro for several months now, it looks to be getting long in the tooth here. So we should be alert to the possibility of a reversal/correction. Stay tuned!
|Other Developments of the Day|
Ashton Carter will become the fourth defense secretary of the Obama administration, according to news reports (and assuming Congress confirms his nomination). Carter has served as a deputy defense secretary and is perceived as a smart policy expert.
One of the coolest things about living where I do in south Florida is that I can see launches at Cape Canaveral right from my doorstep. Thankfully, weather conditions were good enough this morning that I was able to watch the Orion spacecraft blast off into space aboard a Delta IV Heavy rocket.
The mission will test the capabilities and safety of the Orion system, manufactured by Lockheed Martin (LMT, Weiss Ratings: A-). The eventual goal is to send a manned mission to Mars, probably sometime in the 2030s.
We’ve already seen one mega-merger announcement in the oil industry, with Halliburton (HAL, Weiss Ratings: B) making a $35 billion play for Baker Hughes (BHI, Weiss Ratings: B). The Wall Street Journal suggests it won’t be the last.
Why? Lower oil prices will drive companies into each other’s arms as a salvation from lower stock prices. Could that be one reason why oil stocks have shown signs of firming even as crude oil PRICES haven’t bottomed yet?
Those protests I mentioned yesterday over the death of Eric Garner, a black man who died after being placed in a chokehold by white police officer Daniel Pantaleo, haven’t subsided. Instead, they’ve spread around the country — to Boston, Dallas, Chicago, and Washington as well as New York.
Remember, you can comment on these or any other stories by clicking here.
Until next time,