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What did I write in these cyber-pages a couple months ago? You remember, don’t you? I said, “The Fed is nuts for not RAISING rates!”
I’ve also been citing the plunge in jobless claims, the general improvement in hiring, and the relative strength of OUR economy versus economies in Europe, Asia and elsewhere. And I said the Fed would ultimately prove to be just as dead wrong in keeping policy too easy now as it was in the early 2000s, when they did the same damn thing and fueled the biggest housing bubble in world history.
So with that in mind, did you get a load of today’s September jobs report? It showed the U.S. economy created 248,000 jobs last month, far above the average prediction of 210,000. August’s reading was revised up to 180,000 from 142,000, and July’s number was also revised higher to 243,000 from 212,000.
Not only that, but the unemployment rate dropped again to 5.9 percent from 6.1 percent. Economists predicted no change, but instead, this reading is now at its lowest level since July 2008. Job growth was widespread across industries, from business services to retail to health care to construction.
|The unemployment rate dropped again, to 5.9 percent from 6.1 percent, the lowest level since July 2008.|
The only fly in the ointment was average hourly earnings. They were unchanged rather than up 0.2 percent as predicted. But August’s reading was revised up to 0.3 percent so that eases the sting a bit.
Look, I’ve said it before and I’ll say it again. This economic recovery has NOT translated down to Main Street as much as it could have. I blame stupid fiscal policy that stifles innovation and stunts small business growth, and bad monetary policy that favors the rich over the less well off. That’s why we’re not doing as well as we were in the 1980s and 1990s.
But these figures are a heck of a lot better than they were in the depths of the Great Recession. They show that zero percent interest rates make absolutely NO SENSE any more. None.
Unlike the Wall Street suck up economists who tiptoe around discussions on how offsides the Fed is, I have no problem calling it like it is. Their policy choices looks as bad as my New England Patriots do!
|“This economic recovery has NOT translated down to Main Street as much as it could have.”|
What’s the downside of keeping rates at insanely low, crisis-era levels when the worst of the crisis is behind us? Simple. It leads to stupid investor behavior and massive asset bubbles.
You never know exactly where those bubbles will manifest. In the late 1990s, it was dot bombs. In the early 2000s, it was housing. This time around, I’ve argued the worst asset bubbles are in the bond market. But mark my words: If the Fed doesn’t play catch up with reality soon, and not only kill QE next month, but start raising rates early in 2015, we’re going to have HUGE problems down the road.
I’ll be keeping my eye on the Eurodollar futures market to see what investors think about all of this. As I’ve mentioned, most contracts have generally been declining in price. They’re getting closer and closer to potentially significant downside breaks, a sure sign that the market is coming around to my point of view – that the days of 0 percent interest rates are numbered!
So what do you think? Is the job market improving the way the numbers suggest? Or do you think significant weakness remains? How many relatively strong and/or improving numbers would you need to see to change your mind?
And what does that mean for interest rate policy? Will we have a 1 percent fed funds rate this time next year, rather than the current 0 percent? Sound off in the Money and Market’s comment section.
|Our Readers Speak|
Cars and the Ebola crisis. Those are the two big topics of the day at the website, and for good reason. The auto industry will be an important determinant for the strength of the U.S. economy … while a burgeoning Ebola pandemic could be the kiss of death.
Reader Tony weighed in on the pessimistic side, expressing serious concern about the spread of the virus. His comments: “Both Obama and the CDC try to minimize Ebola’s ability to spread. It’s almost as though the CDC has become another politically oriented organization like NASA. I know the elections in November are coming up but this is not the time for political correctness.
“We should try and stop any contact with the infected countries and scrutinize international passengers. The CDC plans on using questionnaires to determine the travel and if infected, rather than looking at passports. We already have an infected person that didn’t reveal where he was. Now we find out there may be 100 or more Americans exposed to this deadly disease.
“The U.S. has not had a serious pandemic for nearly 100 years. If Ebola spreads like in Africa it will devastate our economy and overwhelm our health system.”
But Reader John took the opposite tack, saying he thinks the epidemic will peter out eventually, even as it causes plenty of heartache in the meantime. His complete comments: “Ebola when and if it really spreads will mutate over time and burn itself out or grow less deadly. The collective affect of our own immune systems will eventually win over Ebola.
“Yes, that could mean many tens of thousands of deaths, but it won’t be the end of the world. The 1918 Influenza virus ended the same way. I certainly don’t mean to be dismissive of the deaths and suffering that are happening now – and will likely happen in the months and years ahead. I hope that a readily available and mass producible effective treatment can be found.”
Put me in the relatively optimistic camp as well. With the proper policies in place, and the full weight of the government and medical research industry bearing down, I think we can beat this thing. But it will wreak havoc in the meantime just like SARS and other epidemics have in the past.
As for the auto industry and Warren Buffett’s move to buy into the dealership business, opinions were mixed.
Reader Robert B. said: “Buffett has lost his fastball. Unless he is going to visit these dealers every day and clean up the mess, he has no chance. If there ever was a industry needing a oil change this is it. I would rather have a root canal every day for a year than spend a minute in a dealership.”
But Reader John T. said: “Mr. Buffett is on track. Autos are pretty affordable and stylish these days. Automotive dealers are making it easy to buy cars.
“Jobs are still being produced, so people need transport to work. Banks are issuing credit to only those who are eligible unlike the housing crisis. In closing, the auto industry is going to welcome his confidence, and will strive to underpromise and overdeliver, to keep sales going.”
You can put me in the “cautiously optimistic” category here, too. The generally improving U.S. economy is supportive of the auto sector. But I that in the longer term, too much easy auto lending will ultimately cause problems for subprime car lenders. The question is timing – and right now, I don’t think we’re in the auto industry equivalent of summer 2005 for housing (that market’s peak).
Remember: You can jump in on this discussion – or any other – by clicking here!
|Other Developments of the Day|
Looks like yet another European company is stepping up to the plate to “Buy American.” This time the acquirer is metals firm Constellium (CSTM, Weiss Ratings: C+) of the Netherlands, the target is the privately held U.S. aluminum producer Wise Metals, and the price tag is $1.4 billion including debt.
• I’ve talked recently about how the metals industry is increasingly looking to produce steel, aluminum, and other products in America. Why? It’s a side effect of the domestic energy boom. Cheap, abundant, reliable oil, natural gas, and natural gas liquids are making it much more profitable to produce metals here than elsewhere in the world.
• Shocker! The New York Fed – one that’s full of ex-bankers and workers who want to eventually land cushier, better-paying jobs on Wall Street — is reportedly going easy on the banks it regulates. So much so that Congress may hold hearings. Boy am I surprised (cough, cough)
• Now it’s a freelance cameraman that has contracted Ebola while working in Liberia, and was hired recently to work with an NBC team. The 33-year-old will be evacuated to the U.S. along with the remainder of his colleagues – all of whom will be quarantined in the U.S. for a three-week period.
• Greece’s economy has crumbled in the last few years amid a broader “PIIGS” crisis in Europe. Will the Parthenon follow? That’s what engineers are worried about, citing instability in the rock beneath the 2,500 symbol of Athenian glory.