The liquidity pipes remain clogged (Financial Times)
“ I nsanity is doing the same thing over and over again, but expecting different results.”
Rita Mae Brown
FX Trading – Overblown Jobs Report Tells Us Nothing
Honestly, I'm getting tired of these monthly jobs reports out of the US. Sure, it's good to know the minute-by-minute direction we're traveling ... but the onslaught of investor analysis and market volatility after the fact is enough to make me want to turn off the screens by 8:45 a.m. eastern.
If you're reading today for our prognostication on the upcoming July Nonfarm Payrolls then I'll tell you exactly what might happen:
The drop in payrolls will likely be lower than in previous months.
The unemployment rate will likely be higher than in previous months.
Worse-than-expected payrolls warrants biggest price reaction (risk aversion).
Better-than-expected payrolls warrants somewhat smaller price reaction (risk appetite).
In-line with expectations payrolls may turn attention to unemployment figure.
Ditto on the reaction to unemployment rate.
In hindsight, we'll know where the market wishes to go. But anyone reading or writing a forecast on this morning's report will not know the results nor the outcome until then; though some guesses will be better than others!
I ask now: will the jobs report really tell us anything? I mean, will it tell us anything besides the fact that fewer jobs were lost this month than last month? It's like telling a car accident victim before the paramedics arrive that he lost less blood this last minute than he did the previous minute.
We should consider the whole picture, even though the markets may not reflect such consideration. The whole picture, or at least a fuller picture, involves a deeper look into the US consumer. We've said it before and we're sticking to it: without the US consumer the global recovery cannot really begin.
In the 12 months through June, wages and salaries dropped by the most since record-keeping began ... in 1960. The fall in spending power over that 1-year period was a nasty 4.7%. Personal income is also falling. Housing wealth remains gone ... and still going. The only solution is to cut personal spending and work to clean up personal balance sheets.
Easier said than done ... despite the huge change in attitude (the right attitude, by consumers) we've already seen.
To highlight a very key point that underlines the negative view on the US, let's look generally at the current fiscal policy. While consumer debt is imploding government debt is exploding. Debt to GDP in the US has actually risen in the last 12 months even though consumers have reined themselves in. And even though the only legitimate solution involves a major deleveraging process, the government and their spending and money pumping just keep piling on the debt.
When bankruptcies and restructurings should be part of a painful yet necessary path to cleansing the economy, it instead seems as though the government is trying to block that path with stimulus and bailout spending ... with the HOPE that it will lead us on a short-cut to recovery.
This is nothing new – we've talked about the dangers of impeding the market process; many others have discussed the consequences too. But it seems even more now prefer looking to less-bad growth numbers ... or better-than expectations.
Will this perspective change any time soon? Have a nice weekend!