Panic – or Laugh?

“This is no time to panic. There’ll be plenty of time to panic later.”
– Groucho

So far this year the S&P500 has lost 100 points (5%). Where did they put them? Isn’t hard to lose something that is pointy? Despite looking under every sofa cushion the search has so far remained pointless.

It may not seem like the time for humor, but the US market reaction to the meltdown in China is purely comical in many ways. It shows how much the market is responding to emotion rather than reality – and the prevailing emotion is fear. Run away!

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Ready for Anything! (?)

By the time you read this, the Fed Open Market Committee (FOMC) has probably raised their benchmark Fed Funds rate and given guidance for the next few years. More importantly, everyone has freaked out one way or the other and the stock and bond markets have probably done something that has everyone puzzled.

We still live in a financial world that defies expectations. It has to be “experienced”, just like the various things you did in your mis-spent youth that built “character”. The question becomes – what great wisdom are we learning from all of this?

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Not so Fast …

It’s been week since a blowout jobs report set fire to financial markets and signaled that everything is about to change. Barataria predicted a good report, if very timidly, and gave everything a week to shake out. So where do we stand a week from the first clear signal liftoff is occurring?

The short answer is that markets have absorbed the reality of a rising Fed Funds Rate. The long answer is that it sure doesn’t look like it for a lot of reasons which are complicated and confusing. In an increasingly smaller world there is nothing that confines money to one “market”, meaning that pressure is on from all directions.

The upshot is that after an initial spike there is reason to believe a rise in interest rates by the Fed may yet trigger a net medium-term fall in interest rates paid by consumers, as predicted. It’s worth explaining further.

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Ready for Liftoff?

Another first Friday of the month, another jobs report. By the time you read this the Bureau of Labor Statistics’ (BLS) monthly Employment Situation Summary for October may have been released diligently at 8:30AM Eastern Time on the appointed date. The stock market may be reacting and everyone will turn their attention to the Federal Reserve.

It’s a strange ritual which keeps financial writers busy. But does it mean anything?

If all goes as it should this one should really move the markets. Exactly which direction is hard to tell for a variety of reasons – but that is what will matter more than anything else if this report comes in as “good” (in quotes) as it should be.

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Bad Jobs Numbers

Last Friday the monthly Bureau of Labor Statistics (BLS) Employment Report came out, and it was lousy. Instead of an expected gain of 200k jobs it came in at 142k – a miss of 58k or 29%. The reaction in the financial press was swift and conclusive – there is no way the Fed can raise interest rates given this weakness. But there’s a bigger problem with the report than that.

It honestly can’t be believed.

It’s fashionable to say that the BLS cooks these reports to get the results they want and that no one should believe the government reports in general. That’s a general paranoid delusion that is utterly unreasonable all around. But the reports can’t be taken as pure gospel when they don’t come in exactly where they should be because there is no way they can possibly be as accurate as is demanded.

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Good News! It’s Good News.

Before we can call the economy “good”, we have to be in a situation where good news is taken as unvarnished good news. And that seems to have finally happened.

Janet Yellen outlined in great detail exactly why interest rates not only have to start rising by the end of the year, but why they have to go up to around 2% before the Fed is done. The market responded positively, getting another shot of good news this morning. Has the monkey of cheap money finally been scraped off their backs?

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Drama Over Yet?

The stock market has rallied for two days, with the S&P500 back at 1987 from its low of 1869. It’s still down 6.8% from its peak of 2130, set in May, (and nearly matched just a month ago) and down 3.5% for the year. It’s almost like the crash never happened, right?

Well, no. But there is a lot of good news for the underlying economy, some of which came in this week. The really good news is still out into next year, which is essentially forever to this market. We have to get over an interest rate hike, which will definitely come this year no matter what you read elsewhere, and a lot of jitters.

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