Just a flicker of doubt, then greatest free money party in history carries on
Overnight Friday, the single most closely watched economic statistic by investors, traders and economists, and assorted other odds and sods, pretty much around the entire planet, came out and was judged …
Well, initially, it was judged as bad news, at least for Wall St – when the market opened in New York it went straight down. Not precipitously, not within a bear’s roar of a plunge, but nevertheless down.
Then, within half an hour – indeed as if the bell had been rung precisely at 10am – the mood turned and the market went straight back to where it had started and indeed a bit more. For the rest of the day it traded all over the place to finish a smidgen down, but effectively still at its all-time incredible and indeed incredulous high.
The statistic was the monthly US jobs numbers.
They showed 235,000 new jobs – that’s the equivalent of about 18,000 new jobs in Australia in a month.
The US jobs report used to be, just like our ABS numbers, regarded as “just another statistic” pointing to what might be happening in the economy.
But over the last decade, it’s evolved into the single most critical – believed – pointer to what the Fed (the Federal Reserve, their version of our Reserve Bank) might do.
That is, might do with what have become near-permanent zero interest rates (at least, zero for the favoured insiders; the average American still has to pay significantly higher rates on his or her home loan, while getting zip on any bank deposits) and trillion-dollar money printing; all since the GFC, now more than a dozen years behind us.
This has been the greatest free money party for people who own assets that the world has ever seen.
What happens to US jobs is seen as the best indicator of whether the Fed will start to snatch the punch bowl away, cruelling the party at least at the margins.
So on Friday, the initial market selling was of the oldfashioned sort – based on the view that the weakish jobs numbers indicated the US economy was sluggish, especially in those sectors like hospitality where rising Covid numbers had hurt jobs.
I say “old-fashioned” because this reflected the investor mindset that a weak economy would hurt corporate profits – and share prices are supposed to be about profits and likely dividends.
But this mindset was quickly swamped by the more modern “trust the Fed” mindset, that indicators of a weak economy would lead to it postponing even the mildest easing of all the free money that has driven rocketing share prices. In the US directly, and everywhere else indirectly.
We are only talking about the extra money printing that the Fed does every week; and it’s only been talking about – very gently – trimming the printing; not, the heavens forfend, actually stopping it.
And as for reversing it? Actually starting to soak up some of it? Are you nuts!
And beyond that, it’s years away from actually lifting rates from zero.
So the rich get richer; the already super-rich get obscenely even richer; and wage slaves can thank themselves lucky to have a job that pays them $US15 an hour.
If the Fed was running the appropriate policy, the Dow would be less than half where it is now. So you can imagine the fear and loathing that lurks beneath the surface on Wall St that the Fed might start doing even just the tiniest bit of its job.
It won’t. It’s all really just a game at the edges. Good economic numbers raise fears the Fed might start to pull back on the free money, and Wall St falls. The Fed bends over itself to say nothing is going to happen, and the market recovers.
Bad numbers on the economy have been manna from a Fed heaven since the GFC. The Fed’s basically been saying: you want more free money; here it is.
A middling figure such as Friday’s jobs is confusing. Is it poor enough to point to falling corporate profits? Is it not poor enough to delay even the most marginal trimming of the free money?
Never fear, the pathetic individual who sits atop the Fed has made it clear that he is totally hostage to the greediest people on the planet; and that the “vegetables” (reference: the cutting Margaret Thatcher joke) who sit around the Fed board table with him are as well.
That is, until it becomes absolutely impossible for the Fed to keep pandering. And that impossibility builds as inflation continues to run in the US, with the next key inflation data out in two weeks.
And where Wall St goes, so goes our market – and indeed every other market around the world. It’s what’s forced our RBA to cut its official rate to zero, although it was the government’s response to Covid that forced it into money printing.