Posts Tagged ‘printing money’

Markets setting up for hopes dashed

Monday, August 9th, 2010

If you haven’t heard by now, last Friday’s jobs report on U.S. Nonfarm Payrolls didn’t go over so well.  Naturally, the President saw hope in a portion of the release, but it took some seriously rose-colored glasses.

Here’s a quick recap:

  • Economists expected a drop of (-)65,000 jobs, because those sharp folks knew that census workers would begin to be furloughed/downsized/fired/canned, but they evidently expected a pick-up in private payrolls to offset that drop.
  • Instead, payrolls fell by (-)131,000.  What’s more, the June figure was revised downward, from an initial release of 125,000 jobs lost to 221,000 jobs lost.
  • The Private Payrolls increase, which seemed to be sparked by an optimistic ADP’s Employment Change report of Wednesday, which only reports on private payrolls, was 71,000 instead of the hoped-for 90,000.
  • The Unemployment Rate stayed at 9.5% instead of increasing to 9.6%.  The unemployment rate always goes up after a recession as the labor pool swells up as more job seekers re-enter the labor force.
  • On the positive side of the ledger, Average Hourly Earnings grew by 0.2%, far better than the drop of (-)0.1% in June, and the President found hope in the increase in Manufacturing Payrolls.  They rose by 36,000, 4x the June number and far more than the hoped for 13,000.

So how does one explain the market’s performance, shown below?  The market dropped shortly after the opening, and the opening nonsense is often reversed, but there was very little positive to be found in this most important of economic reports.  Indeed, at this point in the game, it is the most important report, bar none, whatever that means.

According to a couple of sources, it was rumored that the Federal Open Markets Committee; i.e. the Fed, which is to meet tomorrow, is prepared to announce another round of monetary policy measures meant to stimulate the economy.  So far, traditional monetary policy has amounted to pushing on a string, so the market is hoping for another round of Quantitative Easing–QE to the informed.  For those of you worried about the government printing money that’s what QE is.  In this case, they wouldn’t exactly be printing money, just reinvesting principal-paydown proceeds from Mortgage Backed Securities (MBS) into . . . Treasuries or more MBS.

According to some of those same sources, those hopes are likely to be dashed.  As we like to say–and like most things, it’s not original to us–hope is not an investment strategy.  It is, however, a decent speculation strategy, so long as you can sell the idea (and your securities) to a greater fool.

If the Fed does not announce new measures, the market tanks.