Friday, March 6, 2015

GOOD=BAD; NFP +295,000, DOW -278.87, NASDAQ -55.44, S&P 500 -29.78

As bizarre as global economics has become, almost nothing compares to the algo-crazed stock markets in the United States, where computers are programmed to interpret diverse news report headlines and respond accordingly.

One of the more perverse actions was visible today, when, after the BLS announced, in their monthly non-farm payroll release, that the US had created (mysteriously, magically) 295,000 net new jobs in the month of February stocks traded sharply to the downside and continued that trend for the remainder of the session.

At issue is the proposed June 0.25% increase (that's right, 25 bips) to the federal funds rate that the Federal reserve has been hinting at for the better part of the past two years. Maybe they've been hinting about this seminal event for longer, but, honestly, one has only so much patience for the garbled issuance of verbiage from the masters of misinformation.

Supposedly, the argument on Wall Street is thus: if the economy is truly improving and gathering steam, then the Fed will raise interest rates, meaning that inside players like the big banks, insurance companies and some hedge funds are going to find it much more difficult to make money, because, when you're borrowing billions of dollars at almost nothing, and investing it in dubious stocks and other investments that might not pan out as you had expected - unless the Fed has your back - and, leveraging up those investments 10, 20, maybe 30 times, any increase in your cost of borrowing might bring on disastrous events.

So, as soon as the bells and whistles went off signaling the opening of trade on the final day of the first week of March, the selling ensued, and did so with resolute alacrity and vigor not seen when the markets were going up (all of the past six years, on low volume).

The whole set-up is patently absurd and it's purely the cause of the Fed, which has kept rates too low for too long, and now must reap what they have sewn, so welcome to the great deflation, part two, which began in 2008, and was interrupted by the Fed and Wall Street in March of 2009. If stocks sell off like this merely on the rumor that the Fed will hike rates a measly 1/4 percent, imagine what kind of carnage will ensue when they actually do it.

Where the absurdity begins is difficult to ascertain, though the Fed, through their continued press releases after FOMC meetings, has linguistically backed themselves into a corner. They've repeatedly maintained that they will raise interest rates on a data-driven, unspecific schedule, and the data released today by the BLS was undeniably good, showing strong job growth and an unemployment rate at the lowest point in nearly a decade, at 5.5%, which, to almost anybody's eyes, is pretty much full employment.

There's one little problem with the figures the BLS releases the first Friday of every month: they're BULLS--T, garbage, manipulated, massaged, goal-sought, and thoroughly distort the true nature of the labor market. In other words, there's almost no way there were 295,000 new jobs created in the US last month, and the figures for the past year, and the year before that and before that, etc., are even more misleading. The US economy has been hollowed out, and, while it may be better here than it has been in years, it is not much better.

Now, the Fed knows these figures are made from pure cloth, but they are tied to them. Call today a test of the algorithms, a dry run for the main event, which should occur around the middle of June or by early July. The Fed and the government have to continue to spread the lie that the US economy is strong, vibrant and growing, and, because of that, while most other countries in the world are lowering interest rates (because they honestly know their economies stink), the US is prepared to embark upon one of the more ludicrous propaganda and financial experiments in the history of mankind.

The Federal Reserve, should they go through with their supposed plan to begin raising interest rates in June 2015, will be attempting the impossible, and doing a most dangerous thing: they will be trying to slow down an economy they proclaim - and would like everyone to believe - is growing, which in reality is contracting and deflating.

Our money is heavily on the side of reality winning that argument.

Related trades today concerned all US treasuries, which sold off, sending yields higher. Oil, gold and silver were all lower.

Dow Jones 17,856.85, -278.87 (-1.54%)
S&P 500 2,071.26, -29.78 (-1.42%)
Nasdaq 4,927.37, -55.44 (-1.11%)

Ironic notes: Today was Alan Greenspan's 89th birthday; Apple will replace AT&T in the Dow Jones Industrials on March 18 (just in the nick of time?)

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