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The Age Of Easy Money Is Over

The Age Of Easy Money Is Over

Authored by Jeffrey Tucker via The Epoch Times,

What began in 2008 and continued for the better part of 14…

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The Age Of Easy Money Is Over

Authored by Jeffrey Tucker via The Epoch Times,

What began in 2008 and continued for the better part of 14 years appears finally to be coming to an end. The era of cheap money and credit is over.

It’s hard to wrap one’s brain around the implications. It will affect all of business life and personal finances. It will dramatically change financial decisions and also affect the culture. It’s going to amount to a return to good-sense, value investing, and companies that have to actually make a profit the old-fashioned way.

I’m not just talking about layoffs in Big Tech. But those are very real. Amazon is laying off 10,000 workers in management layers—which everyone in corporate America knows are the the most useless people in any business. They got puffed up beyond reasonable size completely due to seemingly infinite resources and forever rising stock valuations based on nothing but inflated reputations.

Such cutbacks are occurring in every major company that reached gargantuan size. Twitter was just the beginning because soon after Facebook (sorry, Meta) announced the same, while many other companies that lived off ad revenue on the internet are experiencing the profitability squeeze as we headed into a solid recession (it will become obvious in months that we are already there).

It also affects real estate, the residential markets of which are already freezing up. And commercial real estate in big cities is similarly affected, particularly offices that are still only half-full. Lacking a buyers’ market, prices will have to come down relative to where they are today, though they are likely to remain inflated over valuations from 2019 due to persistent inflation that is only very gradually calming down.

The huge issue today concerns the rate of return on the safest place to park and move money, namely U.S. debt. For nearly a decade and a half now, short-term interest rates have been negative. This is without precedent. It amounts to the loosest-possible monetary policy. By incentivizing capital to chase anything but safety, and discouraging savings in all forms, finance received a huge boost. But so did everything else, including crypto.

Looking back, it seems obvious that the craze for extreme risk, the who-cares attitude about the pace of business expansion, the magic-beans environment of digital tech, the claims that society has somehow managed to commoditize attention without committing resources, not to mention out-of-control government spending—all of this was propped up by zero-interest rate policies adopted after the last housing market crash.

The innovation perhaps seemed costless at the time. Ben Bernanke came up with the idea. Drive rates to zero to spare the financial system and macroeconomic environment but suppress the normal inflation that would follow through an accounting trick. The Fed would pay a higher than market rate to banks to keep their assets at the Fed, which would lock them away to keep them from creating inflationary pressure. For this great innovation, he was heralded as a genius.

What was the downside? For a while, it seemed like there was none. Savings did not fully collapse beyond their previous level simply because inflation was in check. And yet keeping money in Treasuries was no place for return. So money and capital went on a wild hunt for the whole of the 2010s, times when anything seemed possible both in finance and government. Rates were zero, homes were affordable, and credit was plentiful for everything and everyone.

Every kid could go to any college and rack up six figures of debt learning quasi-Marxist social theory, and porting that over to the workplace where high-flying fancy firms would employ them at high salaries to be clever on Slack and otherwise push woke philosophy. It was in this period that academia was flush with money and no longer had to worry about customers, so it began the great purge of conservative thinkers or anyone who disputed any aspect of the new religion.

So too it went in the corporate world, which came to dismiss old-fashioned concerns like serving customers and stockholders and instead pushed philanthropy and alignment with social and climate justice. It was this environment of infinite plenty that encouraged this simply because the possibilities seemed limitless and there seemed to be no cost at all.

It was precisely during this period of paper-fueled illusion that ESG and DEI were adopted by the best and brightest as central concerns in corporate life, and the experts at the World Economic Forum were on hand to pronounce that balancing the books is not nearly as important as signaling all the right virtues. Media backed up the craze at every step.

All of this was made possible by Bernanke’s scheme. To appreciate how radical it was, we can adjust the federal funds rate by inflation and look back to the end of World War II and see. Rates very rarely went into negative territory except in the 1970s owing to high inflation. But once that problem was fixed, rates rewarded savers and kept economic rationality at the forefront from the 1980s to 1990s. These times were denounced as cowboy capitalism but the truth is that savings were high and value investing was popular. The prosperity of those years was on a firmer footing than anything that followed.

After 2008, all bets were off. We plunged ever further into the abyss of negative rates. The Fed itself ballooned up a balance sheet as never before—effectively stuffing underperforming assets in every closet and filling up the basement too.

Fed funds 1954–2022 adjusted for inflation. (Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

It was unsustainable, obviously, and the Fed planned an escape which began in 2019. It did not last thanks to the pandemic response, which called on the Fed to do the unthinkable. It went crazier than before. This time the destination of the new money was different. Instead of cold storage, the new money flooded the streets as hot money to spend right away.

The Bernanke chicken finally came home to roost, 14 years later and following massive damage to economic structures, financial markets, time horizons, and the culture at large. Everything awful had enjoyed a vast financial subsidy: bogus corporate ideological binging, fake credentialing, fashionable socialistic philosophizing, and bad science. Bernanke’s seemingly costless policy created a world unhinged from reality.

After all these years, we now see the cost in intolerable levels of inflation. The Fed needs to put an end to it by driving up real rates above zero. That is going to require far more than what it has done so far. And to really repair the damage will require many years of restoration of balance sheets, a reshuffling of the workforce from fake to real jobs, and a return of sanity in financial markets and corporate culture.

Will Jerome Powell do it? It’s very likely. He doesn’t want his legacy to be the central banker who devastated the dollar’s value. He wants to be remembered as a Paul Volcker who made the hard choices even as the whole world was screaming at him. Wall Street today keeps hoping for some respite from the war on inflation but they are hoping against hope. Powell still has a very long way to go.

Thus does the new era of tight money begin. I can’t think of a better poetic ending to the age of excess than the disgrace of the silly man Sam Bankman-Fried and his merry band of hucksters and druggies who bamboozled the whole of the ruling class into believing that they had some kind of Midas touch to mint money to fund all the causes the hard left sees as holy. FTX died a quick and fabulous death, and with it the dreams of a fully woke pool of infinite funding.

The transition from fantasy to reality is going to be extremely painful, not just financially but psychologically for a whole generation that imagined they could live a life untethered from all norms and rules of the past. The truth is that the dollar-based world has been living a 14-year lie. That truth is going to be a hard pill to swallow, harder to digest than Adderall, more difficult to play than League of Legends, but much more in keeping with a sustainable prosperity in the long run.

Tyler Durden Wed, 11/16/2022 - 17:00

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

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Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250


Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  

2-US_Job_Quits_Rate-1-2

3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 




From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:

IMG_5092

In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%
IMG_5093_320f22

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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