Strong Jobs Report & More Krugman
"Stock futures rise on Strong Jobs Report", according to MSNBC. I love headlines, because 99% of readers don't look past the headline. One shocking point that the 1% who actually read the article will notice is that this isn't a 'Jobs Report', it's just the number of people seeking unemployment report.
Worse, the report isn't 'STRONG' at all, as the number seeking unemployment benefits needs to be under 350,000 to indicate the job market is adding enough jobs to keep up with the growing population. In essence, the job market is still very weak, and may consist of nothing more than seasonal summer staffing at resorts and vacation hot spots. Unfortunately the data does not go into enough detail. None-the-less, headline crazy Wall Street guru's are pushing the pre-market numbers higher. Reality will set in later in the day and, if we're lucky, the market will eek out a small gain today, but I'm betting on low volume and a drop of about 0.2% by close.
That said, the point of all this is to realize that Wall Street traders aren't any smarter than the idiots who troll the Yahoo stock bulletin boards yelling "BUY", "SELL". I've yet to hear anyone yell "HOLD" (and I'm including myself).
The 13th comment on my previous blog asked me to rebut this excellent Krugman opinion. The deep thought that Krugman put into that one sentence opinion is very difficult to rebut because he somehow used words to convey a thousand pages of data into one sentence. In essence, our Keynesian friend is arguing that "Hey you guys who thought inflation would go through the roof, how the heck do you explain that bond rates are so DARN LOW".
Krugman isn't just wrong, he's a liar. This is the SAME Krugman less than a week ago wrote "Punishing the Jobless" and stated that the new found austerity in America was going to make things worse. Basically the bond market is saying "We like the rhetoric in D.C. and we're going to reward the bond market." Unfortunately they're as wrong as Krugman, because we're not going to get serious about our debt until we have a Greek problem (and even then, we may just keep printing). But back to our friend Krugman, who didn't see the bubble in the housing market and does not see the bubble in the bond market. As long as the bond market sees the lack of movement in M1, they are not worried about inflation. They know when inflation begins to rise, they will bail immediately, and they also know the stock market is a complete crap shoot right now. Better to tell investors you made 1% next year when inflation is at 5% than to say you lost 10%.
Maybe Krugman would argue, hey, take the cheap money while you can, but what he fails to realize is we're not selling 30 year treasuries at these rates, these ae either inflation indexed of <= 5 year term bonds. These bonds are being sold to investors who are NOT willing to hold our debt at these rates for a long period of time. They are being sold ONLY as a hedge against the volatility in the market. And when our debt hits $15 trillion, and interest rates on our debt rises to 7% (and that's going to be on the very low end of my expectations), we're going to have to spend 30% of all gov't revenue just to pay off the interest. The worst part is that if the rate surpasses 9% we're going to have to slow down a WEAK economy with higher taxes just to keep our gov't solvent.
To conclude, Krugman is advocating to keep going until the bond bubble pops. He sees the low rates as proof that we can spend indefinitely, rather than as a bubble that is getting ready to burst. If he's right and I'm wrong, we might just see our debt rise twice fold and get a weak recovery. If he's wrong and I'm right, the Great Depression will not have been from 1929-1946, but from 2029-2046, and the America we know now will be an indentured servant to China.