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Strong Jobs Report & More Krugman

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July 08, 2010 – Comments (10)

"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.

10 Comments – Post Your Own

#1) On July 08, 2010 at 10:31 AM, MoneyWorksforMe (< 20) wrote:

It is very interesting to see how the media manipulates the data, putting positive spins on headlines to lure naive investors. Today's 1st time claims was not--in any way, shape or form--good. In fact, I remember about a month or so ago, economists expecting 1st time claims to be 448,00, well we are still above that level...

It is even more intriguing to see how quickly the sentiment has changed as suddenly all of the fundamental problems have been removed from the spotlight. I maintain that this is a ginormous bull trap developing. 

I agree, the low bond rates, in addition to the continuation of US debt purchases by foreign nations are leading to dangerous levels of complacency. It is leading to a false sense of security just as there was leading up to the housing bubble. Action will not be sought until it's too late. The amount of liquidity being injected into the system is unprecedented and it is completely mind boggling to think inflation is a non-issue. All of these dollars must be going somewhere...

As for today's market action: It seems more unhealthy today, with frequent troughs and peaks containing low volumes on the peaks. This seems reminiscent to the bearish movement we had been largely seeing the past few months. Although the major averages are currently sitting at decent gains, it does seem plausible that we end the day at modest losses.

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#2) On July 08, 2010 at 10:40 AM, drgroup (69.48) wrote:

This is from the krugman article..."Do unemployment benefits reduce the incentive to seek work? Yes: workers receiving unemployment benefits aren't’t quite as desperate as workers without benefits, and are likely to be slightly more choosy about accepting new jobs. The operative word here is “slightly”: recent economic research suggests that the effect of unemployment benefits on worker behavior is much weaker than was previously believed. Still, it’s a real effect when the economy is doing well. "

Social theroticians like this have never been in a position of loosing a position paying a base salary of $200k/yr to collect an unemployment check for $250/wk. The new found wormth of the $250/wk check totally provides enough comfort so that trying to obtain that $200k/yr isn't all that appealing......Why for goodness sake would anyone being offered a new job for say $195k/yr think for a second about leaving the comfort of $250/wk. Afterall, collecting $250/wk causes lose of ambition, motivation, self preservation, and lowers intellect 60%.. The jobs are just not out there, plain an simple. Do not confuse the situation with combining the wellfare group with the recentley unemployed.

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#3) On July 08, 2010 at 10:45 AM, outoffocus (22.75) wrote:

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.  

Too late. Taxes are going up across the board.

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#4) On July 08, 2010 at 11:02 AM, drgroup (69.48) wrote:

outoffocus... just a note of cheer. I have applied to become the next czar in charge of taxing the irs as a corp. I will need 3 or 4 good people to assist.

Can't wait for the existing tax cuts to be reinstated in '11.

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#5) On July 08, 2010 at 12:04 PM, Deepfryer (27.86) wrote:

"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."

Please provide some sources, or at least some additional information to support these statements.

"Basically the bond market is saying "We like the rhetoric in D.C. and we're going to reward the bond market.""

Um, this is not how the free market works. Investors don't care about rhetoric... they care about their bottom line. And the free market does not seem overly concerned about the U.S. borrowing a little more money at a low interest rate.

This is the same free market, by the way, which has shown greatly reduced confidence in the Greek economy, following their acceptance of the IMF's austerity measures.

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#6) On July 08, 2010 at 1:24 PM, FreeMarkets (89.70) wrote:

It's frustrating when someone writes a comment saying "Prove this" when anyone following the bond market knows its common knowledge that we're selling 5 yr, 3 yr and 1 yr T Bonds.  What's frustrating is NOT in helping a fellow Fool learn, but by the fact that even when the proof is provided, you are not going to change your mind.  Like all Keynesians - "Don't waste my time with facts."

A little math will teach you that in the latest "weak" 30 yr bond auction, 80% of our debt is 10 yr or less, more than 1/2 is 3 yr or less.  Pretty sad, but Krugman doesn't care and he doesn't want YOU to care.

LINK TO INFORMATION ON BOND AUCTION

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#7) On July 08, 2010 at 4:31 PM, Deepfryer (27.86) wrote:

I hope you realize the obvious fallacy in statements like this one:

"anyone following the bond market knows its common knowledge that we're selling 5 yr, 3 yr and 1 yr T Bonds."

Well, guess what? It's also common knowledge that we're selling 30 year bonds. It's common knowledge that we're selling all types of bonds.

Now, if you want to break down the bond sales by percentages, that's a great start... you just haven't approached it in the correct way. When you say something like, "80% of our debt is 10 yr or less", that's meaningless unless you compare it to some historical data for these percentages. But regardless of all this nonsense, this is not a meaningful way to gauge the market's confidence in the U.S. economy.

So, once again, if this auction was so "weak", why hasn't this been reflected in the rates of our bonds? That was the whole point of the link, remember?

It seems that instead of directly addressing the problem, you're trying to squirm around it.

And how about my second link, regarding Greek market confidence? No comment?

This is typical - just like all non-Keynesians, talking to you is like talking to a brick wall.

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#8) On July 08, 2010 at 4:40 PM, whereaminow (< 20) wrote:

Deepfryer is such a statist tool. 

Historically, people always rush to the currency they know, regardless of what that currency is.  Global investors know the dollar, so they rush to it when everything else is going worse.  It's out of the frying pan, into the fire.

Ask yourself this, if bond investors were always right, why did the demand for marks increase at the start of hyperinflationary Weimar?  Same for Argentina, Turkey, etc.  

Every where there has been high inflation, even in the US before stagflation set in, people who knew that trouble was ahead still increased the demand for dollars.  They just don't know any better.  They run right into the burning house every time.

Those who understand this, buy gold and silver.  

David in Turkey

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#9) On July 08, 2010 at 5:25 PM, ETFsRule (99.94) wrote:

"Historically, people always rush to the currency they know, regardless of what that currency is.  Global investors know the dollar, so they rush to it when everything else is going worse.  It's out of the frying pan, into the fire."

It's been a couple years since the market crashed, David. How long are you going to keep using these types of lame excuses?

Why not just accept reality and admit that your predictions of inflation and hyperinflation have been 100% WRONG?

I'm sure that if the bond market supported your ideas, you would be pointing to it as evidence. But, since that isn't the case, you're left grasping at straws. It's pathetic.

It's pretty hilarious how I'm considered a "statist tool", simply for having a clear view of reality.

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#10) On July 15, 2010 at 5:35 PM, whereaminow (< 20) wrote:

ETFsRule

Didn't you tell people that you expected the stock market to be a bad play for the following six months on March 23rd, 2009?

How much money did that cost you?

David in Greece

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