The important release today is the US JOLTS

Outlook:

The markets are thinking about another Apple new-product launch and the Alibaba IPO, with a little concern about Scotland thrown in for good measure, with nothing of any depth or lasting significance on the table. In the FT, Rachman opines that investors ignore war, terror and turmoil to focus on the conditions that actually influence their investments, like cash flow. Political events are noise. “In the first week of trading after the terror attacks of September 11, the Dow Jones fell 14 per cent. But the Dow and the Nasdaq recovered their pre-9/11 levels within months of the attacks. It has been a long time since international politics really transformed the outlook for investors for years – rather than for weeks or months. The last times I can think of were the oil shocks of the 1970s that followed the Arab-Israeli war of 1973 and the Iranian revolution of 1979.” In fact, political change, as in China and trade globalization, opens up investment opportunities. Oil is falling, not rising, because of shale oil and because Russia has not yet spoken seriously about cutting off supplies to the rest of Europe.

Rachman sees silver linings. Well, Rachman is not sitting through countless hours of TV documentaries on 9/11. We are reluctant to buy into silver linings. One thing we got out of 9/11 is a can-do, war-embracing mentality that has not gone completely away, even as the voter elected a guy who does not see war-first and may also be flirting with another guy who is an isolationist. The world really dis-likes US “leadership” but fails to offer any leadership of its own. We are coming to a tipping point, but the two sides are not war and no war, but rather something new. We await a speech on that tomorrow. It’s hard to imagine current geopolitics will not affect investment choices.

The important release today is the US Job Opening and Labor Turnover Survey (JOLTS). Openings probably rose for the 6th month and the “quit rate” may be higher as well, meaning people are comforta-ble enough of getting a new job that they can quit the one they have and hate. Most of all, JOLTS will almost certainly be taken to repudiate last Friday’s bad nonfarm payrolls report. It would therefore go on the asset side of the ledger and bolster the “growth” scenario, which is pro-dollar.

And yet it’s not hard to find severe criticism of the state of the job market in the US. David Stockman (of Reagan budget office fame) writes at seekingalpha.com that Fed talk is counting the angles on the head of a pin. “The truth is, labor market “slack” is a red herring. The problem of tepid growth in jobs and incomes is structural, and tweaking the monetary dials by a tick or two will not alleviate it in the slightest. Compared to 25bps from zero, consider what has really happened to the labor market since the Fed went all-in for money printing after the dotcom crash. Back then there were 75 million adults (over 16 years) who didn’t have jobs; today’s report shows that there are about 102 million jobless adults.

“And, no, that 27 million gain in adult dependency is not due to well-deserved baby boomer retirements on social security. There are only 7 million more recipients of old age and survivors benefits today than there were in the year 2000. The remaining 20 million are on food stamps, welfare, disability, veterans benefits or are living in their parents’ basement or on the streets.

“They have been made jobless first and foremost by a financialized economy that does not invest in productivity and growth, but mainly chases financial bubbles inflated by ZIRP and the Fed’s insensible pursuit of “wealth effects” and stock market props and puts. And that monumental deformation has been exacerbated by the “off-shoring” of a huge swath of the tradable goods economy. The latter is a direct result of 25 years of easy money and massive middle class borrowing that has resulted in $8 trillion of cumulative domestic consumption in excess of domestic production, and bloated domestic wages and costs that are not competitive in the world economy.

“Finally, throw in the disincentives to work from a massive income transfer payment system and safety net that encompasses 110 million citizens who live in households with means tested benefits, and 150 million with government benefits of all kinds including social insurance. Now you begin to grasp what really matters. Indeed, these tidal forces operating on the labor market shrink the impact of 10 or 25 bps from zero on overnight interest rates to the equivalent of economic white noise.

“Real median family income is down 12 percent from its unsustainable 2007 housing bubble peak; more importantly, it was no higher in 2013 than it was way back in 1989 when the modern age of central bank money printing was just getting underway.

“So there you have it. The Fed’s balance sheet grew at 22X over the last quarter century; median real family income grew at 0X. Likewise, the count of breadwinner jobs is still 4% lower than it was when the dotcom bubble crashed. Real net capital investment is down 20% during the same 14 year period.”

Wow. We don’t know if Stockman’s data is accurate or presented in the correct perspective, but this sounds a lot like Summers’ secular stagnation. Stockman is pointing out our favorite theme, that the Fed is supposed to be the referee, not the quarterback and the running back. Intervention in markets always results in a misallocation of resources and is by definition inefficient in the economist’s use of the term. Putting all the blame on the Fed is surely wrong. Just as monetary policy cannot cure all of an econo-my’s ills, it shouldn’t be blamed for all of them, either. And yet over the past few decades, we have stopped thinking about things like capacity utilization and productivity to focus instead on historic stock market highs. We used to present the world with (say) the Xerox machine and now it’s some Apple thingie. Stockman calls it a “financialized” economy. He has a point.

So, we still like the dollar with the highest big-country return on 2-years and 10-years. But don’t count on it lasting. There is plenty to dislike about the structural problems and overall recoverability of the US economy.