Reality Bites Back
Posted May 06, 2022
The jobs report this morning didn’t look half bad on the surface. The U.S. economy added 428,000 jobs in April. The Unemployment rate remained at 3.6%. This was supposed to fix the onset of Wall Street doldrums. It was supposed to cause a tremendous move to leave the blues behind and get back to wild buying.
The trouble with the jobs report was in the footnotes: “The U.S. labor force shrank by 363,000 people in April from a month earlier, the Labor Department said Friday. The labor force participation rate, or the share of American adults working or looking for a job, ticked down to 62.2% in April from 62.4% in March.”
So the dropout economy is getting worse, not better, rendering these unemployment numbers rather pointless. And we’ve previously discussed why this is happening. Women with kids have dropped out and child care is too expensive. Many men just moved home to mom and dad and are happy to live off savings and look forward to going into debt. Plus, the demoralization of the workforce after lockdowns has drained American ambition.
The labor force participation numbers mean the labor shortage will continue.
That helped dampen enthusiasm. In addition, wage growth is slowing, a fact which might cheer the Fed, but is bad news for workers because it means the purchasing power of their wages will fall further, after having endured a devastating hit over the last six months.
The Fed Will Flop
There is also the problem with the Fed. The conventional view is that nothing can shake off the fear of Fed tightening, such as it is. We are starting to see some leaking out of truth. A former Fed official went public with a very obvious statement, namely that the federal funds rate needs to be 3.5% in order to even begin to make a dent in inflation.
How does Richard Clarida know this? It’s not rocket science: short-term rates need to be positive in real terms rather than negative. That means 3.5%, yes, but more likely double or triple that. The Fed simply won’t go there. The Fed’s theory is that it can put out the house fire by carefully spraying a bit of water here and there in a way that doesn’t cause shock and alarm.
And this is because the Fed wants to avoid “causing” a recession that is going to happen anyway.
There is a theme to public life these days. It’s all about a powerful and elite managerial class setting out to control the world and failing time after time. It’s been true with pandemic control. It is true with free speech. And it’s true in economic affairs also. The inflation controllers and recession avoiders are going to get both anyway, just as the pandemic controllers utterly flopped in stopping mass contraction of COVID.
Take a look at oil prices. Remember how the release of the “strategic petroleum reserve” was supposed to push down prices? For two weeks, prices have been going up and up. Price pressure continues to move up across all sectors, despite a slight pull back overall in the last 30 days.
What’s more, the lowest level of inflation affects an unlikely sector: education. This is because colleges and universities are facing crashing demand for their services and they are terrified to increase prices.
A Weak Foundation
Are we in a bear market yet? Depends on what you look at. That’s usually defined as 20% down from recent highs as measured by the large indexes.
But as the WSJ points out: “Nearly half of the Nasdaq's constituents are trading more than 50% below their 52-week highs, and more than three-quarters of companies in the index are in a bear market, Bank of America Global Research strategists led by Michael Hartnett said in a Friday note.”
All told, this really does seem to be the season of reality, and that’s no better illustrated than in a little-noticed report from the CDC that came out two weeks ago. It got no headlines anywhere in the world. And yet it is the most consequential and devastating report of the entire pandemic.
The report said that 75% of kids and 60% of adults now have seroprevalence to COVID. You don’t get that through vaccination. These measurements don’t even measure for that. What we have here is an antibody test that looks at the state of the immune system after infection.
Try to think what this means. They spent two years trying to minimize COVID, stop the spread, keep everyone away from the bug, hide for as long as possible, and yet EVERYONE GOT IT ANYWAY!
This is a devastating number for the COVID planners but overall great news in terms of the pandemic. There is probably still more room for seroprevalence to grow higher but it means that the population has broad immunity now. Nothing anyone did could stop that from developing as it always has and always will.
A report like this makes me both joyful and furious. Consider all the devastation and how pointless it all was.
As for the vaccines, there still is no common knowledge concerning how non performing they really are. They cannot stop infection or spread, and new research is raising fundamental questions about whether the mRNA type does anything even to reduce mortality. Meanwhile, Pfizer is dumping documents like crazy due to pressure from FOIA and other sources. And the reports don’t look good.
If you had any doubts that there is some unsavory relationship between the makers and regulators, the FDA proved the point yesterday by using this exact moment to hammer J&J as mostly too dangerous to have on the market. Remarkable: the regulators have decided to ignore the big players, while punishing the small ones. When the investigations start over this entire fiasco, it is going to be something spectacular to watch.
The Crypto Markets
There were some long faces in the crypto world this week, as prices across the board softened. Reports are that faced with falling financials, squeamish traders in large funds are offloading investments that seem riskier to some people.
This accounts for the dramatic move out of edgier investment into defensive ETFs that fund consumer staples and boring things like utilities. Risk doesn’t seem to be paying off these days, and that seems to include the crypto market.
That of course does not apply to individual holders who are obviously in for the long term. We’ve been here many times before. In two years, all the people who are today congratulating themselves for staying away will be kicking themselves for not getting in right now. It’s been this way for ten years, and yet people don’t learn.
There is a weird thing on the loose these days, and it is called the real world. This is making everyone in the fantasyland called Washington, D.C. furious. Even Wall Street is catching on.