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Landmine Review: The Big One

Representatives in Congress from both parties were understandably apoplectic. Amidst the world’s worst monetary chaos since the Great Collapse after…



This article was originally published by Alhambra Investment Market Research

Representatives in Congress from both parties were understandably apoplectic. Amidst the world’s worst monetary chaos since the Great Collapse after October 1929, legislators had been told by everyone from central bankers to all the right Economists how laws needed to passed right away, no delay, which would give the Bush Administration authority to buy up the “toxic waste” each had declared the underlying cause of the crisis.

Restore markets for subprime mortgages and the whole thing would be over.

The Emergency Economic Stabilization Act (you can always tell what won’t happen by the name of these things) took some doing, but the quick descent into panic and utter chaos pushed even the most reluctant lawmaker to take these unprecedented steps on October 3, 2008. The law established, among other controversial measures, the Troubled Assets Relief Program.

TARP, as it came to be known, gave Treasury Secretary Hank Paulson a $700 billion fund which was initially meant to do just what its name said. One of its chief supporters, Paulson had made it sound just this easy.

Not even two weeks later, however, on October 14 Paulson’s Treasury began using $250 billion of TARP funds to purchase the preferred stocks of eight “banks”: BofA saddled with ML; BoNY Mellon; Citigroup; Goldman Sachs; JP Morgan; Morgan Stanley; State Street; and Wells Fargo. Now the government is “recapitalizing” banks?

Even worse, early in November, Paulson again announced how TARP would be further altered this time for a deeper, more comprehensive bailout of Citi. Seems like the situation was only getting worse.

Understandably confused as to what in the hell was going on, why it was all going wrong despite all those previous reassurances, Congress demanded some answers. Called up to Capitol Hill to testify, the defiant disburser of TARP claimed:

When the facts changed and the circumstances changed, we changed the strategy. We didn’t implement a flawed strategy. We implemented a strategy that worked.

There are those to this day who swear subsequent events somehow proved Paulson had been right; that, like the later QE or ZIRP, without TARP the damage would have been far greater (jobs saved!) Even President-elect Barack Obama in mid-November 2008 was clearly coerced into opining, “I think the part of the way to think about it [changing TARP] is things could be worse.”

Was this true; had Paulson implemented a strategy that worked?

Of course not.

A more accurate way of describing events is far simpler and depends on not a single counterfactual: the original strategy was changed because it was doomed from the start.

And because it was doomed from the start, a reactive TARP was forced by its own lack of effect into even more changes to its “plans” as the crisis spiraled further out of control. The more it did, the more the crisis did massive – and global – economic and financial damage as a result of these people not understanding the true nature of the calamity (dollar shortage, not subprime mortgages as relevant specifically to a program stupidly tied to the relief of troubled assets) and being left basically to throw everything at the wall in the vain hope something might stick.

Congress and the public were thoroughly confused, and remain so to this day. However, the monetary system itself (does not include the Fed) was not. This won’t just be the judgment of (honest) scholars looking back from the distant future freed from the outdated worldview, it was the contemporary position of the whole global bond market!

How do we know? Landmine.

And not just timed randomly, a landmine which struck several months after Lehman during which time All The Kings Horses and Men taking their escalating shots at Humpty.

Between November 13, 2008, and December 18, in an incredibly short amount of time the 10-year US Treasury yield utterly collapsed, going from 3.84% to 2.08%. The 5-year UST had begun its sharp descent earlier, on October 31, dropping from 2.84% to 1.26% in just 33 trading sessions.

And it wasn’t just strictly UST’s, either. Interest rate swap spreads which had just weeks before turned negative for the first time, an outcome that was widely believed impossible (so incredibly unlikely the rumor mill was immediately flooded with stories of trading software unable to compute a negative swap spread input since no one bothered to code such a “ridiculous” possibility), these, too, would plunge further, falling deeper into the unimaginable.

The bond market wasn’t waiting for a payroll report or some negative statistic for Industrial Production to show it the massive economic disruption, that’s not what goes on here. On the contrary, it was trading on the more and more likely carnage which would be our global future out way past any economic data account – to the growing exclusion of all possibilities, beyond that point, of avoiding such a future fate.

Landmines represent taking a step past some certain point of no return. In the case of #4, that step was when policymakers showed their cards and proved they had nothing other than some despicably weak bluff(s).

Furthermore, this November/December 2008 landmine wasn’t the crisis’ first, rather its fourth. Yes, there had been three in succession triggered the summer before, almost back-to-back-to-back landmines from July 2007 until January 2008 which had brought these later possibilities into initial view. Each one was clearly associated with escalation rather than mediation of onrushing monetary trouble before eventually unrestrained chaos.

The first from July 9, 2007, to September 10, would include the paradigm shifting events taking place on August 9 and signaled how the situation couldn’t possibly be contained. The second following the Federal Reserve’s initial response, a pathetic emergency 50 bps rate cut in mid-September, began October 15 (as stocks had hit a record high) lasting to November 26 indicating the uselessness of the rate cut. Repeating the same pattern, the third landmine kicked off on December 26 despite the Fed’s escalating into full-blown crisis TAF Auctions and overseas dollar swaps, the steep drop in yields lasting to January 23, 2008, and instead pricing events and conditions precipitating Bear Stearns by mid-March.

What these had represented was how there weren’t available answers and that we would pay the price for it in the monetary destruction of growth and opportunity.

These landmines served to remind us, among other things (like collateral), of Irving Fisher’s long-ago decomposition of bond yields into long run perceptions of growth and opportunity.

By that fourth landmine harshly judging TARP idiocy, it was growth and opportunity which were slammed completely shut in a verdict rendered in real-time by interest rates the conventional view demands we think of as “stimulus.” That’s merely the final illicit bit of illiteracy which perfectly encapsulates the gross ineptitude also captured by these repeated bond market flushings.

The thing by which the public is led to believe indicates policies are working, low rates, are actually a conclusive sign they didn’t and they won’t because they couldn’t nor can’t.

Before the fourth one, this was a future increasingly bad but one still with some hope that maybe the emergency would provoke an epiphany, a legitimate response even if by, to borrow a phrase, random good luck. When Hank simply changed TARP (and Bernanke tried talking confidently about “abundant” reserves), the discounting took stock of how these people really had no answers, and then priced a very different and dire future swapped in the bond market equivalent of a blink of an eye.

Again, it’s not bonds reacting to some pieced-together piecemeal data reports, it is the monetary system itself taking account of the real world from the closest possible proximity to the real world. It is telling you – and everyone including the Hank Paulsons and Ben Bernankes of the world – how things are actually going on the ground from inside the invisible hand of modern market economies which depend so much on monetary sufficiency.

The steep drop in yields during these things is essentially the most visible confirmation of a forthright, irreconcilable deflationary shift to the acceptable (meaning realistic) probability spectrum.

The economic data comes along only later to confirm the increasingly awful possibilities bonds have already priced (see: later benchmark revisions to 2019 in the wake of 2018’s landmine).

QE, ZIRP, TARP, ARRA, etc., cries of wicked inflationary money printing, it needs to be pointed out how that final landmine had really judged the long run situation near perfectly; in that, the monetary destruction being undertaken by the global economy really did have long-lasting repercussions far into the future.

In terms of US Treasuries, the 10-year yield which last had been 4% on October 31, 2008, when on the verge of the final crisis landmine, it would revisit 4% just once (April 5, 2010) in all the years since! Swap spreads have never normalized, or even come close; the 30-year spread briefly positive in the summer of 2013, at most flirting with zero until plunging backward early in 2015.

Does any of that, along with all the clear economic data rolling in later, picture more than a decade of success and stimulus as Secretary Paulson once tried to claim? Or, had Landmine4 told you at the time in real-time it hadn’t and wasn’t, so there was no going back?

Sorry Hank. No luck Ben. The only honest answer is unambiguously the latter.

Up next this week, the post-crisis landmines; what they look like and why they represent something similar.


Unemployment Falls to 4.2 Percent in November as Economy Adds 210,000 Jobs

The rise in the index of aggregate hours would be equivalent to more than 630,000 jobs with no changes in workweeks.
The post Unemployment Falls to 4.2…

The rise in the index of aggregate hours would be equivalent to more than 630,000 jobs with no changes in workweeks.

The unemployment rate fell 0.4 percentage points in November, even though the economy added just 210,000 jobs. The drop in the unemployment rate went along with an increase in the employment-to-population ratio (EPOP) of 0.4 percentage points, corresponding to a rise in employment of more than 1.1 million in the household survey. The unemployment rate had not fallen this low following the Great Recession until September 2017.

The 210,000 job growth in the establishment survey is slower than generally expected, but it is important to note that it went along with an increase in the average workweek. The index of aggregate hours in the private sector increased by 0.5 percent in November. This would be the equivalent of more than 630,000 new jobs, with no change in the workweek.

This fits a story where employers are increasing hours since they are unable to hire new workers. We are seeing a reshuffling of the labor market where workers are looking for better jobs and employers are competing to attract workers, especially in lower paying sectors.

Declines in Unemployment Largest for Disadvantaged Groups

Nearly every demographic group saw a drop in unemployment in November, but the falls were largest for the groups that face labor market discrimination. The unemployment rate for Blacks fell by 1.2 percentage points to 6.7 percent, a level not reached following the Great Recession until March 2018 and never prior to that time. For Hispanics, the decline was 0.7 percentage points to 5.2 percent.

The unemployment rate for workers without a high school degree fell by 1.7 percentage points to 5.7 percent. By contrast, the unemployment rate for college grads fell by just 0.1 percentage points to 2.3 percent, 0.4 percentage points above its pre-pandemic low. The 5.7 percent rate for workers without a high school degree is 0.7 percentage points above the pre-pandemic low, although the monthly data are highly erratic.

The unemployment rate for people with a disability fell by 1.4 percentage points to 7.7 percent, while the EPOP rose by 1.1 percentage points to 21.5 percent. The latter figure is almost 2.0 percentage points above pre-pandemic peaks, indicating that the pandemic may have created new opportunities for people with a disability.

Share of Long-Term Unemployment Edges Up

The share of workers reporting they have been unemployed more than 26 weeks edged up slightly to 32.1 percent. It had been falling rapidly from a peak of 43.4 percent in March. It was under 20.0 percent before the pandemic hit. On the plus side, the share of unemployment due to voluntary quits increased by 1.0 percentage points to 12.5 percent. This share is still low for a 4.2 percent unemployment rate, but the high share of long-term unemployed depresses the share attributable to quits.

Wage Growth Still Strong for Lower Paid Workers

The average hourly pay of production workers is up 5.9 percent year-over-year. It has risen at a 6.6 percent annual rate comparing the last three months (September to November) with the prior three months (June to August). For restaurant workers the gains have been even larger, with the average hourly wage for production workers up 13.4 percent year-over-year, although the annual rate of growth slowed to 5.7 percent comparing the last three months with prior three months. Wages for the lowest paid workers are far outpacing inflation.

Manufacturing and Construction Both Add 31,000 Jobs in November

This continues a pattern of strong job growth in these sectors. Employment in construction is now down 1.5 percent from pre-pandemic levels, while manufacturing employment is down 2.0 percent.

Employment Lagging in Hard Hit Sectors

By contrast, employment is still lagging in the hardest hit sectors. The motion picture industry shed 3,400 jobs in November. It is now down 21.9 percent from pre-pandemic level.

Low-wage sectors are clearly having trouble attracting workers. Nursing and residential care facilities shed 11,000 jobs in November. Employment is now down 423,700 jobs (12.5 percent) from pre-recession level, accounting for most of the drop in health care employment. Childcare lost 2,100 in November, while home health care lost 300 jobs.

Retail lost 20,400 jobs in November. Employment in the sector is now down 1.1 percent from pre-pandemic levels; although the index of aggregate hours is up 1.1 percent.

Restaurants added just 11,000 workers, while hotels added 6,600. However, the index of aggregate hours for the leisure and hospitality sector (which comprises the two industries) rose 0.6 percent. This corresponds to a gain of almost 800,000 jobs with no change in the length of the workweek.

State and Local Governments Shed Another 27,000 Jobs

State and local government employment is now down 951,000, or 4.8 percent from pre-pandemic levels. This is almost certainly a supply side story, where these governments cannot easily raise pay to compete with the private sector in attracting workers.

Overwhelmingly Positive Report

This is another overwhelmingly positive report. The unemployment rate is more than a full percentage point lower than what CBO had projected before the passage of the American Recovery Plan. The most disadvantaged workers are seeing the greatest benefits in pay and employment opportunities. The economy looks to be very strong as long as another surge in the pandemic doesn’t derail it.

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The post Unemployment Falls to 4.2 Percent in November as Economy Adds 210,000 Jobs appeared first on Center for Economic and Policy Research.

Author: Karen Conner

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NFP React: Stocks lower after soft NFP report and Omicron jitters, No one named an FX manipulator

US stocks declined after a soft employment report and as traders remain on edge over the uncertainty with the Omicron variant. The next couple of weeks…

US stocks declined after a soft employment report and as traders remain on edge over the uncertainty with the Omicron variant. The next couple of weeks will remain volatile as the focus falls on the latest inflation report, the December 15th FOMC meeting, and further clarity on the impact with the Omicron variant. 

A record ISM Services reading did not excite traders, perhaps they focused more so on the supplier deliver delays, wage increases, and labor shortages. Technology stocks are getting hit hard as Facebook, Microsoft, and Square sell-off.  Didi shares fell on delisting plans and that raised the risk that other Chinese companies would follow.  


The US economy is adding jobs at a slower pace as employers are starting to have success luring people back to the labor force. If wages continue to rise, that will be the key for companies to reach their hiring targets. 

The November employment report showed US employers added 210,000 jobs, a miss of the 550,000 consensus estimate and well below the upwardly revised prior reading of 546,000 jobs. A headline miss with the nonfarm payroll report, may be mostly attributed to seasonal factors. The underlying components make this labor market report not so bad as people are coming back to the labor force, with the participation rate improving from 61.6% to 61.8%.

Wage pressures may be slowing as average hourly earnings dipped in November from 0.4% to 0.3%, but some of that could be attributed to the weakness in lower paying hospitality jobs. 

The Fed may view this as a positive employment report as minority unemployment improved significantly and the participation rate is now only 1.5 percentage points lower than in February 2020. Fed rate hike expectations are settling around two rate hikes next year. The headline jobs miss takes away momentum from an accelerated tapering but allows them to increase the taper pace by $5-10billion to the monthly pace. 


The Treasury has placed 12 countries on a foreign exchange watchlist, bringing back China to the list, while adding Japan, Switzerland, and Germany.  The Treasury refrained from calling any country a currency manipulator, but both Vietnam and Taiwan will get enhanced analysis.

Author: Ed Moya

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Commodities and Cryptos: Oil rallies, Gold holds onto gains post NFP, Bitcoin hovers

Oil Crude prices extended gains after a mixed payroll report showed the labor market recovery is moderating but still headed in the right direction. …


Crude prices extended gains after a mixed payroll report showed the labor market recovery is moderating but still headed in the right direction.  The Omicron variant continues to be the key to short-term crude demand outlook and the latest updates have been mixed.  A South African study showed that Omicron reinfection risk is 3X higher.  The study of 2.8 million positive COVID samples in South Africa showed the Omicron mutation has a substantial ability to evade immunity from prior infection.  As Omicron spreads across the US, energy traders can’t forget about Delta as hospital admissions are increasing across 39 states. 

The aftermath of the OPEC+ meeting on output has many traders believe that if Omicron poses a bigger risk to the short-term crude demand, that would be met with a quick response of production cuts.  


Gold prices initially popped after a big headline jobs miss lowered the chances that the Fed would double the taper speed at the December 15th FOMC meeting, which would also push back expectations for that first Fed rate hike.  After traders processed the entire employment report, they realized it was not as bad since the participation rate rose sharply with both black and Hispanic unemployment also improved significantly.

Gold is still near one-month lows as markets continue to anticipate two Fed rate hikes next year, which should keep the dollar in demand.  Even as the Fed seems poised to wrap up tapering around the start of the first quarter, traders are not confident on when real yields will turn positive and that should be a primary driver for gold to rally after Wall Street confidently fully prices in the first couple of Fed rate hikes.  Leading up to the December 15th FOMC decision, gold should consolidate between $1750 and $1800 as next week’s inflation report doesn’t come with an extremely hot inflation report that includes a reading of 7% or higher. 


Bitcoin is in ‘no man’s land’ right now and that does not seem to be changing anytime soon.  The long-term bullish case remains intact but prices seem poised to consolidate between $52,000 and $60,000.

Author: Ed Moya

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