The Mess That Greenspan Made - Part 12

Gallup Job Creation Index at 6-Year High

In advance of tomorrow’s big monthly labor report, this Gallup survey showed that the job market is in the best shape since 2008, a year that will forever be remembered for the events that unfolded, leading to job losses in the millions.

The pre-2008 data is not shown, however, it’s a pretty safe bet that we’re a still a long way from whatever might be considered “normal”, that is, if “normal” could ever exist again.

The other charts in the report about government vs. private sector hiring/firing and within the three levels of government (i.e., federal, state, and local) is kind of interesting too.

Expectations for an unusually large spring rebound in the Labor Department jobs data tomorrow (even after seasonal adjustments push the final number down) are running high. It will be interesting to see, first, what the number is, and, second, how markets respond.

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On Deep Dysfunction and the U.S. Economy

The more I hear about “secular stagnation”, the more it sounds like the U.S. and global economy are like some massive software project that had fundamental design flaws that prevented it from ever functioning properly, yet all the managers want to do is get it fixed (and they’ll try just about anything short of a complete redesign).

Of course, fundamental design flaws in big software projects almost always end up leading to redesigning the thing from the ground up after everything else has failed, but, aside from a few Austrian economists who continue to preach to the choir, you never hear a peep about rethinking the overall design of the U.S. or global economy.

In another example of “real life meets Onion satire” to produce some terrifying implications (i.e., this 2008 classic Recession-Plagued Nation Demands New Bubble To Invest In), we read in this New York Times story that former Treasury Department Chief Larry Summers is still thinking about our “secular stagnation” predicament.

Want a thriving labor market? Blow a bubble.

That’s one implication of a theory about the contemporary American economy developed by Lawrence H. Summers, the former Treasury secretary and prominent public intellectual.

The theory is a frightening one, implying deep dysfunction in the way the American government treats the economy. It is a trendy one, all the talk among policy makers and those at think tanks. And Mr. Summers expanded on it at a forum on full employment hosted on Wednesday by the Center on Budget and Policy Priorities.

The big idea is that — absent extraordinary intervention in the economy through fiscal policy, monetary policy or both — growth and employment will prove lackluster.

What’s a government to do? Well, the Fed could keep its easy monetary policy indefinitely and watch the bubbles form, like the dot-com bubble of the late 1990s or the housing bubble of the mid-2000s. But, Mr. Summers pointed out, bubbles burst, with hugely destructive consequences.

“A strategy that relies on interest rates significantly below growth rates for long periods of time virtually guarantees the emergence of substantial bubbles and dangerous build-ups in leverage,” Mr. Summers wrote recently. “The idea that regulation can allow the growth benefits of easy credit to come without the costs is a chimera.”.

Despite Summers urging, that’s about all we’ve got – Fed sponsored bubbles – and that situation doesn’t look as though it will improve after this fall’s mid-term elections.

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Me Again

Yesterday afternoon, Cory Fleck and I chatted along with Big Al Korelin himself over at the popular Korelin Economics Report and that interview is now available.

Among other things, we talked about how warmer weather in the U.S. is making the economy, perhaps, look a little better than it really is and the prospects for a really good stock market bubble developing in the months ahead.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

We talked about precious metals too and, it sounded like Al was a little disappointed about the idea that gold and silver could continue to struggle in the period ahead.

Not mentioned explicitly during the discussion was the unusually strong inverse correlation between stocks and gold that, here in 2014, had been working in favor of the latter up until a few weeks ago.

Demand in Asia has picked up again now that the gold price is almost $100 an ounce lower and, as noted during our talk, that could make for some rather exciting developments later in the year as there is no ready supply of physical gold exiting Western ETFs this year as was the case last year when physical gold demand in China shattered records.

[To access commentary that Tim only shares with subscribers, join Iacono Research.]

Another Scary Stock Bubble Chart?

Amid repeated warnings from the mainstream financial media in general about bubbly stocks losing their fizz (or much worse), there appears to be a developing cottage industry over at Marketwatch in creating chart comparisons between today’s five-year bull run for U.S. stocks and prior episodes that didn’t end well.

The latest offering comes from this report that is much better than the last one if for no other reason that the two curves use the same scale (I guess that’s progress).

The story is titled, “Now there’s a 1987 chart to get worried about” but the URL contains what was likely the working title of “Less that 37 shopping days before stock prices drop?”.

Based on this Google search of “wells capital 2009 1982 stocks” it would appear that the 1982-1987 comparison has been around for more than a year now, apparently being recycled to generate provocative headlines that are known in the industry as “click bait”.

Hey, it worked on me.

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