Archive for February, 2006
We’ve been hammering the Fed pretty hard lately, so maybe today we should give them a break.
Today’s big economic news was the jobs report, which was very strong and drove unemployment to 4.7%, the lowest level in five years. Good news, right? Should be good for stocks? No. And here’s why:
“I think the report was quite strong and will ultimately be positive for stocks,” said Stuart Hoffman, chief economist at PNC Financial Services Group, noting a big upward revision to job growth in November and December on top of the gains in January.
However, the negative reaction was due to “worries that if wages are rising and unemployment is down, the Fed will react,” Hoffman said. “The Fed said that they are watching resource utilization, and people are a resource.”
Hat tip: CNN Money
Ah. So inflation, which normally helps stocks (if you own something, inflation makes it worth more dollars) and hurts bonds (fixed rate of return of, say, 5% is no good if inflation is 6%), is now hurting both stocks AND bonds, because everyone is afraid of the Fed raising interest rates some more.
So perceived inflationary pressure by itself is cooling off the economy, not because inflation is a terrible thing in moderation, but because the Fed response destroys economic productivity.
Remind me what these people are doing to help us, again?
I’m just so tired of telling my clients that their rates are going up because Alan Greenspan doesn’t understand Say’s Law.
In other news, I guess there’s some football game this weekend, which they hold to give them something to broadcast between commercials. I predict that the best commercial this year will not be for a food product, either beverage or snack. Now THAT’S going out on a limb, since beer commercials and Doritos have basically been the best commercials for a decade.
Sorry for the poor performance on the blog. I’m just tired this week. We have a loan that has taken – no exaggeration – 17 months for us to get to the point where we really, really believe it will close next week. Along with the five or six other deals that are on the point of closing – most of them being negatively affected by the Fed’s complete brainlessness – it’s been hard to defend my clients and their money the way I feel like I should. No, there isn’t a thing, not one thing, that I could do to make it better. But I hate to see people I care about get less than they should.