The BLS reported blowout jobs numbers on Friday. The headline number rose 304,000. That is the seasonally adjusted (SA) artistic impressionism version. We here at Sure Money like the actual numbers, not seasonally adjusted (NSA). It’s easy to see the trend visually, and we can quantify by comparing the month to month trend with the same month in the past 10 years. We can add a check of the momentum of the annual rate of change.
January is always the biggest month for job losses as holiday workers get laid off. This January was no exception, as 2.98 million jobs disappeared. How that turned into a gain of 304,000 is one of the great mysteries of seasonal adjustment. The 304,000 number blew out economists’ estimates and looks absolutely boffo. However, the number wasn’t appreciably different than anything that has been going on for the past 7 years, as you can see below.
Look at this chart and see why the Fed’s new policy is still a de facto autopilot.
The monthly change of -2.98 million wasn’t materially different than the January 10-year average of -2.95 million. It certainly was not a “boffo” number. It was better than January 2018, when 3.1 billion jobs were lost in January. It was worse than the loss of 2.88 million jobs in January 2017.
The year to year change was a gain of 1.9%. There’s been slight acceleration over the past year. The annual growth rate has risen slowly by steadily from 1.4% in January 2018.
The key point here is that it calls into question the motivation for the Fed’s policy capitulation this week.
Did the Fed really capitulate this week? It certainly knew that good jobs numbers were coming. Its about face on the issue of the balance sheet normalization program being on autopilot seems to have been purely in reaction to the threat of a resumption of the stock market meltdown.
But the Fed’s statement said that any changes in the rate of the balance sheet shrinkage, or even starting QE anew, are contingent on things going haywire in the stock market and the economy.
It seems to me that the Fed was merely stating openly what we already knew-that it would print money after the crisis, not before. First come the meltdown and economic contraction, then the New QE.
With the economy moving along swimmingly, and the stock market still in meltup mode the Fed has no reason to slow the pace of balance sheet shrinkage. And therein lies the problem for stocks and bonds.
I suspect that the trouble will show up first in the bond market. The yield on the 10 year US Treasury has probably already bottomed. There’s a key trendline at 2.73% today (27.30 on this chart). A daily close above that trendline would suggest that another upleg in yields is under way.
As long as the 10 year yield stays below that line, bonds would be a hold, but if there’s a daily close above it, that would be a sell signal, and I’d roll that cash into 13 week T-bills to wait out the next bear leg in the bond market.
Meanwhile, the stock market has blown through one target area that I posted last week and has taken a bead on the second bullseye around 2740-50. If you are holding SPY calls, I would use the sharp uptrend line connecting the January lows as the sell trigger. If the market closes below that line on any day next week, I would take profits on those calls and go to the sideline to await further clarity on the next likely tradable swing.
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