-4K Non-Farm Payrolls is Greenlight for Fed to Cut

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Summary of today's jobs numbers:

-4k non-farm payrolls vs consensus of +110k

June & July were revised down by a combined 81k

first negative reading since Aug 2003 and biggest factory firing since July 2003

flat payroll growth still correlates with 2% real GDP growth

unemployment rate and Average Work/Week were in line with expectations at 4.6% and +0.3%

Still, despite some "non-negatives", this is the green light for the Fed to cut rates by 50 basis points. Data is showing the need for a shot of adrenaline in addition to the discount rate cut last month.
 
It was also a green light for a massive selloff on the DOW. Down over 200 points as I write this...

I don't think we will see a 50 basis point cut. Listening to Poole speak yesterday, It didn't sound to me like a rate cut was in the cards. This may give the FED a justification for a cut if they want to do it. I still don't see the will on the part of the FED in their public statements.

If the stock market really thought a rate cut was going to happen, they wouldn't be selling off so hard.

I will agree that this certainly does increase the chances of a rate cut in the upcoming meeting.
 
>>>If the stock market really thought a rate cut was going to happen, they wouldn't be selling off so hard.<<<

Much like what I have been saying to you IR is that in order for it to be real clear that the Fed will cut, data would have to be pretty bad. You can't have your cake and eat it too as the saying goes. If housing is as bad as you say it will be, it will be virtually impossible for the Fed not to cut.

In the end, I think the market knows this. Something is broken and it's called the housing market. For the Fed to cut rates, they would be clearly acknowledging that things are that bad. And the market would know that they are just trying to stop a dam from breaking loose.

Fortuneately, many of us here are above water and just watching from up above...
 
"in order for it to be real clear that the Fed will cut, data would have to be pretty bad"



This is one data point. As you noted, there were some "non-negatives." The economy is still showing signs of strength (for now.)

"And the market would know that they are just trying to stop a dam from breaking loose."

That is probably a good evaluation of why we are getting a selloff in the markets.

I am still very concerned about the developments I am seeing in the currency markets and with LIBOR rates. If they lower interest rates, it is going to be very inflationary which may be more painful than a short recession. Last time we lowered rates, the Chinese continued to support our currency. They are no longer pegging the yuan to the dollar, so the dollar has lost the primary mechanism of support it enjoyed in the last rate cut cycle. Bernanke and Paulson know this, so any rate cut is an implicit green light to inflation.

The real question is: "Will Bernanke continue the 'Greenspan Put' policy, or will he follow Paul Volker's policy of containing inflation?" He cannot do both. Only time will tell.
 
It isn't a subprime problem; it is a debt problem. It isn't a housing bubble; it is a credit bubble. It isn't a liquidity crisis; it is an insolvency crisis.
 
"It isn't a subprime problem; it is a debt problem. It isn't a housing bubble; it is a credit bubble. It isn't a liquidity crisis; it is an insolvency crisis."

Given the nature of the problem, how can monetary policy help? I suppose if you refinanced everyone on a zero percent interest rate, they might be able to afford the payments and help the solvency issue?
 
Well said Awgee. If the Government isn't careful, it will find itself in the same position as many of the people experiencing problems that they think they need to help out.
 
The Dollar is at a 15 year low today. If the Fed goes ahead and lowers the discount rate it will be at the cost of our currency being devalued even more. http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax

That would be inflationary and they know it. Wall Street the Hedges and the Homebuilders are doing all the can to make it happen politically. But I would bet against it.
 
Bloomberg Television: Hank said that the report was “not totally surprising... There will be news that isn’t always good news...But I feel quite strongly that we have a resilient economy.”

Thank goodness, I was starting to worry!
 
From the link above...

"P.S.: Market's early decline suggests a further lack of conviction by investors. Isn't bad news supposed to be good news? Isn't an "imminent" Fed cut, per the experts, good news for investors? The beat goes on..."
 
I remember the market bouncing on every little bit of bad news, as if a rate cut were coming. I wonder what it means now that a sensible relationship appears to be returning.
 
"Given the nature of the problem, how can monetary policy help? I suppose if you refinanced everyone on a zero percent interest rate, they might be able to afford the payments and help the solvency issue?"

imo - Long term, there is no monetary policy that will "help". Just like there is no monetary policy that will help an individual who is insolvent with the creditors calling every ten minutes. It is monetary policy in the form of easy credit and a fiat currency based on debt which has created the problem and no amount of heroin will help the addict in the long term.

Short term, helicopter Ben or the prez could hand dollars to the folks who can't make their mortgage payments, but that is just taking productivity from everyone else in the form of inflation. And is it in the fed's best interest to flood the economy with paper so that it's member banks get back paper that is worth half of what it was worth when they loaned it out?

I hope I don't sound like too much of a nut case, but that is how I see it.
 
Interesting comment on CR:

I work in CRE Finance, and all I can say is, if where you are is isolated from what is going on the capital markets,I wish I worked in your neighborhood!

I was placing the capital stack on a very solid infill development deal and was in advanced stages with a multi-billion dollar RE Hedge Fund to invest the Equity. Three weeks ago they sent me an email saying that they had shut down all the new deals in their pipeline. Poof! $1 Billion of transactions gone. Like that.

Another deal I had been working on for the last four months blew up last week because of an intransigent seller who is still looking in the rear-view mirror and can't accept that cap rates have gone up.

I spoke to one banker regarding that deal who told me, "6 months ago I would have loved to do that deal. Today I don't even know how to price it."
 
“I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change”

-- Former Federal Reserve Chairman, Paul Volker
 
Correct me if I am wrong, but we can have a contracting economy while prices are inflating. Inflated prices only reflect a weakening dollar. There is nothing that can stop that now IMO. The FED has backed itself into a corner now. Because they lowered the discount rate they let the world know that we have a serious liquidity (money) crisis. Unfortunately our whole economy is based on "perceived value" and not "intrinsic value"--stocks, homes, even our own currency. The market is hinging upon an upcoming rate cut If the FED doesn't lower rates, we'll see a massive selloff. I think the current pricing most definitely includes a rate-cut an absolute certainty.

As far as the job report is concerned, it gives you an insight on how wrong these blowhard economists can be. It also doesn't take into account the loss of 1099 jobs.
 
Ben should come out and just stare straight ahead, motionless for the first 10 minutes, until he finally utters..."We are not going to dance around like little fairy pansies any longer, nor do we want do drag the economy into a slow painful recession. As a result, we are immediately raising the Fed Funds Rate to 7.25%. We have decided to purge the market in one fowl swoop and start over. Bye Bye!!"
 
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