Daily Commentary by Larry Baer: U.S. job
growth slowed significantly in August, setting the stage for the Federal
Reserve to begin pumping additional money into the economy as early as next
week.
Nonfarm payrolls increased only 96,000 last
month while the unemployment rate dropped to 8.1% from 8.3% in July. On its face the drop in the national jobless rates
looked like an improvement - but closer examination shows the decline was
created by more that 360,000 people growing so frustrated with their fruitless
efforts to find employment -- they simply threw up their hands and abandoned
their job search efforts all together.
The national jobless rate has held above 8.0% for more than three years
- the longest stretch since the Great Depression. The labor force participation rate, or the
percentage of Americans who either have a job or are looking for one, fell to
63.5% percent - the lowest mark for this metric since 1981
The lack of headway putting Americans back to
work is probably the last piece of puny economic data the Fed needs to see
before authorizing another $500 billion dose of quantitative easing for the
economy.
If my assessment proves accurate, we are
probably looking at a "buy the rumor - sell the fact" event. The expected modest impact of QE3 is already
largely priced into the mortgage market -- which means further declines for
mortgage interest rates will be difficult to come by.
Deutsche Bank strategist, have delved into
the history books and discovered 10-year Treasury bond yields hit their lowest
mark in July since data began in 1790.
If our economy has not been able to gain notable traction with interest
rates at historical lows - investors have to question how printing money to try
to push rates even lower will do much more than tick off our foreign U.S.
debt holders and expand the inflation pressures waiting for all of us just
around the corner. I may be way off
base here - and quite frankly I hope I am.
If I'm not wrong - the implementation of QE3 may cause mortgage interest
rates to tick briefly lower for a few days -- or even a few weeks -- before
reality sets in and dollar denominated assets of all kinds begin to lose value
on an accelerating basis.
Looking ahead to next week the Federal Open
Market Committee begins two days of monetary policy deliberations on
Wednesday. On Thursday the central
bankers release their post-meeting statement - and volatility in the mortgage
market will likely be high - with or without a QE3 announcement. Uncle Sam will be in the credit markets
looking to peddle $66 billion of 3- and 10-year notes together with a stack of
30-year bonds at three separate auctions running from Tuesday through
Thursday. The economic calendar includes
Thursday's August Produce Price Index and Friday's Consumer Price Index and
Retail Sales reports for August.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
