The carnival comes to town the first Friday of each month. If you listen closely, you can hear the calliope music. The BLS is juggling statistics, and bowling pins, preparing for the big show at 8:30 AM EST (1:30 PM London; 2:30 PM Central Europe, Brussels, Paris, Frankfurt; 6 PM Mumbai; 8:30 PM Beijing; 9:30 PM Tokyo; 10:30 PM Sydney) when the US Monthly Jobs Report is released. The clowns are already assembling under the Wall Street circus tent as this message is typed three hours before the jobs data and four hours before the opening bell for the regular Friday US trading session.
Nonfarm Payrolls are expected at 180K jobs versus the prior 196K jobs. As always, revisions will be important. The whisper numbers are 200K jobs and higher. The unemployment rate is expected to remain at its five-decade lows at +3.8%. Private Payrolls are expected at 178K versus the prior 182K.
As Keystone has preached the last couple years, the wage numbers are more important than the headline jobs number and unemployment rate. Inflation, that the Federal Reserve has tried to create with its obscene Keynesian money printing for the last decade, remains elusive and can never exist without wage inflation occurring. Chairman Powell, or is it Chair Powell these days (humorously, maybe it's chairman if he sits with legs apart but chair when his legs are crossed), says wage inflation is occurring and the ongoing +3.2% and +3.3% wage growth is healthy and reflective of a stable economy. Balderdash.
The dirty secret the Fed will not tell the public is that wages need to be growing at a rate of +4.0% to +4.5% per year to create and sustain inflation. Average Hourly Earnings are expected at +3.3% year-on-year versus the prior +3.2%. Earnings are expected at +0.2% month-on-month versus the prior month's paltry +0.1%. Powell is spinning yarns when he hints that wages are growing and will eventually lead to inflation.
If inflation does not occur, the grand one-decade long Keynesian money-printing experiment at the Federal Reserve, first implemented by Chairman Bernanke in March 2009, and then continued by Chair Yellen, and now Chair Powell, will be proven a failure, only serving to make the elite class, that own large stock portfolios, filthy rich. Such is America's faux free market crony capitalism system.
Wages will need to grow about 1% higher on-year from current levels to sustain inflation. The +3.2% to +3.3% area is not going to cut it; inflation will remain Godot.
If wages come in hot, say +0.3% or +0.4% month-on-month and +3.3%, +3.4% or +3.5% year-on-year, traders will be thinking that inflation is coming and the general positioning of the stock market expecting more central banker dovishness may be in error. If inflation ramps up, the Fed will move away from the dove camp (lowering rates) and towards the hawk camp (raising rates). The stock market may sell off today on higher wage data since the central banks may turn off the easy money spigot that makes equities run higher.
Conversely, if wages come in light, say flat or +0.1% on-month, and +3.0% or +3.1% on-year, that will be a dagger through the heart of inflation. Since the data is weak, traders will celebrate and buy stocks since the Fed and other central bankers will keep printing easy money in the low inflation environment. Bad news is good news. What a sick financial world it has become.
Interestingly, recently, there have been several analysts finally capitulating on inflation saying it will not occur for many years forward. A couple strategists say the low inflation environment will continue for the next decade. For the last few years, many of these same folks were touting that inflation was always just around the corner. A few years ago, Keystone maintained the stance that the deflationary, disinflationary and low inflation environment would continue for many months and years ahead. It was lonely sitting on that side of the boat but it has turned out to be correct.
Back then, Keystone said that inflation would not occur mainly because of the lack of wage growth and lack of velocity of money, but equally important was the sentiment. Everybody and his brother have been calling for inflation the last few years (the consensus is typically wrong). Some have been calling for inflation since late 2009 after QE1 had been in play for only about eight or nine months. Keystone proclaimed that in a few years down the road you will see these inflationists capitulate and when they do that will identify when inflation may finally begin.
The purpose of the previous two paragraphs is to call out the interesting fact that some of these folks are giving up on inflation as predicted a few years ago; they are finally capitulating and saying disinflation and low inflation will continue for many years forward. Thus, we are getting close now and after a few months or year or two more of deflation, disinflation and low inflation, the US should finally enter an inflationary period. The real trouble will begin when in a few short years America will be mired in hyperinflation. Just think, in the years ahead, you will be paying $10 per gallon for gasoline or milk and $6 or $7 bucks for a loaf of bread. Are you preparing for that day?
The reason inflation is not occurring is because much of the central banker's easy money is sitting in reserves at the investment banks and not yet in circulation with the economy. In other words, there is no velocity of money occurring, hence no inflation. When the banks start putting all that money to work in the economy, by lending to businesses, and these companies hiring workers, which then create the need for more support businesses, the velocity of money will take off like gangbusters. This will create the inflation say a couple years out, however, as the velocity of money gets out of control, and it will, that will lead to hyperinflation in the 2020's. You do not want to be in debt when that hits because it will wipe you out. We have lots of fun ahead over the coming years as capitalism crumbles because of the elite privileged class's greed.
One last comment on inflation. Many pundits say inflation is already here but not measured correctly. Balderdash. The reason it seems that way is because of the separation of the classes in this new Gilded Age which is like the 1920's. The upper middle class and wealthy are in the financial jobs and media that report business news. All these talking heads make big bucks. They are the ones putting their kids through fancy schools. They live in the McMansions and fancy homes. They drive the expensive European sports cars.
Of course these upper-class individuals are going to say inflation is clearly occurring. They see it in higher home prices, higher tuition and school costs, higher insurance costs and higher utility bills. When you are poor, that stuff is inconsequential. The goods versus services inflation is the debate. The goods, such as raw materials and commodities, are in a deflationary and disinflationary period. This is why you see electronics prices continually dropping. However, the services side sees flatness or a whiff of inflation and this is where the pundits, that report on inflation, feel it. Hence, it seems like inflation is occurring because the well-to-do folks involved in the financial industry feel the brunt of the services inflation and they complain and report about it daily. Disadvantaged people would love to have their problems. It's not rocket science.
Back on topic, the Average Workweek is expected to remain unchanged at 34.5 hours. The Labor Participation Rate is expected to remain the same at 63.0%.
The table is set. The circus is back in town. S&P futures are up +8. VIX 14.03. Copper +0.5%. The SPX begins the day at 2918. The S&P 500 all-time high is 2954.13 on 5/1/19 and the all-time closing high is 2945.83 on 4/30/19. The new moon peaks tomorrow and stocks are typically weak moving through the new moon which would be today into Monday. Global traders, investors, money managers, strategists and market enthusiasts await the all-important and imminent jobs numbers; especially wages.
Note Added 10:52 AM EST: The stock market bulls are rallying equities and bonds with the S&P 500 up 19 points, +0.666%, to 2937. The jobs number is a blowout 263K jobs and an unemployment rate dropping to 3.6% the lowest since 1969. Private Payrolls are 236K jobs. Average Hourly Earnings are a disappointment in line on-month at +0.2% but missing on-year at +3.2%. The Average Workweek slips to 34.4 hours. The Labor Participation Rage is 62.8% below the consensus and prior 63.0%. Initially, bonds were sold hard with the 10-year yield popping to 2.58% on the expectation that inflation will appear since growth is strong as evidenced by the strong 263K jobs and low 3.6% rate (so they say), however, like a magician with slight of hand, watch the left hand not the right hand. As explained above, the wage data is more important than the headline job numbers. The 263K jobs might be dramatically revised next month; it may be a one-off. The wage data, however, shows ongoing lackluster wage growth, hence, inflation will not occur. The tiny bump in wages over the last year, that is now stagnant, was due to the minimum wage increases at companies such as WMT that have now worked through the system. The wealthy wage earners have seen their wages dramatically increase over the last year which also skews the data higher; many people erroneously assume the little guy is doing better but the data is misleading unless you drill down into the finer details. The drop in the Average Workweek typically leads to lower personal income which then leads to lower personal consumption. Traders realize the Fed will be on hold or lean dovish for a long time forward since wages are not increasing and inflation is absolutely no concern at all. Treasury yields plummet down to 2.52% retracing the initial pop (bonds are now bot; prices higher yields lower). Stocks catapult higher since the Fed will print easy money forever. Always remember in this Gilded Age, the central bankers are the market. Concerning the low unemployment and participation rates, people are not enthusiastic about the job market. It would actually be better if the unemployment rate rose for a quarter or two above +4% since that would represent a huge amount of people flooding into the job market (they would be counted as looking for work and show up in the statistics again). Instead, people see the same old opportunities; a lot of minimum wage jobs that are a dime a dozen. It is springtime so construction and laborer jobs such as landscapers increase substantially. In addition, if you want to flip burgers or eggs, pour coffee, turn beds or clean bedpans and toilets, you are in high demand. Another interesting phenomena occurring is that people are flipping jobs at a fast pace. They may work at a fast-food joint for a few months, then work as a clerk at a thrift store a few weeks, and then quit that job and start work at an old folk's home as an aid (all minimum wage jobs). The lack of substantive wage growth guarantees that inflation remains Godot and the Federal Reserve will continue with accomodative monetary policy forever. By the time it took me to write this mumbo-jumbo, the SPX is up 23 points, +0.8%, to 2941, at 11:11 AM EST. The VIX is a 12-handle at 12.94. Volatility drops so stocks pop. 10-year yield 2.53%.
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