The Whites Of Larry Summers’ Eyes
“The vast US interest rate futures market now reflects odds of 65 per cent that the policy makers will shift borrowing costs higher by June. That is up from about odds of 40 per cent earlier this month…’Rates are way too low and investors have made a mistake in thinking the Fed would tighten policy at the end of this year or in 2016.’” Matt Busigin looks at the jobs report from last Friday and says goodbye to the new normal: “Nominal GDP, as estimated by January’s employment report (i.e. average weekly hours X average hourly earnings X payrolls), is now running at the fastest rate (5.18% y/y) since 2006. For January, that number is 8.35% annualized. The deflationary scare is just that — a scare.” Meanwhile, Larry Summers is trembling (alt): “The core consumer price index has averaged 1.1 per cent over the past six months…Perhaps most troubling: market indications suggest inflation is more likely to fall than rise…I cannot recall a moment when the gap between what the markets expect the US Federal Reserve to do and what the Fed itself has forecast it will do has been as large…the Fed could inject much needed confidence in the economy today and minimise future risks by announcing and following a strategy of not raising rates until it sees the whites of inflation’s eyes.” So that’s where we’re at now: “what is inflation (headline, core and expected) doing?” is the question on everyone’s mind. Meanwhile, an Economist journalist has a theory about lackluster wage growth: “At the end of December 2013, Congress refused to reauthorise legislation that provided very long-term benefits to the unemployed…As people lost benefits, so they were willing to accept lower wages…Now that a year has passed since the reform of the benefits system, its effect may be wearing off. People who shifted into low-wage jobs may have built up some experience (and some courage), and may now be asking for wage rises.” Meanwhile, James Pethokoukis says there was some “weird stuff” in the jobs report: “As good as the January jobs report was…official GDP growth wasn’t that hot as 2014 came to a close…Maybe the technology optimists are right, and economic metrics made for a wheat and steel economy are increasingly inadequate for a digital economy.” Furthermore, there was some divergence in wage growth between managers and all workers, which he says is “more evidence of an ‘average is over’ economy where high- and low-skills jobs are growing, but not those in the middle thanks to automation and globalization. Only tech-savvy workers and managers see steadily higher wages.” Speaking of managers’ wages, meet HourlyNerd: the Uber of business consulting. “You get access to really smart people without having to make an annual commitment and pay benefits.” Also, here’s something interesting to consider: Teach for America is experiencing a sudden decline in applications. “In the shadow of the recession, college graduates are moving away from public and service-oriented work and gravitating towards professions they perceive as more stable and financially sustainable.”
The Fruits Of Production, Revisited
“The near 50 per cent fall in oil prices since mid-June cannot be solely explained by changes in consumption and production (alt), according to the Bank for International Settlements, which says heavy trading on commodity futures markets has also played a part…daily futures volume in oil has risen from 3.4 times global demand in 2005, when the International Petroleum Exchange went electronic, to 17 times at the end of 2014 and has ratcheted up even further to over 20 times since the beginning of the year.” Furthermore, “the indebtedness of energy companies (“a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets”) combined with a new operating environment when it comes to the trading of swaps and bonds appears to have reinforced the slippery decline in oil prices.” Izzy Kaminska isn’t too sure: “while we’re not trying to suggest that high sector indebtedness isn’t a problem, it’s [just] a very different sort of financialisation effect — and one that doesn’t necessarily make sense on cause and effect grounds.”
Meanwhile, it’s very possible that Europe really was joking about the euro.
Also, He Who Shall Not Be Named is recruiting Italians.