The Dow Jones is up roughly 225 points on the news that 240,000 people lost their jobs in October. This perverse sort of reaction defines how Wall Street works. Wall Street cheers this sort of news, because it implies that another rate cut is on the way.
So the logic boils down to this: The worse the news, the greater the chance that the Fed will shower us with even more cheap money.
In a more perfect monetary system, good news would be rewarded and bad news would be punished but that is just not how Wall Street works. Quite the opposite.
Of course, nobody ever seems to question this logic, or whether it even makes any sort of sense at all. To my way of thinking, the problems we are now experiencing stem from having entirely too much cheap money flooding the system for too long, and so I greet every new rate cut and Fed liquidity program with a grimace, knowing that they will merely prolong the agony.
But Wall Street cheers the prospect of cheap money and new credit, because it is those sources of funds that perpetuate their amply-rewarded jobs.
Meanwhile today is "job report Friday," and the news was predictably bad, but not as bad as ‘expected’.
U.S. Unemployment Rate Climbs to 14-Year High of 6.5%
Nov. 7 (Bloomberg) — The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.
The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September, the biggest two-month slide since 2001.
“We’re heading for a deep recession — banish the word mild from your vocabulary — it’s big, it’s bad and it’s broad-based,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
This data fits in with the general theme of this recession being unlike any in recent memory. In my estimation, the job losses are just getting started, and we can fully count on another 12-18 months of increasing losses.
I reserve the possibility that the total number of losses could be far worse than any prior recessions, for two reasons. First, this is the largest credit bubble ever to burst, so this means the bottom will be lower than any prior events. The second reason is that the US is now an 80% service-based economy. Those jobs are easy come, easy go, so the number of them that "go" could be a real shocker.
And, of course, these numbers would have been a lot worse if the venerable Birth-Death model at the BLS had not added (yes, that’s right, added) an additional 71,000 jobs back onto the sampled losses.
This is beyond preposterous. Certainly by now, if this were an honest mistake of honest statistical modelers, they would have admitted publicly that their model is clearly broken and in need of repair.
I am certain that we’ve been in recession since February, and yet, during that time the BLS job modelers have added 1,180,000 jobs to the official landscape.
The Birth-Death model, despite negative GDP, negative spending, negative industrial output, and negative hiring activity, has not recorded a single losing month from February onwards. How is that even remotely possible? Perhaps they should rename it the Birth-Birth model?
As a sanity check, note that the model has added construction jobs in each and every month, without exception, despite the largest fall-off in residential construction ever on record.
One wonders what is in this model? If I were building such a model, I would use inputs such as "spending activity" and "units built/shipped" as my drivers.
I strongly suspect that their "model" is little more than this formula: (prior amount of jobs) x (some factor.
At any rate, after subtracting out these mythical 71,000 jobs for October, the reported number would have been -311,000 jobs.
Worst of all, I suspect that all 1,180,000 jobs added by the Birth-Death model are in error and will have to be removed from the official numbers in the future.
This constant fibbing to ourselves about the true state of affairs is harmful because it prevents accurate diagnosis and treatment of what ails us.
It’s time to stop, and I call upon somebody at the BLS to please come forward with the truth.
by former_user