Last week the President spoke for probably the hundredth time about the economy, this time in Galesburg, Illinois. Interesting place for a lecture about economics given the state of the economy in Illinois and in Chicago. The money quote from his hour-long lecture was this:
But with this endless parade of distractions and political posturing and phony scandals, Washington has taken its eye off the ball. And I am here to say this needs to stop. (Applause.) This needs to stop.
This moment does not require short-term thinking. It does not require having the same old stale debates. Our focus has to be on the basic economic issues that matter most to you, the people we represent.
I’m not going to bother with deconstructing that comment, given that Chuck Todd of the DNC MSNBC noted this:
They have nothing new to say.
Let’s take a look at some fundamentals. The job market.
Here’s the latest DNC Press Release printed by the Associated Press without attribution.
Employers have added an average 202,000 new jobs a month this year, up from an average 183,000 in 2012.
In June, employers added 195,000 jobs. …
Job growth has been solid despite lackluster economic growth.
We took this argument apart back on the 5th of July:
As a reminder: jobs have quantity and quality components. The quantity component was good enough to convince the 10 Year the taper is imminent (if not stocks, which continue to trade dislocated from any and all fundamentals). But how about the quality? In a word: not good. In June, the household survey reported that part-time jobs soared by 360,000 to 28,059,000 – an all time record high. Full time jobs? Down 240,000. And looking back at the entire year, so far in 2013, just 130K Full-Time Jobs have been added, offset by a whopping 557K Part-Time jobs. And there is your jobs “quality” leading to today’s market euphoria (if only for now).
That 195,000 jobs that AP is trumpeting was, in fact, a net loss of 240,000 full time jobs offset by an increase in part-time jobs thanks mostly to Obamacare. Note that in the first six months of 2013 the economy has added only 130,000 full time jobs.
Next, let’s look at housing since the administration and the media (but I repeat myself) are touting the growth in the housing sector.
Housing is “doing well” only because interest rates are at all-time lows. The truth is that people buy houses in exactly the same way they buy cars: “what’s the monthly payment”. When the payment goes up – because the interest rates went up – the prices come down and fewer people are able to qualify for a mortgage.
The Federal Reserve has been printing money like drunken sailors for the last half-dozen years. They’ve been using their newly printed cash to purchase US Treasuries (more on that in a second) and Mortgage Backed Securities. MBS are the financial vehicles that actually hold the mortgages that people are using to buy houses. The reason that mortgage rates are effectively zero is because the Fed is printing money and holding the MBS. That is the ONLY reason.
How about that stock market! The Dow keeps setting new records!
It’s important to note that the people who drive the stock market are not paying attention to fundamentals, because across the board, market fundamentals aren’t so great suck. The single element that is driving – and propping up – the stock market is [drum roll] the Federal Reserve. Not only are they buying MBS like drunken sailors, they’re also buying US Treasuries and that is what is pumping the market.
Don’t believe me? Just watch what happens every time Ben Bernanke makes a statement about tapering back on “easing”. When he suggests that the Fed is “looking at” or “considering” or “planning” on cutting back their $85 billion per month in newly printed money the market drops like a rock. Last time he brought it up the Dow dropped 400 points in two days. Ben must have gotten a call from the White House because he was immediately on TV proclaiming that everybody had misunderstood him. The market responded and set new records.
Let’s understand, the Fed cannot keep printing phony money forever. The stimulus, or easing, or whatever they’re calling it this month is going to stop. When it does, the market WILL react as will mortgage interest rates, and it won’t be pretty.
One final note about that “economic growth”. The same AP article quoted above has this little gem eight paragraphs in:
Economists expect the economy grew at an annual rate of less than 1 percent in the April-June quarter, even worse than an unimpressive 1.8 percent the first three months of the year.
One percent growth. Hell of a job Barack, hell of a job.
I can’t wait for the Fed’s printing press to break and interest rates to rise. I’m sure it will be Bush’s fault.