This morning, ADP reported an increase of 238,000 private sector jobs during December. The fact that just a year ago, ADP admitted to overstating jobs growth by 419,000 in 2012 is somehow considered “immaterial”; as is the fact that the “leader” in such growth was supposedly construction (at +48,000), which frankly, seems ridiculous given the steep plunge in new mortgage applications – down 66% through December, to new 13-year lows. In other words, ADP’s data has always been suspect; not to mention, the giant pink elephant in the room – i.e., that 238,000 new jobs barely keeps up with monthly population growth.
Moreover, as we have been writing of ad nauseum – as in the “New Employment Paradigm” – the quality of new jobs is tenuous at best. For years, the largest growing job segment has been “waiters and bartenders,” supplemented by temporary help and other part-time jobs, many at the minimum wage with no health insurance or other benefits. In fact, as described in last month’s “More BLS lies, coming right up,” U.S. jobs data has devolved into outright fabrication, as highlighted by the whistleblower who claimed jobs were ‘made up’ in the October 2012 NFP report; i.e., the one published days before Obama was re-elected.
Better yet, two days from now the December 2013 NFP report will be published; in which, we cannot wait to see how the BLS tap dances around the fact that 1.3 million people “left the labor force” on December 28th, as their long-term unemployment benefits expired. Thus, if the BLS reports this accurately, the labor participation rate will plunge so rapidly, the Fed’s initial 6.5% unemployment rate threshold (for ending Zero Interest Rate Policy) could actually be hit. This is why the FOMC eliminated it entirely at last month’s policy-setting meeting; instead, opting to maintain zero interest rates indefinitely.
Moreover, if the government winds up extending such benefits in the coming weeks – and thus, making America more of a “dependency nation” than ever, it will essentially offset all the supposed spending cuts in last month’s farcical budget deal. You know, the one ballyhooed as “conservative”; despite raising 2014 discretionary spending by 5%, while utilizing disguised taxes in 2020-22 to claim $20 billion of annual budget cuts. Unfortunately, the nation’s structural employment issue will only worsen in the coming years; not to mention in 2014, when long-term unemployment benefits for an additional 3.6 million people are scheduled to terminate. Of course, one doesn’t need to see numbers to understand the scope of America’s labor issues; when instead, it could simply observe REALITY – such as 1,600 people showing up to apply for 36 jobs at a Maryland ice cream factory this week. And by the way, each time a new Walmart opens, it is estimated that up to 10,000 people apply for roughly 300 new jobs.
Anyhow, given the “housing sector” accounted for roughly half of all GDP growth through at least the first half of 2013 – i.e., before interest rates started surging – it’s hard to believe anyone can honestly believe QE can be abandoned. The Fed has been monetizing at least 70% of all new Treasury issuance for the past year, yet rates have surged to two year highs. And now that the Chinese have stated they will no longer be acquiring foreign currency reserves, who is left to buy Treasuries and Mortgage-backed bonds, if not the Fed? Heck, even Fitch Investor Services, one of the “big three” ratings agencies (which clearly, will do anything to avoid calling attention to America’s failing finances), recently warned of a burgeoning housing bubble; and that, in early November, when the benchmark 10-year Treasury yield was just 2.7%, compared to 3.0% today.
Moreover, as the dollar is still the world’s “reserve currency,” whatever happens here, happens everywhere. To wit, former Treasury Secretary John Connally arrogantly told the world in early 1971 – just months before his boss abandoned the gold standard – “the dollar is our currency, but your problem.” And never has this been truer, as essentially all sovereign treasuries are to some extent hostage to dollar holdings – via a deadly game of “financial musical chairs” that is rapidly running out of time. In other words, everyone still owns U.S. dollars – to the tune of 61% of all global currency reserves. This number has declined from more than 65% at the height of the 2008 financial crisis, but still looms over global finances like an increasingly virulent albatross.
And thus, if the Fed dares to reduce Treasury and MBS monetization in the coming months – particularly if they utilize “strong employment data” as the basis of their actions – they risk an all-out plunge in global fixed income assets. Such a catastrophic event would likely torpedo any remaining hope of an actual recovery; although in most regions, such hope – to start with – is fleeting at best.
To wit, today’s announcement that European unemployment held at its record high of 12.1% last month; with even the “cheerleading consensus” assuming it won’t fall any lower than 11.8% in 2015 – i.e., two years from now. Heck, Spain and Greece – those of the soaring stock and bond markets – posted record high unemployment of roughly 27%, and youth unemployment above 55%. Even a minute loss of control over interest rates will likely plunge them – and the rest of Europe, for that matter – into the abyss; let alone, a significant loss of bond market control.
Let’s face it; the Fed is simply praying it can print – and jawbone – its way out of the mess it’s created. It can’t, of course; but it’s only hope of survival is “kicking the can” as far as possible, by employing historic levels of money printing, market manipulation, and propaganda. In other words, making sure its fiat Ponzi scheme lasts as long as possible, under the scant hope that somehow the laws of “Economic Mother Nature” will be repealed – which we assure you, they won’t. What it all comes down to is the largest fixed income bubble of all-time – on a global basis. And thus, to the question of “could we be nearing the end of QE?,” we simply present the damning chart below, amidst “radio silence”; as in this case, a picture tells a thousand words.
Consequently, it should be painstakingly apparent that investors should prepare not for an “end” to QE, but its expansion in the coming years. And what better way, of course, than exiting the fraudulent paper money system, in lieu of physical, real money?