Lashed To The Zero Bound – The Fed’s Ship Of Fools

If you don’t think financial markets have been utterly destroyed by central bank intrusion then how can you explain Friday’s 460 Dow point reversal higher after the post-NFP low? It was pure machine rage triggered by another implied “lower for longer” Fed policy signal.

While I think the BLS establishment survey isn’t worth the paper it’s manipulated on, it did take a drastic turn for the worse. So doing, it thereby monkey-hammered the recovery narrative of the Keynesian chorus on Wall Street and at the Fed.

In fact, the alleged 245,000 monthly rate of job gains registered during the year through July was about the only fig leaf of proof they have been able to offer as to why “escape velocity” was finally at hand; and why household consumption would soon accelerate, thereby powering up a new leg of recovery.

Well, that meme was shot dead by the September report including the sharp downward revisions to prior month. The average gain for August/September was 139,000. That is, until the BLS revises it all away, the last two-months rate of jobs gain has averaged 42% lower than prior trend!

And by your way, the BLS has already announced its benchmark revision expectation for February, and its a 200,000 downward adjustment to the levels reported Friday.

Even then, we are mainly talking about waiters, bartenders, sales clerks, home health aides and temp agency gigs. But since these BLS paint-by-the-numbers results are used by the monetary politburo to navigate, the fast money was not confused as to the September report’s implication. They hit the “buy, buy, buy” button so hard and fast that even Cramer would have been proud.

That’s why the stock market can only be described as a dangerous casino which is untethered to the real main street economy. Friday’s report was about as clear an economic warning signal as you could want. So, in effect, the casino was buying hand-over-fist right into the teeth of the next recession on the conviction that the ship of fools running the Fed will delay “liftoff” yet again.

Indeed, the money market is already pricing out any chance of a rate increase in October and December, and doesn’t reflect even a 50% chance of liftoff until next March.

You could call it never and be done with it, but even that bears its own ringing absurdity. Were the Fed to defer until March, as the market it now predicting, it would mean that the money market rate would have been pinned to zero thru month #81 of this so-called recovery.

That is to say, why in the world do these blockheads think they have outlawed the business cycle when so far this century they have already produced two devastating financial meltdowns and business recessions in their aftermath?

We are already on borrowed time based on past domestic cycles, and that doesn’t even factor the huge international headwinds storming toward these shores owing to the unprecedented global deflation now underway. Indeed, to implicitly assume—as did the monetary politburo—-that this expansion could substantially outlast the 72 month-long Greenspan/housing bubble was just willful conceit. Normalization should have commenced long ago.

Historical Length of Recoveries

But now the Fed’s lunatic policies are drifting straight into the perfect storm of financial and economic conflagration. We are absolutely on a 10-20 month glide path toward recession. At the same time, however, the Fed will remain lashed to the zero bound because at each up-coming meeting until the NBER officially declares a recession has incepted there will be increasing frequency of “in-coming data” signals like the September jobs report suggesting that the economy is too weak for lift-off.