Mixed Feelings About the U.S. Jobs Report – late last week, the U.S. monthly jobs report disappointed many investors and analysts with the economy adding just 142,000 jobs in September – or about 60,000 fewer than expected. Regardless, the unemployment rate remains at 5.1%, which is fairly close to ideal when it comes to Federal Reserve policy setting. Sideways wage growth has kept inflationary pressures in check as the unemployment rate falls, which has given the Federal Reserve a thesis against raising rates.
Many complain that the falling unemployment rate is reflective of a disproportionate rise in part-time jobs, and that with flat wage growth the economic impact is therefore muted if not opaque. But to that, we say three things: (1) part-time jobs still create new income which can find its way into the consumer economy; (2) low interest rates make dollars earned go further in the economy; and, (3) the stronger dollar enhances U.S. consumer purchasing power. Where many folks see weakness in U.S. employment, we see strength.
Massive Trade Deal With Asia Clears Hurdle – after years of negotiating, the 12-countries involved in the Trans Pacific Partnership (TPP) deal finally reached an agreement in Atlanta this week. The hold-up to completing the deal mainly revolved around cars, dairy produce, and monopoly periods on patents for biologic drugs, all of which were resolved this week.
The deal is a strong one – it would give the U.S. much needed presence and influence in the Asian economy where China has been extending its power grab. It also addresses the need to generally reduce tariffs and set new standards for labor markets (which are much needed in Asia) and the environment. But, reaching an agreement on the TPP does not mean dairy from New Zealand will start arriving in U.S. ports next week. The TPP’s biggest challenge still lies ahead; it must still be approved by all 12 member country legislatures. With the U.S. entering an election year, and members of both parties having reservations about specifics of the deal, I wouldn’t hold your breath.
If Only You Could Tweet Your Share Price Higher – to much fanfare this week, Twitter (TWTR) re-appointed co-founder Jack Dorsey as its CEO. Dorsey also runs Square, the mobile-payments company, so it’s curious how he is going to find the time to, say, eat meals and take showers. However, he intends to pull it off so he has his work cut out for him – Twitter shares are down nearly 50% in the last year, and still don’t look like a bargain.
The Bank of Japan Holds Steady – the Bank of Japan met this week and decided to keep steady with zero bound interest rates and its extraordinary quantitative easing programs (annual asset purchases of 80 trillion yen) aimed at ending a decades-long deflationary cycle. Japan is in a precarious position as demographic shifts there threaten future economic growth and zero bound interest rates with huge monetary stimulus mean it will have virtually no way to stimulate its way out of the next crisis. Japan’s slow growth, ageing population, and zero inflation keep me bearish.
Free U.S. Government Loans! Sorry, maybe that headline is misleading. What it means to say is that you can now make a loan to the U.S. government for three months and be paid all of 0% interest on your dollars. Indeed, for the first time on record, the U.S. Treasury sold a new three-month government security with a yield of zero. That means you can provide the government a free short-term loan in exchange for safe liquidity. A mattress could work too.