Data Dependent Fed Ignores Bad Data – Ep. 192

Data Dependent Fed Ignores Bad Data – Ep. 192


* Last week on Thursday we got that much weaker than expected ISM Manufacturing number, which didn't get a lot of attention because it came out a day before the jobs number which cast a pretty big shadow on all the economic data
* The number came in very weak, as I pointed out, it was 49.4, which is contraction mode
* Anything below 50 in the ISM numbers indicates a contraction and a recession
* But of course, no one cares about manufacturing because it is such a small part of the U.S. economy, which in and of itself, is a major problem
* The fact that it is such a small part of the economy should be very concerning, because without manufacturing you really can't have a service sector
* The way the U.S. gets away with it is to just import with everyone else manufactures and we run enormous trade deficits, which is an unsustainable model
* It's a great gravy train while the ride lasts, but when the rest of the world figures out that we can never pay our debts, then the gravy train comes to an end
* The trade deficit represents an artificially high standard of living, but in the long run it's unsustainable because our creditors will not let us get away with this forever
* I want to get to the ISM Non-Manufacturing number which came out yesterday; this represents the service sector of the economy
* They were looking for 55, which was not a great number; last month we got 55.5, so there was some optimism around that number
* They were looking for 55 even and, instead, the number came in at 51.4
* The lowest number in better than 6 years
* And if you look beneath the surface and all the various components; new orders, back logs, hiring - horrible numbers consistent with recession
* The complete opposite of what everybody was looking for, and when you combine this with the 49.4 we got from manufacturing that is a very bleak picture
* The fact that we are at 6+ lows in the service sector does not bode well for the future
* The trajectory is down, and how much longer is it going to be before the ISM Non-Manufacturing breaches the 50 mark?
* Just when they start talking about these rate hikes - everything before this number came out questioned a September or a December rate hike - foregone conclusion
* We had the same discussion in September a year ago
* They punted and raised rates in December - will they do it again?
* Given the bad news to date, there is really no way the Fed is going to raise rates in September
* But just when the Fed officials are talking up a rate hike, everything changes with some bad news
* The Fed never admits the data is bad they just don't raise rates and you've got to figure it out for yourself
* When the ISM Non-Manufacturing number came out, gold took off
* It continued to rise throughout the day and closed up better than $20
* Gold got back above $1350 after having just tested the $1300 level
* Silver had a big up day; it went back above the $20 mark
* We had a strong move up in the gold stocks again following Thursday and Friday's strong move in gold stocks
* The markets were very surprised, and when this number came out, all of a sudden all the bets were changing
* The odds for a September rate hike were way down
* But not that much for December, because people are just assuming they can't go in September because we got this bad news, but, of course, by December, we may get some good news
* The reality is that by then, there will be even more bad news
* The Fed is not going to be raising rates; they are just talking about it, politically
* In fact, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco late last night ignored the bad financial news entirely in his statement, Privacy & Opt-Out: https://redcircle.com/privacy

Jaksot(1086)

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