By Charles Biderman
I expect the Bureau of Labor Statistics on September 6 will claim that much less than 100,000 new jobs were created in August; maybe as few as 25,000. And if the Fed is telling the truth that whether or not to taper is dependent on economic data, then a weak job market on top of slowing real estate says to me there will be no tapering anytime soon.
What is more, if the economy is as weak as I think it is and the stock market heads down, I would not be shocked if the Fed announced a moratorium on tapering through at least the end of 2014.
The facts behind my opinions are that the early June spike in mortgage rates which resulted from the start of Taper Talk in mid May has popped the mini housing bubble and therefore, overall US economic growth. And I expect that economic weakness to show up in the BLS August jobs report.
Specifically, the reason I think the August jobs number will be particularly weak is that the BLS sends out its surveys to 140,000 employers – including most government entities and big companies – the week that includes the 12th day of the month, which this year was a Monday. And by the week that began August 12, the slump in wages and salaries was four weeks old. In other words, it took six weeks from the beginning of June for the spike in mortgage rates to slow economic growth by the middle of July.
Remember, I have been saying over the past month, including last week’s video and when I was on with Rick Santelli early August that upcoming real estate data will suck. That’s because the early June spike in mortgage rates ended the two year long bull run in single family housing. Now my view that housing is in trouble seems to be fast becoming conventional wisdom.
So, currently wage and salary growth has been slowed by the mortgage rate hike. That is why I expect the BLS to announce a surprisingly small new jobs number. We had estimated less then 25,000 new jobs in July, and the BLS survey said 162,000 new jobs. But now four weeks into the slump, next week’s jobs number is likely to be puny. If wage and salary growth continues in the 1% or so range after inflation, and real estate becomes a year over year negative the Fed will not taper if indeed tapering is based upon what is really happening in the economy.
So, what happens to the markets if there is no taper? My answer to that question is if the market continues to expect that sometime soon the Fed will start to reduce the amount of drug money it gives to investors, interest rates will stay up and stock prices and real estate will sell off.
However, if the economy and markets do weaken, I would not be surprised if the Fed a total about face and declares a moratorium on Taper Talk. Right now most of you cannot image the that Fed does an about face at its September meeting and announces a year long moratorium on tapering. I can. Particularly if the markets drop 10% between now and the next Fed meeting.
The simple truth is that the global markets are dependent upon the drug, free money, to keep levitating. Without that free money stock prices will drop and interest rates will rise. And yes, a moratorium on any easing could probably reverse any downturn and spike upward both stock and bond prices.
The bottom line for me is that many investors firmly believe that the only reason stock prices are this high is that the US economy has to be in a sustainable recovery. What happens to the psyche of those investors if conventional wisdom becomes that the US economy is not getting better?
Who knows? What I do know is that these are interesting times.