Long-term rates have again touched the lows of the year. To make sense of that news and a great deal else going by this week, step back — especially from the awful sights on your screens.
Way back. We try to be rational in markets, at the Fed, in government and at war, and in that effort we forget the power of Dame Fortune.
Consider the odds against the loss of two 777s by one national airline in six months, neither from flight risks. Czar Vladimir’s dirty little game of empire has suddenly gone counterproductive. Hamas’ 1,500 rockets have again goaded Israel into action, which will result in more Hamas.
This month 100 years ago, Austria-Hungary declared war on Serbia. Russia mobilized. Three days later Germany declared war on Russia, then on France. Although that history is very much worth your time to read, that’s NOT where we are going now.
The sense of expanding global disorder is unsettling to markets, especially as the U.S. gradually withdraws its security blanket. But unsettling is all, at least for now and by a wide margin. Commerce is too important, even among bad guys. Whacking at hornets’ nests is more likely to land one on your head than make you a hero.
These horrifying scenes are sideshows. The big stuff came in three stories in Monday’s Wall Street Journal, unconnected there, but definitely connected, and in Federal Reserve Chairwoman Janet Yellen’s testimony to Congress.
Buried on page A2, Stephen Poloz, head of the central bank of Canada, likened the failure of economic models at the world’s central banks (abject and continuous since 2007) to “sailors of another era blown off course” to the Southern Hemisphere, where the unrecognizable night sky was useless to navigation.
Then over on the op-ed page, crusty, smart, anti-partisan Mort Zuckerman (editor, U.S. News & World Report) blew up the notion of our “recovery” — recovery in the sense of a recognizable night sky. We now have about the same number of jobs as in 2007, but 17.5 million more people. Nearly half of the jobs regained are low-wage and part-time.
Completing the triad of stories, on B1 we learn that Hong Kong-based Merchant House International has opened a shoe factory in Tennessee. The pay is $9-$12 per hour. Savings on shipping costs may offset U.S. wages still 2.5 times those in China. May.
Chair Yellen did a great job before Congress. Elaborate language boiled down: If it begins to rain we will go inside. If the sun shines we will go outside.
One sentence stood out, Fed-watchers still arguing over the meaning of one word: “If the labor market continues to improve more quickly than anticipated by the Committee … then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned.”
If the labor market “continues” to improve? Is that word an accident? Or did she mean exactly what she said, that the labor market is improving, now, “more quickly than anticipated”?
A lot of Americans would respond bitterly and graphically to anybody asserting the labor market improving at any pace they can detect. More than half of last month’s 288,000-job hooray was part-time. People throwing in the towel, taking what they can, conceding diminished futures?
Microsoft will fire 18,000 people next week, HP 16,000 on top of the 34,000 already canned. “Restructuring.” To shoes in Tennessee.
Yellen gets it. Pinheads on the right needled her: If a zero rate has not worked, then higher rates will.
She replied repeatedly: “We must be careful … we have seen false dawns.” She was very direct about the risks of aborting the economy we have. The Fed did all it could to repair a balance sheet recession, unprecedented QE. But what to do with an America in which 34 percent of those aged over 55 hold less than $10,000 in savings?
More at the hand of Dame Fortune than any other cause or fault in us, we are confronted by a new night sky. Every constellation points to the same path: We must focus all energy on helping our people to compete in a world more focused than we.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
