Fed Forecast, Overflowing Opportunity & EU Issues

Rate Reverse

Last month, the Fed strongly suggested it won’t raise rates for a while and that more hikes might be history. Autos and especially housing will be large beneficiaries. What’s troubling is that the Fed is calling timeout with Fed funds a half-point above the rate of inflation, compared to two points historically. This suggests a profoundly weak, but growing, global economy. Thus, no new monetary stimulus is planned.

Outstanding Openings

On 12/31/18 there were a record 7.335 million job openings, and 6.294 million unemployed persons, or 1.17 jobs/unemployed person, the ninth consecutive month openings have exceeded the unemployed. Relatedly, the number of job openings has exceeded the number hired since 1/15. The number of openings is up 29% Y-o-Y while hires are up just 7%. The gap between openings and hires is a record 1.43 million!

Disability Dynamics

The labor market is so strong the number of persons who left Social Security disability (which pays the same as working full-time at minimum wage) because they found gainful employment hit 51,302, the most since record keeping began in 2002, and well above the 37,000/year back in boom years 2005/2006. The number of Americans receiving disability fell to 8.5 million in 12/18 from a peak of 9 million in 12/14.

Embattled Europe

A key reason 10-year Treasury bond yields have fallen from about 3.1% in mid-November to just 2.75% today, despite a strong domestic economy, is weakness in Europe. Yields on 10-year German bonds have fallen from 0.55% in October to just 0.15%. Why? Italy is in recession, Brexit hangs over the continent and European GDP growth is just half what it is here! Thus, Treasuries are suddenly looking much more attractive.

Egregious Euro

Economic growth in the European Union has consistently exceeded growth in the eurozone since the euro debuted on 1/1/99. The two most important reasons are a total loss of control over monetary policy and, maybe worse, since 2012 eurozone governments have been forbidden to run deficits greater than 3% of GDP, neutering fiscal policy. The eurozone now depends almost entirely for growth on exports to China and the USA.

Minimizing Music

In 2000, the average Billboard Top 100 song was 250 seconds, it’s since steadily declined and is now 210 seconds. Why? Each time a song is streamed the artist receives roughly half-a-cent/song, not per minute! Moreover, since the royalty is so low, streaming volume is critical making shorter songs much more profitable. The shortest #1 song: “Stay” by Maurice Williams and the Zodiacs in 1960 at 1:38.

Source: Elliot Eisenberg, PhD., Chief Economist for GraphsandLaughs, LLC, an economic consulting firm serving a variety of clients across the United States. All rights reserved.

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