In this brief excerpt from The Macro Show earlier today, Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale discuss Friday’s Jobs Report. Spoiler alert: #EmploymentSlowing.
Takeaway: Fed policies boosted asset prices to the benefit of the super rich while devaluing the American people's purchasing power.
In a late 2010 Washington Post op-ed entitled "Aiding the Economy: What the Fed Did and Why," then Fed chairman Ben Bernanke defended the FOMC's zero interest rate policy and quantitative easing saying:
"[Fed policies] had eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth... And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." (Emphasis added)
Nearly six years have passed since Bernanke wrote those fateful words. The supposed "wealth effect," brought on by super easy Fed policy, has failed to "boost consumer wealth" for a significant number of Americans.
According to a recently released Federal Reserve Bank of New York study, 15.1% of households in the U.S. population have either zero or negative net wealth. The authors find that Americans plagued by negative wealth are more likely to be female; from single parent households; or from a minority group (either African American or Hispanic). These households are riddled with credit card debt, student debt and mortgage debt (with "some 7 percent of home-owning households in our survey report being underwater on their mortgage," the survey finds).
With the Fed's balance sheet comfortably above $4 trillion and so much promise from omnipotent central bankers, why are so many Americans still struggling? The S&P 500 is up 170%+ since the market bottomed in 2009. In short, what gives?
Here's the key chart showing the breakdown of total wealth in the U.S. and the ownership of U.S. financial assets by wealth distribtuion from our 99-page Q3 2016 Macro themes presentation. As you can see the top 10% of Americans own 84.5% of U.S. financial assets. In other words, debt-ridden families weren't able to participate in the Fed-stoked asset price boom. (To access our institutional research email firstname.lastname@example.org.)
So much for the wealth effect...
Meanwhile, during Bernanke's reign, the Fed devalued the U.S. Dollar to a 40-year low, in 2011-2012, thereby devaluing the purchasing power of the American people. Then again currency devaluation, asset price inflation in central planning 101. Note: This policy doesn't help the bottom 50% of Americans who own 1% of U.S. financial assets and are paid in U.S. dollars.
Unfortunately, the Fed's policies have helped lined the pockets of the rich and inflated "one of the top-three stock market bubbles in history" all at the expense of average Americans.
Takeaway: A closer look at global macro market developments.
Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products.
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Takeaway: After Friday's rate of change slowdown in the Jobs Report, the risk range on the 10-year Treasury is 1.45-1.60%.
The headline jobs number was “good” while the rate of change in non-farm payrolls slowed again to 1.72% versus 2.30% in February 2015. That got U.S. Treasury 10-year to tap the top-end of my 1.45-1.60% risk range. The signal says that’s probably it with 1% GDP being goldilocks, for now.
Here's the Key NFP rate of change chart:
Editor's Note: The snippet above is from a note Hedgeye CEO Keith McCullough wrote for subscribers this morning. Click here to learn more.
Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.
"... What is American Goldilocks?
- Forget the 2-3-4%, we need GDP of 1% (but definitely not 0%)
- Earnings to “beat” beaten down expectations (and still be negative y/y)
- A Dovish Fed that pretends to be hawkish so they can go back to dovish
- The “but, but… the labor market is good” political narrative
- Stocks and Bonds near their highs for the YTD, at the same time
Yep. Don’t worry. We’re all in the 1% now."
In this edition of “Real Conversations,” AQR Capital Management principal and Efficiently Inefficient author Lasse H. Pedersen sits down with Hedgeye CEO Keith McCullough to demystify the “secret” world of active investing. Pedersen, who is also a finance professor at Copenhagen Business School and NYU Stern School of Business, describes some of the key trading strategies used by top hedge fund managers, many of whom he interviewed one-one-one for his book.
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