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Friday’s drop in the unemployment rate to 10% had a major impact on the short end of the US Treasury curve, the price of the US Dollar Index, and the price of Gold.

On a week-over week basis, these 3 moves were as follows:

  1. US Dollar Index +1.5%, closing above its immediate term TRADE line of $75.36
  2. 2-year Treasury yields shooting up +22% to close the week at +0.83% versus +0.68% in the week prior
  3. Gold prices dropped 6% from the intra-week highs, and down for the 1st week in the last 5

In the Chart of The Week, Matt Hedrick and I show what the currency and bond markets wanted Ben Bernanke to see. What matters here, as always, is what happened on the margin.

That big green arrow in the bar chart dropping from a +40bps sequential acceleration in the unemployment rate to 10.2% (October) to the minus -20bps monthly deceleration (November) is the largest delta we have seen on a month-to-month basis going back to when this crisis in US employment began.

He Who Sees No Bubbles (Bernanke) obviously saw some pop (gold and 2-year Treasuries) on Friday. Yes, they are both priced in US Dollars. No, they didn’t crash. But they did pop.

The Federal Reserve continues to maintain a policy of “exceptional and extended” that we (and now the bond, gold, and currency markets) , consider UNREASONABLE and UNSUSTAINABLE.

ZERO is not a perpetual rate policy. Just get it over with Ben, and raise by 50 beeps. The market is already discounting the move.

KM

Keith R. McCullough
Chief Executive Officer

Chart of The Week: Unemployment Read Through - unemploy10

Chart of The Week: Unemployment Read Through - bpchange