US unemployment rate rose to 7.6 per cent in May easing fears of Fed tightening and boosting stocks againPosted on 07 June 2013 with no comments from readers
Is it not a little bit perverse when the worsening of the US economy actually boosts the stock market? And yet that is exactly what happened today with the publication of the May jobs data showing a 175,000 gain in jobs but an increase in the unemployment rate from 7.5 to 7.6 per cent.
Manufacturers actually cut jobs for the third month in a row. Where is the export-led economic expansion? It’s failing because the rest of the world is slowing down, and psst in case you had not noticed so is the US economic recovery.
Stocks rose because of a sense of relief that the Fed will not feel able to withdraw its stimulus from the economy any sooner than expected. That was the real worry. The magic juice of money printing might stop and that would trash the stock market.
How long can this lunacy last? Experts say the Fed will need to see 200,000 jobs created for at least four months before it will cut back on its $85 billion a month in bond purchases, perhaps then ceasing to be the largest buyer by far of US treasuries.
Can an economy really recover by printing money? The Fed thinks yes provided enough is printed. In the past central banks that have believed that have always wound up with hyperinflation down the road, that is to say when the can could finally be kicked no further down it.
That hyperinflation may now be first experienced in US stock prices. Where else do you imagine the money to buy shares is coming from? Listed companies are borrowing this cheap money to buyback their own shares and pumping up their own stock prices in the process. There are not so many other buyers now.
How long can this continue? Eventually all bubbles pop and the bigger the bubble the bigger the pop! Still it looks like the correction might be behind us but watch out…