The Great Recession, Part Deux? Evidence From the S&P 500, Treasury Bonds, Mortgage-backed Securities And The Unemployment Rate (Doesn’t Look Good)

Are we looking at The Great Recession, Part Deux?

First, let’s look at the S&P 500 index since August 24, 2020 (white line) and compare that to just before The Great Recession 04/15/06 – 05/17/08. They look pretty similar.

Second, let’s look at returns on long-term US Treasuries (10yr+, white line) and US mortgage-backed securities (gold line) since The Fed undertook “Operation Crush Inflation!” (green line).

I saw The President’s press secretary fielding questions about the declining stock returns and impending recession. She responded “But the labor market is strong!” Well, Ms. Karine Jean-Pierre, I am sure President’s Biden economic advisor Jared Bernstein told you unemployment was at a very low level just prior to 1) The Great Recession and 2) The Great Covid-shutdown Recession). So, claiming that the US employment market is strong economy ignores that unemployment will surge if the economy slows … which is what The Fed is trying to do.

There is a rush to hedge the downside with The Fed tightening the monetary noose.

Unfortunately, KJP’s feeble answers to the shriveling economy remind me of The Office episode when Dunder-Mifflin’s CEO said that “Dunder-Mifflin is still a strong economy.”

Here is a photo of Joe Biden with his press secretary explaining that the US economy is still strong.

Cooler Kings! As Biden Keeps Going Green And Fed Raises Rates, Everything Is Cooling (Mortgage Rates UP, Venture Capital Down 53%, Stocks Crushed, Etc)

The Biden Administration and The Federal Reserve together should be called “The Cooler Kings” in that their policies are putting a Big Chill on the mortgage market and equities.

Mortgage rates are skyrocketing thanks to the Federal Reserve.

The 30-year fixed-rate mortgage averaged 5.27% for the week ending May 5, according to data released by Freddie Mac  FMCC, -1.62% on Thursday. That’s up 17 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.

House price growth to wage growth is below the all-time high, but remains above housing bubble levels of 2005-2007.

The Refinitiv Venture Capital Index is down 53% since November ’21 as The Fed cranks up interest rates.

Well, at least commodities are soaring under “The Cooler Kings.” Pretty much everything else is sucking wind.

Home prices are actually falling in some cities, like Toledo Ohio, Detroit Michigan, Rochester NY, and Pittsburgh PA. Even La-La Land (Los Angeles CA) is seeing a drop in median listing price since 2021 of -5.0%.

The question, of course, is whether The Federal Reserve will back off its plans to aggressively raise interest rates in lieu of crashing stock market, venture capital, and possibly home prices.

This is Scorcher VI: Global Meltdown.

Does Biden and The Fed Feel Like We Do?

Is The US At Full (Realistic) Employment? If So, Why Isn’t The Fed Raising Rates?

Is the US at full employment? That is, is the US at REALISTIC full employment? And if the US is at realistic full employment, why is The Federal Reserve keeping rates at 25 basis points??

Let’s start with the “quits” data. An estimated 3% of American workers quit their jobs in September, the Bureau of Labor Statistics reported last week.1That’s the highest percentage since the BLS started keeping track two decades ago.

Front-line and low-wage workers are leaving at rates higher than historical norms while higher-paid office workers aren’t. College-educated workers haven’t been quitting or dropping out of the workforce at higher rates than before the pandemic, but less-educated workers have.

The quits rate in professional and business services was just 0.4 percentage points higher in September than before the pandemic in February 2020. In financial activities it was unchanged. In the information sector, made up of telecommunications, publishing, broadcasting, motion pictures, software and most internet companies, the quits rate was down 0.3 percentage points.

The biggest increases in quit rates were in sectors such as leisure and hospitality where office workers are few, working remotely seldom an option and wages low. Within manufacturing, the quits-rate increase has been much bigger in lower-paying nondurable goods (of which food manufacturing is the biggest part) than in higher-paying durable goods.

In particular, fast food restaurants are offering above minimum wage salaries to attract workers. Burger King was even offering college tuition (not to University of Chicago, but to the local community college).

Labor force participation crashed with COVID and has struggled to recover, despite the staggering monetary stimulus. If this a sign that the US is at full employment (or very difficult to entice workers to enter and stay in the labor force)?

Speaking of colleges, business schools in particular, here are the top 85 business schools in the US according to Bloomberg/Business Week. I had the honor of teaching at University of Chicago in the 1990s which is currently ranked at #4.

I saw this headline this morning: “More Americans Than Expected File for Jobless Benefits.” Odd since so many jobs are available.

I guess Johnny Paycheck’s “Take This Job and Shove It” is the new national anthem under Biden.

US Labor Productivity Output Plunges To Carter-era Stagnation Levels As Unit Labor Costs Soar

The last time we saw US labor productivity out per hour this low was in 1981 when President Reagan inherited stagflation from President Jimmy Carter.

As unit labor costs soar +8.3%.

Any wonder that the 1% have been doing so well relative to the bottom 50% in terms of wealth since entrance of The Fed in 2008 with zero-interest rate policies (ZIRP) and assets purchases (QE). And also after Covid struck.

“That will be $10,000 for your Big Mac, fries and a soda, please!”