The Fed and QE3: What This Means for Markets
The August non-farm payroll jobs number was horrible as reported Friday, September 7th. The Labor Department's Bureau of Labor Statistics reported that the economy generated 96,000 new jobs. That number was weak enough, coming in 54,000 below what is necessary every month just to break even with population growth, and far insufficient to cover population growth and make a dent in the existing unemployment ranks. But, the actual figure was far worse than 96,000. In reality, there were only 9,000 new non-farm jobs created in August, essentially none. This is because the fudge adjustment number, the CESBD fake number of jobs the BLS adds to the reported number each month was 87,000 in August. The CESBD adjustment is a guess of the number of new jobs they think may have been created by new businesses they think may have started up in a particular month. Further, the BLS adjusted the previously reported non-farm payroll growth figure for July down from 163,000 to 141,000 (which was also overstated by a CESBD adjustment, 52,000 phony jobs included in July's figure). Further, the BLS revised down June's crappy reported figure of 64,000 new jobs to just 45,000, which was overstated back then by 124,000 phony CESBD imagined jobs from new businesses they think may have started. In other words, the economy lost a ton of jobs in June. Essentially, without the fake CESBD numbers, there were only 19,000 total new jobs created in the past three months, essentially none.
Further, the Unemployment number came in at 8.1 percent for August, but the only reason it dropped from a reported 8.3 percent for July was that an astonishing 300,000 good folks were so discouraged about not being able to find a job that they stopped looking, so were not counted in the population of people out of work by the BLS, as if they don't exist.
What this means is the Jobs situation remains "grave," to quote Ben Bernanke's term from his Jackson Hole speech last week. Since fostering employment is one of two objectives the Fed has, along with price stability, per the Humphrey-Hawkins law, book it, the Fed will do a QE 3 program of some sort, to be announced this coming week. This is legacy time; this is job protection time; very personal for Ben Bernanke. He needs Obama to be reelected to have any chance to keep his job as Romney is on record that Bernanke is history if he is elected. Further, history may show that Bernanke failed in his mission to foster employment if these figures do not improve and soon. He has until 2014 for the figures to improve and save his legacy, which is when his term expires.
Clearly, the employment picture remains bleak and past policies are not working sufficiently. At Jackson Hole, Bernanke expressed his belief that his QE1 and QE2 programs generated 2 million jobs. Whether they did or not is debatable, but the point isn't whether they did, the point is Bernanke believes they did. Therefore, all logic points to a QE3 program being introduced this coming week by the Fed. Friday's employment data should have been the final push necessary to get Ben the necessary votes. Take note of how enthusiastic, and transparent, the San Francisco Fed's President, a voting member of the Open Market Committee, was last Friday for an aggressive and carte blanche QE3. On Friday, August 31st, Bloomberg television conducted a very interesting interview with John Williams, the President of the San Francisco Fed, when he practically announced that the Fed was about to do a QE3 or similar program to stimulate the economy, and sooner rather than later. He was clear that he wants the Fed to do a preemptive stimulus program before a negative economic shock hits the system. He used the metaphor that it is like strengthening the patient before a disease comes, so when sickness comes, the patient can handle it. Williams actually discussed how the program may be structured. He emphasized flexibility, without specific limits or types of securities purchases being detailed. Clearly this coming QE3 is planned, ready, and about to be announced. It is as if a coordinated pre-QE3 hint was sent out Friday August 31st to pre-soften markets, to signal to markets that QE3 is coming.
The impact of QE3 should be higher prices for both precious metals markets and stock markets, for at least the short-run. But, not for the long run because the program will not work to stimulate the economy or generate jobs. That is because the money does not go to the general public, does not go to Main Street, but goes to Wall Street. Unfortunately, Wall Street is not an efficient money distributor or job creator. The money goes into markets from Wall Street, not to households or small businesses, merely elevating stock and commodity prices. Unless households or small businesses own stocks and metals, they do not benefit. The process is simple. The Fed prints money, then buys fixed income notes and bonds from Wall Street. Wall Street ends up with lots of freshly printed cash. Billions of cash, maybe trillions if the QE program is large. Wall Street has to do something with the cash, so they buy stocks and commodities, driving up prices with demand, while speculating prices will rise in the future when they can make a profit by selling positions, that selling initiating a collapse in markets and the disintegration of the QE3 money printed by the Fed in the first place. QE becomes an exercise in temporary stimulation of markets, not sustained stimulation of the economy. For an effective QE3 program, printed money would need to be given to small businesses and households in the form of an income tax rebate from the U.S. Treasury where economic demand can increase and jobs can be created. Consumer spending (households on Main Street) is the key driving force for economic growth, and that spending can fuel improved revenues for small businesses, which are the key engine for jobs creation. For QE3 to work, the Fed should fund a tax rebate by buying new Treasury issues. Otherwise forget the idea.
There is a major top arriving some time over the next several months in stocks. However, a QE3 move from the Fed this week could fuel a stock rally toward the upper boundary of the Jaws of Death pattern we show here, a pattern that has been decades in the making, before that major top arrives. The Industrials have now formed an inverse Head & Shoulders bottom with an upside target around 14,500ish, which gets prices close to the top of that Jaws pattern. If QE3 does not come, and soon, the top we are watching for could arrive sooner rather than later.
Gold and Silver broke decisively above the year-long descending triangle's upper boundary Friday, suggesting Gold is headed for new all-time highs over the coming months, with Silver headed sharply higher. Precious metals smell world Central Bank concerted debasing of fiat currencies, which is bullish for these markets.
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"Jesus said to them, "I am the
bread of life; he who comes to Me
shall not hunger, and he who believes in Me shall never thirst.
For I have come down from heaven,
For this is the will of My Father, that everyone who beholds
the Son and believes in Him, may have eternal life;
and I Myself will raise him up on the last day."
John 6: 35, 38, 40