What Does The Jobs Report Mean?
Today, we got a very surprising (to some) US jobs report for September. The number of new jobs fell well short of expectations, wages were flat, hours worked were down and the job totals for July and August were also marked down sharply.
What Does The Jobs Report Mean?
Today, we got a very surprising (to some) US jobs report for September. The number of new jobs fell well short of expectations, wages were flat, hours worked were down and the job totals for July and August were also marked down sharply.
This was no surprise to us, as you will see in our past reports. We have been expecting that, any month now, the job numbers would begin to reflect what we perceived to be a slowing economy. We believe the monthly jobs report issued by the Bureau of Labor Statistics has consistently overestimated performance because it is an estimate based on a survey and a series of algorithms which assume that the US economy is in a normal recovery, which it clearly is not.
To us, today's job report has three implications which should be important to gold and may represent an important inflection point for markets generally.
First, financial markets may now begin to interpret bad news as bad news. Until now, bad news has generally been interpreted positively because it meant that the Fed would delay rate hikes. This shift in perception is the mark of a bear market.
Second, this may be a signal that the US is now entering the same recessionary economic environment that has infected the rest of the world. Decoupling of the US from the rest of the world can now be seen to be a ridiculous proposition. The world's economies and financial systems are intimately interconnected.
Third, and most important, investors are now beginning to question the credibility of the Fed. Are their policies a failure? Why are their economic projections always so wrong? Do their models reflect a dependence on wrong economic theory, such as the purported impact of low interest rates? Does the Fed know what it is doing? These questions are now being asked and this is the key to better performance for gold.
It is the market's irrational confidence in the Fed that has elevated equities and depressed gold. Yes, the liquidity unleashed by the Fed has driven stocks higher but only because investors believed that the Fed would succeed in achieving its objectives of faster economic growth, normalization of monetary policy and higher inflation.
What happens now? We continue to expect that we will see more Quantitative Easing before we see a Fed rate hike. And we think that a new round of monetary stimulus will do much more for gold than equities because markets are losing confidence in the Fed.