Morning Report: Great jobs report

Vital Statistics:


Last Change
S&P futures 3143 40.1
Oil (WTI) 40.34 0.51
10 year government bond yield 0.7%
30 year fixed rate mortgage 3.12%


Stocks are higher after the jobs report comes in better than expected. Bonds and MBS are down.


Jobs report data dump:

  • Nonfarm payrolls up 4.8 million.
  • Unemployment rate 11%
  • Labor force participation rate 61.5%
  • Average hourly earnings down 1.2% MOM, up 5% YOY

Overall, an extremely positive report. The Street was looking for an increase of 3 million jobs, so the payroll number was much better than expected. The labor force participation rate increased by 0.7%, but is still 1.9% below February’s level. The unemployment rate fell by 2.2 percentage points despite concerns that a statistical error had understated May’s rate. The drop is average hourly earnings was simply a reversal of previous increases as lower-paid hospitality and restaurant / retail workers return to the workforce.


The FOMC minutes pretty much said what everyone expected: that rates will remain low for the forseeable future, and the Fed is going to probably err on the side of caution given how intractable low inflation has been. The FOMC seems to be considering the idea of yield capping, and idea the Fed used in the 1940s to lower the government’s borrowing costs.

The second staff briefing reviewed the yield caps or targets (YCT) policies that the Federal Reserve followed during and after World War II and that the Bank of Japan and the Reserve Bank of Australia are currently employing. These three experiences illustrated different types of YCT policies: During World War II, the Federal Reserve capped yields across the curve to keep Treasury borrowing costs low and stable; since 2016, the Bank of Japan has targeted the 10-year yield to continue to provide accommodation while limiting the potential for an excessive flattening of the yield curve; and, since March 2020, the Reserve Bank of Australia has targeted the three-year yield, a target that is intended to reinforce the bank’s forward guidance for its policy rate and to influence funding rates across much of the Australian economy. The staff noted that these three experiences suggested that credible YCT policies can control government bond yields, pass through to private rates, and, in the absence of exit considerations, may not require large central bank purchases of government debt. But the staff also highlighted the potential for YCT policies to require the central bank to purchase very sizable amounts of government debt under certain circumstances—a potential that was realized in the U.S. experience in the 1940s—and the possibility that, under YCT policies, monetary policy goals might come in conflict with public debt management goals, which could pose risks to the independence of the central bank.

You can cue the jokes about the government believing that interest rates (and asset prices) are too important to be determined by a mere market. While these are unprecedented times, the Fed runs the risk of staying too long at the party. Inflation is always a risk, but the bigger risk is asset bubbles fueled by ultra-low interest rates. When pension funds etc cannot earn a yield with Treasuries they will be forced to reach for yield because their future liability streams are not affected by interest rates.

I hope the Fed can stick the landing here, but the quote about the risks to the independence of the central bank is not an idle threat. It also assumes the Fed can fight the market indefinitely. That is by no means guaranteed, as we saw when George Soros broke the Bank of England. The Fed has been swelling its balance sheet without any injection of equity, which means the margin for error is becoming smaller and smaller. If the markets get a whiff of inflation, nobody is going to willingly tie up their money for 10 years at 70 basis points. The inverse of interest rates is bond prices, and it won’t take much of an increase in market rates to wipe out the Fed’s equity.


Escape from New York: Manhattan apartment sales the worst in 30 years, falling by 54%. Median prices fell by 18%. There were only 1147 sales in the quarter, the lowest on record. Renters are fleeing the City, and we should see an increase in rental renegotiations. While some of this is COVID-19 related, New York City seems determined to return to the 1970s.



29 Responses

  1. A moment of good news to be sure, but unlikely to be sustained, unfortunately, until widespread mitigation of the disease. Nevertheless, I suspect the overpriced stock market will continue to fly for awhile.


    • where else is anyone going to put their money? Real estate will be good, but fixed income is even more overpriced than the stock market


      • It just seems really weird. With everything going on that the stock market continues to performs as well as it has is . . . impressive. It seems very much at odds with the daily news.


      • If I had the time and the money I would buy petroleum futures. When demand comes back it may cause shortages that will take months to ramp up for and having cheap gasoline now will look prescient.

        I get your point, however.


    • Yahoo:

      The accepted national narrative says that restless, irresponsible residents — especially the cocky young ones who assume COVID-19 won’t kill them — are responsible for this spike.

      Why irresponsible and cocky? It seems to me it is a perfectly reasonable assumption, based on the science. Shouldn’t we be happy that young people are embracing the science?

      The New York Times followed with a story that put the onus on “millions of individual decisions made across the vast state” as the result of “a decentralized, haphazard process that sowed confusion and gave residents a false sense that they were in the clear.”

      “Millions of individual decisions made across the vast state”…..or, in other words, freedom.

      Higher inequality means a larger proportion of low-income workers — from cleaners, cashiers, guards and delivery persons to sanitation, construction and factory workers — must continue their daily lives, even at the risk of infection,” writes economist Jeffrey Sachs.

      Unless one thinks that less “inequality” would mean both that 1) all people would somehow be wealthy enough to stop earning money indefinitely and still put food on the table and 2) the jobs that guards, cashiers, factory workers, delivery persons actually do would somehow no longer be needed, both of which strike me as akin to believing in unicorns, then I don’t understand the point of this “inequality” narrative.


  2. Hope you’re all staying safe and healthy. Just dropping by to say hello.


  3. Place your bets!

    How many minutes into his July 4th rally speech will Trump offer the opinion that his image should or will someday be carved on Mt. Rushmore?


  4. “Year Zero

    On America’s birthday, celebrating the corporate-sponsored revolution

    Matt Taibbi

    It’s the Fourth of July, and revolution is in the air. Only in America would it look like this: an elite-sponsored Maoist revolt, couched as a Black liberation movement whose canonical texts are a corporate consultant’s white guilt self-help manual, and a New York Times series rewriting history to explain an election they called wrong.”


  5. I think what is missing from the whole conversation on race is a sense of proportion. While we may fall short of the ideal, how do we stack up with the rest of the world? India has a caste system and still has slavery. China imprisons Muslim minorities. Japan lumps everyone in one of two buckets: Japanese and gaijin. France puts its Arab minority population in the Peripherie, which is a dangerous suburb outside Paris. Sweden does something similar, and doesn’t even collect racial statistics at all. The Brits have all sorts of issues between Muslims and whites. Honestly, who is better than the US? Canada? Our immigration laws are the loosest in the world. We have created entire academic disciplines out of whole cloth to examine race and gender. We have affirmative action and we have a cottage industry of consultants advising Corporate America on race and gender issues. We replaced redlining with quotas. If you had to put all of the countries in the world on a scale of 1- 10 where 1 is the least racist country in the world and 10 is India or Saudi Arabia, where would the US sit? I am guessing around 1 or 2.


    • Libya still enslaves black Africans! You’d think some of these folks could be stirred to speak out against that, but no.


    • We have created entire academic disciplines out of whole cloth to examine race and gender.

      And that’s the problem right there. Like looking for witches begat spectral evidence—once you make allowances for things without direct evidence (for study—and keeping in mind they spend little time of facts and data and actual history and much more on theories and ambiguous quasi-religious beliefs that are non-falsifiable) you get what we’ve got. There’s an entire grievance industry and educational discipline that operates with context—historical or of the moment. It’s a religious discipline focused primarily on martyrdom and find heretics under every rock. When the larger culture enables this delusional and fantastical thinking without ever daring to offend it with facts—then this is what you get!


Be kind, show respect, and all will be right with the world.

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