Talk About A Goldilocks Economy -- May 8, 2015

Jobs numbers coming in just right -- not too much, not too little. It will allow Ms Yellen to try raising the "rate" a quarter of a percent if we continue seeing numbers like the one we saw today. [And, of course, the numbers are bogus, but it doesn't matter; it is what it is. Ms Yellen simply needs a "cover story" to defend her actions.] Having said that, the market movers and shakers think different. The market surged almost 300 points today? Why? They know how weak the numbers are -- almost 100 million Americans have dropped out of the labor force -- the market movers and shakers know Yellen won't raise rates any time soon.

No sign of "new" inflation.

Oil is cheap --- really cheap if one considers what it should be priced simply on historical models, taking "inflation" into account. A huge "thank you" to Don:

February, 1974, the "first' oil crisis: WTI priced at $50.30. 

Inflation guide can be found here: inflation calculator.

Now, look at the spike in the price of oil back in early 1974:

Prior to the spike: $13.00 oil -- equates to $62.43 today (assuming the exchange in the US dollar is the same).

The 1974 price spike equates to $241.54 today.

And that is what I mean by cheap oil today. 

 And not only is oil cheap, it's in abundant supply, and it's in abundant supply in the US.

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A Different View

For the archives:

The Federal Reserve is facing new kind of conundrum: The U.S. economy is slowing even as labor costs are rising.

Consistent with the minuscule first-quarter GDP growth already reported, the government on Wednesday said Q1 productivity fell 1.9% on annualized basis -- marking the first back-to-back quarterly decline in productivity since 1993.

In the same report, unit labor costs rose 5%, the most since the first quarter of 2014 and the latest sign of what the Fed called "modest upward pressure on wages" in last month's Beige Book report.

Meanwhile, ADP reported private sector payrolls rose just 169,000 last month, the lowest since January 2014 and the fourth-straight month of weaker-than-expected growth.

The latest reports aren't making life any easier on Fed Chair Janet Yellen and the FOMC.  While "further improvement" in both growth and the labor market remain elusive, a rebound in oil prices, rising wages and the recent backup in bond yields could mark the early stirrings of higher inflation expectations, if not actual inflation.

But don't expect a Fed rate hike in June or September -- or anytime in 2015 for that matter, says Sri Thiruvadanthai, director of research at the Jerome Levy Forecasting Center. "The Fed is not going to be able to raise rates" this year, he says.

"Underneath all the distortions, the economy is weakening."

And that's why the stock market is trading near all-time highs. The economy is weakening.

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Buy High, Sell Low

Business Insider is reporting:

The big disconnect in the US stock market just keeps getting bigger.

A new Bank of America Merrill Lynch survey published Thursday finds that US investors have pulled $99 billion out of equities year-to-date — including net outflows in 11 of the past 12 weeks — despite stock prices continuing to break record highs.

Sophia explaining the volatility ("ups and downs") of the stock market to her grandfather:

The gears on the side of the box are used by the "invisible hand(s) of the movers and shakers" who manipulate Wall Street.

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Prediction Re-Visited

A while back I predicted that US gasoline demand would hit a new record over the three-day Memorial Day weekend later this month.

Today the AAA reported:

With more money in their pockets thanks to lower gas prices and an improved job market, AAA expects more than 37 million Americans to travel for Memorial Day, the most since 2005.

AAA said Friday that the number of Americans taking a trip of 50 miles or more will rise 4.7 percent to 37.2 million over the period May 21 to May 25.

Nearly nine of 10 travelers, or 33 million, will drive to their destination, making for crowded highways.

Gasoline should be around $1 cheaper this Memorial Day. The average price for a gallon of gas Friday was $2.66. Last year on the holiday it was $3.66.

AAA says the number of people flying should rise 2.5 percent. A thriving stock market has boosted the net worth of wealthier Americans, who more easily can afford to fly for vacation.

Of course, if everyone drives EVs and everyone flies solar-powered aircraft, all bets are off. So, we'll see. This will be the chart to watch.