Why Weak Payrolls May Actually Be Good for the Markets

Again, there is one side of this that may represent good news. You cannot assume that the Federal Reserve will just look at that 7.6% and say, “Boy, it fell another 0.1% so we are closer to ending our quantitative easing.” The low payrolls data trumped all the benefits on the unemployment rate.

What today’s weak payrolls data likely accomplished is that it will force even some of the more hawkish Federal Reserve regional presidents to lighten up on the attacks on the funny money being printed to buy bonds. Our take is that this probably assures that the market will believe that $85 billion or so will still be used to buy bonds each month by the Fed.

Frankly, we are not at all a fan of the last round of quantitative easing. However, the stock market loves the funny money. Easy money and low rates force investors into what are called risk-based assets. That includes stocks, property and businesses.

Now you have to go beyond the poor payrolls. The weekly jobless claims have risen for three straight weeks, after reaching what was a very low level. The ISM reported this week that growth in manufacturing and in nonmanufacturing is still slowing, and that the growth was less than what the market wanted to see. Another issue is that businesses are making adjustments ahead of health care reform, and they are trying to figure out how to not be affected by it, which includes smaller head counts or moving people to part time.

Friday’s payrolls report was nothing short of a disaster for the economic recovery. Creating less than 100,000 jobs a month does not help the labor force, and it offers no real opportunity for all the college and high school graduates. Still, all this points to the funny money to keep coming at the markets.

The DJIA is down 137 at 14,468 and the S&P 500 is down 17 at 1,543 as of 9:43 a.m. EST. The move is putting a serious bid under bonds. The 30-tear Treasury is back down at only 2.87%, and the 10-year Treasury yield is back down to only 1.70%. Even gold is back up more than $11 at $1,563 per ounce due to lower rates and the thought that funny money economics will continue longer than expected.