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2012-05-03 Stubborn Joblessness and More Fed "Money For Nothing"
5.3.12 -- The ADP jobs report yesterday was rather dismal and today's Challenger data, showing 40,000 additional layoffs for the month of April, offered no cheer. Jobless claims fell more than expected at 27,000, but are still stubbornly above 360,000. This data comes on the back of a downwardly revised GDP to 2.2%,
which is very anemic growth.
Will the Fed respond with more Quantitative Easing or other schemes to buy debt with more debt?
You bet.
'Operation Twist' has done little to get money back into this economy. Why? Because
liquidity is not the problem. The problem is that money is frozen in place. Investors and businesses are terrified to commit money to these market for fear the government will change the rules, like they did on the bondholders at GM, or increase taxes.
President Obama's bragging about "saving GM" is laughable. GM still owes the taxpayers tens of billions of dollars. If those dollars were removed tomorrow, GM would go bankrupt.
Be prepared for the market impact of additional Fed money creation. It is their only viable option to keep the economy and presidential re-election afloat. Every FED chairman, except Arthur F. Burns (1970-1978), has always provided a sitting president with whatever they needed to get re-elected. Expect no less from 'helicopter' Ben Bernanke.
Additional Fed stimulation is a foregone conclusion, even by the most skeptical on Wall Street. Europe is also in desperate need of Fed money and will provide plenty through new swap lines. The word on the street is that hedge funds are looking to buy big blocks of gold on any price dips. When that happens, $1,650 gold will again look cheap. I suggest trading paper dollars, "money for nothing" in for tangible assets, which will always be "money for something".
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