When last we checked in on SocGen’s interminable bear, the (still) lovable Albert Edwards, we found him defending the Trump administration’s apparent zeal for “doing what they said they would do.”
“Donald Trump is arousing as much passion in office as he did on the campaign trail,” Edwards wrote. “Agree with him or not, unlike most politicians he seems determined to actually enact the things he promised the electorate.”
Of course that’s complete bullsh*t as Matt Drudge (of all people) noted on Wednesday.
“The Republican party should be sued for fraud,” Drudge tweeted. “NO discussion of tax cuts now. Just lots of crazy.”
Yes, “lots of crazy.” Lots. And lots. Of crazy.
Edwards seems to have fallen into the same trap as many other Trump apologists: trying to justify the “crazy” by an appeal to “he’s keeping his promises.” But he’s not keeping his promises. At least not the ones that matter to markets. Tax reform and fiscal stimulus are a long way away. Meanwhile, the “crazy” (immigration bans, trade wars) is moving at warp speed. Why do you think markets are so nervous?
In any event, Edwards is out on Thursday with a new piece (apparently he’s trying to “make ‘weekly’ great again”) on the Fed, wage inflation, and a potential St. Valentine’s Day Massacre.
I’ve talked a ton about last Friday’s jobs number and how the below consensus average hourly earnings print has been widely viewed as proof that the March meeting is in fact not “live” and if it is, it shouldn’t be. For those interested, see “The Mystery Of Friday’s ‘Somehow Disappointing’ Jobs Number” and “Good Jobs, Bad Jobs.”
And so, with all of that as the backdrop (and that’s a far longer intro than I set out to write), consider the following excerpts from Edwards’ latest.
The Fed has found yet another excuse to do what it does best – nothing.A surprisingly weak rise in January’s wage inflation gave it yet another excuse not to raise rates. Previous hawkish comments only a few weeks before are history. But let’s see what Valentine’s Day brings. We take a quick look at what is going on with wage inflation as this is now the most closely watched global data release each month and crucial for the outlook for Fed Funds, bond yields, the dollar, and ultimately equity markets.
The US monthly average hourly earnings (AHE) data is probably now the most important global data release each month – possibly even more important than the payroll and unemployment data from within that same press release that typically captures the headlines. Indeed, the Employment Situation press release does not even bother to mention average hourly earnings until the bottom of page 3! January’s data surprised the markets by its weakness, with the annual rise in average hourly earnings dropping back sharply to only 2½%.
When Fed Chair Yellen delivered a speech at the Commonwealth Club in San Francisco last month it really seemed she had, at long last, got the tightening bit between her teeth. She noted that the economy was near maximum employment and inflation was close to the Fed’s target. The unemployment rate is less than 5%, roughly back to where it was before the recession. And, over the past seven years, the economy has added about 15½ million net new jobs. Although inflation has been running below our 2% objective for quite some time, we have seen it start inching back toward 2% last year as the job market continued to improve and as the effects of a big drop in oil prices faded.”
Federal Reserve Chair Janet Yellen will testify on the U.S. economy and monetary policy before the Senate Banking Committee on 14 Feb Valentine’s Day. With the markets somewhat confused (I know I am), I wonder if the ever cooing Yellen dove turns up on the day holding flowers in her beak, or will a machine gun be brandished in the same way it was on that fateful day in 1929. Either way it’s pretty clear to me that the markets’ relief on January’s subdued wage inflation might end up being very short-lived. The hawk may yet swoop down, talons at the ready and devour that cooing, market friendly dove.