Question of the Week

By continuing to delay the inevitable rate hike, do you believe the Federal Reserve is doing more harm than good to the economy? We would love to hear your thoughts. Please share them with us at www.wstreet.com.

Yes
No

To the knee-jerk narrative that the Fed would hike rates as America became official after posting 295,000 jobs in February, I say hold your horses. With a closer look at the evidence, it is clear this is not even mediocrity- 22,000,000 is the real unemployment number. The current level is down eight million from the highest level, but it is still six million above pre-recession levels.

Moreover, there is the lack of inflation underscored by a lack of wage growth and price decreases. No matter how it is sliced and diced, using the headline, core or price indexes, it is hard to argue that deflation is not a real issue.

Even with more people working, people aren't taking the bait when it comes to credit. Sure, they keep taking out student loans and buying cars, but January credit card debt actually went down. Overall, credit increased at its slowest pace since November 2013.

Thus, the day after the European Central Bank (ECB) announced the official launch of their Quantitative Easing (QE) program, our market got hit…

The stage is set for a serious tug of war this week. The reason is all the conflicting messages from last week’s session.

So, gold got hit throughout QE in America and the narrative switched to it being the Armageddon investment.

Randgold Resources, Ltd (GOLD)

Then, there are bonds, which have been a juggernaut, but are beginning a breakdown.   The 10-year scooted up to a 2.25% yield.

The ten-year yield is gaining momentum to the upside; this could have major ramifications with  long awaited rotation into equities.  This has been a winning trade for so long; however, it is going to take more upside pressure to get big money investors out.  In fact, I have been hard-pressed to find any experts that are looking for a move beyond 2.4% on the upside.  More than half of the experts I spoke with see a move back to 2.0% or lower.

10-Year Yield

As a result, the popular bond trade iShares 20+ Year Treasury Bond (TLT) sold off 4.7% in the past five days, although it is still up 15.9% this past year.  Many hedge fund managers have held this trade as a counter to their woeful equity investing performance.

iShares 20+ Year Treasury Bond TLT

Then, there are the utilities, which stumbled 3.3% and are off 7.9% for the year.

Dow Jones Utility Average Index (DJU)

On Friday, there were no winners in the market, which is the way it goes when panic spreads. I am not convinced the Fed will hike rates, but on that note, I wish they would and get it out of the way.

Today’s Session

Even though today will be all about Apple (AAPL), the stock of the day is McDonald’s (MCD).

Before the open, the fast food giant posted horrendous same store sales numbers, sending its shares plunging. The decline of 1.7% was greatly impacted by the strong dollar masking better results in all geographic regions.

MCD Feb Same Store	Reported	Constant Currency
Corp	-1.7%	0.5
US	-4.0	-3.1
Europe	0.7	3.3
APMEA	-4.4	-0.4

Management could have tried to sell that angle, but instead, it offered this observation: “… consumer needs and preferences have changed, and McDonald's current performance reflects the urgent need to evolve with today's consumers, reset strategic priorities and restore business momentum.”

Mea culpas go a long way in life…for corporations, governments and individuals.

But while we’re on the topic, MCD management- you need to pay the artist you hire for South by Southwest… just saying… if you want Main Street cred, as well as Wall Street, don’t be jerks and look greedy.

No need to force the issue. Let’s sit back and watch the tugging back and forth. Make sure you have some cash on hand, too.

Comments

Why do all inflation stats exclude food & gas? Gas is down, which helps but it has jumped in last 30 days. As far as food, the number guys aren't shopping where I am. J.R. Gamble on 3/9/2015 10:11:37 AM

Do you think savers will ever see 5% on a CD again...I feel sorry for that age group that only invest in CD's Jeff on 3/9/2015 10:50:49 AM

There's so much interference from the government it is harder to tell what is reality and what is fake? ? Charlene Voss on 3/9/2015 1:42:41 PM

Interference with free markets creates temporary market bias. Peter Bliss on 3/9/2015 2:02:44 PM

The February 2015 Employment Report is out. The Unemployment Rate is 5.5%, 295,000 jobs were added in February. Is this great news? The devil is in the details. The following are based on seasonally adjusted data available from BLS.GOV. The highest number people counted as employed during the George W Bush administration was 146.6 million in November 2007. The February 2015 number is 148.3 million, an increase of 1.7 million. In that period the workforce increased by 17 million, employed increased by 1.7 million, unemployed increased by 1.5 million and the number not in the labor force increased by 13.8 million. If the Participation Rate in February 2015 was the same as in November 2007 (66.0%), the unemployment rate would be 10.1%. The most favorable analysis from the perspective of the Obama Administration would be from December 2009. The Stimulus Package was passed in April, the recession was over in June and job losses continued through December. One might expect better from an $800 billion Stimulus Package. The lowest number of people counted as employed since the Obama Administration was inaugurated was 138.0 million in December 2009. Again, the February 2015 number is 148.3 million, an increase of 10.3 million. In that period the workforce increased by 13 million, employed increased by 10.3 million, unemployed decreased by 6.4 million and the number not in the labor force increased by 9.1 million. If the Participation Rate in February 2015 was the same as in December 2009 (64.4%), the unemployment rate would be 8.2%. (I believe this,or one utilizing a higher Participation Rate, is the number the Fed looks at when deciding on policy changes.) An interesting fact is, in the first case, a 3.2% decrease in the Rate results in a drop of 4.6% in the Unemployment Rate. In the second case, a 1.8% decrease in the Participation Rate results in a drop of 2.6% in the Unemployment Rate. Simply stated, a 1% reduction in the Participation Rate results in approximately a 1.4% decrease in the Unemployment Rate. Six years into the Obama Administration, the number of people counted as employed is barely 1% higher than the pre-recession peak. Since the Inauguration, the number of people not in the workforce has increased by 15%. The economy has not grown fast enough to absorb the increase in the work force. The 5.5% Unemployment Rate sounds like good news, but in the context of the lowest Participation Rate since March 1978, it's not. The devil is in the details. Chris Reinhardt on 3/9/2015 2:14:22 PM

The longer the Fed horses around with rates, the worse the inflation will be. Germans remember this all to well, a loaf of bread lOOO.OO. Paper money was worthless. God willing, that won't happen here...... tom wayne on 3/9/2015 4:20:00 PM

Have you read about John Hick's IS/LM model showing the rates? Rodman Johnson on 3/9/2015 4:49:10 PM

A bad feature about the low employment participation rate is there is less money paid into the payroll taxes and more paid out in welfare. Rodman Johnson on 3/9/2015 5:04:19 PM

I do not believe the Fed is doing more harm by delaying the rate hike than they would be by going forward with it. The wage-less recovery has enslaved most Americans in a precarious trap. We are living on borrowed money. When the Fed raises rates, that will trigger rate hikes across all lending and be devastating to many family budgets. Of course, this is what the DNC wanted all along from the time they repealed the usury laws. They want all families in financial crisis so they can enslave them to government handouts and thereby buy their votes for more handouts until the economy collapses completely and martial law puts them in fascist rule (the ultimate end to socialist economies). Rate hikes prior to wage recovery is folly. Rate hikes prior to reinstating usury laws is also folly. Phasing back in usury laws would free up more money for the economy which would help both wages and the supply/demand curve for interest rates (from a low interest borrower perspective). Bob G on 3/10/2015 10:04:59 AM

EVERYONE!! (80% vs 20%) thinks the rate is going up. Take the mystery OUT of the equation. Move up 10 basis points. Lewis W Gloss on 3/10/2015 2:43:43 PM

We need to at least start to normalize. This can't go on forever. Neal on 3/10/2015 3:28:50 PM

The future of the market really depends on whether we are coming to the end of a manic cycle. If we are, we'd better be prepared for a major crisis. Things that suggest that we are include: Apple's introduction of its high-priced watch, the prospect of the self-driving car, and the growing number of govt scandals involving emails. We had the hard-drive crashes at the IRS, General Petraeus' sharing top secret info via a shared email acct with his paramour, and now Hillary's private email server while she was Secy of State. Oh yes, and the high cost of the Obamacare website (which isn't finished yet). Not to ignore the vulnerability of the whole system to a nuclear explosion high in the atmosphere or a single misdirected solar flare. Are we on thin ice, or aren't we? Dennis Howard on 3/10/2015 4:28:55 PM

Actually it is yes and no. The problem is that they may have waited too long---long enough for the EU's version of QE to take effect and thus make the US dollar "too strong". Our interest rates need to come up, but they need to do so when our economy is strong enough (signaled by the Market not tanking in response, for one) and when our increases don't make us uncompetitive in the world. Kevin Hess on 3/10/2015 10:02:07 PM

We know the increase is coming. Let's get over with Werner Dornacker on 3/10/2015 10:54:21 PM

Enjoy watching your show each night!! Ron Ron Lang on 3/12/2015 3:52:14 PM

The FED has always stopped the market from truly being a free market. Erin Susser on 3/13/2015 1:16:45 PM

Seeing the markets overseas imploding, the President may order the Fed to hold off for a year with any rate increases. The result will be devastating inflation at the feet of the next president. tom wayne on 3/15/2015 11:37:56 AM

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