Fed Changes Job Numbers

Here we go again.

I once remember that it took 250,000 jobs added per month to remain level for unemployment. Now, I'm reading it's 150,000 jobs per month to maintain employment stability. However, today's CNBC article states that the number of jobs needed to show job stability will become 80,000 per month. That's based on aging baby boomers--who are working much longer--and a decline in the population.

We can just forget about the fact that the demographic that the Millenials are as large a population since the Baby Boomers. We can also forget about immigration's effect on adding to the population.

Basically, it's another nice tool from that bottomless toolbox that our Federal Reserve and Treasury Department use to create the illusion that everything's fine. (Think Kevin Bacon at the end of "Animal House" before he gets flattened).

That's right. "Remain calm. All is well." Don't worry about the rise in unemployment from 7.5% to 7.6%. According to financial media, the numbers are not good, but they're not that bad either. No, they're that bad. Unemployment didn't go up because more people are looking for a job and there are fewer disgruntled workers out there. No. Much of it has to do with the budget sequester and more layoffs will be coming down the road because of the sequester. It's the austerity, stupid!

While we watch the game of chicken played out in tapering QE3 and the stock market--taper and the market falls, don't taper and the market rises, bad economic numbers and there's no taper and the market rises, good economic numbers and there might be tapering and the market falls--we need to realize the core economic truth. If there's high unemployment, nobody is spending and companies are not making any profit. If they're not making a profit, there's no need for more inventory, no need for more production and no need to hire more people. That, my friends, is a recession.

Now, why do these companies like Best Buy or any insolvent bank look like their quarterly books are slightly down, flat or even better than expected? Because they can still borrow money given to the banks at exorbitantly low interest rates and loaned at higher rates. That money goes into the company as revenue and it looks like they're surviving. Once things begin to spiral downward, the CEO takes his or her golden parachute along with any other C-level executives who can make the jump and leave the ship as it sinks far faster than the Titanic.

For banks, it's much easier. The accounting rules changed so that banks no longer need to mark-to-market their loans. That would make the banks insolvent. Instead, they mark-to-model--whatever their model might be. With mark-to-model accounting and the Fed pushing cheap money to the banks, it's changing the rules of the game to give an illusion of semi-prosperity.

Meanwhile, the banks are selling their distressed properties to institutional investors at prices reasonable to the banks. If they can't sell distressed, underwater properties, the banks keep them on their books and account for them through the new mark-to-model accounting rules.

The Fed continues to purchase mortgage-backed securities, keep mortgage rates artificially low and hope that the housing market heats up with low foreclosure inventory, high consumer demand and artificially inflated prices. The only problem is that credit remains tight, shadow inventory remains and rising mortgage rates have already stifled the refinance market. As investors shy away from the REO-to-Rental purchases, supply will continue to increase (particularly in judicial states that are delaying eventual foreclosures), consumer demand will soften because of high unemployment (despite artificially low numbers from the new 80,000 job rule the Fed is devising) and home values will eventually decline.

But it's all just one bubble to pop in a series of bubbles that include 15,000+ in an inflated Dow Jones Industrial Average and the bond bubble, which is bound to pop.

The bond market, already in decline, will eventually result in rising interest rates. As we've seen, rising interest rates just happen--and they rise quickly. The refinance market is already drying up with simply a 1% increase in a housing market with still historically low interest rates. The stock market deception will likely decline as the Fed tapers on QE3. The Fed will also start increasing those record low bank rates--0 to 25 bps--because of those artificially low unemployment numbers. At 6.5% unemployment--right, sure--the Fed said it will start to increase rates.

Whatever happens, the public will not know the truth unless the stock market crashes. Only, why would the Fed taper QE3, 4 or 5 if they know the stock market is going to crash? Will the public be aware of a bond market collapse? Does the public know that there is a bond market? Will the public focus on low unemployment even though friends and relatives are out of work?

Or, will we start to see stores like Best Buy with more people in the return lines than the buying lines? Will we start seeing some restaurants abandoned on a Friday and Saturday night and ask, 'How does this place stay open?' Will we begin to wonder why so many homes are up for rent or for sale? Will we question the amount of office space for lease in commercial properties? And, will we begin to ask why everyone in this civilized society can fail except financial institutions?

One of these days, Toto's going to rip open that curtain and we'll see some Fed chair standing behind it. At that point, we'll all need to use our brains, heart and courage to get through the aftermath.