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"Helicopter" Ben Bernanke made a big splash last week when speaking before the Boston Fed. He opined that the risk of a "substantial slowdown" had diminished, and he talked tough about controlling inflation and inflation expectations. I suspect he will regret his comments.
After all, they were voiced by the same Federal Reserve chairman who was remarkably sanguine last summer and fall as the mortgage debacle was building a head of steam.
Bernanke has given sellers a green light to get out of stocks. He will not be able to ride to the rescue of the bulls until much more damage has been inflicted on stocks and the economy.
He understood neither the housing/credit bubble nor the ramifications of its unwinding. Now, he appears to believe the economy may be improving -- when to me it seems obvious that the economy is in a recession and will only get worse.
Cold comfort for the jobless
Certainly, increased unemployment is a present-day result of the bubble's unwinding.Unfortunately, the May jobs report soft-pedaled the true picture. That's due to a statistical quirk known as the birth/death model, which purports to account for the births and deaths of businesses.
I have on many occasions underscored the absurdity of the birth/death model, especially at inflection points, those often-confusing times when the market is changing direction. Given that we're in a recession, the model ought to be subtracting jobs, rather than counting more of them -- which obviously gives a highly distorted picture of what's occurring on the employment front.
Now this reality might be brought to light if the employment data were analyzed by sensible people. But given the chorus of cheerleaders on Wall Street and Bubblevision, a critical view of the data is rarely seen. And the May employment report was no exception.
The birth/death model assumed that 42,000 construction jobs had been created, when in reality 75,000 or so had been lost. (Combining the two numbers meant a net loss 33,000 construction jobs.)
When you lose around 75,000 jobs, it's kind of hard to believe that new businesses could be capable of creating 42,000 jobs, especially given what's transpired in the real-estate market. To repeat, the birth/death model will always cause distortions near economic inflection points. (That should be part of every discussion regarding employment, but it isn't.)
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However, when it comes to counting unemployed folks, the birth/death model doesn't have much of a say in anything. That explains the difference between the "benign" employment data and the dramatically higher unemployment rate (known as U3). Meanwhile, the broader measure of unemployment (U6), which counts "marginally attached" workers -- those who were available to work but hadn't looked for jobs in four weeks -- rose to 9.7%.