New Season for Jobs?29 October 2014

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Market Update

2015 Fed Stress Tests

USA Jobs Pulse Check

New Season for Jobs?

Adios QE

HiddenLevers

MARKET UPDATE

Market UpdateQE ends in year 6 Volatility Hoax

Bullard saves Market

sources: HiddenLevers

Oil touched $79

Market Update – Ebola Pandemic

sources: HiddenLevers, University of Hong Kong , USA Today

15%

SARS 2003Airlines crippled from tourist fear

Ebola 2014Airlines doing fine, Delta saying bookings unaffected

Macro Snapshot

Macro Snapshot

Oil and mortgage rates crash as the S&P 500 holds its own. Meanwhile, consumer confidence has reached 2005 levels and jobless claims are lowest in a decade.

2015 FED STRESS TESTSHiddenLevers

Why does the Fed create Stress Tests?

“These scenarios are not a forecast. Rather, they are hypothetical scenarios designed to assess the strength of banking organizations and their resilience to an unfavorable economic environment.”

-Federal Reserve Bank

Review: 2014 Fed Stress Tests (Dec 2014)

MISS10y Treasuries closer to 2 than 3

MISSCPI + Commodities overvalued

HIT15% S&P rise projected.. could happen

source: HiddenLevers, Federal Reserve

GOOD: Fed Baseline Scenario

source: HiddenLevers, Federal Reserve

sustained moderate expansion

gradual normalization of treasury yields

real GDP under 3%

unemployment declines to 5%

asset prices rising steadily

inflation at 2%

low equity market volatility

average of outside

economic forecasters

BAD: Fed Adverse Scenario

rapid increase in short-term rates

to 2.5%

bank costs soar due to rate rise

unemployment over 7%

global weakening + US inflation squeeze

mild US recession into

mid-2015

inflation over 4%

source: HiddenLevers, Federal Reserve

yield curve higher + flatter

decline in home prices,

felt more in high gainer areas

UGLY: Fed Severely Adverse Scenario

equity market distress exceeds

2008-09

brent crude oil prices rise to

110usd

CPI over 4% on oil shock

Rates -->2017 Short term at 0 long term at 1%

global weakening + intense US recession + oil shock

Unemployment over 10%

GDP growth takes serious hit

-- 4%

source: HiddenLevers, Federal Reserve

divergencecorporate bonds

yields higherrapid exits

EMprivate equity securitizations

Economies dependent on imported oil suffer more

UMMM?

#FAIL: Fed Severely Adverse Scenario

source: HiddenLevers, Federal Reserve

why no scenario for global deflation risk?

Scenario: 2015 Fed Stress TestsGood

Baseline

BadAdverse

UglySeverely Adverse

The Baseline includes steady equities growth, fast real estate appreciation, and moderate inflation + GDP growth.

The Adverse scenario is a stag-flation scenario, with high inflation and poor growth.

The Severely Adverse scenario includes an equities decline of 50%, a deep recession, and static interest rates.

HiddenLevers

USA JOBS PULSE CHECK

$

Jobs Recovery: Pulse Check

sources: Heritage, St. Louis Fed

Participation DownJob Openings Up

Jobs Recovery : Comparison to Previous

source: BLS, Heritage

Bad news77 months did much more for past recoveries

Good news77 months to get back to pre-recession employment.

sources: Forbes, SUNY Oswego

Compared to other global financial crises, post-2007 US jobs recovery has been strong

GDP Per Capita has risen modestly in US since 2007, and fallen in every European country save Germany

Jobs Recovery: Global Perspective

Jobs Recovery: Quantity vs Quality

sources: National Employment Law Project, HiddenLevers

Wages decreasing for all but 1%.

Jobs recovered are low wage.

Employment Cost Index shows slowing of wage gains.

HiddenLevers

NEW SEASON FOR JOBS?

New Season: Tech Automation = Job Killer

Unemployment droppingbut Who is rejoining work force?

Productivity growingbutEmployment not so much

sources: US Bureau of Labor Statistics

Lowes Robot Shopper

New Season: Startups Myth

sources: US Bureau of Labor Statistics

New Season: Jobs Cycle + Market Cycle

When non-farm payrolls drop below 0and stick there, trouble lies ahead.

When non-farm payrolls stay above 0, market tends to rally steadily.

sources: HiddenLevers

New Season for Jobs?: Recap

US leading first world in job growth Fed clueless on inflation?

no markets crash during jobs recoveries

US Jobs have surpassed peak

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