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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (5316)1/17/2004 11:51:55 AM
From: russwinter  Read Replies (2) of 110194
 
<On Eurodollars the implied target at expiry is the FF rate minus about 20 BPs.>

That's about what it is currently, but historically the spread of EDs and FFs (or treasuries for that matter) has been much higher. In fact, I see 20 bps for EDs over FF as an anomaly, and unusual. There is also a credit spread factor in here. If credit risk perceptions increase, the spread of ED over treasuries and FF will increase.

<If there is a good jobs report they may take a big hit.>

I have reason now to believe the January jobs report might be weak. I need just one more day to calculate (from daily treasury statements) the period that runs from just after XMAS up to the MLK holiday. That will pick up the year bonuses, the bulges that seem to appear in the withholding numbers at certain times (the 15th). In otherwords I sense that this period will give us the best apples to apples comparison of what's really happening in the labor market. I'll post the number on Tuesday.

I hope you also understand my argument that ultra low fed funds rates actually INCREASES US unemployment at this stage of the cycle? I'm theorizing that the big increases underway in crude and intermediate goods inflation forces the players in those markets to accelerate even more job cutting and labor transfers overseas, to deal with this cost pressures. I've addressed. the second component of it too. The increases in key input inflation items like food and energy (that the Fed just ignores) will cause a shift in consumer spending. A 10% increase in heating and food bills, takes 2% away from other areas of consumer spending. Keeping rates low, works to keep the global economic and speculative activities in hyper-drive, and just pressures those commodities and goods to go even higher, further depressing US labor markets and consumer spending. Further, will ultra low interest rates do anything at this stage to keep consumer demand for saturated consumer markets like housing and autos going? No, one percent FF is the wrong medicine at this stage, like using leeches to bleed the patient.
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