[( TIME.com ) -- Great news! Unemployment is up. Wages are stagnant. Hiring by U.S. companies is down for the first time in more than four years. But there might be some help wanted on Wall Street soon, because Friday's unemployment report is the stuff rallies are made of. Just a half hour into the trading day, the Dow was up 175 and the NASDAQ almost 200 (with inflation-fearing bonds whooping it up right alongside them) as investors saw visions of the long season of economic overdrive, interest-rate hikes and neurotic markets drawing to a close.] This is the latest sign that the economy is slowing down, and because these are labor numbers, they're going to have particular weight with the Fed, ... This is the kind of news that could take some of the uncertainty out of the markets and get stocks going up again. |
[For investors, tech stocks have always been wobbly, with their stratospheric price-to-earnings ratios and fluid business plans -- now they're starting to careen, mostly downward, with regularity, and other bets are only getting better.] The higher interest rates go, the more lucrative bonds and T-Bills are, ... When 30-year bond yields get over 7 percent, with absolutely no risk, money gets shifted out of the techs and put elsewhere. |
A miscalculation in interest rate policy could damage the economy and force the Fed to reverse course later in the year by giving back one or two rate hikes. |
Bond traders are concerned that the economy may be growing too fast, given where we are in the business cycle. |
Housing prices in many communities will appreciate less rapidly --- and in some communities actually fall. This reduces the wealth effect from real estate assets, shrinks home equity borrowing, and increases pressure on households to replenish their savings. |
If you take a snapshot of the economy right now, you could certainly say that we're in a sweet spot. |
In March and April, interest rates were going up very gradually, and tech investors figured Greenspan would taper off, because this was an election year. Now, the inflation picture is getting worse, and Greenspan is getting serious. And they're feeling the effects of higher interest rates. |
It's fairly safe to say that the trade deficit may have peaked now that oil prices are falling and the U.S. economy is showing signs of slowing down. |
Katrina has shaken the very foundations of the U.S. economic expansion when it ruined much of America's energy infrastructure, ... While a recession is unlikely, the probability of stagflation has greatly increased with inflation moving higher even as the economy slows. |
On the other hand, Greenspan seems satisfied that his tightening has had a lasting effect. He's likely to stand pat for the rest of the year. |
One has to wonder if another round of rate hikes will lead to a more severe cutback in consumer spending. |
Our imports increase as long as the economy grows, |
Our imports increase as long as the economy grows. But there's certainly a concern that our exports are down despite the fact that Asian and European economies have begun to rebound. Maintaining the high deficit is dangerous because that means a huge debt, and if our creditors lose confidence in the U.S. economy and begin selling dollars, which drives down the value of the currency, that could spark a serious inflation threat. |
People are going to be less inclined to drive to shopping centers. Instead, they're going to stay at home and if they carry on their usual holiday spending patterns then they will do it more likely online. |
The central bank seems more worried than before that resources feeding the U.S. economic expansion are getting scarce. |