Summary of My Post-Employment Tweets

By: Michael Ashton | Fri, Sep 6, 2013
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Here are my post-Employment tweets. You can follow me @inflation_guy.

So 10-year note yields broke above 3% overnight, the highest level since 2011. More importantly, 10-year real yields had been approaching 1% (reaching 0.93% overnight) as fear-of-taper has investors quite reasonably fleeing fixed-income.

I said above that I don't look much at average hourly earnings. This is because the evidence is that wages follow prices, rather than prices following wages in a mythical "wage-push" inflation. Moreover, we can intuit that this is the case because if wages led inflation, we would really like inflation since we would tend to see our wages increase before inflation did...we would be doing better all the time, rather than worse. In fact, we know intuitively that is wrong.

With that giant caveat, it is worth pointing out that average hourly earnings are above median CPI (which right now is a better measure of the central tendency of inflation because of the large one-off effects in medical care) by the most they have been since 2011 (see chart below, source Bloomberg).

US Average Hourly Earnings Chart

The unemployment rate declined, but only because the Participation Rate plumbed a new post-Carter low at 63.2%. You have to go back to July 1978 to find participation rates this low, and back then there were a lot fewer women in the workforce.

All in all, this is a pretty ugly employment report, but the FOMC has carefully lined up its doves and even gotten a few hawks to say that tapering ought to begin this month. I suspect it is still likely that they start down that path, but probably the first steps are fairly small. Still, given how far rates have risen and the possibility that this will lead to some "taper: off" talk, and given the strong seasonal tendency for rates to decline in September and early October, I would not want to fade a bond market rally.

 


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Michael Ashton

Author: Michael Ashton

Michael Ashton, CFA
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Michael Ashton

Michael Ashton is Managing Principal at Enduring Investments LLC, a specialty consulting and investment management boutique that offers focused inflation-market expertise. He may be contacted through that site. He is on Twitter at @inflation_guy

Prior to founding Enduring Investments, Mr. Ashton worked as a trader, strategist, and salesman during a 20-year Wall Street career that included tours of duty at Deutsche Bank, Bankers Trust, Barclays Capital, and J.P. Morgan.

Since 2003 he has played an integral role in developing the U.S. inflation derivatives markets and is widely viewed as a premier subject matter expert on inflation products and inflation trading. While at Barclays, he traded the first interbank U.S. CPI swaps. He was primarily responsible for the creation of the CPI Futures contract that the Chicago Mercantile Exchange listed in February 2004 and was the lead market maker for that contract. Mr. Ashton has written extensively about the use of inflation-indexed products for hedging real exposures, including papers and book chapters on "Inflation and Commodities," "The Real-Feel Inflation Rate," "Hedging Post-Retirement Medical Liabilities," and "Liability-Driven Investment For Individuals." He frequently speaks in front of professional and retail audiences, both large and small. He runs the Inflation-Indexed Investing Association.

For many years, Mr. Ashton has written frequent market commentary, sometimes for client distribution and more recently for wider public dissemination. Mr. Ashton received a Bachelor of Arts degree in Economics from Trinity University in 1990 and was awarded his CFA charter in 2001.

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