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It’s the first day of the second quarter, and also April Fool’s day, so
be on your guard. The first day of the month has been an overwhelmingly
bullish day ever since the stock market bottomed in March 2009. And the
first day of a new quarter has also been bullish, as new money gets put
to work by mutual funds.
Today we also have a strong non-farm payroll number to propel stocks
higher.
The economy added 216,000 new jobs in March. This is a net number that
includes job losses at the government level. Private hiring has now
topped 200,000 jobs for two months running, for the first time since
2006.
The government published unemployment rate fell to 8.8%. And while that’s
still unacceptably high, it’s an improvement.
Whether or not we can give the Fed any credit for helping the jobs market
with QE2, today’s jobs number increases the odds that the Fed will stand
down in June, and not move directly into another round of stimulus QE3.
And while we’ve discussed the end of QE2 as a potentially bearish
catalyst for stocks, it could also be considered a sign of confidence in
the U.S. economy. I know that might seem like a stretch, and I still
expect there to be some kind of correction ahead of June (sell in May?).
*****After being sued by Bloomberg, the Fed released its data on which
banks tapped its emergency overnight lending program during the financial
crisis. As you may know, the Fed has resisted releasing this information
because it thought it might increase fear that certain banks were on the
verge of failing.
But of course, the banks that were going to fail have already done so,
like Washington Mutual, the former WAMU.
The data, released yesterday, shows that foreign banks and financial
firms were very active in taking loans from the Fed. In fact, Wachovia
was the only U.S. bank that ranked in the top 5 of borrowing at the peak
of the crisis. Wachovia was eventually bought out by Wells Fargo
(NYSE:WFC).
Banks in Europe, China and even the Middle East were actively borrowing
from the Fed. But let’s not forget, companies such as MacDonald’s
(NYSE:MCD) even took loans from the Fed under other emergency lending
programs.
*****In
reaction to the Fed’s lending, Bloomberg quotes Fed nemesis Rep. Ron Paul
as saying:
“The American people are going to be outraged when they understand
what has been going on…What in the world are we doing thinking we can
pass out tens of billions of dollars to banks that are overseas? We
have problems here at home with people not being able to pay their
mortgages, and they’re losing their homes.”
I respect Rep. Paul a great deal. But I think he’s dead wrong here. The
Fed should be credited with averting a full on economic disaster by
opening lending to foreign banks. The U.S., in general, and the Fed
specifically, are always in a unique position to influence the course of
global events.
Let’s never forget just how terrifying those days were. Nobody knew how
deep the crisis ran, and nobody knew how many banks could potentially
fail. Remember that the very foundation of capitalism was being called
into question.
It might sound well and good to ignore what goes on beyond the U.S.
borders, but to pretend that we’d be unaffected by banking meltdowns in
Europe or China or the Middle East is very na