If anyone has ever wondered what would’ve happened if the “free market” were left to its own devices in 2008, without the interference of the Bernanke Fed, we may be seeing a taste of that. Now that the market’s “sugar” has been reduced by Uncle Ben Bernanke, things aren’t as sweet as they used to be.
Ben Bernanke is officially out, and Janet Yellen is in. However, before leaving, Bernanke decided that it was time to ease off of quantitative easing in the markets, because, well, in his mind, unemployment is low. Forget that about half of working age adults actually have jobs, and that there are about 6 jobless people for every job opening; the time has come to let the markets fend for themselves.
And fending for themselves is exactly what the market is failing at. Other than the fact that the Dow Jones is bleeding points (-333, -190, -etc), and the VIX looks like it’s having a coronary, the market has forgotten that the overall economy still really sucks. It’s currently finding out based on new order manufacturing data.
In manufacturing, the market is having a seizure because of declined global manufacturing (including in the U.S.). One of the ways this boogey man manifests itself is through the labor supply. There’s a labor supply problem in the manufacturing sector. There’s too much labor supply and too little demand for the things that labor produces.
These 3 charts show the decline in manufacturing employment, the relationship between manufacturing employment and the ratio of the labor pool in manufacturing to the new manufacturing orders.
So in other words, this labor supply problem is nothing new. Markets have been the only ones to decide that the recession was over in 2009, while everyone else suffered. Now, without their “sugar” from Uncle Ben, they’re seeing clearer. In other words, the market is “right sizing” itself as if going on a diet. It will take some time, and a little sugar withdrawal, but as Jim Cramer likes to say, the “fundamentals” just weren’t there to support this kind of market to begin with. And while I would’ve preferred the market to have seen the end of the gravy train in the mountains of data in other areas (like U6 at the very least), they should of all seen this coming in the manufacturing data since 2009.
So much for “rational” markets.