My last forecast from Thursday which took a lot of time researching and putting together, AAPL Proxy & Conditions primed for F_E_D, assumed a couple of events in advance of them occurring. The first event was that the Whisper number was an actual leak and that the Friday morning Non-Farm Payrolls that were expected to come in at 245,000 jobs added, came in way below even the long run average and even below the Whisper number of mid 100,000k (150k) print with the actual about 25,000 less than the Whisper number. That was market assumption #1 in the Thursday forecast linked above which is now market fact.
Assumption #2 which was bolstered today by the collapse of the F_E_D labor market conditions index at 10 a.m. to near 3 year lows (a F_E_D aggregate indicator Yellen depends on) was that this would give the F_E_D cover to launch a trial balloon with some ultra-dovish statement from a member or someone else credible that perhaps rate hikes would be delayed (We already have seen a note by Goldman Sachs after Friday's NFP calling for a rate hike delay) to something as extreme and ridiculous as entertaining the idea of launching QE4.
Again, keep your eye on the target, or at least the theory of all of this, the strong $USD. With Japan and the EU both in QE and devaluing their currencies, it gives them an unfair, trade-war like advantage over US exports (strong dollar). The F_E_D needs to kill the dollar and likely wants to do that BEFORE any rate hikes which will do NOTHING good for the economy (rate hikes), which is what I believe this is all about assuming "this" is what is and/or will happen. The NFP miss is just too big and whispered too early to believe it is credible and not manipulated to allow this larger plan to kill the $USD to be put in to motion. Of course the market would knee jerk higher to ANY dovish statement by a F_E_D member, we saw it at least 4 times with James Bullard last year at both highs and lows and jerked up or down which matched his comments to the day.
However, "Price is deceiving". Killing the $USD means some $9 trillion dollars in $USD-based carry trade unwinds will accelerate, which means all of the assets that were bought by effectively ramping up a Wall St. firm's Assets Under Management (AUM) like margin using the Carry Trade, would have to be unwound too (first) and do so at the same time the perception and likely reality is the F_E_D will hike rates, ALL NOT GOOD for the market, so keep your eye on the ball.
In Thursday's theory/forecast, the next event after an NFP miss would be some kind of F_E_D announcement from one of the members (extremely dovish to kill the $USD strength).
Instead, today we got this from the Philly F_E_D...
In essence, if we took this in a bubble and on its own, taking away any and all expectations, the Philly F_E_D is saying that the BLS' (Bureau of Labor Statistics) own benchmark data revisions to Philadelphia's employment data is so far out of the "norm", that the information is no longer useful or at least currently untrustworthy of no use to them. Additionally while this is being looked in to as per the statement from their website (above) for Philly, a full 50-state review is also underway. As a reminder, the recent data was revised down (worse employment picture), which means it would be more difficult for the F_E_D to justify rate hikes with the employment situation falling apart if they stuck with this data.
As you probably know, it has been my opinion for a long time (a couple of years) that the F_E_D has been changing their standards and measuring sticks to allow for an ambiguous decision of when and how to remove accommodation which has been with us since 2008 and return to a more normal policy stance with higher interest rates. We have seen this piece by piece as they say they are thinking about changing a metric and then reinforce that at the next meeting and then change it like the change from time-based Quantitative Guidance such as Bernanke's, "We'll phase out QE3 when employment hits 6.5% and we'll begin rate hikes 6 months after that", to the now Quantitative guidance which essentially says, "As long as we feel things are moving the right way or are likely to, we will raise rates".
This essentially means that the F_E_D has set themselves up so they can raise rates even with a worsening employment and inflation picture as long as the ambiguous "Feel" criteria is met, there need not be any hard data like "We'll phase out QE3 when unemployment reaches 6.5%"(theoretical example I know we are below 6.5%) . Under the new guidance, theoretically the F_E_D could have said, "We will phase out QE3 as long as we FEEL that the current 8% unemployment rate will move toward the 6.5% goal over time" (Again, another theoretical example to illustrate the guidance criteria and changes within the F_E_D from a couple of years ago vs. now).
In other words, while this is a double edge sword than can cut either way, the F_E_D has opened the door to conduct monetary policy based on what they "Feel' or project, which as anyone who has watched their projections knows, have been way off (why would we have had QE2, Operation Twist, Twist light and QE3 if the F_E_D's initial assessment that QE1 would fix the economy were correct?).
I digress, back to taking this information in a bubble with no preconceived notions, no forecasts, no gut feelings...
WHAT THE PHILLY F_E_D ESSENTIALLY JUST SAID IS THAT IT DOESN'T MATTER IF THE UNEMPLOYMENT DATA IS GETTING WORSE AND WORSE (which would "normally" cause them to consider waiting on rate hikes), THEY DON'T TRUST THE DATA AND WILL NOT EVEN RELEASE IT ALSO IMPLYING THEY WILL NOT USE IT IN DECISIONS ABOUT MONETARY POLICY.
To try to put a bow on this, while I was expecting and probably still should expect some very dovish statement based on both Friday's NFP and this morning's F_E_D Labor Conditions Index hitting a 3 year low, what we got instead (at least from the Philly F_E_D) is that they don't care what the deteriorating employment data shows, they'll just ignore it because it's outside the parameters of what should be "normal".
Perhaps this is fodder/cover for the ridiculously weak print that all of Wall St. seemed to know about well in advance last week and essentially have the F_E_D say, "We didn't leak it because we don't even trust it", or...?
Remember the DOVISH Dollar Killing statement I suspect we will see by a F_E_D member, it actually will simply make it easier for the F_E_D to hike rates and any other data to the contrary that might normally force the F_E_D to put off a rate hike because of the deteriorating employment data from the BLS will simply be ignored not only by the Philly F_E_D who just said they will no longer publish it "until further notice", but there's a full 50-state review of the same according to their website.
As I have maintained, I believe the F_E_D is much more afraid of something we don't exactly know about with surety that is causing them to hike rates, than they are worried that hiking rates will take what has been a deteriorating set of macro economic and employment data and make it worse. Whatever that something is, if it scares the F_E_D that much, it must be bad.
As I have posted in the past, the "Bank International Settlements", the central bank's bank, came out with their annual report which was scathing and criticized "Leading Central Banks" as having put out so much accommodation and expanded balance sheets so wildly that the BIS doubts they have the ability to respond to even a "garden variety" recession.
In any case, as I'm still flipping through charts, I just though it was interesting that the very dovish F_E_D trial balloon expected strictly to talk the $USD down and likely pop the carry trade financed equity bubble in the process, was replaced by a statement not from an individual, but the Philly F_E_D essentially saying they'll ignore any data (employment) that might otherwise cause them to put a rate hike on hold.
A very interesting development indeed, at first it seems counter to what was expected (very dovish F_E_D statement), but in the larger picture, it's actually the same thing as killing the $USD strength is needed to hike rates and ignoring deteriorating data is also apparently needed to hike rates as it is hard to justify hiking rates which will impact most of the economy negatively while macro indicators and employment is deteriorating worse and worse.
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