by Rick Ackerman, Rick Ackerman.com:
Stocks rallied sharply on last week’s unemployment news, but shouldn’t they instead have fallen? In the past, it has not been changes in the unemployment rate per se that caused stocks to rise or fall, but rather the perceived impact of those changes on Fed policy. In the bizarre, inverted world of Wall Street tiny-think, “bad” unemployment news was always greeted with high-five exuberance, since it argued implicitly against Fed tightening. To be sure, last week’s news was good as far as Wall Street was concerned: The 7% jobless rate announced on Friday was the lowest since 2008. But could those who helped goose the Dow Industrials 200 points have forgotten what Helicopter Ben said last summer – i.e., that the Fed would end its quantitative easing program if U.S. unemployment got “in the vicinity of 7%.” Of course, there are the usual mitigating factors to be considered that could alter the actual turn of events. For one, because Bernanke’s job is to say what he means without necessarily meaning it, we shouldn’t hold him too closely to his word. And for two, the phrase “in the vicinity of 7%” leaves some wiggle room, Under the circumstances, it’s conceivable that unemployment could fall all the way to, say, 6.7%, before the Fed feels obliged to invoke the dreaded Tapeworm. (“Not on my watch!” Janet Yellen might say, were she not merely one more Fed lackey who moves only when her strings are pulled.)
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