13 Jan JOBS, THE PHILLIPS CURVE AND ALGOS
December’s jobs data was nominally disappointing. In my view the biggest disappointment was wage growth which fell below 3% for the first time since July 2018. Based upon the Phillips Curve, wages should be rising with low unemployment.
The Phillips Curve was wrong in the late 1970s when unemployment was high and wages were also rising exponentially.
Could we make a rhetorical observation that at opposite ends of the proverbial bookends “accepted economic assumptions” are not valid?
The data did little to alter monetary policy assumptions or economic outlook.
Radically changing topics, The Atlantic reported that over 50% of financial stories were written by robots. JP Morgan Dimon has been a vocal critic about the lack of reputable financial reports where he regards many reports as nothing other than unsubstantiated and sensational comments written for questionable purposes. Dimon believes such reports are destroying the integrity of the markets.
This is the first time that such a number of AI generated financial reports have been perhaps quantified. (Note: I do not know how The Atlantic determined this percentage)
Amazon’s Jeff Bezos commented in 2015 it would be easy to manipulate the market via AI, creating a perceived scenario to generate a desired outcome, but further stated that such would be illegal and would not do it.
The issue at hand is the markets are now dominated by algorithmic trading that is programmed to search for words to determine potential market or security direction.
Dimon has not directly stated that such reports are the ultimate “pump and dump scheme” but as Bloomberg noted last week after hours trading was “dominated by algos that were programmed to search for words such as Iran, attack and missile” causing a significant market drop.
Several regulatory entities have stated the markets are imbalanced, benefitting only a few. I hope the regulators will act proactively rather than reactively so to avoid the next crisis, a crisis I think may be a liquidity crisis amplified by technology based trading where the client is the end user. As noted many times fear is more powerful than greed.
What will happen this week? The economic calendar is comprised of various inflation indices, housing data and retail sales. How will such influence outlooks? And then there is the commencement of fourth quarter earnings season. Profits are expected to increase at the slowest rate in three years.
Last night the foreign markets were mixed. London was up 0.27%, Paris down 0.02% and Frankfurt down 0.26%. China was up 0.76%, Japan up 0.47% and Hang Sang up 1.11%.
The Dow should open nominally higher. The 10-year is off 5/32 to yield 1.85%.