Rubin's Cheering Section Awful Quiet

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JACKSON HOLE, Wyo. -- Where are all the Rubin bad-mouthers now? One of them is right here. (Hiding?! The Phantom mask appears on this product every day!)

The better question is this: Where were all the Rubin pompom girls between June 17 and Aug. 11?

You remember Intervention Day (June 17), don't you? Apparently some traders don't. That was the day Rubin and the

Bank of Japan

boasted that they knew more about currencies than anyone and then sent dollar-yen to 136 from 143.

Two months later dollar-yen sat north of 147. See that? Protestations from

former underlings notwithstanding, a whole lot of people made a whole lot of money by fading Mister Boyish Diffidence himself.

There are two ways to look at the Rubin thing.

The first is to note that dollar-yen is lower now than it was on I-Day and to hail Rubin as the best

Treasury

mastur ... oops ... mastermind ever.

The second is to accept that what is going on with dollar-yen now has nothing to do with intervention and everything to do with long liquidation and unwinding carry trades. To assign proper blame to American share prices and to note that Swiss-yen and sterling-yen have not gotten beaten nearly as much as dollar-yen. To realize that Rubin has two outside chances to help Japan -- intervention and an interest-rate cut -- and that neither does anything to help the country's fundamentals. To note that those fundamentals include nine straight months of spending decline and to accept that the trend will worsen. To understand the magnitude and implications of Japan's banking problem and to think seriously about the risks of not embarking on a serious solution a month ago. To realize that current private-sector loans in Japan total 625 trillion yen against

GDP

of 500 trillion yen and to accept that the entire Japanese credit-creation mechanism is in grave jeopardy. To note that until a few days ago, while markets collapsed worldwide, Bob was busy dropping a fishing pole into a puddle somewhere in Alaska -- and to wonder what exactly that means.

Option 1 is for the people who got crushed by dollar-yen between June 17 and Aug. 11. It is also for the people who were heartened by the fact that the

Nikkei

rose to 16,488 from 14,825 during the month following I-Day, who then began to nibble on Japanese shares thinking that markets were way too pessimistic about Japan, and who then got crushed when the Nikkei sank again. (It is also surely for anyone having anything to do with the

Goldman

IPO.)

Option 2 is for everyone else. Buy yen puts now and congratulate yourself in six months.

Four Rooms

The

Conference Board confidence index

for August sat just 5.1 points off its June high and the

University of Michigan sentiment index

for August sat just 6.0 points off its February high. Yesterday the

Money Magazine/ABC News

consumer comfort index hit another all-time high (31) during the Aug. 30 week; the personal finance and buying climate indices both reached records for the second week in a row. Shouldn't the confidence numbers be getting absolutely pounded right now?

The

Bank of Tokyo-Mitsubishi chain-store sales index

posted a 4.3% year-on-year gain in August. This is a solid number all by itself -- the increase in the BTM index averaged 4.6% last year (when GDP rose 3.9%) and 3.1% in 1996 (when GDP rose 3.4%). But BTM cited low inventories, a late Labor Day, and unseasonable weather as depressing August sales factors. Bet on a chain-store sales acceleration in September.

First-time claims for

unemployment insurance totaled 302,000 during the Aug. 29 week; the four-week moving average for claims now stands at 302,000, one of its lowest levels of the cycle. Think the August

employment report (out Friday) won't print huge? And a warning: Right now the market is eating its cake and having it, too. Namely, it seizes on signs of weakness, and it dismisses signs of strength as old news (or having no bearing on the future). Friday every economic-slowdown type in the country will tell you that the employment numbers are purely strike rebound. Don't believe it.

The productivity numbers are sending a sour message. Productivity

rose only 0.1% during the second quarter while unit labor costs surged 3.9%; on a year-over-year basis the latter are rising faster than the former (2.3% vs. 2.0%). Worse still, a crude sales-based productivity gauge -- aggregate business sales divided by nonfarm payrolls -- was showing zero growth as of July. Meantime wages, which are growing at a 4.1% rate, are accelerating faster than any reasonable measure of productivity, and profit margins have been steadily shrinking -- from a 30-year high of 13.8% during the third quarter of 1997 -- for three straight quarters. Recall this

Greenspan

line from the

Humphrey-Hawkins testimony:

Given that compensation costs are likely to accelerate at least a little further, productivity trends and profit margins will be key to determining price performance in the period ahead.

Futuristic

One fed-funds futures trader writes in to say:

Trading in the fed funds pit has gone from complete boredom to schizophrenia. Traders are convinced the Fed will ease next year. They are doubtful it will happen this year, though they lean a bit more toward November than December.

Another echoes the comment:

Fed fund futures have been a little crazy lately! We have gone from 94.50 (target) as far as the eye can see to basically an ease sometime by the first quarter of next year, with a small chance by the end of this year!

Use fed funds contracts -- and not the yield on the two-year note -- to get the clearest read on Fed policy sentiment (all kinds of people buy and sell twos for all kinds of reasons). This site featured an

excellent piece on how to do it back in January. Check it out. You can find a calendar of

FOMC

meetings at the

Fed site and you can find fed funds contract prices at the

CBOT site.

Side Dish

One reader asks if I write drunk (no implication as to whether it helps the column or hurts it). That brings to mind a

Lichtenberg

quote:

There is no harm in doing one's thinking and writing while slightly drunk, and then revising one's work in cold blood.