In our Schaeffer's Media Outtakes series, Bernie Schaeffer dissects the news, using contrarian analysis to provide a unique take on the market.

"U.S. employment fell for the first time in four years last month on steep drops in construction and manufacturing payrolls, suggesting that the housing recession is starting to grip the broader economy. The report puts added pressure on Federal Reserve officials to aggressively cut interest rates, starting with its policy meeting on Sept. 18. Non-farm payrolls fell 4,000 in August, the first decline since August 2003, the Labor Department said Friday ... 'For those wishing to see some evidence of the impact of sub-prime on the broader macro economy - look no further!' ING Bank economist Rob Carnell wrote in a research note, calling the data 'downright awful' ... August payrolls were well below Wall Street expectations of a 112,000 rise, even more so when downward revisions to June and July are taken into account ... 'One number is not a trend but this will scare the Fed,' said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a research note. 'They will ease 25 (basis points on Sept. 18) but should ease 50,' he said ... Financial markets expect a slew of fed funds rate cuts beyond this month - as much as 100 basis points in total by year end - to stem the recent credit crunch and its potential economic effect. That view seems supported by the jobs report."
----(Dow Jones Newswire "Awful" Jobs Data Put Multiple Fed Cuts On Table" 9/7/07)

Schaeffer's addendum: So why are stocks tanking today in the face of an unambiguously weak employment report that clearly provides the kind of "evidence" of economic weakness that the Fed (and others who oppose a rate cut) have claimed is needed before rate action can be taken?

Because to the extent the Fed is perceived to be balking at cutting rates and the donkey-like braying of several Fed officials yesterday certainly can be interpreted as such - the bears are that much bolder and the market becomes totally focused on the deterioration in the economy as opposed to the potential for rate relief.

I must repeat my conclusion from my 9/4 commentary:

"A 50 basis-point rate cut is needed, preferably before the next Fed meeting on September 18th. It is needed not for the purpose of bailing out profligacy on Main Street and on Wall Street, but to correct the consequences of the Federal Reserve's excessive rate hikes. And I can come as close to guaranteeing as I possibly can when speaking of the markets that if September 18th comes and goes with no such cut, the markets will not long thereafter force it out of the cold, dead hands of the current Fed Chairman."

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