What is there to say? I was closer than most analyst who estimated 500-700K with my 300-400K call. However, as I said before the vast majority were temporary jobs and in this case it was government Census temporary jobs which is a double negative as they create a tax burden and will end very soon. Construction jobs, so much for the 2.7% jump in spending, lost 37K jobs and private temporary jobs also jumped at a healthy rate, all bearish.
On the plus side, hourly income had some increase and the work week had a nice uptick, but that is it. The uptick was also not out of the norm so disinflation is still strong and on a longer term trend the direction is down to flat for income, not good news. Without government we would suffer job losses and we will head into a double dip by 3Q10 for sure. The initial claim data is validating all of this information so I am not out of line or a doomer, it is all data driven.
The Birth/Death model added a stunning 215K, not seasonally adjusted, to the report which helped lower the overall unemployment rate. This was the largest addition via the birth/death model, officially, since the Lehman collapse, why? With a stunning 430K headline number there was little need to pad the B/D model this much, you would think, but there was. You see, the unemployment rate would not have dropped otherwise if they left it alone so with the addition of a little BLS magic Obama and Company have a minor victory. I do not like the model and it needs to go as it underestimates unemployment every year.
Regardless, we are in for a bumpy ride and the markets had reached their highs for the years and had rolled over for good now. I feel good about being short here. Europe is in major trouble and things in America, on the employment front, are in rough shape. The economic data certainly does not support elevated P/E multiples so look for value, dividends and high quality bonds. Moving forward a nice healthy cash position is probably advisable as if some people are right, myself included, we are in real trouble here. My short-term S&P target, 1017 with a medium term target of 900.
I am back from a much deserved break and am beginning to catch-up on the economic data that has bulls all geared up for a push to 11,000 and 1,200, for the Dow and S&P respectively. I actually have little doubt that the markets will push higher as investors like watching their stocks go up while they do nothing, which is one reason why up volume is so much lower than down volume because investors will sell fast if stocks head south. Do not get me wrong, I am bearish on the markets, but one has to trade the tape in front of them.
I was just combing through the employment report and it is not too bad, but I see this data as less bullish as the talking heads will on Monday. Why? Well, I did not like the BLS Birth/Death model adding 81K, the government adding 48K and temporary workers brining in another 40K. Those who read follow my writing know that I hate the Birth/Death model because, frankly, they make up these numbers based on some very optimistic assumptions and as you know the B/D model underestimated job losses for 2009 by about 1M. If I had a model that underestimated employment by some 17% I would probably change the methodology or just get rid of it, but not the government because this model postpones the bad news until a later date, like we saw in February with that huge adjustment.
I do not see temporary employment as a bullish signal at all, keep in mind that since September 2009 temporary employment has added 313K jobs. If temporary employment was truly a leading indicator we would see this number coming down as these temporary workers move to permanent, but this is not happening. I admit, I could be wrong about this, but I really do not believe these people will become permanent employees anytime soon. This is kind of confirmed by the hours worked data and the inventory data from the ISM report which shows hours are increasing and the inventory build is still in full force. End demand just is not there and there is still wage deflation.
There is also an uptick in disability claims as well, which is what many apply for when their benefits either run out or they cannot find work because disability pays much more than unemployment. If one looks at the duration of time unemployed they will see that 44% of those seeking a job is on the dole for 27+ weeks, not good for a “V” shaped recovery. Furthermore, 60% of those unemployed are on the dole for 15 weeks or longer, again, not good. On the bright side the participation rate is increasing, but at the same time marginally attached workers has also increased.
Essentially, I view this report as flat, excluding government jobs and the B/D model, which is good news. While this one report is good initial claims are still out of whack at well over 430K a week, that is about 2M people a month, and I believe last week’s downtick was temporary, employers hate to fire people near holidays which is why claims plummeted in December, but resumed afterwards. This will either be confirmed or disproved over the next few weeks. I firmly believe, at best, the labor markets have merely stabilized for now, but the real question is what happens when inventories are completed? We will find out, but I am sure it is not news we actually want.
The fact that we also have so many part-time workers out of necessity pointed to an extremely weak employment situation. I heard a story about a dog kennel owner who placed an ad on Craigslist.org for an “assistant” who would be in charge, this was clearly stated, dog fecal matter. This was an $8.50 an hour job, in Washington State, and he had 218 resume responses from teachers, construction workers, hospitality, and other professionals, the same sectors the BLS’s B/D model says is creating thousands of jobs. I think that story speaks for itself.
We also need some 140K new jobs a month just to keep up with the population growth, that is scary considering there are 15M people unemployed right now. This means we need, keeping the numbers realistic, 300K+ every month for about 6 years, these are back of the envelope figures, to come back up to full employment. Forget all the optimism and look at that figure realistically and you make the conclusion of whether we will reach anywhere even close to that figure in the near future, excluding government jobs as well. In short, we have serious employment problems that will not cure itself and will take a long time to correct itself.
What is going to be odd is the fact that this may cause the market to rally in the short-term, but the markets are very overvalued for anyone using a realistic earnings estimates. The parabolic move has been cheered by the media, but I believe this move is creating undue optimism about future equity prices. Yes, the data is getting better, but not Dow 11,000 better. Of course, I am bearish, but I do have longs in the biotech area, dividend stocks, precious metals, high yield and international holdings, but at the end of the day an 8% rise in frontier markets, 4%+ in high yield and is a bit crazy considering current valuations. Yes, I am making money and complaining about it, go figure, but I also have shorts and VIX calls as well. Let’s hope for better economic news, but I am less optimistic than most that we will get it.
I just read a story where Larry Summers, White house economic advisor, is blaming the weather for a potentially ‘distorted’ jobs report this Friday. Seriously, we are still going with the bad weather? It must be snowing everywhere, the UK, Greece, China, the Ukraine, Dubai, etc. The data all over the world, including today’s ISM number, is rolling over and in some areas it is just plain scary. I got news for you, it has nothing to do with the weather, at all.
Over the past few weeks more and more companies announced layoffs, not a good sign, and the initial claims data went way up over the past 4 weeks. The data started to roll over before the snow hit the ground. Not to mention, but the last time I checked it usually snowed in the winter time anyhow. I realize we had a few days of snow, but nothing major and it is beyond me how snow would be firing people. I will say that the weather impacted retail sales, but not all this other data.
Let’s not forget that the vast majority of the bad weather was also in the Northeast so I am very excited how the bad weather in NY caused California to have increased unemployment figures. Never in my life have I seen such a snow job being perpetrated by the talking heads and now Washington blaming bad weather for horrible economic data. What will happen next month when we have even more layoffs and there is no weather to blame? Maybe we will blame the sunshine because people are so broke they cannot afford sunglasses… wait that kind of admits the economy stinks, never mind.
My point is that the data, well before the snow, rolled over viciously and it is the economy that is the problem. We are over 2 years into this thing, recession/depression, whatever, and we are still losing jobs, that is not good. The unfortunate part is we spend trillions only to be in a position where employment is continuing to contract. It is fair to say that the stimulus probably helped a little, but clearly it was not as big of a help as the administration claims. As an aside, it will be interesting to see if some municipalities file for bankruptcy in the next couple of weeks, maybe that is because of the bad weather as well.
Today was packed full of economic data that was less than impressive and in some cases downright scary. As you already know GDP, as predicted, was restated down to 2.8% and is likely going to be pushed further down again by the time we get the next report. Most say that the GDP revision is no big deal because it is looking in the rearview mirror, but I see it as a big problem as the market was pushed up dramatically based upon that report and many hailed the recession over based on that number.
The reality is that the revision down shows, with absolute clarity, that the economy is weak and without the governments support we would have pushed a negative number. I will say the number would have been relatively flat, somewhere in the -.5 to -.1%, but nevertheless very much anemic and not reflective of this so called V shaped recovery. The consumer is also in rough shape and the consumer confidence number was certainly nothing to write home about, but hey let’s not let the facts get in the way of a great recovery story.
The housing data was very interesting especially if you like month old stale data, but the widely watched Case-Shiller Index was up a whopping .3% which gave everyone a reason to cheer this morning. Of course it is widely known that the reason for the increase was because of distressed home sales and the tax credit. That housing data was on top of the huge, seasonally adjusted, data on Monday showing a 10% jump in sales, but again it was seasonally adjusted and the jump was because of, guess what, distressed sales and the first time tax credit. I know, the tax credit was renewed and expanded which I am sure will do wonders for the estimated 25-35% of existing home owners who are underwater in their existing mortgages and the 17.5%, U-6 report, unemployed or underemployed in America, not to mention the 50% of Americans worried about losing their jobs or having their taxes hiked to unspeakable levels. Again, let’s not let the facts get in the way of a great recovery story.
The Fed minutes were released today, nothing too shocking in them, but the mere fact that the Fed is not willing to remove its balance sheet largesse or raising interest rates should be a huge red flag for everyone, but apparently it is not. I happen to agree that there is no immediate inflationary threat, I say that with some apprehension as oil and other commodities do indicate some inflationary pressure, I would not expect any interest rate hike for some time into 2011 or ever. Given our countries debt load do you really think we could ever raise interest rates? I don’t think so. We have $12T in total US debt, treasurydirect.gov which is counting backwards now for some reason, and out of the $7T in treasuries some $2.8T comes due next year.
Add another $1.4-$2T in new deficit spending, plus the next new stimulus to be announced soon, and the US has to raise some $4.8-$5T in debt next year, not including refunding. Based on that number and the current interest rates at 2.4%, or so, we cannot afford to raise interest rates because the debt service costs would cripple us and we are having a hard time placing longer term treasuries, just watch the auctions for proof. That means we will constantly have to be issuing new deficit debt at shorter maturities and rolling our old debt into <10 year treasuries. Soon we will have to be rolling $8-9T a year in new and old debt every year and that means we will not want to be paying a lot of interest on it. Even though the Fed is “independent” from political influence, which it is not (see quantitative easing for proof), it is my contention that it has been told that it has to keep rates low forever. Well, maybe they weren’t told, Ben is no dummy after all, it is really just a math thing.
This leads me to believe that the dollar will probably stay weak for sometime into the future, like forever. I do think that we will see a spike in its value in the near future simply because it is oversold and the global economy is not that rosy, see China and the bubble talk from leading real estate moguls. If China does pop, which it probably will, then the dollar will see its day in the sun for sometime leading equities lower, commodities lower and treasuries higher. As I have said for some time now, stocks, bonds and commodities cannot all be right yet they are all going up at the same time, that is not a good sign, sorry.
Longer term the dollar will go much lower and here is the really scary thing, the Yen is outperforming the dollar. Japan has lower credit ratings than the US, they have an older population and higher debt to GDP ratios, but we are following right behind Japan fairly quickly in all categories. Based on that information how in the world can the Yen be doing so well, comparatively, to the USD? That should worry people, but it does not. Mish Shedlock actually foresees a crisis in the Yen before the USD, but if that is the case why is it doing better than the USD? Mish is no dummy and I hold him in high regards, but the signal I am getting is that we are in bigger trouble than Japan. I base that on a few facts, they save money, are net exporters and creditors, we do the exact opposite. Therefore, if the dollar strengthens and commodities get hit, buy gold heavily.
At the rate the US is going we are heading for fiscal disaster and we have an increasingly bolder President and Congress who seem to endorse the bankruptcy of the republic. The previous administration is equally as guilty as they did not see a spending bill that they did not like either, but the primary difference is we were promised changed, transparency and real change. We received none of what we were promised and from my vantage point the economy, which is what Americans are really looking at, is getting worse not better.
In my neck of the woods Penn Traffic just went into chapter 11 and will promptly be firing 5,000 people, they were a grocer so go figure that a grocer went out of business, and Adidas is moving 100 jobs out of this area for foreign shores, those are not green shoots. Only now does the government decide to make jobs a top priority, but I thought that is what the $797B stimulus bill was for? I guess I misunderstood what they were saying when they passed that bill at the dead of night on that Friday in February. Never fear though as the government is here to save the day with another estimated $500B jobs bill that will more than likely be passed in early January 2010, just in time for the BLS announcement of the overstatement of some 800,000 jobs between January and March of 2009.
My point is that is things were truly better than we would not even be having this discussion. Unemployment would not be climbing towards 11% and firms like Johnson and Johnson would not be trimming their work force by 6%. The Federal Reserve would not be keeping rates at 0% and continuing quantitative easing, which is monetizing the debt no matter how you cut it.
Foreclosures would not be increasing and the mortgage modification programs would not be failing, see CNBC Reality Check for the story how people still fall behind after they modify their mortgage, the FDIC would not be in the red by $8B, there would not be 550 banks on the FDIC troubled bank list (an increase of 140 banks since last quarter), banks would not be worrying about bringing on off balance sheet SIV’s into the light, and the Fed would not fear anyone looking at their books. If all were fine, none of those things would be open for discussion, but they are and we are talking about them. As I have also said many times before, it is a year later and what has really changed? Banks still hold the same bad debt on their books, but the accounting rules have changed, that’s it and everything else is the same which means we still got major problems.
Unemployment tomorrow is going to be horrible, how do I know? Goldman upped its estimate from 200K to 250K and we know they got that direct line to treasury and those ‘advanced’ reports. Remember this happened in August as well and guess what, the numbers came in plus or minus 5% of Goldman’s estimates. I mean seriously, can you make it less obvious?
I did mean to post this earlier, so I am sorry, but if you followed my bearish tone then you would already own TIPS and 2 year treasuries and while you would not have done as well as equities you would have been up some 3.4% and 2%, respectively, in the recent months. That’s not too bad for bonds, but I even trimmed my exposure there just because things do not seem right. I did increase my exposure to PCY because it has been stable, it’s outside of the dollar, which will have a nice rally in the near-term, and I love emerging market debt. Outside of that when the dust settles I plan on jumping into the BRIC heavy and other foreign investments trying to leave anything exposed to US credit markets behind.
Of course, I will own some US stocks, but it will not be the largest holdings I have by any stretch of the imagination. As you all know this rally is done and rational thinking is about to bring us, in a very abrupt and radical way, back down to Earth. We have not had economic data that merited this type of rally to begin with, but what do I know. Anyhow, a couple of things made me chuckle, apparently Cramer, with his canny ability to pick losers, told everyone to buy CIT and Citi, CIT is dead and Citi is headed back to the $2 area.
The other vindication is the fact that David Rosenberg confirmed exactly what I have been saying all along about unemployment. During a credit collapse unemployment is a leading indicator, not a lagging indicator. I was beginning to think I was nuts, kidding of course, but hearing all the idiots on CNBC makes one nuts after awhile when you hear 550K a week job losses are a lagging indicator when the problem is defaults on loans and credit products, duh. I am still waiting to see the young idiot who debated Trim Tabs Charles Biderman last month claiming his economic indicators are “on fire” and GDP will be up”4 or 5% in the 3rd and 4Q09 and then some.” Based on the data from yesterday and the ISM today, car sales data, unemployment and pick any other horrendous data point you want I certainly don’t see 4 or 5% GDP growth any time in the near future, but that asshat did. Yeah, our educational system is fine when we are turning out clowns like that.
Yet, guess who continues to astonish me? Mr. Doom and Gloom himself Marc Faber who said things are bad, but said in March that we will have a major rally before a selloff happens again. Hmm, guess what seems to be happening? As evidence of his holinesses rightness I have included recent videos confirming it below, enjoy.
Be the First to Comment 
Subscribe to Annuity IQ's Feed
