Unreal, it is just unreal, here we are 2.5 years into this recession and we are still seeing initial claims well over 450K a week, how? The pundits told us that employment had turned the corner months ago and we are in a strong “V” shaped recovery, but employment is a lagging indicator and should show real strength by March 2010. Well, it is half way through June and the only sector showing strong job growth is temporary government jobs, some recovery.
The 4 week moving average of initial claims is at 464,000 people, this is unbelievable and is not a good sign. To put this into perspective every month 1,856,000 are filing for initial jobless claim benefits, that is twice the amount of people that live in the entire state of Montana or two thirds of the population of Las Vegas, three times the amount of people that live in Boston Ma, you get the picture now? That is a lot of people. This is not a sign of job creation or job growth so it is beyond me how the President could have stood on that podium a couple weeks ago and proclaimed there is proof that the economy is getting stronger everyday when so many people are losing their jobs every day, not getting jobs.
I may be bearish and all, but this is beyond what I would call bad news and downright scary. People are not leaving their jobs for greener pastures, they are being laid off because business stinks. The proof was n the CPI which shows clear lack of pricing power or deflation dropped .2%, even taking out energy prices were only higher by .1% which shows zero pricing power except for iPads. What this means is the market is severely overvalued as it deserves to be trading at much lower price multiples based on deflationary pressures. We are not in 1930’s type deflation, but we are certainly heading in that direction, especially with Europe in turmoil right now.
To say there was any strength in today’s figures is simply lying to yourself and trying to spin bad news. I am sure the market will head higher because, well, the market sees no bad news until it is sitting on its chest, but it is clear as day that GDP is rolling over and employment is worsening, not improving. Would I short the market? Yes, but if you do not want to go short sell into rallies and buy bonds or stay in cash because when the market realizes it needs to compress P/E multiples we will move from 1,100 on the S&P to 900 in the blink of an eye. The market is not the discounting mechanism everyone tells you it is, just remember September of 2007 we hit all time highs when the crisis was hitting full steam, so higher stock prices is not indicative of a healthy economy.
One final thing, the parade of bulls on CNBC are long only mutual fund asset managers, where is their bread buttered, by having your assets in cash or in their funds? Think about that when listening to them dish out their “timely advice.”
As I had suspected, months ago, jobless claims are rising rapidly every week now. We are almost back at 500K a week for initial claims as all those temporary workers are let go from retail, that is my suspicion at least. I remember claims that once the initial claims fell below 500K we would see job creation. However, the only creation of jobs were the wonderful accounting gimmicks from the BLS as they take more and more people out of the workforce, dropping the unemployment rate and making the monthly employment report look much better than it really is.
The trend is clear now, unemployment is getting worse. Even though the initial claims data is volatile it is the best barometer to what the employment number is going to look like. Unless the government has hired far more census workers than reported I expect the employment number to look pretty bad next week. Of course, there is the ever transparent way the BLS does remove people from the roles, but most people now look for that. It is also clear that the 1M jobs the BLS were forced to add to the unemployment number in February shows that their models are broken and should be adjusted, perhaps remove the birth/death model altogether.
There is no way that the ‘backlog of filings’ is to blame as they made the claim, a couple weeks ago, that they were all caught up. The only real reason for the worsening situation is that the job market is worsening. Even the mass layoff indicator is way up again, not a good sign, which means the employment number will get much worse. The good news is that no trader believes the data coming out of Washington and, based on the confidence numbers we saw, the public is also not buying that things are better. The man on the street usually has a better grasp on how things are out there versus the ivory tower economist who does not have a clue, usually.
On the bright side durable goods orders were through the rook, until you ex-out autos or transportation altogether. However, that number really is volatile and is not indicative of any real recovery, unless you are Dennis Kneale. There has been some improving data out there, but this is a statistical recovery and nothing more. From my perspective this makes equities very overvalued.
Well, last week was the breaking point in the equity markets and there is no denying that. The GDP figures were cooked to say the least and shows that the economy, unfortunately, cannot survive on its own without massive government intervention. It also proves, to me at least, that there will be, I place a 70% probability on it, that there will be another stimulus plan by the end of 1Q10. In the upcoming week we have massive data coming out, but there are a few data points I am waiting for, the ISM report on Monday and the employment reports, ADP on Wednesday, the initial claims on Thursday and the employment report Friday. However, there are tons of other data points also being released that you should pay attention to and look beyond the headline numbers on.
On the absurd side of the reports last week was the Whitehouse’s attempt to tell us that is wasteful $787B stimulus package was working and “saved or created” 650K or 1M jobs. First, there is no way to quantify a saved job and any economist worth their salt will verify that as a factual statement. Second, they said the $283B or so tax benefit, the most painful joke of the stimulus bill, helped create more jobs because it lessened the tax burden of working Americans. How an additional $20, and I am being generous with the $20 figure, a week tax savings is saving or creating jobs is beyond me, but hey the government has its own mathematical formulas to suit its own purposes. What is so painful about that portion of the stimulus is that you need to have a job to reap the benefits of that tax savings or wait until you file, unless I do not understand the language of the bill and I am not a CPA.
I can see how bailing out GM and Chrysler would have quantifiable results in the “saving” jobs category, but outside of that there is simply no way to tell. Then we have reports coming in from the Associated Press, not FOX News mind you, that the creation of jobs figures is double counted or just false figures. Considering the last report released just a couple of weeks ago showed such different results I find it way to convenient that this report shows such stellar results, not that our government would ever be aggressive with their math figures. The other reality is that if 1M jobs were saved or created how in the world can we be shedding 530K jobs a week still?
That means we are in far worse shape than we are being told, which sounds about right to me. Not only that, but look at all the consumer sentiment numbers coming in that all show jobs are tough to find and getting harder to find. The picture is not improving and considering a 3.5% GDP print and all the rosy talk from Biden, Obama and their economists this thing, whatever we are calling it now, is over. However, if it is over and things are better, why are the people saying I can’t get work? Because it is not over and, in fact, it is getting worse at least on the jobs side of the picture which does not bode well for the economy itself.
There is so much uncertainty out there that personal spending decreased, according to the report of Friday, and disposable income is way down, according to the GDP report. Those are two key pieces of data that were completely ignored by the media, except for the spending report of Friday. All you heard about in the GDP report was how great it was and that if you subtract government stimulus we still had growth. Well, wait a minute, if you look at the consumer side of the equation and how incomes and disposable incomes are down that is very forward looking and not good. In fact, GDP is review mirror looking, but the consumer income portion is forward looking, that is why CNBC and the rest of the media ignored it. It is because there is trouble ahead, big trouble.
Corporate earnings were a factor of international growth, which may continue, but it was also a factor of a weaker currency as well. Now we are seeing a stronger dollar, so what does that mean for Intel’s earnings next quarter? I am willing to bet they will meet their EPS, but miss on their revenue if the dollar steams ahead in value, which it will if I get my continued correction I see coming. I am not picking on Intel, I love their product, but I am using them as an example as they grew their international business and their US sales dropped last quarter and they had favorable FX results, like many other firms. This could be a problem moving forward in the tech area, especially if our products get more expensive overseas.
Looking ahead to next week, Thursday’s employment report is going to be interesting, to say the least. We have had another month of straight 500K a week initial claims, but estimates say that last month only 190K will actually be unemployed, which is a joke of course and Breifing.com estimates 235k for this figure. What is important to look at is the revised figure for last month, the U-6 number and what games the BLS has played with the birth/death model, which is a guesstimate that a certain percentage of terminated workers will start their own businesses. That birth/death model has been busy this year and last year adding hundreds of thousands of phantom jobs to the report, so many in fact that the BLS quietly will add an additional 825K to all of the 2009 unemployment numbers in February of 2010, nice right? Be sure to come back here to see what they add in after the number is given and I will be more than happy to share how many phantom jobs are added to this month’s report.
My point is that with 500K+ a week filing for initial claims, that’s 2M a people a month, and over 50% of consumers saying that finding a job is very hard and the average time to find a job is 6 months how can we only have 200K a month actually be unemployed? It is not possible and unrealistic. If this was the case we would have no need for extended unemployment benefits or emergency claims along with, there is a pending bill now in the Senate, another measure to extend benefits to about 2 years for unemployment benefits. There is no conspiracy or anything of that nature happening, they are doing it right in front of you, but they just burry the numbers in the reports which is why you need to look at the U-6 report on Thursday because that will show you what the real unemployment number is. It is definitely not 9.8 or 10%, it is a lot higher.
So, if you want to believe that 1M jobs were saved or created, believe it, hey my kids believe Santa and the tooth fairy still so there is nothing wrong with a little belief in magically creation. However, we all have to grow up and unfortunately we all learn that there is no Santa or fairy that leaves money under our pillow, we would all be toothless, and reality sets in. I know that we all have hope that President Obama will live up to his Hope and Change campaign promises, but it has been a year and guess what? There has been no change and my hope for change was killed the day he brought Larry Summers back into the Whitehouse. I saw this movie before and it did not end well the first time and I am sure the sequel will end even worse.
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