After 30 years of success, the endgame is finally here. We are witnessing a profound secular sea-change: the failure of expanding debt and leverage to lift the real economy of wages and household income. When push comes to shove therefore, you only need one chart to predict the future...
As the Goldman Apple Industrial Average drops below 18,000, the cash-open bounce in stocks has now been erased and the major US equity indices are making fresh lows. Despite AAPL's gains, the Nasdaq is now red for March and the S&P 500 down 1%...
Despite Tsipras Complaining That "ECB Has Rope Around Our Neck" Greece Finds Enough Cash To Make IMF PaymentSubmitted by Tyler Durden on 03/06/2015 - 11:10
While the biggest economic event of the week was the US February jobs report, one of the lingering concerns following last week's report that Greece is in financial dire straits, is whether the Eurozone member nation would default on its IMF loan as soon as today when it had a scheduled €310 million payment due to the IMF. Earlier today, in the build up to the NFP report, it was reported that indeed Greece had managed to dig deep under the cushion and find just enough cash to make the required partial loan repayment thus avoiding a technical default. As Reuters reports, "struggling to scrape together cash and avoid possible default, Athens made a 310 million euro (223.37 million pounds) partial loan repayment to the International Monetary Fund, while Tsipras pleaded to be allowed to issue more short-term debt to plug a funding gap."
A month ago we asked if the "BLS Forget To Count Thousands Of Energy Job Losses" when as we showed, the BLS reported that only 1,900 jobs were lost in the entire oil and gas extraction space, which was a vast underestimation of what is taking place in reality, when compared to not only corporate layoff announcements, but what Challenger had reported was going on in the shale patch, when it calculated that some 21,300 jobs were lost in January in just the energy sector. Today we ask again: did the BLS once more forget to add the now tens of thousands of jobs lost in the US energy sector? We ask because the divergence is getting, frankly, ridiculous.
5Y Treasury yields have swung 16bps from the immediate post-payrolls reaction trough. Across the entire curve yields are exploding higher and for the first time in 2015, all yields are now higher since the start of the year... 30Y yields are still 24bps lower post-QE3 but 2Y yields are 24bps higher.
The three biggest single-category jobs added in February (because Professional services includes numerous occupations), were also the three lowest quality, lowest paying ones:
Leisure and Hospitality, added 66K jobs
Education and Health added 54K
Retail trade added 32K
Together these three job categories accounted for 152K jobs, or more than half the total February job gains. They also represent the lowest paid jobs in the US.
Last week, Buffett moved the goalposts. If money were what really matters, Warren Buffett would have no peer. He has had unparalleled success in this world; surely he has a first-class ticket to the next. And if his good fortune were of his own making, what would he have to fear? But what if fortune, which smiled on him so broadly for so many years, begins to frown?
Payroll employment continued to grow at a strong pace, exceeding consensus expectations. The unemployment rate fell due to lower participation. With the final employment report in hand before the upcoming FOMC meeting, we think the Committee will modify its forward guidance on March 18. Our forecast remains for the first hike in the fed funds rate to occur in September, but today's data affords the possibility of a hike as early as June
When the better-than expected headline data hit, stocks briefly questioned its reality then plunged. Bond yields initially tumbled (before the number had hit newswires) but once it did, they soared back higher (now up 6-8bps on the day). Crude plunged, bounced, and re-plunged as most commodities are notably lower amid the surge in the US Dollar. Good news, it appears is really bad news as a boxed-in Fed will be forced to raise rates.
When all else fails...
*APPLE WILL JOIN THE DOW JONES INDUSTRIAL AVERAGE, WSJ SAYS
Prepare for unknown craziness as the world's largest and most-owned stock will dominate another index (along with Goldman as we noted previously).
For those (very few now, with even the Fed admitting the unemployment rate has become a meaningless, anachronistic relic) still wondering why the unemployment rate dropped once again, sliding from 5.7% to 5.5%, the reason is that while the number of unemployed Americans dropped by 274K thousand while those employed rose by 96K, the underlying math is that the civilian labor force dropped from 157,180 to 157,002 (following the major revisions posted last month), while the people not in the labor force rose by 354,000 in February, rising to a record 92,898,000 (people who currently want a job rose to 6,538K) matching the all time high number of Americans not in the labor force.
As Chinese exports crashed in January (and imports were extremely weak), one could be forgiven for expecting the US trade deficit to be more extreme than the tumble it experienced in December... but no. The US Trade Deficit printed $41.8bn, slightly worse than the $41.1bn expectation but 'better' than the adjusted $45.6 billion. Imports dropped 3.9% in January and Exports fell 2.9% but YoY imports fell 0.17% and exports fell 1.75% - the last time both fell YoY was November 2008. This is the 2nd month in a row of worse than expected deficits (and 4th of last 5). The shift is led by big drops in Food & Beverage (-9.1%) and Auto (-7.0%) exports and an 11.3% plunge in Industrial Supplies imports.
Well, a June rate hike it is, because despite all the talking down of the February NFP number which was supposed to be whacked due to snow, it just came out and it is a doozy at +295K, smashing expectations of 235K, and above the January 239K (revised lower from 239K).
While America 'believes' it is highly productive, former Fed Chair Alan Greenspan instantly dispels that myth in another ominous appearance on CNBC this morning, "American productivity has gone nowhere in the last few years," and that is what is holding back wage growth. Furthermore, reiterating his concerns about the inverse relationship between surging entitlements and weak savings rates, Greenspan noted, "the annual rate of increase in entitlements of 9% per year...and the people that receive it believe they are getting their money back and have a right to it." There simply is no long-term investment as businesses favor short-term actions as the Maestro explains Fed QE lowering the real rate of interest "has been responsible for the rise in P/E multiples... and when rates normalize, that will reverse," adding that "we can't argue that we are extremely overvalued in the marketplace."
The one thing to note about today's "decisive" jobs number, is that most are scrambling to warn that they really have no idea what it will be due to yet another unprecedented instance of cold weather and snow in the winter (see "Goldman Warns Snow May Leads To Lower Jobs Number, But Snowstorms Will Result In Higher Wages"). The reality is that, based on recent ADP trends and the shale patch reality and recent ISM/PMI surveys, today's NFP should print well below 200,000 (unless some 100,000 bartenders were hired in the deep of winter), not where Wall Street consensus expects it, at 235,000 (on a range of 150K to 370K.