On Government DOL Misrepresentations Part 2: Following The Money, Or In This Case The Average Unemployment PaycheckSubmitted by Tyler Durden on 01/02/2010 - 06:57
Yesterday's post on documented Treasury outlays for unemployment insurance benefits, spurred various questions which we wanted to shed some light on. To recap: the gist of the post was that the divergence of average monthly premia paid by the Federal government, superimposed with actual changes in the population of those collecting unemployment insurance (per the government's data) has diverged dramatically. The key premise in the analysis is that average monthly "allowance" paycheck has been relatively flat, and while there have been marginal changes ($25 dollar increases to a fraction of the population eligible for such increase), the core of the problem is captured by the chart below. As one can see, the average monthly payment since the beginning of Fiscal 2008 has been $1,207. If one excludes the divergent period since March of 2009, the average was just $1,109 per month. Yet the most recent data indicates that in December, according to the government's data, the actual outlay came down to $1,536, 21% higher to the total average, and 28% to the narrower average payment of $1,109. Is the government engaged in another, stealth stimulus by gradually padding unemployment insurance benefits? After all the money printer is on, and with banks not lending, what easier way to get the money straight to the (unemployed) population.
As we move into the new year and 2010 forecast after forecast hits the Street, invariably the “mountain of money on the sidelines” argument is being put forth by more than a good number of Street seers and pundits as a rationale for bullishness on financial assets, and equities specifically. We’ve heard this same argument again and again for decades now. Invariably these seers and pundits are referring to money market fund balances in their so-called analysis. Don’t get us wrong, over the last few decades we have seen record money market fund balances be created. But the fact is that if you go back to the early 1980’s and move forward, there has virtually never been a down year for money fund balances straight through to 2002. Point-to-point from 2002 through 2006, money fund balances experienced no growth. But you also know that during this exact period, we experienced both a cyclical bull market in equities and a coincident multi-generational residential real estate bubble of incredible proportion. It’s no wonder money fund balances did not grow as it‘s simply not often that we get a double barreled asset class movement as was the case from ‘02 through ‘06. But off to the races with growth in 2007 and beyond has once again been seen in money funds until just recently, punctuated by the safety trade movement of last year and early this. Of course once Bernanke and friends moved the Fed Funds rate to academic zero, dragging money fund rates with it, mom and pop investors have dutifully moved into bond funds in record amounts. Just as the Fed wanted, but ultimately to investor’s detriment when generational low interest rates are no more. The point is that the theoretical “mountain” of money has been on a path of growth for three decades now. The mountain simply grows ever higher and analysts again and again point to it in each cycle as a rationale for yet ever higher financial asset prices (of course completely disregarding the issue of valuation in the investment decision making process using this logic). As we see it, if the mountain of money argument held significant water, we would never have experienced two instances in the same decade where the equity market was cut in half. The so-called mountain of money in money funds should have cushioned such an extreme historical outcome…but they did not.
There is an old saying, "when in doubt follow the money." These days investors have lots of doubt about pretty much everything (if not so much money). And with data from the government increasingly bearing the Quality Control stamp of approval of the Beijing Communist Party, there is much doubt in store courtesy of an administration which will stop at nothing in its competition with China as to who can blow the biggest asset bubble the fastest, data integrity be damned. Undoubtedly, of all government released data, the most important is, and continues to be, anything relating to unemployment. This is precisely where the government's propaganda armada is focused. Yet in matters of (un)employment, the ultimate authority is, luckily, the Treasury, and not the Fed. "Luckily," because when it comes to making money "difficult to follow" Tim Geithner's office still has much to learn. Which is why when we looked at the Daily Treasury Statement data we were very surprised: because it indicates that the government could be underrepresenting employment data by up to 32%!
It was only fitting that a year marked by irrational and erratic trading, saw a substantial volume selloff in the last 15 minutes of trading after there was absolutely no volume done all day. What sparked it? Only a few momentum chasing quants know, even as the bid seemed dangerously close to getting unglued. Suddenly all the big-cap liquidity provisioning seemed just a tad tenuous. Another way of looking at it: a cheap appetizer of things to come. Is the January 4 rush for the exits entre next?
One of the great paradoxes of life is that the smarter one is, the better one realizes just how little one knows. The same thing is true with forecasts: one can hypothesize and conjecture, but if one is unlucky, one is screwed: no matter how thought out, error-proof or logical the narrative - it is the unpredictable events that ultimately shape events, not the "priced in" obvious factors. The Heisenberg Uncertainty Principle applies in a perverse fashion not only to the wave-particle duality in the quantum realm, but to the very underpinning of economics: by predicting the future we implicitly change it. The futility of forecasts is well known to all those, who with the exception of a several few, whose very existence is an economy of scale "strange attractor" (think Warren Buffett and Goldman Sachs), have tried to repeat a winning performance, be it based on fundamentals, technicals, or kangaroo entrails. It is also sufficiently useless to the point where we will spare you a Zero Hedge set of observations of what to expect: if you have been reading this blog, you know what we believe is relevant as we enter 2010. How it will all pan out, however, is a totally different story. It is therefore not too ironic, and somewhat fitting, that Goldman Sachs' chief economists do not leave 2009 with a dogmatic set of forecasts, which, just like every other year would have the success rate of a coin toss, but with 10 key questions addressed exactly one year into the future. Here are Goldman's 10 Questions for December 31, 2010.
With every deep-thinking pundit looking out at 2010 and predicting this and that, the irony is that virtually all investment decisions will be derivatives of one simple outcome: do we have inflation or deflation. Numerous opinions have been set forth recently, each of which presenting more convincing and detailed theses on why [stag/hyper] [deflation/inflation] will be the dominant theme in the year to come, accompanied by pretty charts and convoluted diagrams. And while one can write books on all the political, economic and financial aspects that will determine either outcome, we have decided to avoid that, and instead would like to remind readers of a little noticed paper by Brait Capital Management, published in August of 2009, which conceptualizes all the key themes in the inflation vs deflation debate.
Freddie 30 Year Fixed At 5.14%, 4 Month High, As 30 Year-1 Year ARM Spread Hits Another Absolute RecordSubmitted by Tyler Durden on 12/31/2009 - 13:55
A week ago Zero Hedge discussed the spread between the Freddie 1 Year ARM and the 30 Year fixed, concluding that the recent record spread is indicative that the Fed will do all it can to become the new subprime lender of any resort, even if it means creating exponentially more roll risk, as it seeks to lend money regardless of the probability of ultimate payback. Today Bloomberg points out that the Freddie 30 Year has just hit a 4 month high of 5.14%, a level last seen at the end of August. What is notable is that in less than two weeks the 30 Year Freddie Fixed has jumped by 20 bps. At this rate we will overtake the 2009 high of 5.59% within a month. However, our original observation is that even as the 30 Year Fixed has finally started to move in line with the 10 Year Treasury, which just can't find a floor in the past week, the 30 Year Fixed - 1 Year ARM spread has simply exploded: when we looked at its last it was 60 bps, a week later, it is now at 81 bps. The Fed is now literally throwing money away in the form of Adjustable Rate Mortgages.
Are Federal Reserve and U.S. Government Rigging Stock Market? We Have No Evidence They Are, but They Could Be. We Do Not Know Source of Money That Pushed Market Cap Up $6+ Trillion since Mid-March. - TrimTabs
Same Unemployment Insurance Misreporting, Different Day: Initial Claims Down 22,000 As EUCs Surge Almost Two Hundred ThousandSubmitted by Tyler Durden on 12/31/2009 - 10:48
The fabulous news of the day undoubtedly will be the latest release from the Dept of Labor: Initial Claims for the week ended December 26 came in at 432,000, a 22,000 decline from the prior week, and below consensus. The number was sufficient to prompt Bloomberg's Courtney Schlisserman to come up with the following observation, "Fewer Americans than anticipated filed claims for unemployment benefits last week, pointing to an improvement in the labor market that will help sustain economic growth next year." Perhaps Courtney and Steve Liesman should sit down in a corner and finally figure out what this whole EUC (Emergency Unemployment Compensation) business is - trust us, it is not that difficult. And for the week ended Dec. 12 it surged by 191,669 to almost 4.5 million, another all time record. Three weeks ago we were shocked when this number hit the all time high of 4.2 million: in a mere 21 days it has added a whopping 8% to the total. Unfortunately, at this point we have gotten a little desensitized to new EUC records. We ask Ms. Schlisserman what happens to the "sustainable economic growth" when there are 0 Initial Claims (hurray!!) and a million EUC claims weekly (uhh)? Again, a simple question. Luckily for Bloomberg, the DOL and the BLS there is no consensus number for EUC, as the downside surprises there would have been staggering, if anyone actually cared to report those on the front pages of the even impartial mainstream media.
- China Central Bank Zhou says 2010 is crucial for 'defeating' crisis (Bloomberg) in the meantime his subordinated are learning the intricacies of Treasury collateralized $19.95/pop reverse repos, in advance of withdrawing trillions in excess liquidity
- Lawmakers want probe into aid for Fannie and Freddie - we'll spare you the Dan Brown suspense - the answer is the Federal Reserve in the 85 Broad lobby with a money printer
- FDIC moves to seize slice of bank stock rallies (WSJ) - paging the worthless Mary Schapiro - when will the insider trading in New York Community Bancorp finally be investigated?
- Speaking of worthless, regulatory-captured windbags, Wall Street waits as SEC fails to bring Madoff-inspired reforms (Bloomberg)
- The end of Uncle Ben's unlimited piggybank means no more gains for those who benefited from taxpayer generosity to deadbeat homeowners (Bloomberg)
- Do we need a new reserve currency? (Emirates Business)
- So much for Wall Street sobering up (Fortune)
Our friends at GATA have had enough of the Fed's, and other Central Banks' alleged (and with so much circumstantial evidence presented both at Zero Hedge and elsewhere, that in this case "alleged" is just a term only a lawyer could love) manipulation of gold prices, and have taken Bernanke's monetization, manipulation and money making unlimited liability company to task ("M4 ULLC"). We are overjoyed that yet another entity has followed in the footsteps of our dear late friend Mark Pittman in taking on the one organization that represents all that is irreconcilably broken with the current economic and financial system. We wish GATA much success, and hope that ever more wronged counterparties will seek remedies from the Fed's consistent and blatant wealth transfer from America's Middle Class to the uber-wealthy, Wall Street-originating oligarchy.
The federal government said Wednesday it will take majority control of
the troubled auto lender GMAC, providing another $3.8 billion in aid to
the company, which has been unable to raise from private investors the
money it needs to staunch its losses.
GMAC, which already has
taken $12.5 billion in direct federal aid along with other forms of
government support, is the largest lender to General Motors and
Chrysler dealerships and to their auto-buying customers.
Prepare for "no cash until 2099" offers at a GM dealer near you. Free rear spoiler stickers of Marx, Engels and Lenin included with every purchase of a CTS-V.
Some recapitulating thoughts on High Frequency Trading, in the year in which HFT probably became the primary market dynamic, courtesy of Themis Trading's Joe Saluzzi. "A NYSE study done recently indicates that spreads shrunk and liquidity was increased in large cap names, but in the small to mid-cap names it is just the opposite: liquidity has shrunk and volatility has increased because now you have predatory action." Yet with everyone trading just a few key stock purely on momentum trends, and everything else rising or falling on the beta wave, nobody will care until, again, it is too late.
It is only fitting that one of the most schizophrenic years in recent capital markets history should close with a $5 million CMB auction pricing at 0.000%. And so the circle of chasing risky and risk-free assets with equal passion is now complete. Even as high yield bonds have returned over 50% YTD, investors can't get enough of parking cash in yield free US government-backed pieces of paper. Many have claimed this phenomenon is indicative merely of capital allocation ahead of January 1. Well, that is in a few hours. And with the next 4-week Bill/CMB auction likely to take place within a week, we will promptly see if this is indeed the case. If we end up with another 0.000% soon, then the structural problems at the near-end of the curve will end up being much worse than most have expected.That, and negative 1 month rates coming a-plenty.
Key Theme In Interview With ShadowStats' John Williams - (You Guessed It) Hyperinflation And The Death Of The US EconomySubmitted by Tyler Durden on 12/30/2009 - 14:38
Q: "What can we do to avoid hyperinflation? What if we just shut down the Fed or something like that?:
A: "We can't. The actions have already been taken to put us in it. It's beyond control. The government does put out financial statements usually in December using generally accepted accounting principles, where unfunded liabilities like Medicare and Social Security are included in the same way as corporations account for their employee pension liabilities. And in 2008, for example, the one-year deficit was $5.1 trillion dollars. And that's instead of the $450 billion, plus or minus, that was officially reported." - John Williams