Well it looks like the rich have taken the tax cuts and used the money to buy 'necessities' at Tiffany's rather than hiring people. Weren't the tax cut extensions necessary for hiring? It really looks like that money went straight to little blue boxes. Does Kraft Mac'n Cheeses still come in dark blue boxes? Maybe we aren't separated into rich and poor, just which shade of blue box you can afford?
It is hard to find anything encouraging about the numbers out today. For the past 4 months now, the NFP has added 752k jobs. 610k of those have been birth/death jobs. If you do year to date, it's not as bad since January saw a large negative birth/death adjustment. I am concerned about the validity of the birth/death model. We have gone through such unprecedented changes in the economy I find it hard to believe that the model is calibrated well.
I still like being short IYR, SPG, VNO on the back of the move in CMBX. I am digging deeper into corporate credit, but 2 worrying signals are there. Recent new issues seem to be struggling. Even GOOG is wider. The indices are also starting to trade fairly cheap to fair value. This combination is rarely good so selling LQD (on spread basis) and HYG while collecting more details for this analysis.
Whenever I unleash a tirade at home about how Federal spending has leaped 40% in three years and how the government is now borrowing 42% of its spending, my wife points out that nobody cares because the deficit doesn't impact them at all. This always stops the tirade in its tracks, because it's so obviously true. As long as the Federal checks keep being issued and everyone gets their 17 "low-cost" meds paid by Medicare, the National Defense State gets unlimited billions to spy on the citizenry and indeed, the entire world, gasoline at $1,000 a gallon flows freely in Afghanistan and other distant corners of the Empire, and Wall Street writes itself billions in bonuses, then nobody cares about the deficit. The only way anyone will feel the deficit is if their share of the Federal swag is trimmed to pay the interest on the ballooning debt. But the Federal Reserve has a solution to that eventuality: keep interest rates (and thus yields on new Federal debt) super-low. At zero interest, $50 trillion in debt costs nothing. Heck, you and I could handle the interest payments on $50 trillion at zero interest. At 1%, the interest is "only" $500 billion a year--no big deal, as we can easily borrow another $500 billion a year, no problem. After all, the bond market hasn't barfed yet and we're already borrowing $1.65 trillion a year, plus hundreds of billions "off-balance sheet" in "supplemental appropriations."
John Paulson's worst nightmare is on the verge of coming true. As reported yesterday, JP is a holder of 34.7 million shares of Sino-Forest, which was halted yesterday after Muddy Waters came out with a report exposing the company as a fraud, and by implication, all the sellside analysts covering the company with a buy rating, not to mention all the funds who had bought into it, as diligenceless monkeys who refuse to actually do their homework and merely follow the leader in the worst example of Wall Street groupthink. Well, yesterday groupthink became gangbang, after names as varied as JP, CapRe, Bessemer, Blackrock, John Hancock, Hartford, and many more learned they all may have been fooled by the biggest ponzi fraud since Madoff. And while the funds may pretend things are good courtesy of the continued freeze of TRE.TO on the Toronto Stock exchange, where it still has to issue an announcement despite promises it would do so before market open, its sister stock, SNOFF.PK continues to trade domestically. And it's a bloodbath. After opening at $18 yesterday, the stock just touched $2.45, generating a loss of over $500 million for John Paulson, who in addition is rumored to be very heavily long the company's bonds. It will be ironic if one Chinese fraud (despite our repeated warnings) ends up being the black swan that confirms that there is no such thing as a consistently good hedge fund, and it is all merely a function of one right trade, at the right time, executed with infinite amounts of leverage (thank you CDS). In the meantime, we hope Muddy Waters is working a report exposing that biggest ponzi scheme of all: the US stock market.
In the too little too late department, the ISM just released its Non-Manufacturing report on business, which was probably the first actual economic beat of the last week, coming at 54.6 on expectations of 54.0, up from 52.8 previously. That this was merely a countertrend bounce in what is now a secular decline from the 60 top in Q1 2011 is largely irrelevant, and just like the Mfg ISM which we now expect will drop under 50 in two months or less, the Services ISM will follow suit. For the consumer discretionary bulls out there, we would like to note that of the 18 industries that are reported in the index, only two reported contraction: Educational Services and Retail Trade. Of course, that would be retail for the lower and middle classes. The Tiffany's of the world will certainly not have any such problems until the next GFC.
US Has To Create 250K Jobs A Month For 66 Months To Return To December 2007 Unemployment By End Of Obama's Second TermSubmitted by Tyler Durden on 06/03/2011 - 09:57
It was difficult rerunning this chart with a straight face, make that near impossible, but here are the results. Following the most recent NFP disappointment, the simple math indicates that for the US to return to its December 2007 unemployment, when factoring in the natural growth of the labor force of 90k people a month, the economy will need to add 250k jobs a month for the next 66 months or until the end of Obama's now very implausible second term. Then again, considering what the alternatives are, we can guarantee that the 2012-2016 period in terms of job creation will definitely not look like what is presented on the chart below.
Just out on Bloomberg: GREECE SAYS EU-IMF REVIEW COMPLETED POSITIVELY
Of course, since this is merely another lie, nobody cares, but the robots will likely go nuts with the EURUSD any second.
...You will need it. The EURUSD has officially confirmed the much dreaded "Insane YoYo" formation. As a reminder the last time we had a dreaded chart spotting (The Hindenburg Omen from August 12, 2010), the Fed was forced to launch QE2 two weeks later. On a more serious note, the imminent announcement of a favorable Troica report on Greece will likely send the pair up 100 pips.
Two charts that confirm that the US economy is, and has been for the past 3 years, in nothing short of a depression...
Take away the Birth/Death adjustment of 206,000 and the Real NFP is: -150,000. This is the biggest monthly B/D adjustment in over a year. And if as all the pundits claimed last month, demanding the McDonalds addition of 62,000 janitorial, part-time jobs be added to the May number, the economy really lost over 200,000 in May. Time to price in QE 666.
Massive collapse in the American employment situation: May NFP at 54K, down from 244K, and not only below consensus of 165K, but below the lowest economist prediction of 65K. Private payrolls increased just 83K on expectations of 170K. Manufacturing payroll dropped 5K on expectation sof a 10K rise. The unemployment rate was 9.1%, although U-6 declined from 15.9% t 15.8%. The absolute number of unemployed increased fom 13.747 million to 13.914 million. For the third month in a row the Labor Force Participation rate remained flat at 64.2%.
Some may recall that it was the abysmal August 2010 NFP number that set off the QE 2 chain of events (courtesy of Goldman Sachs, which promptly downgraded the economy, only to upgrade it 4 months later in the worst call to ever come out of its economic department). We may be 45 minutes away from another August... On the other hand, a solid beat in NFP means QE 3 is off the table for a long time, which will really spook stocks.
Here are the key scheduled events over the next several months in Europe. These are the known events. Uknown ones, such as the expulsion of Greece, or the unwind of the monetary experiment, a revolution here and there, are obviously not noted.
In addition to the weak NFP number expected today which should put further pressure on a dollar, already trading at a several week low, Greek Ta Nea reports that the catalytic announcement by the Troika on the Greek economy is expected to come out later today. Unlike previous rumors that Greece was expected to miss every bailout parameter, the rumor this time is that the report will show a "mixed picture" meaning that the market is supposed to believe that there is a risk that the next tranche, worth €12 billon, of Greece's current E110 billion aid package, may not be disbursed. Of course it will be: the last thing Europe's bankers will do, especially after all the recent posturing, is to shoot themselves in the foot, and before the weekend at that. As a result we expect a double whammy of USD hits, which however will mean that the EURUSD will soon be back to levels that are high enough (1.46-1.48) that will make the announcement of QE3 problematic, as the next step lower in the USD would likely lead to a EURUSD of 1.70-1.80.
- Still no go on the white smoke, a few more weeks: Hilsenrath - Dallas Fed's Fisher Says More Easing by Fed Not Needed (WSJ)
- Chinese Economic Slowdown May Lead to 75% Plunge in Commodities, S&P Says (Bloomberg)
- EU should control member states' budgets, says bank boss (Guardian)
- Syrian Violence Tests U.S. (WSJ)
- SAC Again? Probe Deepens of Alleged Inside Trades at FDA (WSJ)
- Pushing for a return to the gold standard (LATimes)
- Wheat Futures Climb for Second Day on Weather Concerns in U.S., EU, Canada (Bloomberg)
- Europe E. Coli Outbreak is Deadliest on Record (Bloomberg)
- EU, IMF Wind Up Greek Economy Review (Bloomberg)
- China Ministry: 1H Industry Output To Slow to 13.5% (Market News)