Archive - Sep 2010

The survey of households featured a rebound of 550,000 in the labor force, split almost equally between increases in employment (290,000) and unemployment (261,000). As a result, the unemployment rate conformed to expectations, rising to a "high" 9.6% (9.642%). The rebound in the labor force was slightly less than ½ the cumulative loss registered over just the past three months. This underscores the difficulty of bringing unemployment down; if more increases are in the offing, as seems likely on trend, the trend in net hiring-perhaps best measured by private payrolls-will not prevent further increase in unemployment. Over the past three months, private payrolls have risen just 78,000 on average. And, despite last month's large increase in the labor force, the broadest "U6" measure of underemployment also went up, to 16.7% from 16.5%.

Counter cyclical Keynesian spending financed out of savings, instead of debt. Too bad they didn’t think about that here! Keynesian economists unable to gain a hearing in the US sell their wares in Latin America. (ECH), (CU).

Today's NFP number means QE is now firmly off the table until 2011: monetary stimulus is stuck with QE lite for at least 3-4 months. Incidentally, this was the big catalyst that everyone was looking for to go all in on stocks. And with the economy still deteriorating, the only option is fiscal stimulus, but don't call it a stimulus as that costs political brownie points. So what are the options that Obama has before him? Goldman's Alec Phillips highlights the options which can be summarized as: a hiring credit, a payroll tax cut, a small business tax cut, bonus depreciation, and an extension of the Build America Bond program. His full thoughts below.

Private payrolls come in at +67K as Birth Death adds 115K, compared to just 6K previously, as U-6 rises from 16.5 to 16.7%, highest since April. Total Part time workers (all industries) increased by 401k from 18,157 to 18,558; part time workers for economic reasons increased by 331K. Workweek unchanged month over month at 34.2 hours, with average hourly earnings up slightly from 0.2% to 0.3%. 42% of the unemployed were out of a job for 27 weeks or longer, compared to 44.9% previously; average duration of unemployment at 33.6 weeks.

• Is this the reason for Japan's unwillingness to intervene: Japan Said to View U.S. Opposition as Yen Intervention Obstacle (Bloomberg) - Japan views probable U.S. opposition to intervention in the foreign-exchange market to address the appreciating yen as an obstacle to taking unilateral action, according to three Japanese government officials.
• LOL European Stress Tests: Lenders Shunned on Stress Tests Doubts (FT)
• LOL v2: White House: No Second Stimulus Being Considered (Reuters)
• East coast braces for Hurricane Earl (WSJ)
• French government vows to face down pension strike (Reuters)
• Chinese Funds Post Huge Losses in H1 (Caixin, h/t Mark)
• Bundesbank Asks German President to Dismiss Sarrazin After Race Comments (Business Week)
• Does Grandma Cause Unemployment? (Barrons)

• Oil falls below $75 a barrel in Asia ahead of US employment report.
• Russia said it would extend its ban on wheat exports into late 2011.
• Russia to double gas imports from Azerbaijan in a fresh blow to EU-touted pipeline project.
• US Pending sales of existing houses unexpectedly climbed in July from a record low.
• US Retail sales in August top estimates on tax holidays, discounts.
• 3Par determines revised HP proposal, for $33/share, is superior. Dell pulls out of race.

One of the world's bigger financial mysteries: the official breakdown of the Chinese FX reserve balance, received a rare moment of transparency today when the China Securities Journal gave the official tally of the $2.45 trillion stockpile: 65% in dollars, 26% in euros, 5% in pounds and 3% in yen. Which means China holds about $1.6 trillion in dollars, and, courtesy of the (recent record) trade surplus, growing. This distribution is roughly in line with expectations and with the world average FX holdings. Nonetheless, the massive concentration of dollar positions prompted Hu Xiaolian, a vice governor with the
People's Bank of China to warn that depreciation loomed as a risk for
foreign exchange reserves held by developing counties. As Reuters quotes, "Once a reserve currency's value becomes
unstable, there will be quite large depreciation risks for assets," she
wrote in an article that appeared in the latest issue of China Finance, a
Chinese-language magazine published under the central bank. Most certainly this is a tacit warning for US monetary policy, which is, of course a paradox, since ongoing dollar depreciation is CNY-beneficial due to the ongoing (semi) peg. China would love to have its cake, eat it, and to export twice as much of it if possible.

Goldman Sachs recaps expectations for today's key event - payroll day… also the ISM nonmanufacturing index and a couple of Fed speeches.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/09/10

There are a lot of indicators that show continuing weakness in the economy which will lead to declines in output. Key indicators to me are the decline in factory orders and the build-up of inventories. I expect this trend to continue.

The head of a major Canadian pension fund says a Chinese sovereign wealth fund is interested in making a joint-bid with a Canadian pension fund for fertilizer-maker Potash Corp. of Saskatchewan Inc. Other pension funds, and PE funds, are also looking to possibly strike a deal...

Once again, presented without comment.

The "talkers" are talking. I'm listening and trying to guess what it means.

In George Orwell’s brilliant novel Nineteen Eighty-Four, one of the characters, Syme, in discussing the nature of Newspeak, says “It’s a beautiful thing, the destruction of words.” Newspeak was a systematic attempt by the dictators of Oceania, a totalitarian society eerily similar to North Korea, to control thought by eliminating words that gave rise to ideas they disapproved. What Syme and Orwell are talking about is that the destruction of words is the destruction of ideas. There is a parallel to this in contemporary economic thought. Mainstream economists, Keynesians, Neo-Keynesians, and Neoclassicists, would have you believe that what common sense would call “good” is now “bad.” Conversely, “bad” is the new “good.” I don’t mean to suggest that the US is heading toward becoming a North Korea. My point is that that the experts seem to abandon common sense and yet most people instinctively understand that good is good.

Spreads compressed for the second day in a row modestly outperforming stocks as the big volume day from yesterday saw very little activity today as the path of least resistance appears higher for now. Intraday ranges today in credit were very narrow as what two-way flow there was seemed more concentrated in HY than IG for a change...Our super-short-term trading pivot is still long credit (from 111.5bps and 593bps for IG and HY respectively), stops never hit today and we would inch our stop to 110bps in IG and 590bps in HY but we get the sense that tomorrow's action will be early and extreme based on the NFP print. 112.25bps and 600bps are entry levels for the short credit should we run so not much room given the recent vol - and anxiety levels high into a long weekend. HY, IG, and the S&P all now closed above their 50-day averages so that offers some support for now but has offered little critical insight in recent weeks.