Archive - May 6, 2011

And another piece of new you will not see discussed anywhere. According to the JPMorgan Global Manufacturing & Services PMI, not only did the growth of the global economy slow "sharply" in August, it grew at the slowest pace since August 2009. "April saw growth of the global economy ease sharply for the second successive month to its weakest pace since the recovery began in August 2009. The weaker rate of expansion mainly reflected a significant cooling of business activity growth in the US non-manufacturing sector and further steep contractions in output at both Japanese manufacturers and service providers. The JPMorgan Global All-Industry Output Index plunged to 51.8, well below February's near five-year peak of 59.1. Growth eased in both the global manufacturing and service sectors. The extent of the slowdown in services was especially marked, with the rate of expansion the lowest during the current 21-month period of increase. Growth of manufacturing output fared better, but stillslipped to its weakest pace since last September." But yes, McDonalds hiring 62k people, and some statistical jiggering by the BLS as ever more full-time jobs are converted to part-time is surely a major inflection point in the undecoupling theme.

Broadly speaking, "blowback" is the unintended consequence to the civilian population of secret government operations. It is typically used to describe the consequences of overseas covert operations. But there is another kind of blowback brewing in the U.S.: the negative consequences of massive covert manipulation of the domestic economy by the Federal Reserve and agencies of the Federal government. A key feature of propaganda is the "documentation" presented to support a politically advantageous distortion. In all cases, the numbers are doctored in a coordinated covert campaign to persuade the public that the economy is growing smartly. The stock market has doubled as a consequence of a declining dollar and other policies of the Federal Reserve designed to incentivize speculation in "risk trades" such as stocks and "carry trades" in currencies. The jobs report is heavily reliant on the "birth-death model" of small businesses, an opaque Federal guesstimate of the number of new small businesses being started and those being closed. As reliably as clockwork, hundreds of thousands of "created out of thin air" jobs are logged as if they were real by the Bureau of Labor Statistics' "birth-death model." Yet in the real world, the number of small businesses has been in a three-year free-fall.

Our friends at Lighthouse Investment Management point out something rather amusing: yesterday, yet another day in which the SLV saw far more notional volume than the SPY, the ETF traded 87.5% of its total shares outstanding. In other words, virtually the entire holder base changed hands. And just as amusing: for those who recall our post from April 11 in which we highlighted that an SLV put buyer bought roughly $1 million in SLV $25 July puts, well we have an update: as of today, the same mysterious buyer has now made about a 500% return on his or her investment (with a peak of 700% yesterday, or about 68,294,229,502,717.3% annualized). So fascinated is the market with this development that even Dow Jones has dedicated a column on it: "Market watchers want the anonymous April silver bear in listed options to take a bow. The unknown investor's mid-April $1M bet that iShares Silver Trust (SLV) would hit $25 or lower before mid-July is worth more than $7M after this week's plunge. Not just the drop in price, but huge jump in price volatility, has goosed has enriched this trader's options position. "The investor didn't get this trade right. He or she got it spectacularly right."

Before we finally leave the topic of today's NFP data, we wanted to point out one last thing. While the total payroll number increased by 244K, the household survey indicated a drop of 190K. While this may be simply due to a calendar shift in which the Household survey catches up with the Establishment Survey, we wanted to bring readers' attention to one other fact. Observing the Household data breakdown into full time and part time workers, we see that the drop was actually more pronounced: while the March full time (112.755 MM) and part time (27.087MM) total summed nicely to the total headline number of 139,864, off by just 2K, the April data indicated that the component breakdown highlighted a much more pronounced drop in the headline number than the 190K indicated. Summing up the components adds to 139.572 MM, 102K less than the total 139.674 MM disclosed. In other words, the true drop when summed across components was not 190K, but 290K. And next, for the focus of this post, we look at whether this drop occurred in full time or part time jobs. To our complete lack of surprise, of the 290K drop, 291K was from full time jobs. As for part time jobs, you guessed it, increased by 1,000 in April. As the attached chart shows, since the start of the depression, America has lost 9.1 million full time jobs, offsetting this by a gain of 2.3 million part time jobs. No need to outsource to Asia any more: America now outsources jobs to temp agencies. And so the transition of America into a part-time worker society, first discussed in December of 2010 continues.

Results from the household survey were disappointing. Total household employment fell by 190k, and the unemployment rate rose to 9.0% (8.96% unrounded) from 8.8% previously. Results were somewhat better after adjusting for methodological consistency with the nonfarm payroll data; on this basis the household survey measure of employment would have increased by 50k. However, the labor force participation rate was unchanged during the month, indicating that the rise in the unemployment rate reflected job losses rather than an influx of persons into the labor force. While the news was discouraging, it follows four months of declining unemployment, and the level of the unemployment rate remains down 1.1 percentage points from its peak. The employment-to-population ratio fell slightly to 58.4% from 58.5% previously.

Another observation from today's BLS data: while the labor participation rate may have remained flat, the total number of persons not in the labor force as an absolute number just hit a new all time record of 86.248 million, higher than the previous record hit in February of 86.216 million. And just as relevantly, the total number of "people who want a job now" jumped by 232,000 from March to April to 6.482 million, just short of the previous record of 6.643 million. Can someone please redirect all these people to the minimum wage, part time jobs that just opened up at US fast food retailers please?

Al Qaeda confirmed the death Osama bin Laden on Friday in an Internet message that vowed revenge on the United States and its allies, including Pakistan, according to the SITE monitoring service. The note concludes with: "We call upon our Muslim people in Pakistan, on whose land Sheikh Osama was killed, to rise up and revolt to cleanse this shame that has been attached to them by a clique of traitors and thieves ... and in general to cleanse their country from the filth of the Americans who spread corruption in it."

Today's NFP of 244K is great... until you exclude the 62K from McDonalds hirings, and 175K from the Birth Death Adjustment, and end up with.... +7K jobs.

One of the key metrics in today's report: April civilian non-institutional population at 239,146, a meager rise of 146k from March, and the Civilian Labor Force also barely growing from 153,406 to 153,421 means that for the 3rd straight month the Labor Force Participation Rate remained at a 25 year low of 64.2%.

And so much for all economic data indicating a drop. The BLS just reported the biggest monthly gain since February 2006. From the release: "Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several service-providing industries, manufacturing, and mining." And yet: Birth/Death adjustment +175,000.

• Goldman’s Blankfein Faces Investors Amid ‘Lingering Problems’ (Bloomberg)
• One Year After Stock Crash Regulators Still Vexed by Fragmentation (Bloomberg)
• Republicans Split Over Medicare Plan (FT)
• Workers Re-Enter Reactor Building for the First Time (WSJ)
• JPMorgan Is in ‘Advanced’ Negotiations to Resolve CDO Probe (Bloomberg)
• China Regulator Defends Internet Role (WSJ)
• Egypt Front-Runner Seeks Israel Reset (WSJ)

Following yesterday's news that Bank of America's D-grade traders eked out a perfect trading quarter in Q1, it would be a massive embarrassment to anyone who did not follow suit and also report of quarter of trading perfection. No such worries for JP Morgan, which just reported that it lost money on exactly zero days in Q1, averaged $112 million in daily trading revenue and had 7 days in which the firm had trading profits of "more" than $160 million, including 2 days unbounded by an upper limit range. Next, we expect Goldman and Citi to do the same. It is a good thing markets are not zero sum, or else someone may ask just who (or rather which taxpayer) is the loser to all these "trading perfection" days...

GoldCorp submits: "Gold and silver are tentatively higher after their 2% and 8% falls yesterday. In silver, speculators on the COMEX continue to liquidate en masse after margin was increased a massive 84% and various stop loss levels are hit, leading to further falls in the futures market. Absolutely nothing has changed regarding the fundamentals driving the gold and silver markets and this will likely be another correction in gold and another sharp correction in silver. Silver’s sell off has been vicious but value buyers continue to accumulate silver bullion. Jim Rogers, who arguably has a better track record than Soros in recent years, remains bullish on gold and silver and told CNBC, “if it goes down I hope I’m smart enough to buy more silver." Also, there are reports this morning from the Wall Street Journal and Mitsui that there was decent buying of silver from China at these price levels overnight."

The string of bad economic releases is consistent enough and bad enough that a weak NFP number tomorrow is risk off and USD positive. The published range has a central tendency of about 155k to 225k. The most forecasts with a May 5 timestamp have marked down payrolls somewhat, but they still range around 175k, so there is reaction but not a panic economic downgrade. Citi is already at 160k. A number below 140k is weak, even taking into account recent information and would reinforce concern that economic slowing is for real.

Goldman's David Greely, who for a long time was predicting and hoping for a crash in oil, only to see a margin-hike driven one in silver leading to a massive collapse in the commodity complex, is out commenting once again on his outlook on oil. Not surprisingly, the Goldman analyst's chief fear now is that a contracting economy (which Goldman's economists have largely failed to noticed so far) will lead to further commodity weakness. Yet, in typical Goldman fashion, the commodity pump machine has once again disclosed that in the long-term there is only one way for black gold to go: up. From the just released report: "We continue to see fundamentals tightening over the course of this year, likely pushing prices back to recent highs by next year. It is nevertheless important to reiterate that while we saw recent prices as having risen above the levels consistent with underlying near-term supply-demand fundamentals, we continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan  oil supplies remain off the market. Consequently, it is important to emphasize that even as oil prices are pulling back from their recent highs,  we expect them to return to or surpass the recent highs by next year."