Archive - Nov 2, 2012

Do you want to see FIRE burn as a result of hurricane level water. Visit NYC from the perspective of the insurance industry. The same industry poised to make sooo much money from EU sovereign debt.

You read about it here first (here and here). Now it is time for the sellside (whose products your soft dollars so generously fund) to wake up to what is happening next week.

It would be easy for me to dismiss Obama supporters as mentally defective but for one inconvenient fact: my mother, sharp as a tack at 92, is voting for him. And so is my sister, a San Francisco attorney who is no slouch in the brains department.  I’m not sure where my brother, a municipal employee, stands, but neither am I eager to find out. There is no bridging the political gap between us, and so we simply avoid discussing politics.  The same goes for old friends, although newer ones are another matter.  One of them walked out on our dinner together in a huff when an innocuous remark I’d made about Abe Lincoln evidently bruised his self-righteously liberal, morally perfect heart . Good riddance. It is far better friends than he that I am worried about. Will they draw the line when I let slip my support for the right to bear arms, even concealed?

Iiiiiiiiinsaaaaane!!!!!!

When summarizing yesterday's first of the month ramp, we said: "Should the NFP disappoint for whatever reason, today's rally will be promptly unwound. On the other hand, as the final major economic datapoint before the election, there is a snowball's chance in hell the NFP beats at anything less than 1 standard deviation [ZH: this was proven this morning when the NFP printed above the highest Wall Street estimate, a 3std dev beat]. The good news, for those who are sick and tired of the constantly fudged metrics, is that after next week, we revert back to normal, and the mysterious economic push higher (a lot of it reflexive: Why are you confident? because stock are higher. Why are stocks higher? because I am confident) in the past 2 months will finally dissipate." Which is why anyone looking for a reason why the futures have proceeded to slide to their day's lows, this may be it: all the good news is now fully priced in. Things to look forward to now: Fiscal Cliff, Debt ceiling debate, further collapse of Greek and potential resumption of Grexit speculation (just look at the EURUSD), Spain bailout (Spanish bonds today are very unhappy), and the prompt unwind of all "better than expected" jobs number following the election, regardless of who wins the Oscar for best presidential performance. Because now there is an alibi for not only weak future numbers, but for historical revisions. It's name is "Sandy" - get used to it: it will be the excuse for every upcoming economic data miss until January.

Democracy has become a religion and anyone who criticises it is labelled a heretic.

It’s my understanding that Synthes has another headache on its hands.

As we first observed in February of 2012, we will not tire of repeating that when it comes to the jobs picture there are two key components: the quantitative, or the headline jobs and unemployment rate numbers everyone is fascinated by at 8:30 am each first Friday of the month, and the qualitative, or the number that gets far less attention, yet which is so very critical to Americans on those occasions they want to use their earned wages to purchase goods and services. And this is where the ugly side of today's jobs report came out. Because while the quantitative data was good, just as we and everyone else had expected from the final datapoint before the election (the good news there is that finally we will revert to reality following November 6), the qualitative data was ugly. How ugly? As the BLS reported, the average hourly earnings in October declined from $19.80 to $19.79 in September, and at $19.57 last October. This was only the fifth sequential decline in this series since the start of the Depression in December 2007. But more important was the Y/Y change in average hourly earnings. At 1.1% (down from 1.4% a month ago), this was the lowest Y/Y increase in this series, topping the collapse in real earnings which started in December 2008, and is now the lowest in history. In other words, more jobs may be added, but on a real basis, wages are not even keeping up with inflation!

Curious which sectors, according to the BLS, have been hiring in the past year? Per the Establishment survey, of the 1,949K or so jobs added in the past year, the bulk of additions have come to the Professional and Business Services sector (525K), Education and Health (414K), and Trade, Transportation and Utilities (345K). Government has actually seen a decline in total jobs in the past year.

As expected, a whopping beat of expectations of 125,000 with 171,000 jobs added In October, and the Unemployment Rate rising modestly to 7.9%, but below the magical 8.0%. And while the U-3 rose, the U-6, or underemployment, declined from 14.7% to 14.6%. Go figure. And finally, the Birth Death adjustment came just 10K off our forecast, printing at 90K.

Today's jobs number is expected to come at 125,000, with a high estimate of 154,000 from John Hancock financial, and a low of 30,000 from Westpac Banking, and with a whisper expectation at 150,000 courtesy of yesterday's "stronger than expected" ADP re-revised print. A beat or miss at over 1 standard deviation will promptly wake the HFT algos from their deep slumber. Wait did we say miss? Hah. Anyway, just to put today's seasonally adjusted expected monthly job growth in context, below is a chart showing the average seasonal adjustment for each month of the year in the past decade. In October, seasonal adjustments subtract just over 1 million "jobs" (purely statistically of course, merely to smooth the underlying "noise"). This means that the final monthly print will be just over 10% of the actual X-12-ARIMA goalseeked statistical adjustment. Add to this another ~80K or so which will be "added" from the birth death adjustment, and one can see how in the grand scheme of things, the statistical error factor alone dwarfs what is the actual underlying data. To think that in this labyrinth of layered adjustments to an actual number, the BLS will somehow allow the final number to be disappointing means having a locked bid on the Alaska to Russia bridge market.

• Scope of Sandy's devastation widens, death toll spirals (Reuters)
• On Staten Island, cries for help replaced by a loss for words (Reuters)
• China responds to Japan’s provocation (FT)
• Japan governments open to compromise to avoid “fiscal cliff” (Reuters)
• It's Global Warming, Stupid (Businessweek)
• Sharps says there is "Material Doubt" about its ability to survive (Bloomberg)
• Thomson Reuters operating profit slips, trading faces pressure (Reuters)
• Germany's Schaeuble says debt reduction is global task (Reuters)
• The Luxury Repo Men (Businessweek)
• Deutsche Bank Faces Top Surcharge as FSB Shuffles Tiers (Bloomberg)
• Storm over ‘Lagarde list’ intensifies (FT)
• Greek, European Officials Dispute Budget Reprieve (WSJ)
• Rivals part ways over economy (FT)

Judging by complete lack of move in the futures since the last time we looked at them at close of US market (if not so much the EURUSD which moments ago touched its lowest level since October 10 below 1.2865), absolutely nothing has happened in the intervening 14 hours. Which wouldn't be too far from the truth. Europe reported its manufacturing PMIs, which while largely unchanged at the consolidated (Eurozone 45.4 on Exp. of 45.3, last 45.3) and core level (Germany 46.0 vs Exp. 45.7, Last 45.7; France 43.7 vs Exp. 43.5, last 43.5) showed some weakness for the one fulcrum country that everyone looks at: Spain, whose Mfg PMI dropped from 44.6 to 43.5 on Exp of 44.1. But at least the threat the ECB will buy its bonds is there. And Speaking of Spain (whose car registrations tumbled 21.7% in October), the first external condition appeared today, when EU competition commission Joaquin Almunia said seized Spanish banks must fire half their workforce, according to ABC. Finally back in the US, the Fed's Rosengren said the Fed will not stop monetizing until the jobless rate falls below 7.25%. Luckily, with the NFP report due in 90 minutes, and the labor participation rate set to tumble once more, we may just get that in today's key data highlight which everyone is waiting for.

Liberals and Conservatives Agree: Vote Third Party ... Plus Why Many Ron Paul Supporters (Like Me) Are Voting for Gary Johnson