Archive - Nov 2012

It is easy to get swept into the momentum of the housing market. The Federal Reserve has managed to push interest rates to historically low levels creating additional buying power for US households. As we enter the slower fall and winter selling season, there is unlikely to be any major changes until 2013 as the election year concludes. We do face major challenges ahead. This current momentum in housing isn’t being caused by flush state budgets or solid wage growth. No, this is being caused by low inventory, big investors crowding out households, and a concerted effort to push mortgage rates lower. If you simply follow the herd, you would think that prices are now near peak levels again (or soon will be) and household incomes are hitting record levels. Let us examine where things stand today deep in 2012.

Bloomberg has an update on the most amusing story of the day, namely that Rochdale appears to have blown daytrading Apple. And guess what: taking a cue from SocGen, UBS, and JPM, it's all a "rogue trader's" fault. Of course, if the trade had gone the "other way", Rochdale would not be needing a bailout, and the rogue trader would be looking forward to a generous holiday bonus.

• Rochdale bought more Apple shares than the brokerage’s management intended around the time of the technology company’s Oct. 25 earnings report, two people familiar told Bloomberg’s Hugh Son, Saijel Kishan and Zeke Faux.
• Rochdale officials told employees a rogue trader amassed the position, one of the people said.

We wonder how many more such "rogue traders" who dabbled in AAPL, and blew up after leveing the house in hopes to make their year on AAPL soaring into year end, will emerge before the next week is over...

The traditional excuse apologists for America's collapsing labor force participation rate use every month is that due to "demographics" and retiring baby boomers, increasingly more old workers are no longer counted by the BLS and as a result, are skewing the labor force. That's where they leave it because digging into details is not really anyone's forte anymore. This would be great if it was true. It isn't. And nowhere is this more visible than in today's jobs report. On the surface, the US generated a whopping 413,000 jobs (after generating a massive 873,000 last month) according to the Household Survey in October. That's great, unfortunately breaking down this cumulative addition by age cohort confirms precisely what we have said: all the jobs are going to old workers, who have zero wage bargaining leverage (as they just want to have a day to day paycheck). To wit: when broken down by age group, the total October increase shows that of the new jobs, 10.7% went to those aged 16-19 (source), 11.6% went to those aged 20-24 (source), a tiny 9.8% went to the prime agr group: 25-54 (source), and a massive 67.8% went to America's baby boomers: those aged 55 and over (source), and who refuse to leave the workforce and make way for others.

And it was shaping up to be a slow news days. From Bloomberg:

• ROCHDALE SAID TO SEEK CAPITAL INJECTION AFTER TRADING ERROR
• ROCHDALE EXECUTIVES SAID TO TIE CAPITAL SHORTAGE TO APPLE TRADE
• ROCHDALE SECURITIES ANALYSTS INCLUDE DICK BOVE

By that logic, can one imagine the epic bailout Rochdale would need if Bank of America trades back to its rightful price well over 50% below current levels? Also, why is Rochdale trading on its own account? According to an unverified rumor, a Roch trader was supposed to be buying 125 shares every half hour, and instead bought 125,000. If correct, oops: that's a $74 million margin call. Finally, the question of the day: How many more funds will claim they bought AAPL due to an "error" and now need a bailout?

You cannot "reform" away the dysfunction of the Greek Status Quo without dismantling the vested interests and the ruling Elites that benefit from the Status Quo. The same can be said of the Status Quo everywhere from the U.S. to China.

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.