Archive - Feb 3, 2012

A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.

Whopper of a NFP number, which prints at 243K, higher than the biggest forecast of 225K, on consensus expectations of 140K, the biggest jump since February 2009. The devil will certainly be in the revision details.

More shortly.

Daily news.

In 20 minutes we will get the only market moving piece of news, which many hope will bring back volatility to the market. Or it might not. As Goldman says, 'nonfarm payroll growth should slow on seasonal and weather-related factors'

It seems like last Friday we were waiting for details of the latest Greek plan – PSI and Troika.  We are still waiting.  Details are starting to come out.  We should know what the bonds investors are expected to exchange into will look like.  The ECB sounds like it may use the interest they have earned on SMP to reduce the amount Greece has to pay back.  The Jobs data gives us an additional twist to today’s Euro watching.  How many of the courier jobs will disappear?  My guess is the data will be okay, but nothing special, just like the rest of the data.  The courier jobs are interesting, not just from what happens this month, but will they come back next year?  Amazon has been beaten up over the Kindle, but one of the benefits of the Kindle is that Amazon doesn’t have to deliver e-books.  I think we will all forget that by next December when everyone’s payroll estimate will include a bump for couriers, but maybe we won’t.

Just when it seemed that nothing could possibly surprise about adverse Greek bank exposure, as these are beyond insolvent already relying on the ECB for day to day operations as is, here comes one more development, this time courtesy of the one index that has been in literal freefall in the past two months, and recently hit a 20+ year low - the Baltic Dry. OpenEurope explains: "An interesting but niche issue has come to our attention recently in relation to the on-going troubles in Greece. The 'Baltic Dry Index' (a measure of global shipping demand/prices) has fallen for a month straight to record lows. When this index falls it suggests that there is trouble in the shipping industry, raising questions over the stability of shipping firms. As it turns out many of these firms have secured their financing from Greek and other European banks – meaning if they start defaulting on their loans these banks could take losses. This raise further questions over the bank recapitalisation plans and whether such contingencies have been thought of in the second Greek bailout (which sets aside €20bn for Greek banks)."

Yesterday, Greek finmin Venizelos did his best to exude confidence when he, of all people, decided to give the ECB, and thus Germany, a virtual ultimatum demanding that public sector creditors are also impaired (supposedly only some, while excluding Greek pension companies). Kathimerini has more on this in "Never mind PSI, OSI is all the rage." And the only reason why Veni needs this critical step is because the hedge fund holdouts among the PSI creditors demand it. Alas, Germany does not deal well with ultimatums, especially from fiscal vassals. As OpenEurope notes, Die Welt reports that Greek Finance Minister Evangelos Venizelos has called for Greece’s official creditors, such as the ECB and national central banks, to take part in the restructuring of Greek debt, something German Economy Minister Philip Rösler insisted was “not currently on the agenda”. It gets better. According to Goldman, German Finance Minister Wolfgang Schäuble said that "no additional contributions from the public sector are necessary.”  German finance minister against public sector participation in Greek debt restructuring. Speaking to news channel n-tv finance minister Schäuble said that "Greece needs a reduction in private sector claims of 50% … It does not need an additional contribution from the public sector because we're shouldering everything anyway". When asked whether he thinks that the composition of the Euro area would be the same at the end of the year as today, Schäuble replied: "I hope so". So there you have it: Greece needs further concessions, which Germany will give, if and only if Greece concedes to previous German demands of abdicating fiscal independence. The only question is how badly Greece needs German help. Everything else is smoke and mirrors.

• Greece's Hazardous Road to Restructuring (WSJ)
• Spain Coaxes Banks to Merge to Purge Losses (Bloomberg)
• Brussels Discovers New €15bn Black Hole in Greece's Finances (Guardian)
• UK Recession Predicted to Return (FT)
• Senate OKs insider trading curbs on lawmakers (Reuters)
• China Limits Mortgages for Foreigners (Bloomberg)
• Villagers scramble for fuel in Europe's big chill (Reuters)
• SNB Head Warns of Political Fallout After Crisis (FT)
• Portugal Bond Rout Overstates Greek Likeness (Bloomberg)
• Bernanke Says He Won’t Trade 2% Inflation-Rate Target for More Job Growth (Businessweek)

The macro environment for home improvement stocks continues to be favorable.   Credit standards have eased somewhat over the past few months and with the Federal Reserves new “operation twist” program, it has driven down interest rates even further.  This has created a much more favorable backdrop for home owners wishing to refinance.   It appears for owners who are refinancing, some of the dollars that are being saved in a such a deal are being reinvested in their homes.  Home improvement retailers in recent quarters have all told the same story, that people are shying away from big projects and instead are spending money on smaller ticket items to improve their home.

Pretty much self-explanatory. It would appear that the Pennsylvania rodent is missing out on a lot of NBC Universal-contributor cash by not having a comedy TV friendly presence. As for the accuracy win rate in the groundhog vs permabull race, there really is no contest...