Archive - Oct 2013

It seems, once again, that Apple shares were bid into the product announcement and sold on the news (though it appears the selling has been front-run a bit). No one really knows what they will show but expectations are for a shiny new iPad which will wow audiences world wide until they start to use it and realize it's the same as the old one... (rumors include iPad Mini 2, iPad 5, New Macro Pro, New MacBook Pros, OS X Mavericks, and even Apple TV again...)

There are no simple solutions to the issues that currently plague the U.S. and, unfortunately, the latest debt ceiling debate/government shutdown did nothing to institute any reforms whatsoever.  The "kick-the-can" solutions by fiscal policy makers continues to show little understanding about the drivers of real economic growth, the need to reduce governmental dependency or a real "wealth effect" that impacts more than just 1% of the population.

You May Think You Have Nothing to Hide ... But You Are Still Breaking Laws Which Government Spying Could Discover and Use Against You

All of these things are not like the other... except one!

It seemed as if this morning's exuberant run into US equities would never stop but it would appear that comments from none other than Dan Loeb has (for now) put an end to the exuberance. With fundamentals collapsing, and even Cramer's "Cult stocks" tumbling, today's rally was yet another blindlingly obvious insight into the fact that this market is entirely artificial and Third Point's Dan Loeb, worried about the global economy, has reduced his exposure to equities. Furthermore, he plans to return 10% of capital to investors. Not exactly the wealth-effect enhancing, confidence-inspiring action that the Fed hoped for...

Behold the Wealth Effect: according to the NY State comptroller, the average NYC banker made $360,700 in 2012. This is 5.2 more than the average non-financial job in the city (i.e., all other jobs).

Despite NFLX giving back half its after-hours gains, the NASDAQ is surging to new 13-year highs, the S&P cash crosses 1750 (to new all-time highs), and the Dow Transports explodes higher (to yet another record) for the ninth of the last 10 days. All of this as the USD is monkey-hammered and the EUR surges to 2-year highs... Treasury yields are dropping fast (down 5-7bps across the curve). As we noted last week, US equities have caught up entirely to the Fed balance sheet. Gold (back above its 100DMA) and silver are surging and oil is pressing back up towards $100. The reason for all this exuberance: the jobs number was sufficiently horrible it has moved the tapering consensus to March 2014 of beyond...

Historical data tells us that the unemployment falls when the confidence ratio is high. Now, there are three ways for a government to increase that confidence ratio: 1) increase debt; 2) sell off gold; and/or 3) pray for the price of gold to fall (obviously in a non-manipulative manner that doesn't direct profits to favoured entities). The fall in confidence that we observed in the latter half of the last decade was entirely due to the rising price of gold. Look at what that did to the unemployment rate! Clearly the fault of gold-bugs and conspiracy theorists. The rising price of gold completely overrode the excellent work of the Government in driving up the country's debt.

Yesterday Goldman explained why glorious and abysmal job numbers would both be sufficient to propel the Stalingrad and Poor to new ATH. So far, they were right. And while the number was not exactly abysmal (ironically, the market is now hung up on weaker than expected data just to make sure Uncle Ben and Uncle Janet stay around as long as possible), it was, as Goldman's Jan Hatzius just announced, "somewhat weaker than expected, as the disappointment on September payroll growth was only partly offset by back-month revisions, while average hourly earnings grew more slowly than expected." He said a bunch of other things too, but the most notable was that "this report makes it more likely that the Fed pushes the first reduction in the pace of its asset purchases into 2014... we think that March is the most likely date under our economic forecast." And since it is now obvious that the Fed is completely oblivious to what ongoing QE does to high quality collateral (which it is now soaking up at a pace of 0.4% in 10Yr equivs per week), full steam ahead it is. We expect Dudley to get his Hatzius marching orders shortly.

As part of our monthly NFP-day tradition, we break down the monthly job gains (and losses) by industry. So here they are: in September the biggest job gaining sectors, accounting for 86K jobs or 58% of the total 148K jobs added, were the following  four industries:

• Transportation and Warehousing: + 23K
• Government: +22K
• Retail Trade: +21K
• Temp Help: +20K

In short: nearly two thirds of all jobs created in September (according to the BLS' increasingly more flawed data so these numbers are likely completely made up) were truck drivers, bureaucrats, salespeople and temps.

Just a few moar years of unlimited open-ended quantitative money printing and we are sure this will all be fixed...

while the September Establishment Survey was a disappointing +148K, far below expectations, it was the Household Survey where the fun was.On the top line, the gain in jobs was comparable to the Establishment number: a timid 133K. However, looking at the breakdown between Full-Time and Part-Time jobs reveals something simply hilarious. The chart below summarizes it. According to the BLS' magic calculations, in one month, the month during which the so-called uncertainly surrounding the government shutdown hit its peak (if one listens to CEO apologists), the US work force saw the rotation of some 594K part-time workers into a whopping 691K full-time jobs, in addition to adding over 100K net new jobs in the month.

The 3rd miss in a row for private payrolls was enough to spark an engorgement of all things Federal-Reserve-liquidity related. Gold is jumping, Bond yields are tumbling, the USD is crumbling, and the S&P 500 is soaring to new all-time highs... sure, why not...

September jobs are a disappointment at 148K vs expectations of 180K and private jobs only 126K well below the 180K expected, but August was revised higher this time, from 169K to 193K even as July dipped once again from 104K to 89K. Net for the three months, largely a wash.

• Deutsche Bank 170k
• Bank of America 170k
• HSBC 171k
• Citigroup 180k
• UBS 195k
• JP Morgan 195k
• Barclays 200k
• Goldman Sachs 200k