Archive - Feb 2013

Before today's NFP number, the biggest news of the day was the substantial slowdown in European LTRO repayments, which ground to a halt from last week's repayment of €137 billion, to only €3 billion. Whether this is because banks decided that there is no more need to telegraph their health by keeping "excess liquidity", or because they actually did need to €878 billion in additional LTRO funding is unclear for now, although the overnight nationalization of a Dutch bank coupled with a return of Italian bank problems where Monte Paschi is next on the nationalization conveyer indicates that as always, nothing has been fixed in Europe. A full post-mortem of today's second LTRO repayment comes from Goldman, which concludes that as of the two repayments, the excess cash in the European financial sector is now in tune with the open market operations' reduction. When the next scramble for liquidity hits, it means that banks in the continent will once again start crawling to the ECB for incremental cash.

Events are rapidly unfolding in Europe which may bring something more than the “blink, wink and nod” of the famous children’s poem to the forefront of everyone’s thinking. There is great wisdom in Pinocchio actually beyond what is generally known. At one point the puppet heads into the “Field of Miracles” where he plants his gold and waits for it to grow. Pinocchio then heads off to “Catch-fools” which is a place where everyone has done something exceedingly foolish and suffers as a result. The world presently believes that there is no “event risk” and upon this foothold and the money poured into the streets by the central banks the markets rest in peace. Roads do not go on forever, the day eventually fades into the night and the peace of the morning is often shattered by the shrill cry of the dove being attacked by the falcon. The Great Game is not “Toyland” and great care is now called for before we awaken to find that we have turned into donkeys, or worse, ourselves.

Gold fell $11.70 or 0.7% in New York yesterday and closed at $1,664.80/oz. Silver slipped to a low of $31.09 and finished with a loss of 1.66%.

Gold Spot $/oz, 60 Days, 30 Minutes – (Bloomberg)

While the baffle with BS theme was strong earlier, when the UMich consumer confidence soared, rejecting the plunge in the consumer confidence tracked by the Conference Board, contrary to our expectations, the manufacturing ISM did not do a "China", which last night was reported to have grown and ungrown at the same time, did not drop to disprove yesterday's Chicago PMI and instead soared to 53.1 from 50.2, well above the expectations of a 50.7 print, and above the highest Wall Street estimate. This was the biggest beat of expectations in 16 months, and was driven by virtually every series rising except for Exports and Deliveries, but mostly by a surge in Inventories, which soared from 43 to 51.

Presented with one comment... 'wealth'

The markets cannot make up their mind what to make of the Payrolls data this morning. Gold (and Silver) spiked and are holding gains; Treasury yields plunged and are trading lower in yield on the week now; EURUSD spiked then faded rapidly (not helped by Italian banking fraud); and stocks surged and are (for now) holding gains through the US open...as it awaits UMich confidence...

While it is enticing to fall for the same old trick of reading the "quantitative", or headline, jobs data, driven entirely by the Establishment Survey, which as the BLS itself showed today, is nothing but mere noise based on seasonal adjustments and population estimates which is revised at least once a year based on new and improved exit assumptions, below we show the actual unvarnished truth contained in today's jobs reports. Recall that in our pre-NFP post we pointed out something critical: "an even more disturbing trend is the conversion of America into a gerontocratic worker society, where the bulk of jobs are handed out to those 55 and over, which puts all young workers, not to mention college graduates, at a major disadvantage relative to far more experienced older workers." And sure enough, a quick update of the jobs by age-group change in January based on Household Survey data, the same data that showed that the unemployment rate actually rose from 7.8% to 7.9% (to give Bernanke more runway for QEternity as we predicted in December) shows that in the past month, 115,000 jobs were.... lost?

As we warned last week when the BMPS fraud story broke, this is highly likely to be the canary in the Italian banking system coalmine; and sure enough today, Reuters reports that:

ITALIAN PROSECUTORS INVESTIGATING MONTE PASCHI, BNL, UNICREDIT, INTESA SAN PAOLO AND CREDEM - JUDICIAL SOURCE

Italian bank stocks (still under short-selling bans) are plunging (and the EUR is dropping) but, as Reuters notes, the winner in this growing debacle is Berlusconi as Italians blame the Democratic Party for the problems at the banks. Most pollsters, however, still think it unlikely that Berlusconi can overtake Bersani with little more than three weeks to go - after being more than 15 points behind in early December. And just as a reminder Mario Draghi was running the Bank of Italy during this era of evasion.

As part of today's non-farm payroll release, the BLS also issued its revision to the Establishment Survey as a result of updated population estimates, which, as the name implies, adjusted monthly data to the Establishment Survey which is the actual headline print that moves the market, not the data in the household survey which is what the unemployment rate is based on. In short: of the 12 monthly revisions, there were just 2 months in which the post-revision data was adjusted downward, July and August, with all other months supposedly adding jobs to the cumulative total, which as of December stood at 134,668 jobs as revised, compared to 134,021 pre-revision. So for those curious how the sequential change in jobs would have looked on a pre vs post-revision basis, we summarize the 2012 data in the chart below. In short: the revision would have added a total 335,000 jobs to the Establishment Survey headlines over the 2012 NFP headlines. The point of the chart is to show just how variable the actual monthly swing is based on exit assumptions, yet this is precisely the data that the kneejerk collocated algos trade on.

Spain's IBEX stock market index has plunged by around 6% this week - the biggest weekly drop in six months. Spanish sovereign bond spreads are flat-lining, entirely ignorant of this devastation; and of course, EURUSD continues to surge. The EUR surge and IBEX plunge coincidentally began at the same time (Wednesday) as Rajoy's alleged kickback scheme was uncovered... oh yeah, and Spain lifted its short-selling ban (oops). Spanish stocks are now red for 2013...

I don't see why this time should be different

The goldilocks economy continues as January nonfarm payrolls number comes in right as expected, or 157,000, a tiny miss to expectations of 165,000, down from the upwardly revised 196,000 (was 155,000 previously), leading to an unemployment rate of 7.9%, higher than the 7.8% expected. The seasonal adjustment for January was in line with expectations, or 2.120 million, as the actual decline in jobs December to January was a whopping 2.84 million. The NSA Birth/Death adjustment subtracted some 314K jobs in January.

... 2.1 million additional jobs, or the number of "statistical" jobs that will be added to the actual number to smooth the jobs trendline, and is the largest of any month in the year. Keep that in mind when considering that the consensus today is for a gain of 165K jobs: a number whose swing will be dwarfed by the actual adjustment added to the actual underlying.

With today's jobs number due out shortly, it is worth pointing out some of the key trends that we have observed in the underlying data stripped of month-to-month seasonal variance, which expose the "quality" side of the US non-recovery, instead of the far more manageable "quantity" side. First and foremost, as we showed over two years ago, and as the mainstream is gradually picking up, the US labor force is increasingly transitioning to one of part-time, and temp workers, which has key implications for wages, worker leverage, and overall job prospects, all of which logically are negative. But perhaps an even more disturbing trends is the conversion of America into a gerontocratic worker society, where the bulk of jobs are handed out to those 55 and over, which puts all young workers, not to mention college graduates, at a major disadvantage relative to far more experienced older workers, who are willing to work for less as they scramble to compensate for retirement shortfalls, and which prevents the natural rotation of the US labor force from older to younger.

• 'London Whale' Sounded an Alarm on Risky Bets (WSJ)
• Deadly Blast Strikes U.S. Embassy in Turkey (WSJ)
• Abe Shortens List for BOJ Chief as Japan Faces Monetary Overhaul (BBG)
• Endowment Returns Fail to Keep Pace with College Spending (BBG) - More student loans
• Mexico rescue workers search for survivors after Pemex blast kills 25 (Reuters)
• Lingering Bad Debts Stifle Europe Recovery (WSJ)
• Peregrine Founder Hit With 50 Years (WSJ) - there is hope Corzine will get pardoned yet
• Deutsche Bank to Limit Immediate Bonuses to 300,000 Euros
• France's Hollande to visit Mali Saturday (Reuters)
• France, Africa face tough Sahara phase of Mali war (Reuters)
• Barclays CEO refuses bonus (Barclays)
• Edward Koch, Brash New York Mayor During 1980s Boom, Dies at 88 (BBG)
• Samsung Doubles Tablet PC Market Share Amid Apple’s Lead (BBG)