Archive - Mar 2013

Working (or looking for a job) in the wrong industry? Find out with the chart below, which shows where the job additions (and lack thereof) were in the month of February.

When it comes to government data, every silver lining has a cloud. Sure enough even today's NFP number, which on the surface was quite acceptable, had its share of thorny issues. Those who track the quality composition of the jobs, as opposed to just the quantity, will know that the part and full-time jobs breakdown has long been a major issue. And not unexpectedly, in February according to the Household Survey, the number of full-time jobs declined by 77K from 115,918 to 115,841. The offset: a jump in part-time workers which rose from 27,467 to 27,569, or 102K. Part-time jobs, for those who are unaware, are "jobs" only in the broadest of definitions. But the most surprising development in February from a quality standpoint was that the number of multiple job-holders rose by a massive 340K, which just happens to be a record. One wonders: how many actual people got new jobs, as opposed to how many qualified single individuals ended up getting more than one job in February in order to boost that much needed weekly income to sustainable levels.

It seems wherever one looks post the 'magnificent', 'goldilocks', 'biggest jump in part-time jobs ever' payroll print that markets are shifting in a 'Fed will need to tighten sooner' direction. Everywhere that is, apart from stocks of course...

February payrolls rose by a whopping 236,000, much better than the 165,000 expected. However this takes place as the January number was revised from 157K to 119K. The unemployment rate slides to 7.7%, on expectations of a 7.9%. This was the lowest unemployment rate since December of 2008. The civilian labor force dropped as usual from 63.6% to 63.5%. The household survey saw an increase of 170K jobs in February, following a 17K increase in January.

The Great Disconnect not only continues but worsens. We go back to the Great Singularity which is that the tide is still in as caused by the world’s central banks who have flooded the globe with little blue and green pieces of paper. When I was growing up there was a maxim that, “Money doesn’t grow on trees.” Now, by God, there are Money Trees in Washington and Frankfurt. It is a miracle of nature and something to behold. Even the price of gold, the alternative currency, is now manipulated by the central banks as they sell into any rally and control the Relative Value part of the equation. The inmates are now in charge of the asylum.

The Bloomberg Chart of the Day shows silver tonnage in exchange- traded funds backed by the metal rose for four straight months, while holdings for gold ETPs dropped in January and February. Silver futures may jump 20 percent this year to $34.50 an ounce from yesterday’s settlement of $28.808 in New York on investment demand and industrial use, said Rohit Savant, a senior commodity analyst at the New York-based research company. Holdings in silver ETPs rose 3.6 percent in the two months ended Feb. 28, reaching a record 19,699 metric tons on Jan. 18, data compiled by Bloomberg show. Last month, assets in gold ETPs fell 4.1%. Sales of American Eagle silver coins by the U.S. Mint jumped to a record in January and more than doubled in February from a year earlier, the Mint’s website showed. China’s imports of the metal surged 14% in January, the biggest monthly gain since July.

• Firms Send Record Cash Back to Investors (WSJ)
• And in totally opposite news, from the same source: Firms Race to Raise Cash (WSJ)
• China warns over fresh currency tensions (FT)
• Hollande faces pressure over jobs pledge (FT)
• Obama efforts renew ‘grand bargain’ hopes (FT)
• Shirakawa BOJ Expansion Gets No Respect as Stocks Cheer Exit (BBG)
• Japan’s Nakao Defends Easing as China’s Chen Expresses Concern (BBG)
• Boeing Had Considered Battery Fire Nearly Impossible, Report Says (WSJ)
• ECB Chief Plays Down Italy Fears (WSJ)
• China moves to make its markets credible (FT)
• Euro Group head says UK at risk of 'sterling crisis' (Telegraph)

SYFMUDD

The same pattern we have seen every day for the past week is back - slow overnight levitation as bad news piles on more bad news. What bad news? First as noted earlier, a collapse in Chinese imports and a surge in exports, which as SocGen explained is a harbinger of economic weakness in the months to follow, leading to yet another negative close for the Shanghai Composite. Then we got the UK January construction data which plunged by 7.9% according to ONS data. Then the Bank of Italy disclosed that small business lending was down 2.8% in January. We also got a negative Austrian Q4 GDP print.  We also got Spanish industrial output plunging 5% in January (but "much better" than the downward revised -7.1% collapse in December). Capping the morning session was German Industrial Production which not unexpectedly missed expectations of a 0.4% increase, printing at 0.0%, although somewhat better than the horrifying Factory Orders print would have implied. Finally, the ECB announced that a total of EUR4.2 billion in LTRO 1+2 will be repaid in the coming week by 8 and 27 counterparties, about half of the expected, and throwing a monkey wrench in Draghi's narrative that banks are repaying LTRO because they feel much stronger.  Yet none of this matters for two reasons: i) the Japanese Yen is back in its role as a carry funding currency, and was last trading at 95.77, the highest in four years, and with Jen shorts now used to fund USD purchases, the levitation in the stock futures was directly in line with the overnight rout in the Yen; and ii) the buying spree in Spanish bonds, with the 10 Year sliding overnight to just 4.82%, the lowest since 2010.

Below are the expectations of the biggest banks for today's Nonfarm Payroll number to be announced in just over two hours:

• Morgan Stanley +135K
• Barclays Capital +150K
• Goldman Sachs +150K
• Bank of America +160K
• JPMorgan +165K
• HSBC +179K
• Deutsche Bank +180K
• UBS +190K

China's trade balance recorded the first February surplus in three years of USD 15.3bn, while forecasters looked for a deficit of -6.9bn. The trade surplus in the first two months was much higher at USD 44.4bn, compared with a deficit of USD 4bn during the same period in 2012, which points to a significant positive contribution from net exports to Q1 GDP growth. However, if these figures were indeed close enough to the actual situation, such strong exports may turn out to be more of a curse than a blessing for China. Against the backdrop of a meagre global recovery and heightened concerns over potential currency wars, China's bi-lateral trade surplus with the US, as suggested by Chinese data, reached a record high in four years; and China snatched market shares from neighbours. None of these will be the most welcomed development. Particularly, there is evidence that the People's Bank of China has been intervening to keep the yuan from appreciating.

There is a delicate balance between supply and demand in silver. At a recent conference, Jeff Clark concluded that there would be insufficient metal to meet a major spike in investment demand if it were to occur, leading to all kinds of negative consequences for those who don't own silver (and lots of wonderful rewards for those who do). He had plenty of compelling charts and convincing data. But here's the rub: he doesn't believe that what's ahead for the price of silver (and gold) will have anything to do with that data. After all, there are articles from researchers and analysts that use similar data to paint a bearish outlook for the metal. Instead, his reasoning is based on psychology. Here's a good example...

Following yesterday's Beige Book extravaganza of mediocrity, ConvergEx's Nick Colas decided to do what the kids today call a “Mashup” – mixing different sources to create a new experience. Instead of mixing popular songs, he compared the Beige Book with Google “Trend” analysis for a variety of search phrases.  Take, for example, the message from the Fed that the housing market is recovering. Google searches for “Get a mortgage” are, in fact, very near record highs and over 100% higher than 2007.  On the Fed’s claim that leisure travel is picking up, the Google data is less supportive. On auto demand – an important factor in this recovery – the Google “Buy a car” trend data does look solidly higher.  Finally, the job picture is still mixed.  Google says that if you are unemployed in Chicago, drive to Dallas.  The Fed’s Beige Book seems to concur. The question is not whether the Fed could engineer this nascent recovery.  The question is “Can it last?”  For that, we’ll need some new songs.  And some fresh data in the coming months.

New highs will become a daily headline feature it seems until we actually have a down day. 

Thursday, Jobless Claims fell (340K vs 347K previous), Productivity (-1.9% vs -2% previous) and Costs (4.6% vs 4.5% previous) were very poor reports, and the Trade Deficit grew (-$44.45B vs -$38B). Lastly, Consumer Credit expanded to $16.2 billion from $14.6 billion primarily on student loans (in a bubble) and auto loans (subprime auto loans booming).

The last three recessions have all had mediocre recoveries of both output and employment. In this noteworthy clip, UCLA's Ed Leamer explains that changes in the manufacturing sector have changed the pattern of layoffs, recalls and hiring during recessions and recoveries. His point is that fiscal and monetary policy will not solve this problem as technological change has meant it is all output gains (productivity) with no input gains (hours worked or wages earned). Any task that is mundane, codifiable, or quantifiable, will be replaced by faraway foreigners, robots, or microprocessors with the implication that we need a workforce suited to the reality of the 21st century - an educational system that doesn't produce the human-equivalent of robots but creative problem-solving analytical thinkers. He concludes, "for those who do not directly compete with microprocessors, the standard of living has improved; for those relatively-unskilled, they're terribly struggling, with very few prospects." It's a sad situation.