Archive - Sep 2009 - Story

A big picture objective perspective on the economy, compliments of Egan-Jones.

"As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted Household number), and on this basis, employment sank — brace yourself — by over 1 million, which is unprecedented. We shall see if the nattering nabobs of positivity discuss that particularly statistic in their post-payroll assessments; we are not exactly holding our breath." - David Rosenberg

Market speculators have now officially written off inflation: the most recent survey of Fed Fund Rate expectations indicates that the percentage of people expecting a hike to 0.5% at the December 16, 2009 FOMC meeting has plunged from 58.1% in March to 1.5% currently. And the opposite of inflation is deflation: just ask Treasuries. Furthermore, while exactly 0% had expected the EOY rate to be at 0% in March, almost a third of the market now believes this is the case. And, most shockingly, a solid 0.1% actually sees the Fed as having a negative 0.25% rate: whether this is a misprint based on futures data is unclear, however, it would be a very amusing outcome and with QE gradually ending, this may be the very, very last bullet in Chairman Ben's gun in his ongoing duel with the currency that he so desparately wants dead.

Get used to it: momo quants trading only at noon and 3:30pm are here to stay. Also get used to the new carry trade, and feel free to stop trading anything except the new carry trade.

As the first chart demonstrates, the unemployment rate differential between HS grads and College grads has reached another record spread. While this will have the fringe benefit of discouraging floral experts with minimum wage and no 401(k) expectations from crossing the Rio Grande, the bigger issue is who in this economy is creating minimum wage/specialization jobs (especially with the US manufacturing complex in tatters).The US Socialist experiment will need to really pull its socks up if it hopes to succeed.

And this time it is not those nutcases over at Zero Hedge making the claim, but the reputable New York Times, a place where even more reputable Mexican billionaires go to provide rescue financing. The NYT discloses how Chicago-based traders (what is it with Chicago style [blank] - first in politics (no comment needed there), and now in every story about market manipulation) Optiver, may have been openly gaming the commodities market using HFT strategies.

Total Federal Reserve balance sheet assets for the week of September 2 of $2,070 billion

As markets digest the worse, yet somehow better, than expected 9.7% unemployment, the real state of the labor market is much worse, as indicated by the U-6 number, which has hit a recent record of 16.8% on a seasonally adjusted basis. As a reminder, the "U-6 represents total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers." In other words, in reality the U.S. labor market is likely about as bad as Spain in terms of undoctored jobless data.

"This is why the Keynesian central bankers can’t sleep at night: Their eternal demand-stimulation does not work any longer. The pent-up demand is non-existent (by historical standards) and therefore cannot be released, even if rates are aggressively cut. Total bank lending has dropped almost 6% from the top in late October 2008. That has never happened before. The picture is the same in the Eurozone and (of course) in Japan."

• Unemployment rate hits 9.7% (Bloomberg)
• Supertankers may halt oil trading as rates drop on supply glut, Frontline says (Bloomberg)
• HFTs dominate soon to be eliminated DXO ETF (Alphaville, h/t Lizzie)
• Zimbabwe to get $500 million in IMF loans (BBC)
• Milliseconds are focus in algorithmic trades (Reuters, h/t Adam)

• Unemployment rate: 9.7%, higher than the expected 9.5%.
• Asian stock markets were mostly higher Friday, with mining stocks rising.
• Fed’s Fisher says prolonged period of 'sluggish' economy likely.
• Global economy is emerging from its deep slump faster than forecast: OECD.
• ISM non-manufacturing index rises to 48.4, indicating continued contraction.
• Lead surges to 16-month high after China vows to clean up metals industry.
• Mortgage rates for 30-yr fixed US home loans fell this week to 5.08%: Freddie Mac.

"Markets are traded by people, not machines; and a person’s ability to absorb risk and anxiety is limited. This is why ultra volatile markets eventually calm down - traders become exhausted and close out their risky positions. Although it certainly felt as if the world was going to end, the reality was: This too will pass. It is now seeming more and more likely that although Bernanke may not be able to guarantee a good ending, at least he can make the path there less bumpy. As such, both Actual and Realized Volatility should slowly decline."

The "loan problem" has not gotten any better, in fact, quite the opposite. Also, for an example of how everything will collapse once the unwind begins, look no farther than Wells Fargo.

Spreads were mixed in the US with all but HY marginally tighter (indices saw very small intraday ranges once again and closed well off their best levels unlike equities). Indices typically underperformed single-names (liquidity was minimal in single-names as dealer notched down spreads to encourage some action in low spread names) with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

A fitting headline to cap a day in which retail analysts from various investment banks were yapping ceaselessly, trying to convince CNBC's viewers that consumer discretionary is the next REIT space, and that HFT computers are mere minutes away from trading trillions of shares with one another, thereby pumping retail stocks into the ionosphere, is the news out of the WSJ that Liz Claiborne has hired restructuring and turnaround advisor Alvarez & Marsal, best known for advising the wind-down of Lehman's bankrupt estate.