Archive - Dec 5, 2010 - Story

November US nonfarm payrolls missed big, with a +39k print vs +150k expected and even higher whisper numbers, sending the unemployment rate to 9.8%, above the 9.6% consensus estimates. US stocks & USD sold off in tandem on the news, while Tsys were bid; however, bonds and equities reversed sharply from there, while the USD remained depressed. The x-factor was gold, up over 2% on Friday, which again shows signs of trading more as a rates/FX product than a commodity.

Just released - apology #3 from Jan Hatzius on his ill-timed "golden age" call. We expect many more. We almost feel sorry for the German strategist and the replacement of FRBNY's Bill Dudley. "Nice timing on our GDP forecast upgrade! The November employment report was a disappointment, and there weren’t a lot of redeeming features buried underneath the headlines. Private sector payroll growth fell back to +50k, the slowest pace since January 2010. The household survey was also weak, with a rise in the unemployment rate to 9.82% and a drop in the employment/population ratio to 58.18%, just a hair above the cycle low seen in December 2009. The jobs report followed higher initial jobless claims on Thursday and a soft manufacturing ISM survey on Wednesday."

By now, everyone has heard accusations that Cash4Gold is nothing but a predatory site, seeking to "steal" the gold of people in distress for a painfully low price. Often times these stories involve Glenn Beck in some capacity. Of course, there is always "the other side" to every story. Below we provide just one such "other" side. It just so happens that the side is about as funny as it gets.

Bernanke: Economic Recovery 'May Not Be' Self-Sustaining

Bernanke: Could Buy More Bonds Depending On Inflation, 'How Economy Looks'

Bernanke: Getting 'Awfully Close' To Range Where Prices Start Falling

Bernanke: Could Be 4-5 Years Before US Sees 'More Normal' Unemployment Rate

Bernanke: Defends Plan To Buy Treasury Securities

Bernanke: High Unemployment Rate 'Primary Source Of Risk' To Economy

Bernanke: Double-Dip Recession 'Doesn't Seem Likely'

When we first heard of the latest Wikileaks "cablegate" fiasco, we speculated that Hillary Clinton may be forced to resign for what is rapidly becoming the biggest crisis for US foreign policy since the Bay of Pigs. Today, in an interview with Spanish El Pais, Julian Assange goes one better and says that if it is proven that he approved the spying on UN officials, then Obama should resign. As a reminder as per one of the released cables, US Secretary of State Hillary Clinton asked for UN personnel's telephones, emails, credit card details and frequent flier numbers. Let's recall that Nixon resigned to avoid impeachment under somewhat comparable circumstances. The only difference is that back then Woodward and Berstein were not on the receiving end of what is becoming an endless barrage of death threats for doing their journalistic duty. This time around, the "deep throat" is the target of an international witch hunt, where however is moot: the early attempt by the like of Joe Lieberman to censor the internet is doomed from the beginning. However, it does show that in the past 40 years little has changed at the top echelons of power when the sordid truth of "Standard Operating Procedures" are revealed. And, unfortunately, things have only gotten worse. Also, keep in mind that Wikileaks has so far released only a small fraction of the 250,000 cables that will ultimately be declassified by Wiki. One wonders just how long the world can maintain the damage control before foreign relations between both friends and enemies are terminally frayed.

The European / IMF bail-out package for Ireland – announced one week ago – was somewhat smaller than expected at €85 bn and failed to calm market jitters spreading to other Euro zone periphery countries early in the week, most alarmingly to Spain and Italy. It was only with the ECB’s announcement that full allotment liquidity operations would continue through Q1 2011 and with a jump in ECB purchases of Portuguese government bonds on Thursday that stress in the Euro zone periphery abated somewhat...Following last week’s turbulence on the periphery, this week’s key event will be the Irish parliament vote on the 2011 budget, which is scheduled for Dec 7. A failure to pass the budget could quickly exacerbate tensions across the Euro zone periphery, by highlighting the political costs of needed budget cuts.

Without money, there can be little in the way of economic specialization, or what is commonly known as the division of labor. And without the division of labor, there can be little in the way of civilization. In pre-agricultural hunter-gatherer society, labor is primarily limited to these two endeavors, the hunting generally done by men and the gathering by women. So, too, is labor limited in early agricultural society, the men generally doing the farming and women the domestic work. And while proto-money might be involved, economic exchange is generally limited to barter, which requires a coincidence of wants that is far too inelastic to allow for the manifold exchange of goods and services that is the lifeblood of civil society.

We are approximately five years into The Fourth Turning Crisis. Every previous Fourth Turning had an economic dimension that eventually led to a do or die all out war. The mainstream linear thinkers see a recovery and a return to their concept of normality. They will be shocked and flabbergasted when they realize that this is only the beginning of a 20 year period of turmoil, chaos and war. It seems that some study of history would benefit the mainstream talking media heads pretending to know what is happening and political hacks in Washington D.C. who pretend to administer the affairs of state. The cycles of history are not identical, but the alignment of generations is always the same. The cycles are consistent because a long human life is always between 80 and 100 years. The previous Fourth Turnings in U.S. history were the American Revolution, the Civil War and the Great Depression/World War II.

By now the infamous Minneapolis Fed "change from pre-recession employment" jobs chart (all too often misattributed to other sources) has made popular folkore. Naturally, that's the chart which shows that 36 months after the start of the depression the change from peak employment pre-recession is just in a parallel universe of its own. Yet what few if any have done is to extend and project what this chart may look like in the future. We have on several occasions attempted to predict how the "change from peak employment" chart will appear over the next several years. Below is our most recent attempt at predicting how many more months of recession we have assuming a gradual pick up in the economy (assumptions are presented in the chart). The chart shows that based on conservative economic pick up estimates, the depression starting in December 2007 will have 96 months to run before we reach the precession level in jobs.

It appears that one way or another, the IMF will provide a lot more American money to the European rescue. Reuters reports that according to the IMF the euro zone should have a bigger rescue fund and the European Central Bank should boost its bond buying to prevent the sovereign debt crisis from derailing economic recovery. "International Monetary Fund chief Dominique Strauss-Kahn
will present the report on the economy of the 16 countries using
the euro at a meeting of euro zone finance ministers and
European Central Bank President Jean-Claude Trichet on Monday." And presumably, and we are speculating here, if the Euro zone can not afford it, the IMF will be more than happy to step in. After all recall that on August 30, the IMF extended the duration of the Flexible Credit Line (FCL), "concurrently removing the borrowing cap on this facility, which previously stood at 1000 percent of a member’s IMF quota, in essence making the FCL a limitless credit facility, to be used to rescue whomever, at the sole discretion of the IMF's overlords." We would think that an infinite amount of money should be enough to rescue even Spain when the time comes. Which begs the question: with everyone expecting muni bonds to be the purchasing target of QE3, will Bernanke again fool everyone and instead opt for direct European bond monetization? After all, the destruction of dollar value is and always has been the Fed's primary imperative, and what better way to achieve this than to collateralize the greenback with Greek bonds?

...Just live in Spain. With millions of Option ARM mortgages still coming due in the next two years in the US, the Fed's ongoing push to drop mortgage rates has only made the problem worse, and instead of people refinancing out of adjustable rate mortgages into fixed, with the opportunity cost being so little, if any, the whammy of rising interest rates on home values upon Option ARM expiration will only exacerbate the triple dip in home prices once the ARM cliff hits some time in 2012/2013. Yet it seems that this final recourse to extend and pretend the housing bubble is only now coming (a tad too little too late) to those European countries which are already bankrupt and will do anything and everything to prevent reality from appearing. Behold the BBK Euribor+0.35% 5 Year Option ARM 50 year mortgage with an LTV of up to 100% (but only if you can be enslaved early on: the mortgage is only open for people 18-35). And just in case you can't actually afford Euribor+ 0.35%, that's factored in too: you have the option of not paying for years.

Goldman's Erik Nielsen looks at the immediate European future, is flummoxed by all the end of world calls (bank runs, Ireland rejecting budget, austerity riots everywhere), and sees a future so bright he just has to wear the kind of shades that only a multi-million dollar bonus can buy (especially after Goldman upgrades all banks and its own bonuses by about 10%). After all his colleague Hatzius, despite all the facts and data, just upgraded US GDP. It now appears that just like Moody's 5 years ago, Goldman's excel spreadsheets crash when one input a negative growth assumption. Arguably these are the same spreadsheets that Tim Geithner used to prepare his taxes.