Archive - Feb 2011 - Story

The latest rumor rocking the commodity space is that Hank "M.A.D" Mubarak will resign. We are not sure where this rumor has originated from but it is wreaking havoc on the oil complex, and by sympathy, on all commodities, and risk assets as well. That is coincided with the end of a POMO that had a 4 S/A ratio only confirms the weakness in stocks. On the other hand, the snapback rally once this wave of optimism dies down could be vicious. Keep an eye on Reuters for confirmation of any Mubarak news.

Today's NFP data has sent the treasury complex in a tizzy: the 30 year has now lost its support levels and the yield is up 6 basis point to 4.72%. And since this move would have been expected in the case of a huge NFP beat ('economy improving' rhetoric), but not on today's atrocious result (and if the BLS needs the services of snowy apologists, like DB'a LaVorgna whose only job lately is to explain why economic data are subpar due to the motion of celestial bodies, perhaps it needs to refine its seasonal adjustment to account for snowfall in, gasp, winter), this is merely yet another indication that the long-end vigilantes are once again making a push for an outright QE3 announcement, a development which was predicted by Zero Hedge at the time QE2 was launched.

Today is Egypt's D-Day: the longer the demonstrators wait to depose Hank Mubarak, the more impossible their mission becomes. Time is on Mubarak's side, and no matter how noble the cause, protesters have to eat... Which means they need to get the infrastructure going, which means they will have reliance on the financial system, which means the status quo will return. Which is why unless they succeed in their mission today, or this weekend at the latest, chances for real reform grow slim. So far today, the protests have been very peaceful and organized, and completely televized. Below are streams from the AP and Al Jazeera for those who wish to follow what is still the most important development in the world.

"I am writing to let you know that after nine great years, I have decided to return all external capital back to you, our partners, by the end of the first quarter of 2011. I will continue to manage the funds as CIO until the capital is returned. This was a very difficult decision for me and I want to thank those of you who supported me and provided valuable advice along the way. I especially want to thank those who supported SCP's recent structural changes by committing over $5 billion in capital. After much consideration, I believe this is the right decision for me, for our people and for you."

Probably the last chart to bury any doubt about just how truly horrible today's employment data was, comes from a little observed data metric: that showing the number of people who are not in the labor force, but who want a job now. The number just hit 6,643K, a jump of 431K from December, and the highest number in history. These are people that would send the unemployment rate to about 12% if they were in the labor force. Nothing else needs to be said.

And another curiously divergent dynamic: looking simply at the Seasonally Adjusted underemployment rate (U-6), which came at 16.1%, or the lowest since April 2009, and one might be excused for assuming that there is a silver lining, somewhere. That is, of course, until taking a look at the sister, NSA series. At 17.3%, this was the highest number since March 2010, and higher than just 3 months in the history of this series.

At 64.2%, the labor force participation rate (as a percentage of the total civilian noninstitutional population) is now at a fresh 26 year low, the lowest since March 1984, and is the only reason why the unemployment rate dropped to 9% (labor force declined from 153,690 to 153,186). Those not in the Labor Force has increased from 83.9 million to 86.2 million, or 2.2 million in one year! As for the numerator in the fraction, the number of unemployed, it has plunged from 15 million to 13.9 million in two months! The only reason for this is due to the increasing disenchantment of those who completely fall off the BLS rolls and no longer even try to look for a job. Lastly, we won't even show what the labor force is as a percentage of total population. It is a vertical plunge.

Highlights

• Change in Private Payrolls (Jan) M/M 50K vs. Exp. 145K (Prev. 113K)
• Change in Manufacturing Payrolls (Jan) M/M 49K vs. Exp. 10K (Prev. 10K)
• Seasonally adjusted U-6 underemployment 16.1% from 16.6% previously
• Much more importantly, Not-seasonally adjusted U-6 surged from 16.6% to 17.3%!
• The civilian labor force declined from 153,690
  to 153,186
• Government workers: from 20,759K to 20,740K
  
• Labor force participation at 64.2%, the lowest since March March 1984
• Part-time workers for economic reasons: 8,407
• Part-time workers for non-economic reasons: 17,552
  
• Birth/Death adjustment: -339,000
  

We are now all awaiting Snow Lavorgna to appear and explain how January snow is to blame for genital herpes, among every other bad thing in the world.

Over the past two years here has been no greater soap opera (with our apologies to Congress, who we know is trying but is now well into B-actor territory) than that of the Fed's 13 Samurai (Bernanke and the 12 regional presidents). And since there is no TV Guide to summarize the key punchlines in any given month, today we commence a highlight reel of the most prominent (amusing, glaringly false, plain ridiculous) statements by various Fed officials. As this is the year where ever more attention will be placed on the fake debates by the Fed's even faker Hawk and Dove split, we are confident that it will provide hours of entertainment to see how those entrusted with protecting the US Dollar contradict themselves from month to month in their execution of job duties that are now nothing less than 100% political.

• Fed Denies Policy Is Causing Food Rises (FT)
• Pressure mounts on Mubarak to go (FT)
• Algeria to Lift Limits on Liberty (WSJ)
• Merkel Turns Crisis into Opportunity to Reshape Euro Zone (Bloomberg)
• And finally, it is mainstream: Rising Commodities Put Profits Through the Wringer (Barrons)
• Storm Battered Australian Coast (WSJ)
• Boeing Loses Half of Dubai Aerospace Order for 737-Model Jets (Bloomberg)
• Virginia to Ask Supreme Court to Rule on Health Law (NYT)
• Are the ultra rich starting to spend less: LVMH Falls After 2010 Operating Profit Trails Estimate (Bloomberg)

Gold and silver have given up a small bit of yesterday’s strong gains in all currencies (especially the euro – see chart below) but are up more than 1% and 3% respectively on the week. Asian equity indices were higher overnight and are higher for the week, except for India where there are growing concerns about surging inflation and interest rates. European indices are higher today and most are up by some 1.5% to 2% on the week – as are US indices...Gold’s price surge yesterday was likely a combination of short covering, the very bullish demand figures out of China, accommodative monetary policy sounds from Trichet and Bernanke. The geopolitical situation in Egypt and the Middle East likely also led to buying.

Peak Theories Research shares their latest technical observations on the gold price chart: "after gold’s trading action over the last week or so, I have come to believe that what we’ve witnessed in gold over the last four months is that complex Head and Shoulders pattern rather than the Diamond Top or any topping pattern as I had pronounced was the case for much of January. Putting such pronouncements aside, if you’re long gold, you may be happy to hear that this pattern fulfilled itself perfectly last Thursday as I show and discuss below. More importantly, however, now that gold has held that fulfillment in what appears to be a strong crux of support for nearly a week now, I am also coming to believe that the volatile trading action of the last four months in gold is more likely than not to produce an uptrend in gold in both the near-term and in the intermediate-term. This last point is in complete contrast to what I thought gold’s technical aspects were telling us in the month of January and this is a significant change of view for me. Put most clearly, I think gold appears as though it is likely to head up in the near-, intermediate- and long-term and all such trading action is consistent with the primary bull market in gold that began in the early part of the last decade."

Markets modestly positive in the early AM. Yesterday’s claims numbers were roughly in line with expectations and expectations for today’s Payrolls data have been modestly upgraded from the pre-ADP expectations. ISM showed progress as did Nonfarm Productivity, while Unit Labor Costs indicated the divergence between commodity price inflation and labor price inflation (or lack thereof). Bernanke’s speech yesterday provided a few great tidbits, including the dovish outlook predicated on the Fed’s expectation of low inflation and high unemployment. After emphasizing that expectation, the Chairman stated, “Under such conditions, the Federal Reserve would typically ease monetary policy,” via the Fed Funds rate. Though the statement was seemingly later couched in the context of asset purchases, it does seem like strong language. For the inflationary hawks – especially those abroad who are concerned with the US ‘exporting inflation’ – the Chairman offered that higher “visible” prices (notably for gas) were results of “very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.” Inflation is apparently someone else’s problem.

Goldman's Andrew Tilton dissects today's NFP number, explaining why if it is weaker than expected (+146k) it is due to snow, and why if it stronger than expected, it is entirely due to the "economic recovery" (and not Bernanke's hyperinflationary mandate). Bottom line: win-win, while North African (and soon Middle East) regimes: lose-lose.

It's all about jobs: Employment report for Jan…weather versus the fundamentals. Estimating the change in payrolls in January is an exercise in weighing the positive trend in fundamental factors against the depressing effects of unusually cold and snowy weather. Goldman has an original estimate of +175k predicated on the view that the weather effects would not be large, but further analysis helped by classification of the storm that passed through during the survey reference week as a major storm suggests the potential for a larger effect. At the same time, the labor market data themselves, including claims, ISM employment indexes, and online help-wanted indexes, suggest further improvement. Goldman decided, on balance, that these trends were offsetting, but there is clearly a lot of uncertainty surrounding this number. To aggravate the situation, this report will incorporate a benchmark revision to the March 2010 level of payrolls that the Labor Department estimated last fall at -366k; this often has the effect of reducing estimated net changes in the months following the benchmark.