Archive - Nov 2012 - Story

Democracy has become a religion and anyone who criticises it is labelled a heretic.

As we first observed in February of 2012, we will not tire of repeating that when it comes to the jobs picture there are two key components: the quantitative, or the headline jobs and unemployment rate numbers everyone is fascinated by at 8:30 am each first Friday of the month, and the qualitative, or the number that gets far less attention, yet which is so very critical to Americans on those occasions they want to use their earned wages to purchase goods and services. And this is where the ugly side of today's jobs report came out. Because while the quantitative data was good, just as we and everyone else had expected from the final datapoint before the election (the good news there is that finally we will revert to reality following November 6), the qualitative data was ugly. How ugly? As the BLS reported, the average hourly earnings in October declined from $19.80 to $19.79 in September, and at $19.57 last October. This was only the fifth sequential decline in this series since the start of the Depression in December 2007. But more important was the Y/Y change in average hourly earnings. At 1.1% (down from 1.4% a month ago), this was the lowest Y/Y increase in this series, topping the collapse in real earnings which started in December 2008, and is now the lowest in history. In other words, more jobs may be added, but on a real basis, wages are not even keeping up with inflation!

Curious which sectors, according to the BLS, have been hiring in the past year? Per the Establishment survey, of the 1,949K or so jobs added in the past year, the bulk of additions have come to the Professional and Business Services sector (525K), Education and Health (414K), and Trade, Transportation and Utilities (345K). Government has actually seen a decline in total jobs in the past year.

As expected, a whopping beat of expectations of 125,000 with 171,000 jobs added In October, and the Unemployment Rate rising modestly to 7.9%, but below the magical 8.0%. And while the U-3 rose, the U-6, or underemployment, declined from 14.7% to 14.6%. Go figure. And finally, the Birth Death adjustment came just 10K off our forecast, printing at 90K.

Today's jobs number is expected to come at 125,000, with a high estimate of 154,000 from John Hancock financial, and a low of 30,000 from Westpac Banking, and with a whisper expectation at 150,000 courtesy of yesterday's "stronger than expected" ADP re-revised print. A beat or miss at over 1 standard deviation will promptly wake the HFT algos from their deep slumber. Wait did we say miss? Hah. Anyway, just to put today's seasonally adjusted expected monthly job growth in context, below is a chart showing the average seasonal adjustment for each month of the year in the past decade. In October, seasonal adjustments subtract just over 1 million "jobs" (purely statistically of course, merely to smooth the underlying "noise"). This means that the final monthly print will be just over 10% of the actual X-12-ARIMA goalseeked statistical adjustment. Add to this another ~80K or so which will be "added" from the birth death adjustment, and one can see how in the grand scheme of things, the statistical error factor alone dwarfs what is the actual underlying data. To think that in this labyrinth of layered adjustments to an actual number, the BLS will somehow allow the final number to be disappointing means having a locked bid on the Alaska to Russia bridge market.

• Scope of Sandy's devastation widens, death toll spirals (Reuters)
• On Staten Island, cries for help replaced by a loss for words (Reuters)
• China responds to Japan’s provocation (FT)
• Japan governments open to compromise to avoid “fiscal cliff” (Reuters)
• It's Global Warming, Stupid (Businessweek)
• Sharps says there is "Material Doubt" about its ability to survive (Bloomberg)
• Thomson Reuters operating profit slips, trading faces pressure (Reuters)
• Germany's Schaeuble says debt reduction is global task (Reuters)
• The Luxury Repo Men (Businessweek)
• Deutsche Bank Faces Top Surcharge as FSB Shuffles Tiers (Bloomberg)
• Storm over ‘Lagarde list’ intensifies (FT)
• Greek, European Officials Dispute Budget Reprieve (WSJ)
• Rivals part ways over economy (FT)

Judging by complete lack of move in the futures since the last time we looked at them at close of US market (if not so much the EURUSD which moments ago touched its lowest level since October 10 below 1.2865), absolutely nothing has happened in the intervening 14 hours. Which wouldn't be too far from the truth. Europe reported its manufacturing PMIs, which while largely unchanged at the consolidated (Eurozone 45.4 on Exp. of 45.3, last 45.3) and core level (Germany 46.0 vs Exp. 45.7, Last 45.7; France 43.7 vs Exp. 43.5, last 43.5) showed some weakness for the one fulcrum country that everyone looks at: Spain, whose Mfg PMI dropped from 44.6 to 43.5 on Exp of 44.1. But at least the threat the ECB will buy its bonds is there. And Speaking of Spain (whose car registrations tumbled 21.7% in October), the first external condition appeared today, when EU competition commission Joaquin Almunia said seized Spanish banks must fire half their workforce, according to ABC. Finally back in the US, the Fed's Rosengren said the Fed will not stop monetizing until the jobless rate falls below 7.25%. Luckily, with the NFP report due in 90 minutes, and the labor participation rate set to tumble once more, we may just get that in today's key data highlight which everyone is waiting for.

In the prior post, we showed a presentation that looked at America from the perspective of a corporation and how it would be completely unsustainable. Luckily, there is little probability that America will ever have anything to do with S-Corp status, and far more likely end up as an agrarian Kolhoz. The reason: based on a Pew survey of America's youth, or those aged 18-29, more have a positive view response toward Socialism than they do toward Capitalism. We will leave it at that.

When Mary Meeker, formerly of pre-IPO bubble analyst fame, released her "USA, Inc." presentation last year, which assayed the US government as if it were a corporation, her conclusion was simple: the country is broke, and can not continue along the path it is on now. Fast forward to today, when the US debt balance is over $1 trillion higher, and the next edition of Mary Meeker's presentation which she released at last week's Ira Sohn conference. Her conclusion: the US is now broke-er than ever.

It seems like it was only yesterday that the US closed the book on Fiscal 2012 (technically, it was September 30), with a modest $16.066 trillion in debt. What was notable is that the monthly additions to the total debt balance toward the end of 2012 were getting smaller and smaller until the October incremental addition was a puny $50 billion (even though mysteriously the US ended up with a budget Surplus of $75 billion for the month). Turns out it was merely yet another political stall tactic to avoid the true face of America's debt peeking into the open public. Because as of several hours ago, the DTS announced the total debt as of October 31, or the first completed month of fiscal 2013. The number: $16.262 trillion. This means that in the month of October, when delaying displaying the true creditor plight of this country was no longer an option, Uncle Sam went to town, and raised $195 billion. This amounts to $6.3 billion per calendar (not work) day, and $262 million per calendar (not work) hour.

While New Yorkers living south of 34th Street have to live in cold and dark for an indefinite period of time (ConEd has been firm electricity will be restored by the weekend, it has been far more vague just which weekend it had in mind), the biggest devastataion from Sandy took place further south, primarily along the New Jersey coastline. In order to get a sense of the devastation that has taken place, we present images from the NOAA's satellite photo tracker, which shows aerial comparisons of the Jersey and Delaware coastline before and after. Because while one can contemplate navels in very broad terms if any wealth is created or destroyed due to Sandy breaking many windows at the macro level, any and all people who lived in the affected territories below will have a far more practical answer to this stupid question.

Given emerging data in 2012, it's becoming increasingly clear that the post-war automobile era in the United States is now in well-articulated decline. Accordingly, it makes sense to note the beginning of a long-term supertrend that is just getting started: the resurrection of America’s rail system. At Seattle’s historic King Street Station (a classic example of early 20th Century railroad architecture), a nasty looking dropped-tile ceiling – which hung above travellers for decades – was removed late last year to reveal ornate plasterwork as the building undergoes extensive renovation. These cosmetic (and structural) alterations are part of a wide-ranging upgrade to the entire Cascades passenger rail service that runs from Vancouver, British Columbia, to Eugene, Oregon. In Tacoma, for example, a new station will either be built or renovated, and part of the Cascades line will be re-routed from its current shoreline path more directly through that city. Elsewhere, bridges are being rebuilt, track is being upgraded, and other infrastructure improvements are underway as part of the $500 million program to resurrect more efficient, faster inter-city rail in the 466-mile Amtrak route through this part of the Pacific Northwest. These changes will not bring European-style high-speed rail to the United States. Indeed, in many similar projects across the country, top speeds of 125 mph will characterize new system capability, rather than the average speed actually maintained from city to city. However, the incremental improvements now underway will become the platform for the next phase of investment, as Americans are increasingly persuaded to limit their car ownership and make rail transport part of their lives once again.

Tired of idiotic "expert assessments" how the destruction in the aftermath of Sandy is good for the economy and "creates wealth" (just ask these people or these how much wealthier they feel with their house halfway still underwater, or with not a bite to eat)? Then read the following brief summary by David Rosenberg what the real and full impact of Rosie on the US will be: "the surprise for Q4? A negative GDP print."

When one thinks of dumpster diving in the "developed world", one usually starts with Greece, and ends with Spain (where this activity has been so pervasive, lately even the dumpsters have been on lock down). Certainly, Manhattan's Lower East Side is not one of the places that immediately comes to mind. Sadly, now that the city's more Bohmeian neighborhood has been without power and food for 3 days running, and the prospect of electricity being restored is still dim, the local residents have no choice but to do what their insolvent peers from across the Atlantic do every day (even as the capital markets fool themselves that all is well because Draghi said so). For a candid look at how the other part of Manhattan lives now, watch the clip below.