Archive - Jun 7, 2013 - Story

The schizophrenic good-is-good, "we dont need no stinking Taper" market action earlier seems to be hitting a small road-bump. Interestingly, homebuilders and high-yield credit was flashing some early-warning signals... with S&P 500 futures hovering back at VWAP, the noise from the rest of the risk-asset complex suggest there is some more downside for stocks here.

This morning's illiquidty explosion in pre-open equity, commodity, and bond futures markets suggest the so-called 'tape' is indeed broken; but just over a month ago, the 'taper' word broke the relationship between bonds and stocks. For the previous five months, both Treasuries and credit spreads had rallied in almost perfect tandem with stocks as the 'flow' from the Fed (and Japan) floated all clean-shirty US assets. And then, with the mention of one little word, Bernanke and his team sent the bond market scurrying (it wasn't growth concerns as we noted here as spreads rose) but left stocks only bruised. Today, it appears, the world has taken a breath and flip-flopped once again - a better-than-expected payrolls print (which suggests we are closer to a Taper) is now bullish for stocks and bearish for bonds (but as we noted before this cannot last since the cost of credit increasing bites into EPS estimates as the credit cycle turns). With the FOMC meeting in less than two weeks, it seems if you truly do not believe in the Taper you buy bonds (Treasuries or high-yield credit if you are brave) not stocks... if not, you know what to do...

It is immeasurably easier to digitally create claims on real-world assets than it is to create real-world assets. The Fed can digitally print a trillion dollars at no cost, but that doesn't mean the money flows into the real economy. Once again we are compelled to ask: cui bono, to whose benefit?

The last few weeks have seen some modest volatility return to the US equity markets (a 5% high-to-low correction) sparking 'markets-in-turmoil' discussions as Fed Taper and Abenomics-Anxiety makes the headlines. But with today's payroll print and a comfort-blanket of stock-and-options quote-stuffing, fed-liquidity-providing momentum, today's rally will allow us all to sleep well over the weekend. However, one look at the following charts should suggest that things have changed... the most successful (momo-driven) trades around the world are coming undone in a hurry as the fear of a slowing of the global liquidity 'flow' rises - and the US equity investor is not immune...

As of this moment, Obama is making the case that the US government is not eavesdropping on phone calls. Specifically, he said "nobody is listening to your phone calls - they are just looking at phone numbers and duration of calls" and concluded that the NSA was only engaged in "modest encroachments." It was unclear if that clarification was meant to put to rest fears that Big Brother has made personal privacy a thing of the past. He further went on to add that the telephone surveillance program is fully vetted by Congress and supervised by the Federal Intelligence Surveillance Court (FISA). In other words: Obama is making the case that the NSA's Big Brother supervision is perfectly legal and not only that, there are checks and balances and neither the telephonic snooping nor the internet supervision is anything to be concerned about.  There is one problem: Obama is lying.

On Monday we brought to you proof of a 15 millisecond frontrunning of the Mfg ISM number by what turned out to be HFT clients of Reuters which admitted subsequently it had "inadvertently" leaked the number to select clients. However, that was child's play compared to the absolute market farce that happened today which we can visualize courtesy of Nanex, and which impacted gold, ES, and Treasury Futures altogether.

As with pretty much everything in the current Schrodinger world in which we live, ObamaCare seems to both save and cost us more at the same time. We are sure Obama's address will explain the fair-and-balanced perspective on it, add some sugar on the payrolls report spin, and the Q&A (which surely our press will ask a little on NSA-related issues) and this should be fun...

There are job numbers, and then there are job numbers which make sense in the context of a US population that keeps rising.

Yesterday's multi-year record-breaking rally in JPY stunned a few carry-traders around the world and the overnight session in Japan suggested things were not going quite according to plan. But have no fear. A perfectly hum-drum jobs report - not Goldilocks by any means in terms of its suggesting good growth (which most should want) or bad growth (which markets want) - was enough to spark an incredible 270 pip (so far) sell-off in JPY. This is a major nation's FX rate - not a penny stock, not a banana republic, not a tech IPO!!

While Wall Street is implicitly conflicted in its actions, there is also another group of individuals who are also just as conflicted - corporate executives. Today, more than ever, corporate executives are compensated by stock options, and other stock based compensation, which are tied to rising stock prices. There are billions at stake in many cases and the game of "beat the Wall Street estimate" is critical in keeping corporate stock prices elevated. Unfortunately, this leads to a wide variety of gimmicks to boost bottom line profitability which is not necessarily in the best interest of long term profitability or shareholders. Today we will discuss four tools that have been at the heart of the surge in profitability since 2009 and why such profitability has failed to boost the economy. While the Fed's ongoing interventions since 2009 have provided the necessary support to the current economic cycle it will not "repeal" the business cycle completely.  The Fed's actions work to pull forward future consumption to support the current economy.  This is turn has boosted corporate profitability as the effectiveness of corporate profitability tools were most effective. However, such actions leave a void in the future that must be filled by organic economic growth.  The problem comes when such growth doesn't appear.

In the latest installment of another long-running series, we look at the age bracket distribution of those who are lucky enough to get new jobs each month, versus those who aren't. It should come as no surprise that once more the majority of new jobs created in the month of May went to the oldest age-group cohort, those 55 and older, which saw an increase of 203,000 jobs in May, more than every other age group bracket. The result: with an all time high 31,488,000 workers aged 55-69, Americans are far more busy working in their older years than retiring (or gambling in the rigger stock market casino).

Almost all recoveries from recession have included rapid employment growth – until now. Though advanced-country central banks have pursued expansionary monetary policy in the wake of the global economic crisis in an effort to boost demand, job creation has lagged. As a result, workers, increasingly convinced that they will be unable to find employment for a sustained period, are leaving the labor force in droves. Rather than changing its approach, however, the Fed has responded to slow employment growth by launching additional rounds of QE. At some point, the Fed must realize that its current policy is not working. The US economy has not responded to the Fed’s monetary expansion, because America’s biggest problems are not liquidity problems.

The time has come to look at the quality component of the 175K jobs added in May, so without further ado, let's drill down at where the growth was. Without much surprise, we find that as in months past, the bulk of the growth continues to be concentrated in the lowest wage jobs: Leisure and Hospitality added the most jobs in May, 43K; Retail Trade jobs rose by 28K; Education and health added another 26K;  Temp jobs: the lowest of all paying jobs added another 26K.

In summary - of the 175K jobs, 122K was to low wage occupations.

After the knee-jerk reaction, we are seeing significant USD strength that is monkey-hammering commodities...

The following charts should clarify a few things with regard to 'real' money being put to work - as opposed to headline-reading, liquidity-feeding algos across every asset class - following this morning's rather hum-drum payrolls print.