Archive - Sep 6, 2013 - Story

The awkward tension in St. Petersburg must be palatable as following Russia's release of the 100-page report yesterday showing that the chemical attacks were not the doing of the Assad regime, Putin has come out swinging this morning ahead of President Obama's press conference:

• PUTIN SAYS CHEMICAL ATTACK IN SYRIA WAS ‘PROVOCATION’ BY REBELS

On the bright side (if there is any), while Putin points out that he and Obama do not agree, they will listen to each other (we suspect only in order to prepare a response to any barbed rhetoric) Meanwhile, the navies continues to grow.

As frequent readers know, for the past three years we have compiled data looking at the US unemployment rate assuming a realistic labor force participation rate, which is the trendline average of the past three decades, or in the mid-65% area. Using such an approach allows us to estimate what the true unemployment (U3, not U6 underemployment) rate is. We can report that as a result of the latest monthly collapse in the labor force whose only purpose was to lower the unemployment rate from 7.4% to 7.3%, the actual implied unemployment rate just rose from 11.2% to 11.4%. This can be seen on the chart below. Also can be seen that the spread between the reported manipulated unemployment rate and the real rate accounting for a realistic labor force participation, just hit a record high 4.1%. In other words, unemployment data manipulation by the BLS was never been greater in the history of the US than in the past month.

Bond yields snapped lower, equity prices surged higher, gold and silver prices ripped higher, and the USD snapped dramatically lower (as JPY surged) on the worse-than-expected payrolls print (and terrible downward revision). The sad reflection of bad-news-is-good-news reaction of US capital markets to this 'most important number in the world' is summed up perfectly by CNBC's Rick Santelli as he exclaims how sad this reaction is and asks "what are we a banana republic?" Well, yes, Rick, it appears we are...

While the Establishment survey data was ugly due to both the miss and the prior downward revisions in the NFP print, the real action was in the Household survey, where we find that the number of people not in the labor force rose by a whopping 516,000 in one month, which in turn increased the total number of people outside the labor force to a record 90.5 million Americans.  And what is even worse, the Labor Force Participation Rate declined from 63.4% to 63.2%: the is the lowest print since August 1978!

A messy report out of the gate with the number of jobs added in August at 169K, or as predicted by ADP, worse than the 180K expected, however this was offset by the Unemployment Rate dropping from 7.4% to 7.3%, on expectations of an unchanged print. However what has shocked the market is the revision to the July jobs number from 162K to only 104K, resulting in a net drop of 74K jobs, and breaking the average 2013 jobs gain of 200K which previously was said by the Fed to be the key threshold level for tapering. The question now is: is this print bad enough to delay the taper?

BREAKING: U.S. orders diplomats to leave Lebanon as Congress debates Syria military strikes

— The Associated Press (@AP) September 6, 2013

Throughout this year, the consensus view has been that current economic weakness is justified and we are just one or two quarters away from faster growth. Now, in the third quarter Guggenheim's Scott Minerd exclaims we are hearing the same arguments, although growth targets are starting to dip. He calls this "hope", the growth mirage. Minerd adds, that, in the heat of the desert, the eye perceives water on the horizon, but the closer one tries to get, the farther away it moves – until the traveler realizes that he has been chasing an illusion caused by shimmering layers of hot and cool air.

We have not seen the YouTube clip that will serve as "incontrovertible" evidence of the following, nor is there any indication that Iran is actually aware of the NSA and that it intercepts every form of electronic communication (and when such communication is not available, one is made up), but since we have no reason to doubt the US government or its pristine, best intentions with or without YouTube clips, it is only obvious that the latest development in the Syrian/Iranian/Qatari/Saudi/Israeli soap opera is definitive proof that a US attack must happen to punish not only evil Assad but the just as evil Iranians, who dare to contemplate retaliation in the case of the latest defensive US war of aggression.

• Summers Faces Key 'No' Votes if Picked for Fed (WSJ)
• NYT Editorial Board Says Summers Would Be Wrong Fed Choice (NYT)
• Russia says it's compiled 100-page report blaming Syrian rebels for a chemical weapons attack (McClatchy)
• China says Syria crisis can't be resolved with military strike (Reuters)
• G-20 Faces Growth Threats as Syria Adds to QE Exit Risks (Bloomberg)
• Apple Supplier Fire Spurs Biggest Chip Price Rise in 3 Years (BBG)
• U.S. Decided Not to Horse-Trade With Russia on Assad (WSJ)
• Financial Crisis: For Corporations and Investors, Debt Makes a Comeback (WSJ)
• Gorman Says Chance of Another Financial Crisis ‘Close to Zero’ (BBG) and in other news, "no risk of a Us downgrade" -  Tim Geithner
• A Biotech King, Dethroned (NYT)

The highlight of today's economic releases will be the 8:30 am non-farm payroll data, expected to print at 180K jobs, up from July's 162K, and result in an unchanged 7.4% unemployment rate. The "most important jobs number ever " is neither, because even if it comes as a wild outlier to the good or bad side, the Fed is unlikely to change its tapering intentions this late in the game. Still, it will provide fireworks in a very jittery market and if the number is far stronger than expected, expect the 10 Year to finally blow out from below the 3% range which it breached briefly overnight, and never look back, at least not until there is an August 2011 wholesale risk revulsion episode and stocks tumble. Speaking of jittery, overnight the WSJ reports that if picked as Bernanke's replscament, Larry Summers' faces an uphill battle to get the votes of three key democrats on the Senate Banking Committee (Jeff Merkley, Sherrod Brown and Elizabeth Warren). It would be only fitting that the dysfunctional Democratic dominated senate now lashes out against the president, and in the process scuttles the market's only hope of maintaining its Fed-derived gains over the past five years... And there is, of course, Syria which is becoming increasingly problematic for Obama whose support in Congress is looking ever shakier. Will he go it alone in the case of a no vote?