Archive - Feb 2014 - Story

Trinkets and Ads trump global energy provision...

One look at the chart below from the NYT, and a pattern emerges...

Turkey scrambled an F-16 fighter jet following a bomb-threat aboard a Ukraine-outbound plane. A passenger, among 110 on the plane, made a bomb threat and demanded the plane be diverted to Sochi. The plane eventually landed in Istanbul - after crew calmed down the man who had reportedly been drinking. This threat follows the US' warning of "toothpaste" bombs.

Having benefited from the earlier QE-un-taper hope, the Turkish Lira is dropping rapidly following the move by S&P to put Turky on negative outlook:

• *TURKEY'S OUTLOOK TO NEGATIVE FROM STABLE BY S&P
• *S&P SEES RISKS OF HARD ECONOMIC LANDING IN TURKEY

Furthermore, the ratings agency raising questions over the Central Bank:

• *TURKEY SUFFERING EROSION OF GOVERNANCE STANDARDS, S&P SAYS
• *TURKEY SUFFERING EROSION OF CHECKS AND BALANCES, S&P SAYS
• *CONSTRAINTS ON TURKEY CENBANK INDEPENDENCE: S&P.

EM Un-fixed.

The problem for the state is that its success in imposing exorbitant fees and taxes will simply drive low-income people scratching out a minimal living in the gray market to other networks that do not even have a corporate structure to tax. To wit: "The more you tighten your grip, the more systems will slip through your fingers." Phantom economies tend to give rise to gray and black markets in proportion to the deviance of the phantom economy from reality.

Mt.Gox, the largest exchange for the online digital currency, was forced to halt withdrawals (but not trading) this morning. Due to an increase in withdrawal requests the exchange's systems had technical problems and in order "to understand the issue thoroughly, the system must be in static state," they reported. The exchange said it would resolve the problem as soon as possible and "apologize[d] for the sudden short notice." Interestingly this seemed to rapidly remove Mt.Gox's modest premium to the other exchanges and bring them all back inline around $700 as the price recovered.

Raise your hands if you are surprised that, as has emerged, virtually every major bank was manipulating currencies (and everything else) whether as part of the "Bandits' Club", the "Cartel" or some other - until recently- secret message room. That's what we thought. Now raise your hand if you thought the manipulation could be so pervasive, so glaring and so in your face, that even the oldest central bank - the Bank of England - and who knows how many other monetary authorities, were openly encouraging traders from these private banks to do more of the illegal activity they had been engaging in - namely manipulating currencies - with their explicit blessing knowing very well such behavior is undisputedly illegal. We hope at least one or two hands went up, because which it is one thing to be cynical about what is going on behind the scenes, it is something else to see the edifice of global corruption and criminality, whose only purpose was to preserve the status quo, unwinding before your very eyes substantiated by actual facts.

It was all going so well. It appeared the "market" had decided that this was not weather-related (as we showed) but real weakness and that real weakness can mean only one thing - a fickle Fed re-primes the pump by un-tapering the taper. However, as we noted last night, it is Jon Hilsenrath of the Wall Street Journal that creates the "common knowledge" upon which we should act. The bounce in stocks was evidently hope of the un-taper for as Hilsy noted in a Q&A that the "Fed is likely to stick to its course on rates and bond-buying in the wake of the mixed jobs report," stocks, USDJPY, and Emerging Market FX started to fade.

When you have one after another "polar vortex" out there, and feet of snow covering the country and supposedly crushing economic activity, what do you do? Why you hire construction workers of course. As the following breakdown of the best and worst jobs of December shows, the one job category to benefit the most from January's horrifying weather which was the reason for all those weak January numbers (if one listens to the propaganda pundits and other TV anchors) was construction workers, which saw 48K jobs created. Which in some parallel universe surely makes sense. Just not this one.

December and January saw dismal job gains based on the NFP data... but as we now know, thanks to Zandi and Liesman, that we should ignore it because it's all about the weather. So, confused, we looked at the number of employed people who are "not working due to weather" (thank you for the convenient series BLS) to gauge the significance of the impact... it appears, from the chart below, that more people were out of work due to weather in 2008, 2009, 2010, 2011, and 2012...?

BOTTOM LINE: The January employment report contained a confusing set of data, as payroll job growth significantly disappointed, but the unemployment rate declined by one-tenth, reflecting large gains in household employment. Overall we see the report as slightly weaker than expected. Nonfarm payroll employment rose a disappointing 113k in January (vs. consensus +180k). By industry, retail trade declined 13k (vs. +63k in December), while health and education services?normally a consistent support for headline job growth?declined for the second consecutive month (-6k). Construction employment, which declined 22k in December amid adverse weather, added 48k, suggesting little negative weather impact in the January report. Government employment fell 29k, the worst performance since October 2012, split between federal (-12k) and state and local (-17k). Payroll job growth in November and December was revised by a cumulative 34k, consistent with the general tendency for positive back-revisions in the January report. Over the past three months, payroll employment rose an average rate of 154k per month.

With the HFT brigade selling then buying, and trying to goalseek an explanation of why this happened after the fact, one key aspect of today's release that was ignored is that the BLS just revised its Establishment Survey data, in the process changing all historical job numbers. To wit: "Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2014 reflect updated population estimates." As a result of this revision, while the monthly changes were not that dramatic, what happened is that the "stock" level of jobs as reflected in the Establishment Survey rose by half a million as of December 31, from 136,877 to 137,386. And so all key historic data - from GDP in early 2013 to jobs - has now been revised to reflect a more rosy economy, and instill consumers with even more confidence in hopes they will spend, spend, spend.

In the 30 seconds before this morning's jobs report was released to the general public, Gold prices dropped and USDJPY jumped from its relative stasis going in. Obviously it is not clear if anyone knew anything but following the knee-jerk reactions, these were rightly positioned moves for where the market is now.

Ugly jobs report in which not even the spin brigade could find anything to cheer, after even the BLS said the atrocious December print was not due to the weather when it did not revise the December number? No worries: here is what the market is using as a goalseeked justification to send the futures off its post report plunge lows to a level higher than where it was before the report. See if you can spot it...