Guest Post: Ridiculous Productivity

Tyler Durden's picture

Submitted by Chris Martenson of Chris Martenson's Blog

Market Recap - Ridiculous Productivity

After digging around and sifting through the things both said and not said, I have come to the conclusion that what we are seeing are the likely effects of a rescue operation.

By this I mean a large injection of stabilizing cash to one or more parties, possibly related to the recent large bankruptcies. Two of my friends who have been actively trading for more than 20 years between them threw in the towel this week as their patterns and methods are no longer working.

Their conclusion is the same as mine; this market is not trading like it used to. It is trading chaotically, counter intuitively, and as if there's some sort of distorting influence involved.

First we might just wonder if this isn't the impact of a rogue firm with entirely too much power moving the market for its own benefit.

When we examine the results of Goldman's latest quarterly trading results, obviously we have a strong suspect.

Goldman Benefits from Trading Bonanza

Traders at Goldman Sachs recorded only one daily loss in the third quarter, highlighting the trading bonanza sweeping Wall Street as central banks continue to pump billions of dollars into the financial system.

The performance – revealed on Wednesday in a regulatory filing – compares with two losing trading days in the previous quarter and confirms that the authorities’ drive to revive markets after the crisis is yielding huge windfalls for some banks.

Before the crisis, banks regularly recorded trading losses on several days in a quarter.

Goldman made more than $100m in profits on 36 of the 65 days in the three months to September and recorded more than $50m in profit on more than eight out of 10 trading days, the filing shows.

Only one day with trading losses out of the entire quarter? A 98.5% win-rate? Sorry folks, this is so far beyond the realm of statistically possible that we must search for other reasons. There can be no doubt that Goldman is enjoying an advantage not shared by the rest of the market.

Goldman is a company largely housed in a single glass building in Manhattan vacuuming up $100 million in profits on 36 out of 65 trading days. $100 million is a lot of money. It is equivalent to the total earnings of a very successful mid-sized company for an entire year. One that might employ thousands of people.

But somehow we have a system where a few folks in a glass building are able to skim that amount day after day after day without anybody from any regulatory body even blinking.

Remember, in trading one person's gain is another person's losses. It really strains every fiber in my being to imagine that Goldman's services to this country are either that good, that fortuitous, or worth it.

Moving on to the markets, here's what the market has done for the past week as traced by the S&P 500 futures (which I like because it tells you what's happening 24 hours a day, not just when the cash market is open):

We see the volatility as the market first surged on the GDP report and then slumped the day after. Then there was a spike on the ISM (mfg) data that also gave up the gains shortly thereafter. Then we had the FOMC follies where the market looked like an EKG of a heart attack victim for a while before finally slumping away all the day's gains.

Today's 200 point Dow spree was said to be due to favorable unemployment data and excellent productivity gains but if you were watching the overnight futures you noticed that the lift-off actually began at 3:00 a.m. As a trader, I am quite familiar with this pattern. When large futures gains are recorded beginning at 3:00 you can nearly always count on those gains holding through the day.

Inquiring minds would like to know how the future traders seemingly know about the excellent economic news that has not yet been released. Hello SEC? I have a job for you.

Regarding the excellent economic news today, I might note that the market never sells off on an unexpected rise in initial claims nor should it. The data is noisy and not worth much week to week. Further we might note that while the number was less than expected it was still over 500,000; a lousy result by any normal measure.

U.S. Economy: Worker Productivity Surges, Costs Drop (Update1)

Nov. 5 (Bloomberg) -- Worker productivity surged at the fastest pace in six years, labor costs fell and unemployment claims were lower than forecast, signaling companies may be preparing to start hiring again after cutting costs to the bone.

When looking through this data we might note a powerful contradiction in the logic. Why should companies that have just secured a gigantic gain in productivity seek to hire anybody? I mean if they're any good a company that has managed to become more efficient and lean is not about to go out and hire anybody just because.

I should point out that the productivity measure is the worst of the worst in terms of usefulness or reliability. I hate how it is constructed. Some of my disdain is probably a holdover from all the years I had to listen to Alan Greenspan trumpet it to rationalize his reckless loose money policies. I thought it was bunk then and I do now.

If you want any further proof that this measure is junk, look at what was reported:

Productivity, a measure of employee output per hour, jumped at a 9.5 percent annual rate in the third quarter, exceeding the highest economist forecast, according to Labor Department figures released today in Washington

That's just ridiculous. At that rate we'd need half the workers to accomplish just as much in only ~7 years. It's silly and instead of spending any time wondering at it we should instead immediately suspect that it is flawed.

Next, labor costs going down is a bad thing if you are depending on consumers coming back to the shopping malls. Lower labor costs means less money going to workers. That's not a good sign at this point.

So at this point I really have no solid explanation for what I am seeing in the market besides noting that a lot of liquidity is hitting the tape. Gold remains over $1090 and the dollar is languishing about at ~76, bonds went nowhere today despite a powerful stock market rally.
All in all this adds up to liquidity and lots of it.

This is one reason that I am not a deflationist yet. While I have complete intellectual sympathy for the deflation argument as that is what should be happening, I am not yet seeing it in the financial markets.

Instead I am seeing what I presume to be behind-the-scenes injections of liquidity into the markets.

I have read numerous statements of fact from deflationists that are actually beliefs that really need to be carefully examined. One is "the markets are larger than the central banks." I used to believe this too, but now I am less certain.

Thinking back, I recall that the Soviet machine was bigger than the market because it was the market. It turned out not to be larger than reality, but that's a different story. The Soviets simply dictated everything from prices to false production figures until the system collapsed.

The tools of persuasion and market interference at the employ of modern central banks are far more sophisticated than anything the Soviets ever dreamt of.  Are the markets larger than the banks?  I'd like to think so, but I am growing more and more confident that the answer is "no" and that the distorting effects of untold trillions of fiat money can elevate prices for long enough to change people's minds.

I happen to think that reality is larger than our central banks but that too is a story for another day. You can review that thesis by re-reading the paired reports on oil that came out in April 2009.

Again, I just want to caution you to be ready for any outcome. I am open to the possibility of an immediate return of crushing deflation and I am also open to the possibility that the gigantic wall of fiat money will over-ride the deflationary impulses and whisk us into a fast date with high inflation.  Right now the data says that the money masters are winning the battle against deflation.

And not without help from the media - I am simply stunned that Capmark and CIT went belly up and I couldn't find a single article about either today in a major news outlet. It is as if they never happened at all. Sometimes what is not said is just as important as what is said.

This is, without a doubt, one of the most perplexing moments for those interested in wealth preservation.

Take care.

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omi's picture

We are so god damn productive that we don't need jobs.

Anonymous's picture

Damn it! I was about to 'off' myself, and then you make me laugh.

Thanks for nothing, jackass...

Takingbets's picture

This whole better than expected crap rally is a mind fuck. TPTB are trying to rewire the sheeps thoughts that bad is the new good. And I truly believe IB's are behind gunning these markets before the bad news, oops I mean good news get reported.

11:00 am : Financials continue to be a drag; the sector is now down 1.1%. AIG (AIG 35.48, -3.80) is a primary laggard in the sector. Shares of the insurer have been shunned for the entire session, despite better-than-expected earnings for its latest quarter. AIG's weakness has spread to its peers and dragged multiline insurers, as a group, to a 2.8% loss.

What_Me_Worry's picture

It really gets weird once you figure out that AIG may have actually missed on their earning estimates.  We keep hearing this $2 number, however they actually reported net income to common shares in the 0.60's.  Let alone, ON TOP OF THAT, they don't even report out net profit to common shares after accounting for the fact that there are warrants for 4x what the current outstanding is.  Their real earnings for common shares might be closer to 0.15ish.

They actually reported their net income before paying out their expenses.  I may be reading their report wrong.  I cannot believe you are allowed to report out your net income before paying out your expenses for your loans now?!?

Basically, financial institutions can truly pick whatever number they want their net income to be and then work backwards from that figure to make the rest of the numbers fit.

omi's picture

Oh the enthusiassm over a range trade

Tripps's picture

exactly right....they are trying to use positivity and the law of attraction to distract and to suck in even the bears to go long


the most stupid way to solve a great recession I have ever seen


they won't fix the monetary system , wont fix the debt, wont fix the tax structure, won't create jobs, etc...but they will throw trillions at stocks even though equity outflows increase


do they think we are stupid????????  

Ned Zeppelin's picture

In a similar vein, I have decided that waiting to short the equities market is a losing game where QE is the reigning paradigm.  What has happened is that the S&P 500 at 1050 or 1070 today is the pre-QE S&P 500 at 650, or worse. Reinflation has successfully occurred in risk assets.  As long as QE is inevitable (either by reason of a Fed objective of holding down interest rates, so as to hold down the cost of borrowing AND maintain interest-rate-sensitive asset valuations, OR by reason of impossible to borrow U.S. federal deficits) then reflation works in terms of altering appearances of aset values.  In such an atmosphere, commodities will rise and gold should act as the measurement of the value of debased (i.e., printed rather than earned) fiat currencies.  I know there is alot of talk that the dollar is about to turn, everyone is ganging up on the dollar, and that somehow this thing wil lturn around, but all I see is that gold will keep rising (as an objective "price check" on the relativism of currencies), but as long as the Fed prints, isn't this the inevitable result? And even that behavior will last only until the outer rings of tolerance for such behavior are breached, and then currency collapse becomes a real possibility - does anyone know the trigger point? I doubt it, but it's out here somewhere in the darkness and we are hurtling towards it in a 1987 Oldsmobile with blackout glass and a mad driver sputtering nonsensicals at the wheel.  At least, I think that's where we are.  

And you are right about the manipulation - I think the scary part is that it is working, but the consequences of what is occurring are mind-boggling, as appearances become the substitute for reality.  The final victory.

-273's picture

But if reality for a growing number of people is that of unemployment, foreclosure and bankruptcy, then faced with the appearance (and fairly evident reality) of a few people gaming the system while they sink, it seems like a recipe for battle more than any ultimate victory. Lot of peeps are down, but not out. Game on. Next level.

ZerOhead's picture

The 87 Olds shitmobile is now rocketing down the road...  QE pedal to the metal with full ZIRP Nitrous Oxide (NOX) boosters... can't turn left... can't turn right... and no possibility of applying brakes evidentally...

Won't turn out well I'm afraid... kinda like what happens to a speedboat when it catches too much air...

Anonymous's picture

It's a Talmudic Market... what more needs to be said?

Anonymous's picture

I don't get it - I've been reading Zerohedge since the beginning, and, thanks to them, I came to this very same conclusion MONTHS AGO,... and you and your two buddies, with "20 yrs of trading between them," have JUST NOW come to this very same conclusion?

Wow, the three of y'all must've lost a SHITE load.

Anonymous's picture

Precisely. I told a friend last year that my models stopped working in May 2007, when they screamed get the hell out.

Pat Hand's picture

May 2007 was good.  My early warning systems started up in late June and began screaming "red alert" July 25.  That day I was dining with a couple of hedge fund allocators and their trophy wives (only one trophy wife per allocator) at Del Frisco's.  Wednesday night, the place was packed.  They had a $120 lobster special and a $56 steak special.  Three deep at the bar, pre-Mad Men martinis flowing.  Plenty of high-end champagne (our table ordered Roederer at $150).  I turned to one of the allocators and said "this has got to be the hedge fund market top".

Went to cash.

Short 50% in December.

pissed it all away over the past six months (well, not all of it).

Right now it's all a dollar trade, I think.  

TIPS are the trade - no expectation of much return but protection in case of either inflation or deflation.

5% in lottery tickets

Still long 9mm futures

Anonymous's picture

Never did go real short because I shorted GM about 9 months to early and it doubled from there. Got burned on another, Worthington Industries and figured I was wrong and simply went to cash.

Then to test whether or not I was getting any better, played with the GCI and OpEx practice accounts for 6 months, losing over $5,000,000. I was on the wrong side of 9 out of 10 trades.

Have only done a leetle bit better since then.

Interesting that you too went to the dollar trade. Been going back and forth with the BRL/$, $AUD/$, NOK/$, EUR/jpy,
and Euro/$.

msscheiner77777's picture

How do labor costs fall (productivity figures)when wages are up in this latest employment (and I use the term lightly) report?

Which business in their right mind increase wages at a 17.5% (true) unemployment rate?

And how are government jobs flat when all I see are firings by cities and states?


Really good post, thanks.

Prophet of Wise's picture

Productivity increases as measured by output-per-worker [total output/total workers] should come as "no surprise" when we reduce the denominator by 7,000,000

Anonymous's picture

Think like a criminal.

vreporter's picture

I believe that some serious restructuring (capital requirements, management change, etc) of the "questionable banks" has been underway for a few weeks. They have been sinking while the Dow has been hiding that damage at new highs. Rotation is a wonderful tool as long as there is a chair to sit on before the music stops. Today's major Dow hero is GE! Watch the banks because something is afoot in the REAL market.


After all, it's a market of stocks, not a stock market.

Anonymous's picture

Sounds like someone is losing their arse.

Anonymous's picture

Unemployment doesn't seem to matter...

Banks can borrow at 0% and lend at xx%. Those loans that cannot be paid back will just be bought by the government. Corporations will continue to buy things from each other with less workers which will show both top line and bottom line growth.

Government will finance the whole thing by printing more money, which will be purchased by foreign governments who have no other choice.

Individual investors that don't want to join the gambling will loose principle with little to no interest bearing equivalent available punishing saving/earners while enriching those that either comply and bet on black/red CNBC strategy or open their palm for the next government hand out.

Small biz will continue to fail, but who cares about small biz anyway?

Anonymous's picture

Guys, what would you wish you'd done before you died?

Anonymous's picture

...well..that's easy. It was in Westwood, on La Mirada, near Hollywood boulevard, early 90s, my first apartment and there was this lovely woman on a dark and steamy night possessed by a faint hesitation. But an urgent persuasive spirit pressing me on...and then my roomate's night shift got cancelled and he opened the apartment door 10 feet away shining the light from the hallway directly onto the sofa where the the lady and I, after a sumptuous dinner, lay in an embrace, I having finally got her bra unhooked with one hand and--------descending upon us was a lust-killing moment that I regret to this day.

I would have put that at the near top of my list of TTDBYD.

Anonymous's picture

I guess that beats my "kick Liesman in the nuts"

Anonymous's picture

Dude, sweet story, but it's an obvious fabrication. Hollywood Blvd. ends far east of Westwood and La Mirada Ave runs parallel to Hollywood Blvd. and, again, ends far east of Westwood. Even if you meant West Hollywood (not Westwood), it's still not true because both streets also end east of WeHo. And another things -- there are no "steamy nights" in Los Angeles; it's either hot and dry or cool and damp. Sorry.

Anonymous's picture

Well OK I was taking a bit of literary license. The actual location, which was on La Mirada, in the Karnak apartments, in West Hollywood, and the 'steamy' was a reference to the climate in that room without an air conditioner.

Everything else is the truth, swear to god, hope to die, cross my heart, on my mother's grave.

I couldn't make that one up even if I tried sinceI have many times threatened to kill my roomy for showing up that time. Made me believe that some things are just not meant to be considering my two year up and down history with that particular velvet-touch woman.

Anonymous's picture

I nailed her right before you had dinner.

Anonymous's picture

And then of course there was this morning, where at the open, it looked like traders were forced at gunpoint to buy. I haven't seen anything like that since April/May; that was the work of the SLP program if ever I've seen it. This is getting ridiculous. Everone's talking about the head and shoulders forming on the S&P - if it doesn't take out 1080 on the next attempt, or it breaks through 1035, all the Elliot Waves guys are saying we're headed down in a big way.

And so I guess the one(s) who are running shit these days decided this morning that we weren't going down.

Let's see what consumer credit does to this. If the numbers come in horrible, and the market doesn't sell off (on a FRIDAY), you know something is deeply, profoundly wrong.

mule65's picture

Two of my friends who have been actively trading for more than 20 years between them threw in the towel this week as their patterns and methods are no longer working.

Good.  Maybe they can find a real job and do something productive.

Anonymous's picture

This is 'good' until you realize what it means. The market used to be made up of hundreds of smaller liquidity providers. Now it's shrinking and all that will be left is 10 HFT 'liquidity providers'. This is happening in a lot of markets - equities, futures, options.

Internet Tough Guy's picture

Only a fool plays a rigged game. What will the squid eat when it runs out of fish and new fish won't play?

Greyzone's picture

The squid will task its minions (Obama and Congress) to force you to play. They are going to raise 401K limits, require some minimum 401K deposits from everyone, and remove any ability to get the 401K money until you retire at 95 or some such crap, which in turn funnels money into funds that can then be screwed by the squid.

Just watch. Time to renew your passports, people, if you've not already done so. Like many in 1930s Germany, some folks may decide it's time to look for the exit.

Mazarin's picture

re: "Screwed by the squid" - It isn't pretty:

Male giant squid have been found to have a long, muscular penis...

Scientists believe that the male squid literally injects his sperm into the female's skin during mating.

"The two of them mount beak to beak, so you've got arms and tentacles flying everywhere," Dr O'Shea said.

"The male is co-ordinating this enormous penis, and he's implanting spermadaphores into the female's arms.

Giant squid caught in Scotland Some giant squid have occasionally been caught by fishermen "He uses the penis like a plunger or a huge hypodermic needle, and he's physically stabbing the female's arms."

Pat Hand's picture

Predators aren't really interested in attacking big and strong things.  We're cowards & want to eat weak sheep.  If the sheep are all gone and it's wolf on wolf, well, that's life, but it's a very different way of living

chancee's picture

If you want to see your future tax dollars at work, just pull up SPY on your time and sales screen and watch your children's inheritance scroll by.

Anonymous's picture

Jealous? Mad? Has the squid ink clouded your vision?

"Invest in US Treasuries if you cannot get your expected returns while day trading" says Lloyd BankMafia.

Problem Is's picture

That is Timmay G.'s Aunt Lloyd you are talking about...

Anonymous's picture

the markets are larger than the central banks

anyone who believes this is a worn out retread from the nixon-ford days or earlier....get them horses and buggies out to go to market....eeehaaa

when 23.7t usd is available to backstop the markets and when derivatives are measured literally in the quadrillions (notional value) i assure you that central banks are vastly larger than the markets.....

the fed rules the markets through derivatives - but only certain ones.....until people recognize that fact they will keep whining their fucktarded whine about disconnects all over the place...the only disconnect is in their brains for refusing to realize that the vampire squids rule the world and do so through means far too sophisticated for mortals to comprehend...but they do it and it is with derivatives.....

irs are the single most important derivative in the world have gold derivatives....they guarantee insatiable demand for treasuries and arbitrary interest rates...the fed needed qe as an enforcer and they got the power....

until there are dead bankster-illuminists there will be no escaping the squid....

Anonymous's picture


Gunther's picture

As long as everybody stays in the paper universe continued manipulation might work.

Shortages in commodities have the power to stop the paper; after all energy and food can neither be printed nor electronically created.

Another way to stop the paper is to buy and take delivery (!!) of precious metals.

I do not have US numbers, but I Germany are some 3 Trln Euros in savings. 1% of that is 30 billion Eu that would buy give or take 1000 metric tons of gold. Take few other saving nations too and that is enough money to buy all the gold of few central banks.


Problem Is's picture

Wow... an "anonymous" that does not sound like Timmay, Aunt Lloyd or Uncle Jamie's sock puppet...

I shall have to categorize you as "Anonymous A." Please place an A at the beginning of your posts so I can figure out which anonymous I am reading...

It is like trying to figure out which Tyler I am reading...

I like the really sarcastic, caustic Tyler...

Rainman's picture

A consumer-driven revival requires that the gubmint try to push the stubborn sheeple out of their deleveraging foxholes.....with little or no easy credit in sight. And the long awaited inventory ramp up on slowing credit is another mirage.

So the GS/Uncle Slam conspiracy to artificially pump on equities must continue or the house of cards slowly crumbles. A crushed dollar isn't even on the radar screen of hazards.....for now. 

Racer's picture

"Two of my friends who have been actively trading for more than 20 years between them threw in the towel this week as their patterns and methods are no longer working."

 I have been trading successfully for many years, but now... I give up..

I think the best option is to max out the credit cards and not pay them, sorry got no money left...that's what you did to me by your idiotic market manipulations

After all, the banks don't pay any interest to savers and prudent people do they?

Be reckless and get away with it I say.. well that is what they are showing me by their example

Anonymous's picture

"banks don't pay interest to savers"?

It's far worse than that. They are charging us with their failures, along with their Pimps in Congress.

It's getting stabbed from both ends.

Anonymous's picture

Re: MSM coverage of business, generally.

"...I couldn't find a single article about either today in a major news outlet.."

Very rarely do our major dailies carry anything significant about business, even though they have a separate "Business" pull out section. They never have.

They cater to the whims of their readers who apparently want Sports numero uno, a Magazine about people famous for being famous, and Car ads.

I only subscribe to one on Sundays for the KenKen, Crosswords, Sudoku and other puzzles, the Op-ed page and get my business news from other sources mostly the Web which is current, constant, and makes the next day's business news (and all other so-called news) in the papers obsolete by next morning.

No TV business watching unless there's a meltup or meltdown.

The "interweb" as Mr Monk would call it, is far and away the best source for up to date business data, and ZH is the leader of the pack.

Anonymous's picture

the market is acting counterintuitively because you don't understand markets.. give up

miker's picture

Excellent article and make no mistake, the Fed is behind this market 100%. GS is the front man. Why do you think the Audit the Fed bill got gutted?  Because the Fed is pumping billions into the stock market.  THE MARKET IS  HOW THE FED IS INFLATING THE MONEY SUPPLY!!!!  The banks sure as hell aren't doing it with their reserves because there is little loan demand.  The first phase of the market rally was really quite easy and inexpensive.  Basically, they made sure no nasty surprises occurred on the downside (e.g., managed the news) and threw enough buy side support to key stocks while manipulating the sell side.  No one was selling much so up she went.  Now, it's getting dicier.  But still billions are being spent to hold her up.  Look at GE Today.  Up a frigging $1/share over what?  A well timed buy recommendation.  This on the day that GE announces closing their solar plant due to lack of pricing.  Goldman is making a ton of SURE money trading because they are the key maker of this market.  There attitude is "we're good" so pay us.  The Feds have little choice. 

One final note.  I've said this before and I still firmly believe that our government in conjunction with Saudis' is attempting to hold the price of oil "up".  If oil spirals down, all bets are off on preventing a deflationary spiral......because everything is pegged to it in cost.  Ask yourself why has natural gas dropped 2/3 in price but oil has held firm?  China and US have been buying to fill strategic reserves and using other techniques to hold the price up......for now. 

Also, don't expect Gold to move much over 1100/ounce.  When that happens, you will see the results of Ben selling some of the vast U.S. reserves into the market and scaring some of the weaker longs.  They will NOT let gold advance substantially from here.

This economy is is serious, serious straits.  I think worse than the 1930's.  Ben and Tim are pulling out all the stops; including a Treasury meeting with top financial bloggers to "show their human side".  Unprecedented. 

Racer's picture

The Nikkei was over 1000 points higher than the Dow, now it is 200 points lower.

Beggar the rest of the world, the US is going to fiddle all the way to line the banksters pockets at the expense of the poor peasants at the bottom of the heap

Burnbright's picture

If the FED sells Gold or Silver people like me will be buying hand over fist in the dip. Just FYI.