Opinions and Analysis of the MSM News Headlines for June 4th, 2010

In continuing my data intense, hardcore, uber-objective dissection of
the stuff that is proffered through the mainstream media (MSM), I bring
you:

•Payrolls
in U.S. Climb Less Than Estimated as Confidence in Recovery Wanes

June 4 (Bloomberg) — Employers in the
U.S. hired fewer workers in May than forecast and Americans dropped out
of the labor force, showing a lack of confidence in the recovery that
may lead to slower economic growth.

Payrolls rose by 431,000 last month,
including a 411,000 jump in government hiring of temporary workers for
the 2010 census, Labor Department figures in Washington showed today.
Economists projected a 536,000 gain, according to the median forecast in
a Bloomberg News survey. Private payrolls rose a less-than-forecast
41,000. The jobless rate fell to 9.7 percent.

This was not hard to see coming if you studied the numbers with an
objective eye. If we dig up last year’s BoomBustBlog article on the
topic, we’ll ponder… “Are
the Effects of Unemployment About To Shoot Through the Roof?” as
excerpted below.

A recent zero-hedge article rightly questioned the
reliability of the reported unemployment figures by comparing the
reported increase in the unemployment benefits paid with the reported
increase in the number of insured unemployed. According to the figures
reported by Department of Labor (DOL), the total number of insured
unemployed in the US has risen by nearly 400% since September 2007 and
has reached nearly 10.5 million as of Dec 19, 2009. However, if we look
at the monthly withdrawals on the unemployment insurance account
(according to the Daily Treasury Statement prepared by the Financial
Management Service), the expenditure has risen by nearly 550%.
The difference has been widening since April 2009 (coincidentally,
right about the time the S&P 500 rocketed skywards, and the housing
market made several month to month gains [see If
Anybody Bothered to Take a Close Look at the Latest Housing
Numbers..."]) and has increased substantially in Dec 2009.

With no reason to believe that the average payouts increased
dramatically (that could have otherwise explained this variation), the
article rightly points out the huge discrepancy that is creeping in the
reported figures. According to Zero-hedge, the insured unemployed are
understated by 32% and estimate the insured unemployed at nearly 14
million. The Bureau of Labor Statistics reported the total number of
unemployed at 15.6 million and the unemployment rate at 10% in Dec 2010.
With serious doubts being raised about the reported figures of the
insured unemployed that forms a substantial portion of total unemployed
(nearly 69% in Dec 2010, based on reported figures), the total
unemployment figures reported by the government is most likely
severely understated.

The grave unemployment situation not only undermines the economic
health and recovery hopes, but is also acting as a major source of
financial strain on the Fed’s books. The Fed has been spending huge
amounts of money in the form of UI (unemployment insurance) benefits.
In 2009, the government paid about $139 billion in UI benefits. Based
on the figures for total unemployed by Bureau of Labor statistics and
total insured unemployed by DOL, the total insured unemployed which are
being supported by the government under the various state and federal
programs have risen to 69.0% of the total unemployed as of Dec 2009
from just 29.0% in Sep 2007. Further it is observed that the Fed has
been taking in huge deficits on its books because of UI programs. The
total UI withdrawals on Fed books in 2009 were $139 billion against
deposits of just $31 billion received from states for unemployment.
While the withdrawals in 2009 have increased by 320% when compared with
withdrawals in 2007, the deposits have declined by 6.6%. The deficit
has increased to nearly $107 billion from nearly no deficit, two years
ago.

Back to the news of the day… Hungary’s
Forint Hits Year Low on Economic Outlook; Bonds, Stocks Plunge
and Stocks,
Commodities Drop on U.S. Job Data; Forint Falls on Hungary’s Debt:

June 4 (Bloomberg) — Credit-default swaps
on sovereign bonds surged on speculation Europe’s debt crisis is
worsening after Hungary said it’s in a “very grave situation” because a
previous government lied about the state of the economy.

The cost of insuring against losses on
Hungarian sovereign debt jumped 83.5 basis points to 391.5, according to
CMA DataVision prices. Swaps on France, Austria, Belgium and Germany
also rose, sending the Markit
iTraxx SovX Western Europe Index of contracts on 15 governments 10
basis points higher to 163, and close to the all-time high of 167 on May
6.

Hungary’s bonds fell after a spokesman
for Prime Minister Viktor
Orban said talk of a default is “not an exaggeration” because a
previous administration “manipulated” figures. The country was bailed
out with a 20 billion-euro ($24 billion) aid package from the European
Union and International Monetary Fund in 2008.

“The comments out of Hungary have really
spooked the market,” said Rajeev
Shah, a credit strategist at BNP Paribas SA in London. “Investors
are interpreting it as bad sign for trying to tackle Europe’s debt
crisis.”

BoomBustBloggers, particularly subscribers, should have been well
prepared (and hopefully well positioned) for such an event. Any paying (professional) subscriber who hasn't read this document should do so now -
Banks exposed to Central and Eastern Europe. Any retail subscriber who has been with me for a year should email me, and I will send you the document as a courtesy and acknowledgement of your patronage. All others, reference The
Depression is Already Here for Some Members of Europe, and It Just
Might Be Contagious!

Source: IMF, European Commission

Notably, except for Hungary
with a public debt-to-GDP of nearly 80%, government debt is within
manageable limits for most of the countries in the region. This is most
likely due to the fact that these countries did not have an
overdeveloped banking system that required bailing out.

We also know that you really can’t count on the IMF, the EU or even
the county itself to give a realistic accounting of the fiscal
situation. Notice how both Hungary’s and Greece’s current governments
are blaming the lies on previous administrations. Well, the lying just
doesn’t stop there. First reference Smoking
Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware! to realize it is not just the smaller countries in the east
and the south, then peruse the seminal prose, Lies, Damn Lies, and Sovereign Truths: Why the Euro is
Destined to Collapse! for
the hard arithmetical truth!!!

The IMF and the EU have been consistently
and overtly optimistic from the very beginning of this crisis. Their
numbers have been dramatically over the top on the super bright, this
will end pretty, rosy scenario side – and that is after multiple
revisions to the downside!!! We can visit the US concept of regulatory
capture (see How
Regulatory Capture Turns Doo Doo Deadly and Lehman
Brothers Dies While Getting Away with Murder: Regulatory Capture at
its Best) for the EU, but due to time constraints we will save that
topic for a later date. To make matters even worse, the sovereign
states have taken these dramatically optimistic and proven unrealistic
projections and have made even more optimistic and dramatically
unrealistic projections on top of those in order to create the illusion
of a workable “austerity” plan when in reality there is no way in hell
the stated and published plans will come anywhere near reducing the
debts and deficits as advertised – No Way in Hell
(Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem – just to cover some of the
Euro states caught fudging the numbers)!

Let’s take a visual perusal of what I am
talking about, focusing on those sovereign nations that I have covered
thus far.

Notice how dramatically off the
market the IMF has been, skewered HEAVILY to the optimistic side. Now,
notice how aggressively the IMF has downwardly revsied their
forecasts to still end up widlly optimistic.

Ever since the beginning of this crisis,
IMF estimates of government balance have been just as bad…

What does this all mean? Well, if I was a betting man, I
would say it will end up as Flash Crash, 2.0, that is without the
“flash” part. Methinks anyone who doesn’t believe the market is an
overvalued casino waiting to implode either is delusional or
arithmetically impaired. Hey, at least the NYSE sees things the way I
do…

NYSE Invokes Rule 48 to Suspend Price Indications
Before New York Trading

June 4 (Bloomberg) — The New York Stock
Exchange and NYSE Amex cash platforms invoked a rule today that aims to smooth the opening of U.S.
equities when futures and overseas markets signal high levels
of price volatility.

Rule 48 halts the requirement for market
makers to send pre-opening indications, or bid and ask prices created in
auctions used to determine a stock’s opening price. The regulation is
used only when the “potential for extremely high market-wide volatility
would likely impair floor-wide operations at the exchange,” NYSE
Euronext said.

U.S. stock-index futures plunged today
following a report showing the nation added fewer jobs than economists
estimated last month, spurring concern employment recovery isn’t as
robust as forecast. June contracts on the Standard & Poor’s 500
Index slid 2.1 percent to 1,079.50 as of 9:10 a.m. in New York.

Imagine where we would be if the exchange allowed prices to move down
as freely as they allowed prices to move up! Quasi-socialism (an
economic system that directly maximizes use-values
as opposed to exchange-values)
in American stock exchange operations and management? Ain’t that an
anti-capitalistic bitch!

Comments

[Problem Is]

Regg-O-Truth Meter
The man with the facts..

[taraxias]

Reggie rocks!

[eccitante]

"Imagine where we would be if the exchange allowed prices to move down as freely as they allowed prices to move up! Quasi-socialism (an economic system that directly maximizes use-values as opposed to exchange-values) in American stock exchange operations and management? Ain’t that an anti-capitalistic bitch!"

This sums up the situation nicely....They will stop at nothing to prevent reality from becoming apparent....

[whiteshadow]

me thinks..its great to learn from mr. reggie..opinion backed by facts....less room for bias...

Mr. Reggie, it would be nice to read your report on for-profit educational sector...read an article in nytimes n here by madhedgefundtrader ..

jus saw.. zh has an ad placed by capella ..haha

[crzyhun]

Rightous bro!

[Kina]

awesome, and pretty scary.

[doggings]

bang on as always Reggie, methinks this too:

anyone who doesn’t believe the market is an overvalued casino waiting to implode either is delusional or arithmetically impaired.

but your outstanding work continually shows why.