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Query For The Bernank: What Is The Fair Value Of Netflix Stock Expressed In 8% Unemployment?

Tyler Durden's picture


Yesterday, while we were listening to the Chairsatan (©Bill Gross), we made the following semi-serious realtime translation of Bernank's presentation to the sycophants' club: "Let me explain it to you: 9% unemployment: NFLX $300; 8%
unemployment: NFLX $500; 6% unemployment: NFLX $1000. Kapishe?" And while we were mostly joking in our correct interpretation of the Fed's massively wrong understanding of causality between the market and the economy, Nicholas Colas of BNY today took a comparable idea and analyzed what the level of the S&P should be for unemployment to get to a Fed acceptable level based on empirial data. We quote: "By our analysis of the last forty years of history for the S&P 500 and unemployment rates, in order to get to the Fed’s 8% target in 2012, the U.S. equity market needs to climb another 35% in 2011, putting the S&P 500 at 1755. That’s not our price target, but it just may be the Fed’s." Since this is most likely the entire "sophisticated" plan laid bare of one Iosif Vissarionovich Bernank, expect to see a complete elimination of volume as the mutual fund cartel continues with the never-sell collusion, and the only incremental buying is PDs with taxpayer money and HFTs' bid-bias fully compensated by rebates for providing the PDs with the "liquidity" they need to send stocks up another 350 points. Luckily, few if any care what the joke that is the stock market actually does (see today's unprecedented low NFP volume here).

From Nic Colas of BNY.

Peanut Butter, Bananas and Bacon – The Fed and the Stock Market

Summary: Even if Fed Chairman Bernanke doesn’t want to admit it, many investors and market watchers think the U.S. central bank is explicitly targeting the stock market with its quantitative easing program. In today’s note we assess the historical relationship between stock price movements and U.S. labor markets to see what kind of advance in equities correlates with the Fed’s target of an 8% unemployment rate in 2012. As it turns out, the stock market is a reasonably good predictor of future
changes in unemployment, especially at “the tails,” when broad market indices move dramatically higher or lower. And we suspect there is some causation as well as correlation at play here: companies with rising stock prices are more likely to hire if their equity prices are marching higher, and stocks are supposed to be leading indicators of general economic growth and contraction By our analysis of the last forty years of history for the S&P 500 and unemployment rates, in order to get to the Fed’s 8% target in 2012, the U.S. equity market needs to climb another 35% in 2011, putting the S&P 500 at 1755. That’s not our price target, but it just may be the Fed’s.

Elvis Presley is playing Radio City Music Hall on February 15th. No, I am not one of those people who think he’s still alive. Elvis really has “Left the building.” But some clever concert promoters have ginned up a show that reunites many of his old band members with a digitally scrubbed voice track of Elvis singing. There’s a video component to the show as well, featuring footage of some of his famous Vegas act and other appearances. Evidently the show goes over really well with Elvis fans, and it has made its way around the world to the United Kingdom, Australia and Japan. If you have an interest, here’s a link: Good tickets, as they say, are still available.

Of course many people associate Elvis with his oddball taste in food as much as his killer live act or iconic status in the world of rock ‘n roll. Reportedly, his favorite snack was a peanut butter, sliced banana and bacon sandwich. Sometimes with honey. The sandwich is so closely associated with Presley that many people just call it an “Elvis.” And, believe it or not, New York City’s own Mayor Bloomberg has stated that he harbors a fondness for the same creation. It would, in fact, be his “last meal” of choice. Another of Presley’s favorites, for which he supposedly flew from Memphis to Denver to enjoy, was a “Fool’s Gold Loaf”: a whole loaf of Italian bread, hollowed out, with a jar of peanut butter, an equivalent amount of jelly, and a pound of bacon. Served with champagne, included in the price.

I doubt either of these concoctions was on offer yesterday at the National Press Club in Washington D.C., but Federal Reserve Chairman Ben Bernanke did address questions during a lunch there about an ideological combination that feels about as odd as an “Elvis.” The ingredients, however, are Fed stimulus from quantitative easing, the stock market, and unemployment. The Chairman said “the purpose of monetary easing is not to strengthen stock prices per se. The purpose is to strengthen the U.S. economy, put people back to work and create price stability.” He then went on to say, “I do think that by taking these securities out of the  markets (ed: through QE) and pushing investors into alternative assets, we have led to higher stock prices and to lower market volatility.” (See a good recap of the entire speech and Q&A summary here:

So it should be clear that the Fed sees higher stock prices as a logical extension of their actions in the arena of monetary policy management. I’ll get to the chicken-and-egg nature of this assumption in a minute. But first we should get a handle on whether history supports any linkage between higher stock prices and the Fed’s mandate to encourage full employment. Recall that the Federal Reserve has two official directives from Congress – price stability is the other one. Since pushing stock prices higher can’t be part of the “price stability” mandate, Chairman Bernanke must feel that a rising tide of equity prices must help lift the boats of the labor market.

To assess the relationship between unemployment and stock prices, we looked at the historical record of the Labor Department’s take on the monthly unemployment rate and the 12 month return of the S&P 500 back to 1970. We assumed that there would be a lag between when stock markets moved and unemployment rates changed, as labor markets are notoriously “sticky” and tend to rise or fall only after economic conditions have shifted. So we took the 12 month historical change in the S&P 500 and compared this return to the change in the unemployment rate over the next year. We have included a few charts and a table as attachments, but here is our summary of the data:

There is some correlation between stock price movements and subsequent changes in the U.S. labor market – about 28%. That’s not an especially robust result, but we are talking about a 40-year time frame, after all, with everything from wars to tech and housing bubbles in the mix. So it is close enough for “government work.” Which is, after all, what we’re doing anyway.

The real action is in the “tails” of the distribution, when equity markets soar or plummet. When stocks drop 15-20%, unemployment picks up by an average of 1.2 points (a rate that goes from 5.0% to 6.2%, for example) over the next year. When the market falls by 25-30%, that rise in unemployment is more pronounced, at an average of 1.8 points. Conversely, when markets rise by 30-35%, unemployment drops by 0.4 points over the next year. If equities can manage a 35-40% increase over a year, the unemployment rate tends to fall by 0.8 points.

Two very important points here.

  • First, this relationship has been absent if you look at the entire period from the 2009 lows for the S&P 500 to the present day. Unemployment was at 8.6% in March 2009. It is now 9.4%. And the market has doubled over the same time frame. This is the “chicken and egg” problem. Perhaps the Fed has  broken this historical linkage with artificially low-cost capital flooding into stocks, rather than capital markets improving from genuine investor interest in equities from a visibly improving economy.
  • Second, the equity market/labor market relationship is much stronger to the downside than the upside. Simply put, a declining stock market is a fantastic predictor of rising unemployment. But a rising market has much lower observed correlation and impact.

Assuming that the long term relationship between stocks and the labor market does manage to right itself in 2011, we can draw two conclusions.

  • First, unemployment should drop 0.4 points over the next year. We reach that conclusion from tying the market’s 20% advance over the last 12 months to our historical analysis, which shows that this is the average improvement in labor markets when equities rise by this amount. This dovetails very nicely with the Fed’s own estimate of unemployment for 2011, at 9.0%, down exactly 0.4 points from last month’s unemployment rate.
  • But if you want to “dream the dream” for equities for a moment, consider that the Fed’s estimate for 2012 unemployment is 8.0%, or a full point lower than its estimate for 2011. Look at our summary table for historical stock price returns that correlate with a full percentage point drop in unemployment. It is anywhere from 35-50% in terms of price appreciation. Using the lowest end of that range, this implies a price target of 1755 on the S&P 500.

I don’t know which is stranger – a 1755 price target on the S&P 500, or one of Elvis’ sandwiches. This isn’t my price target on the S&P 500, but it may well be the Fed’s. Pass the honey… The bananas aren’t quite ripe.

Which brings us to the original question: can his Beardedness please supply American citizens with a Netflix, or at least S&P 500 fair value chart expressed in terms of jobs. 10% is 666, 9% if 1,200 8% is 1,755. Does that mean to get back to the pre-Depressionary 5%, the S&P will have to jump on the logarithmic train and hit 36,000? We honestly don't know, which is why central-planning Chairman Ben, please open up your little black book and tell us what the answer is?


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Fri, 02/04/2011 - 16:42 | 936053 TruthInSunshine
TruthInSunshine's picture



Very, very nice. I had to actually look that up (I had no idea that was his real name), and am a more educated man, for it.

Does this mean stocks fall real hard when they fall? I think so. But maybe gravity and things of physics don't matter as much now as they do when Newton was alive.

Fri, 02/04/2011 - 16:49 | 936084 SumDumGuy
SumDumGuy's picture's not the falling that kills you, it's the stopping.

Fri, 02/04/2011 - 16:39 | 936054 homersimpson
homersimpson's picture

Who gives a damn. HarryWanger and Obama/Bernank says the economy is improving. As a result, this article is bunk.

Fri, 02/04/2011 - 16:44 | 936058 Michael
Michael's picture

American Cities Go Bust  RT 2/04/2011

Fri, 02/04/2011 - 16:46 | 936076 SheepDog-One
SheepDog-One's picture

Sure, the entire country is totaly bankrupt, rolling blackouts in the southwest, but who cares? Stocks are up! Therefore all is well.

Fri, 02/04/2011 - 16:46 | 936075 plocequ1
plocequ1's picture

Amen. Screw the economy. I got my Netflix.

Fri, 02/04/2011 - 16:44 | 936067 SheepDog-One
SheepDog-One's picture

Bernank and FED butt-boy Harry Wanker says 'economy improving'.

Fri, 02/04/2011 - 16:46 | 936074 Yen Cross
Yen Cross's picture

Some 14 year old is writing a guidance Q1 manifesto, as we speak. ( on Net Flix)

Fri, 02/04/2011 - 16:46 | 936078 Sockeye
Sockeye's picture

You know this is exactly the problem. TBTB consider the equity markets to be the economy. Never mind the unemployed, the foreclosed, the inflated. The price of netlixs in unemployment - brilliant!

Fri, 02/04/2011 - 16:51 | 936094 Id fight Gandhi
Id fight Gandhi's picture

But Netflix raised their prices and my ISP is bitching to stop using so much bandwidth.

ISPs will start capping or charging, that won't help things.

Fri, 02/04/2011 - 16:51 | 936097 thepigman
thepigman's picture

It's just an ongoing scam to hand the banksters

more money. We all know it.

Fri, 02/04/2011 - 16:52 | 936098 gloomboomdoom
gloomboomdoom's picture

GAS Bag doesn't even know who he works for (Bradshaw).

Thankfully the Judge and John Stossel are allowed to talk about the Federal Reserve (The guyz who own us).

Thankfully, one is able to clear their personal debt and live a happy life still in Americka.

Meredith Whitney and Bill Gross have a ton of power. If they say something wrong, the stock market might collapse.

Help keep them safe!

Que the Santelli VS. Liesman show down (I-after E)... Fiat. Counterfit... Muni... Tyranny...bondz and investment vechicles should be in the Constitution.

Hey, What about Gold and Silver? NOPE

Fri, 02/04/2011 - 16:55 | 936107 cat2
cat2's picture

Get your terminology right, it's FUNemployment.

Fri, 02/04/2011 - 17:09 | 936152 Pure Evil
Pure Evil's picture

Yes, you have plenty of time to "Spank The Monkey" while watching trannie porn.

Hopefully the ISP you use doesn't cut back your bandwidth.

Fri, 02/04/2011 - 17:22 | 936183 gloomboomdoom
gloomboomdoom's picture

The 2nd Amendment is illegal in most states. Just make sure you don't get caught

Fri, 02/04/2011 - 18:13 | 936293 cbxer55
cbxer55's picture

Wait!    What?

Ya lost me on that one.

Fri, 02/04/2011 - 16:57 | 936111 Robslob
Robslob's picture

If you cancel Netflix subscription and wait 2 weeks they will send you a 1 year deal for $6 dollars a month...

Fri, 02/04/2011 - 17:03 | 936131 sudzee
sudzee's picture


Treasury to revamp freddie/fannie to rduce exposure to 50% of the market.

Housing needs to drop to the point where mortgages can be put on credit cards, which for most, will be the only credit available.

Fri, 02/04/2011 - 17:03 | 936133 What a mess_man
What a mess_man's picture

Luckily, few if any care what the joke that is the stock market actually does


Not true for us lucky 401K holders...  I still got a lot of fiat locked up in this pig, and I am quite sure I speak for a good many people...people with jobs  (yep, some of us still have them)

Fri, 02/04/2011 - 17:03 | 936136 RobotTrader
RobotTrader's picture

Impossible to quantify the greed of the momentum chasers, "make my year" crowd, and those who risk getting fired from their positions from not owning an "outsized position" in the No. 1 leading stock on the Investor's Business Daily list.

"If you don't own this stock in your fund, YOUR FIRED!!!"

Fri, 02/04/2011 - 17:15 | 936155 plocequ1
plocequ1's picture

Its like 1999. People bought stocks just because they didnt want to be left out of the money machine. I bought QCOM because everyone else was. It went up about 150  points in a day. I couldnt give a fuck about technicals. Same here. Who gives a fuck? The Bernank will fine tune the economy when needed. For now, Enjoy the ride.

Fri, 02/04/2011 - 17:21 | 936180 lieutenantjohnchard
lieutenantjohnchard's picture

just like in march 2000 after y2k wind down. and like the aug/sep/oct 1987 period. i remember quite vividly in 1987 the pundits egging everybody on to stay long. problem is very few bulls have the wherewithal to exit before the drop. my hunch is very few will get hurt this time because the public is by and large out of the market.

Fri, 02/04/2011 - 17:16 | 936165 lieutenantjohnchard
lieutenantjohnchard's picture

once again i'll ask. did you just now come to this conclusion after all these years? or if you knew it all along then why the bearish tone over the weekend? i thought you were God's gift to trading and understanding the market.

Fri, 02/04/2011 - 17:03 | 936138 What_Me_Worry
What_Me_Worry's picture

I would think subscriptions increase as unemployment increases.  People who have jobs don't have time for Netflix.

Plus, many of us who have jobs get their cell phone from their company(can't even choose an iphone).  Those without jobs are free to choose an iphone using bernanke fun bucks.  Therefore, AAPL should increase into rising unemployment.

Fri, 02/04/2011 - 17:05 | 936139 HarryWanger
HarryWanger's picture

For all the technical guys out there, we're clear to 1350 now. That should hold as a strong resistance area probably through most of this quarter. I don't think we'll break through it until mid Q2. Then the run to 1400 or higher by EOY.

Fri, 02/04/2011 - 17:12 | 936159 lieutenantjohnchard
lieutenantjohnchard's picture

harry, was your 9% prediction of nfp based on labor force participation drop or was it calculated on organic job growth?

Fri, 02/04/2011 - 17:17 | 936168 huggy_in_london
huggy_in_london's picture

You ain't getting anymore QE bud... and when the stock market finally understands that (along with realising that bond yields aren't coming back either) then the door won't be big enough.....

Fri, 02/04/2011 - 17:20 | 936178 cbxer55
cbxer55's picture

The more folks outta work, the better! Right wanker?

More folks to patronize your "business" since they have no job to go to.

Big thumbs up to ya, harry. Your a genius. Give the man a cigar.

Fri, 02/04/2011 - 18:56 | 936361 Bill Lumbergh
Bill Lumbergh's picture

The market is one big POMO experiment until something blows then everyone will be asking Bernanke why everything is in shambles in which we will reply with his tried and true saying "Well I don't buy that premise".

Fri, 02/04/2011 - 17:17 | 936169 bania
bania's picture

Nice reference to Joseph Stalin in there, LOL

Fri, 02/04/2011 - 17:26 | 936194 Herd Redirectio...
Herd Redirection Committee's picture

While I personally prefer to refer to him as Zimbabwe Ben, Gen Ben and Stalin references are also quite amusing (and fitting).

Fri, 02/04/2011 - 17:18 | 936171 Robslob
Robslob's picture

Harry is Ben Bernank...that is why he is here and always right...

Fri, 02/04/2011 - 17:24 | 936186 gloomboomdoom
gloomboomdoom's picture

He is just a troll. Are you the Anti-Troll? Everyone is trying desperate to figure out whom is manipulating the prices of real currency.

Problem is, we don't know what it is... The Founders didn't like to be honest about anything (Intentional?)

Fri, 02/04/2011 - 17:23 | 936184 Sudden Debt
Sudden Debt's picture

The only way the stockmarket may influence the companies quoted on it






That or they use their stock as collateral for loans.

Fri, 02/04/2011 - 17:25 | 936187 BT310
BT310's picture

A reasonable line of questioning to ask Bernank at his next hearing: Yes or No

Do you own equities?

Do you feel wealthier over the past 4 months?

Have you increased your spending as a result of the recent ramp up in values?


Fri, 02/04/2011 - 17:26 | 936190 watmann
watmann's picture

If you want to enjoy yourself calculate the market value of each CMG location which are all leased bythe way. If it exceeds $10 million per location dont be surprised. Then look at NFLX and calculate their real cash flow after you write off the value of the DVDs they have in inventory. Not a very pretty picture. NFLX is so risky that its incredible.


The market has replaced las vegas.

Fri, 02/04/2011 - 17:29 | 936207 Herd Redirectio...
Herd Redirection Committee's picture

Yep, even where gambling is illegal you can go huge on margin, and speculate on commodities/currencies/equities...  What a world.  No one has to save the world (in its current state) as it isn't worth saving, and similarly, no one has to destroy the corrupt system, it is coming apart at the seams, and will fall under its own weight.

Fri, 02/04/2011 - 17:28 | 936202 toros
toros's picture

And why do we do this?

Fri, 02/04/2011 - 17:28 | 936203 buzzsaw99
buzzsaw99's picture

infinite leverage + accounting shenanigans means "they" can buy all the shares that are offered below yesterday's price forever.

Fri, 02/04/2011 - 17:28 | 936204 UIC
UIC's picture

This is the quote of the day from Bloomberg:

“The unemployment rate has tended to be a more trustworthy measure over time,” said Maki, who is chief U.S. economist at Barclays in New York. “Job growth is likely stronger than recent payroll numbers have printed. The payrolls tend to undercount job losses in recessions, but also undercount job gains when the labor market picks up.”

Fri, 02/04/2011 - 17:31 | 936212 palmereldritch
palmereldritch's picture

Makes you wonder what the flicker rate is for Netflix....This program brought to by....

Traditional TV


"Researchers have found that once the television set is switched on, that left hand side and all it’s faculties tends to switch off.

Instead the image from television go straight to the right brain. The switch from beta to alpha waves shows this. Alpha brain waves are the ones we associate with meditation and sleep. By no means does this mean that we are not taking the information in – we are taking it all in, we are just not able to critically evaluate it as we would with information coming from other sources.

Video Games have been shown to lower brain activity to below that of the Delta frequency!

The TV screen  flicker rate alone is known to induce mesmerized states in people. This flicker rate is the rate at which the screen image is updated, generally about 50 or 60 times a second.

DARPA is a US military funded research programme.  One of their endeavours concerned developing TV flicker rates that could be played whenever a mesmerized state was required in a given section of the population.

Endorphins are released by overexposure to light.  The radiant light from televisions causes a release of endorphins.  Researcher Herbert Krugman showed that while viewers are watching television, the right hemisphere is twice as active as the left, a neurological anomaly. The crossover from left to right releases a surge of the body’s natural opiates: endorphins, which include beta-endorphins and enkephalins. Endorphins are structurally identical to opium and its derivatives (morphine, codeine, heroin, etc.). Activities that release endorphins (also called opioid peptides) are usually habit-forming (we rarely call them addictive). These include cracking knuckles and strenuous exercise. External opiates act on the same receptor sites (opioid receptors) as endorphins, so there is little difference between the two."

Fri, 02/04/2011 - 22:17 | 936673 RockyRacoon
RockyRacoon's picture

You're saying we're all zombies...zombies...ZOMBIES...ZOMBIES....


Where am I?

Fri, 02/04/2011 - 23:34 | 936807 palmereldritch
palmereldritch's picture

Not you too RR!!!   LOL


Fri, 02/04/2011 - 17:46 | 936245 GolfHatesMe
GolfHatesMe's picture

After finding out that we are at 9% unemployment today, I am sure that we will be reading about 8% WAY before 2012.  If it keeps snowing, we could easily be there by the middlie of March.  And that could happen because they have just announced that they are revising the last 15 years of Phil's shaddow and this year we will see six extra weeks. 

Fri, 02/04/2011 - 17:49 | 936251 Miles Kendig
Miles Kendig's picture

Nic starts off with stating:

Even if Fed Chairman Bernanke doesn’t want to admit it, many investors and market watchers think the U.S. central bank is explicitly targeting the stock market with its quantitative easing program.

Then he rolls out his assessment of historical S&P & employment data... 

I have to ask IF Nic, and his employer, BNY, is premising his note upon the idea that the fed has been targeting S&P over the past medium-long term?  If Nic isn't saying this then why waste time with a comparative analysis that isn't comparative?

Fri, 02/04/2011 - 17:58 | 936269 pat53
pat53's picture

" Luckily, few if any care what the joke that is the stock market actually does " 

            WRONG !

50% of people own stocks, and they're gettin' richer by the day, thats all Benny cares about. SPX to 1350 by March. get in or get crushed trying to stop it !!  LOL

Fri, 02/04/2011 - 18:02 | 936277 Miles Kendig
Miles Kendig's picture

Getting richer by the day expressed in a devaluing currency that is!!!  hahahahha

Soon that currency will only be good for lighting fires and rolling cheap cigarettes

Fri, 02/04/2011 - 18:24 | 936310 MiningJunkie
MiningJunkie's picture

Never underestimate the replacement power of Netflix stock within an inflationary spiral. Netflix is just another replacement for rapidly-depreciating FRN's and represents the finest hedge against hyperinflation known to mankind. Cash is trash. The PBOC certainly agrees.

Be long or be wrong.

Fri, 02/04/2011 - 19:35 | 936414 mynhair
mynhair's picture

Next up for bad numbers:  power outtages.

Can't buy when the keyboard is dead, right?

Or file for UE, or ... NFLX.

Fri, 02/04/2011 - 22:35 | 936700 topcallingtroll
topcallingtroll's picture

Ive always said that if stupid makes me money I'm with stupid.

Sat, 02/05/2011 - 01:08 | 936920 robertocarlos
robertocarlos's picture

I thought I was buying shares of an American football league.

Sat, 02/05/2011 - 03:06 | 937029 jomama
jomama's picture

hilarious + awesome

Do NOT follow this link or you will be banned from the site!