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Rosenberg Update On NFP, Market Action, Gridlock, And QE

Tyler Durden's picture




 

As usual, those who want the truth behind the cheery, and misleading, headlines don't have many options. David Rosenberg continues to be one of the best options. Here is his take on today's NFP, recent market action, impact of D.C. gridlock (bad for fiscal policy, no impact, we believe on monetary - all hail emperor Ben), and why $5 trillion in total QE means Goldman's estimate for $1,650 gold may need to soon add an extra zero to it.

On NFP:

NICE TREAT IN U.S. PAYROLLS, BUT THERE WAS A TRICK IN THE HOUSEHOLD SURVEY

Well, that was quite the shocker. Nonfarm payrolls managed to dramatically exceed expectations and rung up a total of 151,000 jobs in October — more than double consensus estimates. And, the prior two months were revised higher by a total of 110,000. The workweek edged back up to 34.3 hours from 34.2 hours in September and along with the moderate increase in wages, average weekly earnings, a proxy for work-based personal income, jumped 0.5% MoM. This more than recouped the 0.2% decline the month before and was a welcome relief for a household sector that will be confronting sharply rising gas prices and grocery bills ahead.

The headline was undoubtedly strong, as were some of the details, but we want to warn readers that this was not a universally solid report. First, within the nonfarm report itself, virtually all the gains were in three sectors — health/education, retail trade and waste/administrative services. Goods-producing employment barely rose. The diffusion index for private payrolls dipped in October, to 55.0 from 55.6, which is a four-month low, and for manufacturing, the diffusion index fell to 42.1 from 54.3, which is the lowest since December 2009. So while there was depth to the report, in terms of magnitude, there was not a whole lot of breadth to it. Many sectors still reported job declines last month, including manufacturing, commercial and residential construction, transportation, information, financial and government. As I said, not a universally strong report, notwithstanding the solid headline results.

Moreover, the Household Survey showed a 330,000 decline in October, and again, full-time jobs declined, as they have for each of the past five months for a cumulative plunge of 1.1 million. The employment-to-population rate — the share of the population that is working — fell to 58.3% from 58.5%, a 10-month low. Many labour market experts actually consider this to be the most accurate barometer of the health in the labour market (though they are clearly not day traders, judging from the immediate reaction in the bond and stock pits). And many of the other measures of the unemployment rate edged up, with the broad U6 index staying stubbornly high at 17%. It will be very difficult to build any sustained wage pressure with this degree of slack overhanging the labour market. While the number of people working part-time for economic reasons slid 318,000, this has to be viewed in the context of the near-one million bulge in the prior two months. Meanwhile, those folks who have been unemployed and looking for work fruitlessly for at least six months jumped 1.54%, or 83k, last month — the first increase since last May — and the median and mean duration of unemployment both rose as well (to 21.2 weeks from 20.4; and to 33.9 weeks from 33.3, respectively).

Bottom line: Nice headline on U.S. employment, and the income figure too. But the Household survey did not offer ratification and the problem of excess labour supply has clearly not gone away. We finished off October with a level of jobless claims (455k) that is consistent with stagnant job growth, so do not be surprised to see some giveback in payrolls when the November data roll around next month.

On Market Action views:

MARKET ACTION

The equity markets are running on fumes right now; extremely overbought and sentiment near extreme levels. The only correlation that counts is the U.S. dollar. Nothing now says that the equity market can’t go higher still, as it did during the “don't-fight-the-Fed” days in the fall of 2007 — but what a dangerous market that proved to be. What is fascinating is that the last time the S&P 500 was at current levels, back at the prior recovery high in April, the consensus outlook for 2011 S&P 500 operating EPS was $100/share; today it is barely above $95. And, back at the previous market high, the outlook was for 3% real GDP growth in 2011, now it is 2.4%.

The market was hitting those highs last April when there were still visions of a V-shaped recovery and the Fed was so confident over a sustained reflationary cycle that it was discussing exit strategies. Now the economy is skating on pretty thin ice and the Fed is now re-opening the liquidity floodgates. As Gary Shilling is fond of saying, all the Fed creates are reserves; it is up to the banking system to churn that into a reflationary pro-growth credit creation cycle.

On what gridlock means for Emperor Ben (sorry, but there is no way even three objectors can stop the Bernanke juggernaut):

SOME HEADWINDS THE MARKET MAY BE DISMISSING

When you look at the makeup of the new U.S. Congress, it is filled with an energetic bunch of more right-leaning Republicans and a Democratic House that is visibly more to the left. This is definitely fertile soil for gridlock. It will be next to impossible to get any fiscal stimulus through. In fact, the GOP would like to trim spending by $100 billion, which is about 0.7% of GDP. Moreover, if the lame-duck Congress does not extend the Bushy-era tax cuts, we are talking potentially of a 1.4% hit, which would mean a combined two-plus percentage point drag on headline growth.

In terms of the Fed, we may well have seen the last of the quantitative easings. Why? Because starting in 2011, there will be three new voting Federal Reserve Bank presidents who vocally oppose any more easing initiatives. Charles Plosser of the Philly Fed and Richard Fisher of the Dallas Fed oppose QE and Narayana Kocherlakota of the Minneapolis Fed is sceptical it will work. They replace the three “doves” in the form of Rosengren from Boston, Pianalto from Cleveland and Bullard from St. Louis.

And on why $600 billion QE is a drop in the bucket compared to the $5 trillion (as we have been saying for a long time) that is actually needed... and will transpire. Got gold?

The $600 billion of QE2 that the markets have fallen in love with is actually a drop in the bucket next to the $5 trillion of asset buying that would be needed to completely close the output gap and generate a lasting inflation backdrop. According to econometric work cited in the WSJ, even if the Fed comes back with another $1 trillion, the impact would only be to take the unemployment rate down 0.2 percentage points both in 2011 and 2012. So we would still be talking about a 9%-plus jobless rate, which would be at least 300 basis points north of the most conservative estimates of full employment. There may be inflation in commodities but it is the deflation in wages that will end up being the most troublesome development moving forward … across many levels.

 

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Fri, 11/05/2010 - 11:08 | 702633 Max Hunter
Max Hunter's picture

Nice honest sobering view...

Fri, 11/05/2010 - 11:10 | 702638 CPL
CPL's picture

Weird thing is happening in the border town of Ontario I live.  For the last week I've watched store owners out right refuse USD and explain to the southern cousins that they have to go to the bank to exchange it.  Mainly because last time it happened the majority of them got wickedly fucked with the exchange rate going bananas.

 

Anyone else notice the volume is lower than ever?

 

Is anyone actually trading anymore?

Fri, 11/05/2010 - 11:49 | 702761 deez nutz
deez nutz's picture

WOWSERS, now you know how all those Americans that lost manufacturing jobs to NAFTA and a pathetically weak Canadian dollar for years felt. 

"the majority of them got wickedly fucked "

 

Fri, 11/05/2010 - 12:28 | 702886 CPL
CPL's picture

Meh, most of the Canuck jobs are in Asia now, only think running here now is cottage industry which is taxed at a premium or commodities.

 

NAFTA was a silly idea to begin with, governments regulating and brokering trade is a bad thing altogether.  All it did was fuck everyone but the rich SOB's that own it all.

Fri, 11/05/2010 - 13:21 | 703051 deez nutz
deez nutz's picture

wahhhhhhhh???   Ontario is sweating elephant turds everytime the Canadian dollar gains a penny as the entire province is built off of manufacturing jobs that supply the U.S. with everything from apple tarts to zip ties.   Check out the border at Lewiston and see the massive semis everday hauling Canadian manufactured goods.   I never knew such a small country had that many trucks!!!  and that much wealth!  Saw a lucky Candian hauling himself a Lamborghini back to to Canada! - NAFTA been bera bera good to Canada!  MILLIONS OF MANUFACTURING JOBS !!  

Fri, 11/05/2010 - 12:59 | 702961 asteroids
asteroids's picture

Rosie and friend are on BNN right now. A great interview. It'll be on the web shortly.

Fri, 11/05/2010 - 11:14 | 702647 rapacious rachel wants to know (not verified)
rapacious rachel wants to know's picture

really great post, why I come here

Meanwhile, the Grey Mare is rearing and bumping $27.00. Can anyone say $30.00 silver?

Revert to the mean, bitchez. Oh, yeah. Looking forward to the day when we command a 15 to 1 with gold at $5,000

Fri, 11/05/2010 - 11:35 | 702719 traderjoe
traderjoe's picture

While I agree that those things will likely happen, and I am positioned for it too, I do not wish for them. 

When those things happen, you will look back on today as the 'good 'ole days'. It will have meant the SHTF.

Fri, 11/05/2010 - 13:13 | 703019 unum mountaineer
unum mountaineer's picture

mad as hell myself. I figure revenge..she is best served cold..how cold you say? ice cold

Fri, 11/05/2010 - 11:17 | 702657 KC
KC's picture

Makes sense that the waste/administrative services sector picked up to handle all the crap that continues to spew out of our government.....

Fri, 11/05/2010 - 11:45 | 702747 Djirk
Djirk's picture

good one... going long WM, steady stream of garbage in the future and with the FED inflating away pension liabilities..golden

Fri, 11/05/2010 - 11:36 | 702720 goldmiddelfinger
goldmiddelfinger's picture

Rosey is becoming the Bob Doll of bears. Not enviable nor becoming of a great talent.

Meanwhile happy Guy Fawkes Night. Instead of the pope, Buttweasel Ben should be burned in effigy. Enjoy your bonfires UK because the next one is underneath USA.

Fri, 11/05/2010 - 11:41 | 702736 NOTW777
NOTW777's picture

"waste/administrative services"

is this a new government category?

Fri, 11/05/2010 - 11:47 | 702757 Prof Gulliver
Prof Gulliver's picture

Rosie really needs to go sit in a padded cell with Prechter and Denninger. Dumb, Dumber, and Crazier. No wonder Merrill tossed his ass out the door. This is not "honest analysis." This is tortured logic to try and excuse his insane and, to his clients, costly predictions, most of which have never come close to being true. He's an investment analyst, not a philosopher. His job is to make his clients money, after all. That means knowing and understanding the ramifications of the Fed's manipulation, not railing against it when it destroys his simpleton predictions.

Fri, 11/05/2010 - 11:49 | 702765 Gubbmint Cheese
Gubbmint Cheese's picture

Interesting how many people still say Rosie was "wrong" - I guess it depends on when you started listening to him.. March 2009.. or March 2008. Also, his theme of dividend paying utilities, long bonds and gold have been keeping up with the insanity of the overall market.. and with a far lower risk profile.

 

Of course the real shit hasn't happened yet.... so when that happens.. I look forward to watching a few eat humble pie.

 

Fri, 11/05/2010 - 15:42 | 703450 braveneweconomy
braveneweconomy's picture

The problem is he's been wrong more often recently. Almost completely wrong this year. But we'll see how he does long term.

Fri, 11/05/2010 - 11:54 | 702786 TraderMark
TraderMark's picture

Cost of anti-poverty programs surpasses that of Medicare in 2010! (fiscal)

http://www.fundmymutualfund.com/2010/11/usa-today-anti-poverty-programs-...

Fri, 11/05/2010 - 11:56 | 702791 Idiot Savant
Idiot Savant's picture

And on why $600 billion QE is a drop in the bucket compared to the $5 trillion (as we have been saying for a long time) that is actually needed... and will transpire.

How and why will it transpire? I have a hard time believing there'll be a QE3 based on current sentiment.

I'm looking for some opinions on the FED's future actions. Assuming they QE to infinity, commodities will continue to inflate. However, if they discontinue QE, I see commodities bursting like a bubble. Part of me doesn't want to hold any cash, but part of me is uncomfortable holding commodities as well. Anyone foresee another 2008 type crash in the future?

Fri, 11/05/2010 - 12:03 | 702811 Johnk
Johnk's picture

fyi You can also have Rosie's emails sent to you directly by signing up here:

https://ems.gluskinsheff.net/index.ncl.html

 

Fri, 11/05/2010 - 13:58 | 703197 GFORCE
GFORCE's picture

Rosenberg, short since March '09.

Fri, 11/05/2010 - 14:34 | 703285 Prof Gulliver
Prof Gulliver's picture

Yup.
Rosie in May 2009:
"We know what the range of outcomes can look like: 600 to 840 on the S&P 500. On March 9th [2009], there was much more upside; today at 892, quite the opposite."

Fri, 11/05/2010 - 15:11 | 703361 Terra-Firma
Terra-Firma's picture

Rosie is 100 per cent correct however he fails to take into account the firehose of money the FED has connected to the markets to keep them afloat becuse the one thing Bernanke does not want, nor will he let occur is a decline in the market. It's the ONLY real way they have of putting money into people's pockets. It's fucked.

On a footnote I've cleared my shorts as fighting the FED has cost me too much. Now I will wait until this facade we call a market and governance are flushed and help in the flushing in whatever way I can.

 

Fri, 11/05/2010 - 17:40 | 703712 JonTurk
JonTurk's picture

two conflicting quotes from Rosie:

"In terms of the Fed, we may well have seen the last of the quantitative easings"

"The $600 billion of QE2 that the markets have fallen in love with is actually a drop in the bucket next to the $5 trillion of asset buying that would be needed to completely close the output gap and generate a lasting inflation backdrop"

..so how about that? how will see $5 tri money printing if we saw last QE...

it seems like Ben's mindtricks blur everybody else's judgement... nice job, way to go...

 

Fri, 11/05/2010 - 22:27 | 704365 MarcusAurelius
MarcusAurelius's picture

David does his research there is no doubt about it, much like the guys at Zero Hedge do to. It is like Shadow Stats. If you want to get the real truth then you need to listen to an unbiased opinion. I mean what is glaringly obvious is how quickly traders jump the gun at the slightest bit of positive news without regards to the true data? It never ceases to amaze me.

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Mon, 11/08/2010 - 11:02 | 707981 Grand Supercycle
Grand Supercycle's picture

My long term indicators continue to warn of USD strength and EURO weakness.

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