"What happened with the banks was a crime"
The new-normal bizarro world in which we live and trade requires a new set of un-common-sensical thinking to succeed. As we noted earlier, perception is far more important than reality (at least in the short- to medium-term), and tomorrow's payroll report could well be the most egregious example of this yet. Citi's Steven Englander agrees, noting that it seems very possible that the focus will be on the unemployment rate (UR), because of its political importance, rather than the non-farm-payroll (NFP) change, despite its greater economic importance. Given the high correlation to equity (risk) price movements and the focus of market movements likely being driven by the unemployment rate - the question becomes to what degree political factors will offset the negatives typically associated with economic slowing - and what the USD reaction will be to various ranges of NFP and UR.
The Federal Reserve is probably not ready to take the aggressive plunge into Nominal GDP Targeting, but it likely will. But if you think these measures are desperate, we have only just begun to push energy and financial systems beyond their capability. The launch of QE3 (and similar measures by the European central bank (ECB) in Europe) is like the crack! of a starting-gun to human psychology that carries the following, urgent message: Hey, humans – go get those resources quickly, before someone else does! Indeed, the most powerful lever for monetary policy remains our capacity for social competition. The open-ended promise to pursue a faster rate of growth at the expense of inflation, mal-investment, bubbles, and the environment places a new and fast pressure on human economies to perform.
There was a time, long ago, when economic data mattered, and when Goldman's NFP forecast was considered one of the best on the street due to the proximity of The Pound and Pence to both 85 Broad and 33 Liberty. Then Goldman went to 200 West, central planning took over, and Bizarro world was the result, where a huge NFP beat would mean a collapse in the stock market once the prospect of QEternity actually ending returns. In other words, Goldman lost its touch. Yet their insight can still be valuable. Which is why below we present the argumentation that Goldman's Sven Jari Stehn uses to expect a BLS payroll number of 100,000 tomorrow, translating into an 8.1% unemployment rate.
Almost precisely a year ago we posted "268 NY Credit Suisse Employees Learn They Are About To Be Laid Off Via Department Of Labor Website." Now, a year later, irony has struck again, as this time 138 employees from an already substantially trimmed Credit Suisse office in Manhattan, find out courtesy of the DOL's WARN website, but certainly not their HR team who wants everyone as motivated as possible until the "Hammer Hits" day, they have just been made redundant in the critical Christmas bonus season between October and December 29, 2012. Instead now everyone will be undermotivated until they get to learn who gets sacked. All that is left now are the actual identities of the pink slippees. The only other open question is whether the loss to US Federal and NY State tax revenues and US GDP will be offset by the more broken windows that are increasingly being discounted as a result of the ever rising unemployment and greater social unrest (not to mention part time NYPD jobs especially if sharpshooting is actually involved in their training this time).
The market appears convinced that it now has nothing to worry about when it comes to the fiscal cliff. After all, if all fails, Bernanke can just step in and fix it again. Oh wait, this is fiscal policy, and the impact of QE3 according to some is 0.75% of GDP. So to offset the 4% drop in GDP as a result of the Fiscal Cliff Bernanke would have to do over 5 more QEs just to kick the can that much longer. Turns out the market has quite a bit to worry about as Goldman's Jan Hatzius explains (and as we showed most recently here). To wit: "our worry about the size of the fiscal cliff has grown, as neither Democrats nor Republicans look inclined to budge on the issue of the expiring upper-income Bush tax cuts. This has increased the risk of at least a short-term hit from a temporary expiration of all of the fiscal cliff provisions, as well as a permanent expiration of the upper-income tax cuts and/or the availability of emergency unemployment benefits." This does not even touch on the just as sensitive topic of the debt ceiling, where if history is any precedent, Boehner will be expected to fold once more, only this time this is very much unlikely to happen. In other words, we are once again on the August 2011 precipice, where everything is priced in, and where politicians will do nothing until the market wakes them from their stupor by doing the only thing it knows how to do when it has to show who is in charge: plunge.
Entrepreneurs, venture capital investors, artisans, and mom-and-pop business owners have had it.
As we patiently await tonight's much-anticipated debate - and its zinger-ful diatribe of tax, spend, save, borrow, jobs, jobs, jobs word bingo - we thought this perfectly succinct clip dismissing the myth of how government stimulus leads to economic growth was particularly pertinent. Professor Antony Davies provides evidence, via empirical data from 1955, that there is no connection between federal spending and economic improvement - and as we have repeatedly noted - it merely adds to government debt. From the 'magic' of the Keynesian multiplier to the eyes-wide-shut view of spending creating jobs while ignoring the taxing-borrowing-printing nature of that spending. Government doesn't create jobs, it 'moves' jobs; as three years of stimulus spending has left us with ~8% unemployment and $4.6tn more debt.
Quiero un iPhone para salvar el Mundo! Looks like Spain actually enjoys the sovereign-regions-banks negative loop with no wish to cut the Gordian knot.
No European data tomorrow: Mario D, the floor is all yours, after Mariano D’s bond sales.
The ISM stunners continue. After two days ago we got a manufacturing ISM number which was not cooroborated in any other data points, and which was the biggest beat of expectations in years, we now get the Services ISM, which did a double down on the manufacturing report and rose to 55.1, from 53.7, on expectations of a decline to 53.4. And while the headline number was better than expected, the reason why futures are completely unimpressed is that the Employment index declined from 53.8 to 51.5, refuting any good ADP news, while the stagflationary specter to the economy rose, with Prices spiking from 64.3 to 68.1 - the highest since February, and leading to the biggest 3 month surge in Prices Paid since September 2005. Finally, in terms of Q3 GDP drivers, Inventory which is an input into the GDP bean count declined below 50, meaning Q3 GDP will likely be revised lower yet again, even as Backlogs dropped also to just over 50.
For some reason, despite the ADP number coming month after month within a 3 std deviation of the actual NFP, and thus confirming it has absolutely no predictive power, vacuum tube headline scanning algos continue to trade off the number which explains why futures had a brief spike moments ago after the latest September ADP Private Payrolls number came out at 162K, on expectations of 140K. Of course, last month's print which initially came at 201K only to see the August NFP come in at less than half this print, was revised materially lower to 189K, as was the July ADP which was cut by 17K to 156K. But who cares - the algos already had done their ramp job a month ago. Remember: in an election year, all Initial Claims will be revised upward, while all ADP. NFP prints must be revised downward - it's not called the economy for nothing. In other news, when adding the +/-150,000 margin of error on both side of the equation, we can boldly say that according to the ADP, Friday's NFP will come in a range of -1,000,000 to +1,000,000. Perhaps the only relevant datapoint in the entire ADP report is that manufacturing jobs added were 4,000 in September. Only 996,000 more to go until we hit the president's solemn promise of revitalizing US manufacturing. There was however, a last hurrah for Wall Street: "The financial services sector added 7,000 jobs in September, marking the fourteenth consecutive monthly gain." Correct: the Wall Street layoffs usually begin just before bonus season.
"The Fed will, “gradually sell securities or let them mature." Rubbish!
Tonight's session has been even more boring than yesterday's, when nothing happened. Several data points came out of Europe, some better than expected, some worse, but all massively beaten down to where any uptick is merely a dead cat bounce. Retail sales in the euro zone rose 0.1 percent in August from July, when they also gained 0.1 percent. From a year earlier, sales dropped 1.3 percent. A composite PMI of manufacturing and services industries in the euro area fell to 46.1 in September from 46.3 in August, Markit Economics said. That’s above an initial estimate of 45.9. The problem is that the PMIs of the most notable countries: Germany (at 49.7 on expectations of 50.6, lowest since March 2006), France (45.0, down from 46.1, and below consensus of an unchanged print -keep a close eye on this suddenly fast-motion trainwrecking economy), Spain, UK and Sweden all missed badly. In the U.K., where the services PMI dropped to 52.2 in September from 53.7 in August. But don't call it a stagflation: it's been here for years - U.K. retail prices rose 1 percent in September from a year earlier after a 1.1 percent gain in August, the British Retail Consortium said. Some additional data via BBG - Britons injected a net 9.8 billion pounds into their housing equity in the second quarter, the Bank of England said. Elsewhere, one central bank that refuses to join the global easefest is, not surprisingly, Iceland’s central bank kept the sevenday collateral lending rate unchanged at 5.75 percent for a second meeting. None of this has been able to move the futures which are net flat with Treasuries steady, before the US ISM Services number (est. 53.4 from 53.7), the total joke of an indicator which is the ADP Employment (est. 140k from 201k) but which wrong as it always is, is the only advance hint into Friday as traders prepare for Friday’s nonfarm payrolls report (est. 115k, unemployment rate rising to 8.2%).
Manufacturing Just Crashed And VCs Face A “Dismal Fundraising Climate”
U.S. Rep. John Boehner, speaker of the House of Representatives, received nearly twice as much financial support from donors tied to the energy sector than did the next-closest recipient, a report from the National Wildlife Federation finds. The 20-page report highlights the role it says oil companies play in U.S. politics, stating energy companies are working behind the scenes on Capitol Hill to influence legislation in favour of oil, natural gas and coal policies. The NWF's report, however, is non-partisan in its effort to showcase the energy sector's monetary influence over U.S. politics. Sen. Joe Manchin, D-W.Va., who serves on the Senate Energy and Natural Resources Committee, ranked No. 2 on the NWF's list. Of the top 10 lawmakers listed in the NWF report, however, Manchin is the only Democrat and received $480,050 compared to Boehner's $814,060.