August Nonfarm Payroll Torpedoes Market Rally
Economist and market strategists alike were stunned by the August nonfarm payroll report showing zero job growth. The headline unemployment rate stayed unchanged at 9.1%.
The reports for June and July were revised down a gut punching 58,000. Employers obviously reacted to the damage the Tea Party was threatening to inflict on the global economy with a Treasury bond default by instituting an immediate hiring freeze.
The figures were further muddled by conflicting cross currents. The Verizon strike cut 45,000 from the reported total. At the same time, a return of state employees to work in Minnesota, which had been shut down over a budget impasse, boosted the figures by 22,000.
Health care lost 30,000 workers, government 17,000, and construction 5000. Professional and business services gained 28,000 jobs. What is really frightening here is that only 4,700 temps were hired, which normally lead the recovery stage in the economic cycle.
Risk assets everywhere fled in terror, while a monster rally launched in the bond markets. Yields for the ten year Treasury bond reached a new intraday low in the mid 1.90%’s, while the 30 year was seen well below $3.50%.
For me, the real stunner in the report was the revision to July government job losses up to an amazing 71,000. Clearly what is happening here is that as short term government stimulus programs run out, public workers are being let go in record numbers.
Congress deadlocked and the House is ideologically handcuffed, so there is no chance that any of these job creating programs will be renewed. This is going to get a lot worse before it gets better.
Will this cause me to lower my 2% GDP forecast for 2011? I don’t think so. But it will force some permabulls, paid cheerleaders, and Kool-Aide drinkers to revise down their own overoptimistic targets from 4% and 3% down to my own more realistic and greatly subdued figure. Hint: This is not good for stock prices.
What organizations are currently advertising the greatest number of job openings? The US Air Force, at 134,000, followed by Taco Bell, the National Guard, and Staples. Looks like you better sharpen up your target practice or your Spanish if you want that paycheck bad enough.
Followers of my Macro Millionaire trade mentoring program were laughing all the way to the bank yesterday, their Wednesday purchase of the Russell 2000 iShares small cap ETF (IWM) October, 2011 $71 puts at $3.12 rocketing by 101% in three trading days. Gains delivered by this one position boosted our return for the year by an impressive 502 basis points. Well done Macro Millionaires!
There was a method to my madness here. Watch, and learn. The stock market had rallied six of the past seven days. We made it all the way up to 1,130 in the S&P500, an almost perfect 50% retracement of the August swoon, and a key Fibonacci resistance level. Given that so much of the trading today is technically motivated or machine driven, these numbers are to be respected at your peril.
The Verizon strike guaranteed an awful headline for the August nonfarm payroll, and most traders never get past the large type, setting up a huge kneejerk reaction to the downside. A massive five cent rally in the Swiss franc against the US dollar was screaming at us that another bout of “RISK OFF” was just around the corner. I used the Russell 2000 as my short vehicle because small cap stocks always lead the charge to the downside, outperforming the other indexes by a large margin.
I know that most of you don’t get to hit homeruns every day, and have already taken your profit on the (IWM) puts. For those with balls of brass willing to run your short into next week, check out the charts below to identify some important downside targets.
The short term chart shows an initial goal for the (IWM) of $66, which would take your puts up to $6.68, a gain of 114% from your initial cost. The longer term chart has the (IWM) down to major support at $58, causing your puts to soar to $13.20 for a profit of 323%.
I am detailing this trade for outsiders to give them a rare peek into what the Macro Millionaire world is really all about. More advanced software is at long last allowing us to accept more traders into this exclusive program, which includes instant trade alerts, a daily research newsletter, biweekly strategy webinars, and a real time updated model trading portfolio. And for the people who count these things, I issued 26 trade alerts in August, a new record.
For those who wish to participate in Macro Millionaire, please email John Thomas directly at email@example.com . Please put “Macro Millionaire” in the subject line, as we are getting buried in emails.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.