This mornings release of the Employment Situation report from the Bureau of Labor Statistics was in truth bitter sweet. On the positive side there were 120,000 jobs created in the previous month and the unemployment rate fell from 9.0% to 8.6%. Furthermore, September and October jobs were also revised higher. That is the sweet part. Unfortunately, while the headlines give us the sweetness the underlying data provides the bitter. As we discussed earlier this week with the ADP Employment report, which showed a 206,000 job increase, this is the seasonally strong time of year for employment increases due to the retail shopping season. Therefore, it is no surprise that we saw a fairly healthy jump in employment but unfortunately these jobs tend to be very temporary in nature. Secondly, 120,000 new jobs is well below the necessary job creation level to return the country to full, healthy, emplyment. I say "healthy employment" because technically if enough people fall off the rolls into the category of "discouraged worker", where they are no longer counted, we could have a much lower unemployment rate - it just won't be a good thing.
There is a Bloomberg story out there stating that the debt negotiations are “complex”. So long as the TROIKA keeps making the payments, the banks have no reason to reach a settlement, particularly on their shorter dated paper. In fact, given the movements in the Greek CDS-Cash basis, we wonder how much debt is even held by banks? The daily dialogue that some sort of bailout and some sort of solution and some central bank action seems to be churning along, but the Greek haircut will ultimately have to be dealt with and we don’t see how it is accomplished without a failure to pay and involves all bond holders. Some holders may receive preferential offers (ECB and Greek Institutions) but avoiding a honest to goodness failure to pay seems impossible, and avoiding the writedowns altogether also seems impossible.
The other global strategic thinker with a decent white beard, Bob Janjuah of Nomura, sees weaker growth, weaker earnings and a great deal more volatility in the short- and medium-term for the US. Not a fan of the decoupling miracle, Janjuah explains (following our last discussion of his thoughts) in this Bloomberg TV interview that US data is showing only a temporary improvement with the forthcoming fiscal drag into next year likely to slow the economy to a practical standstill. Noting that 'The worst is ahead of us' he sees the implications of the hard-default he expects for Greece in early 2012 (that is not priced into the market) as very concerning with a cluster of defaults more than possible. Uncomfortably viewing the banking sector as a curse (and not a cure) for our problems, he sees the Japanese Zombie bank experience playing out which guarantees sustainable growth is not around the corner and suggests we would be far better off medium-term if bank defaults occurred and the painful medicine is taken now. The banking sector risks the threat of taking down governments and while emerging market financials may seem flush with capital, it is the Western banking systems that dominate. He concludes the interview with some positives focused on up-in-quality and up-in-capital structure allocations, which fits with our view of the world, and notes he has no financial sector debt or equity exposure in any of his portfolios.
Now that the Anti-Tilson trade has been closed, it is time to resurrect the Anti-Barton "Notorious" B.I.G.G.S. ETF. The man who personifies everything that is broken with momo and levered beta chasers, in addition to his late September bottom tick memorialized here, is best known for telling Bloomberg he went very bearish 10 days ago, just in time to get his face ripped off on a central bank facilitated short squeeze scorcher, has now once again top ticked the market telling Tom Keene "that while he doesn’t want to be fully invested in equities, “it’s hard to get really bearish.” The broken gramophone continues: "“Except for Europe, the rest of the world economy is doing pretty well,” the hedge-fund manager said today during an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Ken Prewitt. “There’s too much bearishness, and equities -- particularly U.S. equities and emerging-market equities -- are very cheap relative to fixed income, Treasury bonds, high yield, other financial assets.”" Odd, because the aged former Morgan Stanley-ite was among the very people who were "bearish" ten days ago. But it's ok: one forgets things.
European stocks gapped impressively higher from a weaker-than-credit close yesterday and credit rallied to catch up with equities until just around the US NFP print. Downgrade rumors and the Republicans legislation threats took the shine off dramatically as EURUSD dropped almost 200pips from its intraday highs and equity and credit markets cracked lower in a hurry into the close (though ending higher on the day). European sovereign bonds were performing very well but also leaked notably wider into the last hour or so (perhaps France and Belgium driven by the Dexia news?). Ending the day under 1.34, EURUSD has retraced more than half the 'bailout' gap higher. EUR-USD basis swaps and FRA-OIS spreads also started to decompress (worsen) again as we noted earlier the ECB's dramatic rise in deposits and emergency loans suggests all is not well and perhaps this was the greatest central-bank-driven opportunity to reduce exposure ever?
As rumors and chatter circulate across trading desks, European equity and credit markets are starting to lose their giddiness. European sovereigns are leaking back wider and financials starting to underperform and it is being noted that, as reported by The Hill, that conservatives say they will try to block the IMF from bailing out Italy and Spain. Pointing to the huge bill this could leave at US taxpayer's feet, Republicans are concerned at the secrecy with which Geithner has acted. Sen. Tom Coburn appears to be at the helm of this legislation, noting:
"We're throwing good money after bad down a hole that I think is not a solvable problem. Europe is going to default eventually, so why would you socialize their profligate spending."
As we have been saying all along, with every reincarnation of the idiotic "IMF to bailout [XXX]" rumor, there always is just one snag. A rather substantial one at that: US congressional approval for expanded IMF bailout capabilities.
Simply put, “productivity” is giving to the future, instead of taking from the future. Parasitism is the opposite: Borrowing from the future to fund present desires without credible connection to future healthy growth. Successful productivity requires the development of beneficial new approaches to value creation and the rigorous identification and confrontation of approaches that destroy value and that destroy the environmental, financial, social, and personal fabric of human endeavor. Debt forgiveness is initially brought into play to address the latter requirement, but cannot be viable over the long haul without affirmative new ways to create and exchange value. Given that we have the collective integrity, self-preservation instinct, human will, and the sense of necessity to confront our broken system, let’s first establish philosophical and practical corollaries to guide debt forgiveness as “giving to the future instead of taking from it”:
As regular readers know, back in September 15 we speculated that MBIA could be the next Volkswagen-type short squeeze courtesy of a rising short interest and huge Institutional shareholder base (amounting to 96% of the float for the top 30 accounts) not to mention the possibility for a BAC settlement that could be as large as the company's current market cap. The recent BTIG upgrade only confirmed that view. As a result the spike now continues, and the stock has returned 30% since our initial observation. If indeed this is caught in a short squeeze loop, the final return could well be in the triple digits, especially since the short interest is now the highest since May 2010!
While this story has not been caught by any of the major wires, The Australian's Jerusalem correspondent Sheera Frankel reports something quite disturbing: "All eyes on Israel after second Iranian blast. CLOUDS of smoke billowed above the city of Isfahan - evidence that the latest strike against Iran's alleged nuclear weapons program had hit its target." We will report more if this story is confirmed by any other news agencies because if true it means that at this point things behind the scenes are no longer happening in the shadows.
Joe Biden Advisor Jon Corzine Forced To Testify On Alleged MF Global Commingling And Client Account TheftSubmitted by Tyler Durden on 12/02/2011 10:56 -0400
Couldn't happen to a nicer advisor to Joe Biden
- JOHN CORZINE SUBPOENAED BY HOUSE COMMITTEE
- HOUSE AGRICULTURE VOTES TO ISSUE SUBPOENA IN WASHINGTON TODAY
Don't forget to get your popcorn out for next Thursday:
- HOUSE AGRICULTURE COMMITTEE SETS DEC. 8 HEARING ON MF GLOBAL
US Needs To Generate 263,700 Jobs Monthly To Return To Pre-Depression Employment By End Of Obama Second TermSubmitted by Tyler Durden on 12/02/2011 10:53 -0400
We will simply copy and paste, with the appropriate adjustments, the form text we put up after each and every NFP report calculating the number of people that have to be added by the end of a hypothetical second Obama term. Using the November boilerplate: "Every few months we rerun an analysis of how many jobs the US economy has to generate to return to the unemployment rate as of December 2007 when the Great Financial Crisis started, by the end of Obama's potential second term in November 2016. This calculation takes into account the historical change in Payroll and includes the 90,000/month natural growth to the labor force, and extrapolates into the future. And every time we rerun this calculation, the number of jobs that has to be created to get back to baseline increases: First it was 245,500 in April, then 250,000 in June, then 254,000 in July then 261,200 in October [and finally 262,500 in November] . As of today, following the just announced "beat" of meager NFP expectations, this number has has just risen to an all time high 262,500 263,700. This means that unless that number of jobs is created each month for the next 5 years, America will have a higher unemployment rate in October 2016 than it did in December 2007. How realistic is it that the US economy can create 15.8 million jobs in the next 61 60 months? We leave that answer up to the US electorate."
Long before the magnificent NFP headline data mesmerized USD buyers and flushed commodities down the pan, Copper at the LME saw a 'Flash Crash' and was forced to cancel all trades for the 646amET timestamp. Considering the post-'flash' action, it seems yet again a flash crash gives us a glimpse of reality.
Key Charts From The NFP Report: Records In Jobless Duration And People Who Want A Job As Civilian Labor Force PlungesSubmitted by Tyler Durden on 12/02/2011 10:08 -0400
Here are the four most important data points and charts from today's job report: the civilian labor force declined from 154,198 to 153,883, a 315K decline despite the civilian non-institutional population increased (as expected) from 240,269 to 240,441: always the easiest way to push down the unemployment rate. Percentage wise this was a drop from 64.2% to 64.0%: the lowest since back in 1983. Naturally, this would mean that the people not part of the labor force rose, and indeed they did by 487,000 to a record 86,558 from 86,071. This also means that more people are looking for a job: and indeed, the number of "Persons who want a job now" rose by 192K to a record 6.595 million. And lastly, confirming the behind the scenes disaster of the US jobless picture, the average duration of unemployment rose to a new record 40.9 weeks from 39.4 weeks previously. And that is your "improving" jobless picture in a nutshell.
NFP Prints At 120K, Below Expectations Of 125K, Unemployment Rate Drops To 8.6% on Expectations of 9.0%. And for those wondering how it is possible to have such a major drop in the unemployment rate, here it is: Labor Force Participation down from 64.2% to 64.0% as ever more people leave the work force once again.