Posts filed under “Think Tank”

King Report: More BLS Chicanery



We opined that the May Employment Report would be better than expected due to BLS B/D and other chicanery, and because it was necessary to fabricate a good report. We also said any rally on a ‘good’ NFP would be ephemeral because most people were set up for a better than expected report.

Part of the stock decline on Friday is due to that fact that enough people recognized that the report was hokey. There will be no job growth as long as the workweek in still contracting. In fact, businesses will not expand employment until well after the workweek moves significantly higher…Declining job cuts are a precursor of job growth but it does not guarantee job growth. Job losses cannot equal job growth.

The BLS implausibly created 220k Net Birth/Death jobs, an increase of 44k from last year…The U6 jumped 0.6 to 16.4%..The civilian participation rate was about unchanged at 65.9%; the Employment-population ration at 59.7% continued to ebb…Manufacturing employment declined 156k…The workweek declined 0.1 hours…Earnings are unchanged…Education & healthcare jobs increased 44k.

Chris Martensen, in May Employment Report Not Believable, notes that the BLS added the most ever B/D jobs in May 2009, which is incredulous in the current environment. Yet most of the Street and financial media trumpet the report without performing any due diligence.


Source: Chris Martensen


Since January the absurd Birth/Death Model has created more jobs than in comparable 2008. This is incredulous! It appears that Team Obama is determined to be even more duplicitous with government economic statistics than prior administrations. Desperate times demand desperate measures.

After stocks declined sharply on Friday morning, Labor Secretary Solis said the rumor that the NFP data is an ‘error’ is false…It’s more a case of nonsense and duplicity – of faulty methodology that overstates job growth for political and other reasons.

If the economy is improving as many suggest the employment report indicates, why would commodities fall sharply on the better than expected NFP? Because the dollar surged. This validates the notion that the commodity rally had little to do with green shoots and everything to do with dollar debasement.

Associated Press: Temp work helps mask joblessness among Americans All told, nearly 25 million Americans were either unemployed, underemployed or had given up looking for a job in April.
The ranks of involuntary part-timers has increased by 4.9 million in the past year, according to a May study by the Federal Reserve Bank of Cleveland. Many economists now predict unemployment won’t peak until 2010. And since employers generally increase the hours of existing workers before hiring new ones, workers could be looking for full-time jobs for some time.

John Williams: May Jobs Loss Was About 538,000 Net of Biases versus 345,000 Official Decline – Birth-Death Model Upside Bias Increased by 27% – Annual Payroll Decline Deepened to 4.0% – SGS-Alternate Unemployment at 20.5%

The jobs report also reflected upward revisions to March and April reporting, but such were due largely to the gimmicked recasting of seasonal factors each month on top of slightly improved unadjusted data. The concurrent seasonal factor bias (CSFB) narrowed the reported jobs contraction by about 89,000, while the revamped birth-death model likely narrowed the contraction by at least another 104,000 (60,000 usual adjusted average plus 44,000 in new biases)….

There has been a shift in reporting patterns to show upside prior-period revisions in the establishment (payroll) survey, including upside changes to March reporting, which had been revised lower in April’s reporting (successive revisions for a given month usually continue in the same direction). This suggests that the BLS may have shifted internal reporting assumptions, with the effect of generating less-negative numbers. Assumptions include, for example, the handling of companies that fail to report payrolls in the current month (are they out of business or just late in handling paperwork?). There certainly has been a shift to the upside in terms of birth-death model assumptions…

John is making a point that most pundits miss. The BLS cannot sample firms that have closed or are in liquidation. So the BLS won’t show as many job losses until it reconfigures its sampling model.

This underscores a major fallacy in the ‘second derivative rally’ hype and hope. When companies disappear, they can no longer report job losses. The usual suspects then spin this as good news and a sign of economic recovery. But those companies will not report job gains either.

This is why most new bull market starts rather cautiously. Though data is showing a second derivative improvement, it does not guarantee job growth and economic growth. But these days, due to decades of inculcated bullishness, many people eagerly jumped to bullish conclusions without looking.

Category: Economy, Employment, Think Tank

Now what?

Now what? With the DJIA back to unchanged on the year, the S&P at the highest level since Nov 5th and the market’s punk reaction to the much better than expected May payroll # (helped by funky estimates within it) where it was one of the few examples since the March lows of stocks not…Read More

Category: MacroNotes

Words from the (investment) wise June 7, 2009

Words from the (investment) wise for the week that was (June 1 – 7, 2009)

Ups and downs on financial markets were plentiful during the past week, but investor sentiment, on balance, brightened on the back of constructive financial and economic data – capped by a better-than-expected US non-farm payrolls report on Friday.

“It appears that the global economy has finally found the ripcord,” said Rebecca Wilder (News N Economics) in her weekly review of global economic reports.

“The global economic reports are becoming saturated with signs of forming a bottom. Auto sales in Japan and the US are improving somewhat; exports are dangling in the double-digit loss rates; and GDP really couldn’t get much worse (the inventory cycle alone will create some growth). Finally, money growth rates are slowing, perhaps an indication that policymakers feel that the worst is behind us,” she commented.


Source: Scott Stantis, June 1, 2009.

As the risk appetite of investors swelled on the prospect that the global economy was on the mend, many stock markets reached their highest levels this year, and metals and oil continued their surge. After trending down since early March, the US dollar snapped back on the employment data, but government bonds tanked as yields rose to six-month highs. Interbank lending rates edged down, whereas corporate bond spreads touched their lowest levels since October. Gold and silver – strong performers in recent times – took a breather, but platinum gained strongly from better vehicle sales in many parts of the world.

The week’s performance of the major asset classes is summarized by the chart below.



The MSCI World Index (+1.3%) and the MSCI Emerging Markets Index (+1.8%) last week added to the rally’s gains to take the year-to-date returns to +6.7% and a massive +38.8% respectively. Both these indices have only had one down-week since the advance commenced in early March.

The major US indices gained for a third straight week – and for the eleventh week out of the past 13 – as seen from the movements of the indices: S&P 500 Index (+2.3%, YTD +4.1%), Dow Jones Industrial Index (+3.1%, YTD _0.2%), Nasdaq Composite Index (+4.2%, YTD +17.3%) and Russell 2000 Index (+5.7%, YTD +6.2%).

The Dow remains the only major index still in the red for the year to date, albeit only by 0.2%, trailing the Nasdaq (+17.3%) by a wide margin.

Click here or on the table below for a larger image.


As far as non-US markets are concerned, returns ranged from top performers Vietnam (+16.3%), Serbia (+12.0%), Qatar (+10.9%), Egypt (+10.2%) and the Czech Republic (+10.0%), to the Ghana (-8.7%), Cyprus (-5.6%), Pakistan (-_5.3%), Croatia (-5.0%) and Estonia (-3.7%), which experienced headwinds. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the “ETF of the Month” was PowerShares India Portfolio (PIN), which gained a whopping +32.5% during May. The leaders for the week included Claymore/MAC Global Solar Energy (TAN) (+10.9%), Market Vectors Coal (KOL) (+9.4%) and United States Oil (USL) (+7.0%). Poor performers were again all things “short”, with notable laggards being ProShares Short Russell 2000 (RWM) (-7.8%), ProShares Short QQQ (PSQ) (-5.1%) and ProShares Short Dow30 (DOG) -5.4%.

The higher Treasury yields had a further negative impact on mortgage rates, with the 30-year fixed rate increasing by 19 basis points to 5.46% on the week and the 15-year fixed rate by 15 basis points to 5.02%, as indicated by

“That’s quite a jump,” said Donald Rissmiller, chief economist at New York-based Strategas Research Partners, in a Bloomberg interview. “The more rates go up, the more we need home prices to go down to equalize consumers’ payments. It’s those payments that have brought about a level of stability in housing unit sales.” Policymakers might be forced to increase their Treasury buy-backs.

The quote du jour comes from Dallas Fed President Richard Fisher who seems to share Bespoke‘s concern that listening to the rating agencies is like making investment decisions based on last month’s newspaper. In a recent Wall Street Journal interview, he said: “I served on corporate boards. The way rating agencies worked is that they were paid by the people they rated. I saw that from the inside.” He said he also saw this “inherent conflict of interest” as a fund manager. “I never paid attention to the rating agencies. If you relied on them you got … you know. You did your own analysis. What is clear is that rating agencies always change something after it is obvious to everyone else. That’s why we never relied on them.”

In other news, during his first visit to Beijing as Treasury secretary, Timothy Geithner went out of his way to assure the Chinese that their large holdings of US dollar assets were secure and that the US administration remained committed to a strong dollar and keeping inflation under control. Although the Chinese leaders did not again raise their unease that the US will inflate away its mounting debt, there were “plenty of other signs of concern”, including tough questioning at Peking University, reported the Financial Times.

Regarding the outlook for the Chinese renminbi versus the US dollar, James Grant (Grant’s Interest Rate Observer) said: “We are bearish on the renminbi. On the other hand, we are also bearish on the US dollar, euro, pound, Swiss franc and Zimbabwean dollar. We hate them all, with appropriate analytical nuances. Show us a monetary asset whose value is not subject to governmental debasement, and we will show you a Krugerrand.”

According to MarketWatch, President Barack Obama plans to announce on Monday how his administration is speeding up implementation of his $787 billion economic stimulus plan.

Oh yes, General Motors filed for Chapter 11 bankruptcy protection, and was duly replaced as one of the 30 constituents of the Dow, whereas a judge cleared the path for Chrysler to exit bankruptcy by approving the sale of the bulk of the automaker’s assets to a new entity to be managed by Italy’s Fiat.

Next, a quick textual analysis of my week’s reading. No surprises here, with the words “financial”, “bank”, “economy” and “market” still dominating the media. But, strikingly, “value” and “yields” have soared in prominence as pundits debate whether equities and government bonds have seen secular turning points.


Focusing on the US stock markets, the most recent Investors Intelligence sentiment report shows that 42.5% of portfolio managers are now bullish on equities versus 25.3% that are bearish. While the high level of bullish sentiment seems to indicate an overbought market, the spread of 17.2% between bulls and bears is still below the ten-year average of 19%, according to Bespoke.

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Category: Think Tank

The New, New Normal

We are coming to a critical inflection point, perhaps the most critical point that we have had in 70 years for the US and to a great extent the global economy. The choices we make (or that Congress and the Fed make for us) will affect not just our investment portfolios but business and our jobs for a very long time. Last week I talked about the three paths we face as a nation. I want to go back to that theme and expand upon it. You need to clearly understand what the risks are so that you can interpret the actions and data that will be coming at us in the next few
quarters. I am feeling a little tired today, so I am going to take the liberty to reproduce Bill Gross’s latest comments as well, which are somewhat in line with my own.

A Different Perspective on Health Care

But before we jump into the letter, I want to acknowledge the very large response I got from readers about the cut and paste I did about the differences between the national health care systems of Canada and Great Britain the health care system of the US. To say that I touched a raw nerve is an understatement. I should also admit that I learned a great deal from some very cogent and thoughtful letters. I often write about
the problems with using selective statistics in gauging the economy. I have
learned that you can do the same with health care statistics.

There are many letters I could quote, but let me give you a counter for the statistics from last week from Raoul Pal of Spain. And of course, there are other statistics that can be brought in to make almost any case you want. But I found these to be very thought-provoking.

“Using the Economists World in Figures I think there is a very interesting and maybe appalling story to tell. In its simplest terms a healthcare system is
there to extend the longevity of live of the population. It is the single best
and simplest way to judge it because we can all find examples of where one
country is better than another but the longevity stats don’t lie. When we use
that framework the picture is incredibly different. The US has many of the best
doctors and medical care in the world but it doesn’t work for the population as
a whole and therein lies the problem.

“According to the Economist the total US spend on healthcare is 15.4% of GDP including both state and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2

“UK – spends 8.1% of GDP, gets 2.3 doctors, 4.2 hospital beds and live to an average age of 79.4. So for roughly half the cost their citizens overall get about the same benefit in terms of longevity of life.

“Canada – spends 9.8% of GDP on healthcare, gets 2.1 doctors, 3.6 hospital beds and live until they are 80.6 yrs

“Now if we look at the more social model in Europe the results become even more surprising:

“France – spends 10.5%, 3.4 docs, 7.5 beds and live until they are 80.6

“Spain – spends 8.1% , 3.3 docs , 3.8 beds and live until they are 81

“As a whole Europe spends 9.6% of GDP on healthcare, has 3.9 doctors per 1,000 people, 6.6 hospital beds and live until they are 81.15 years old.

“The list goes on. The truth is that in many cases as is pointed out the healthcare
system is better in the US than in some other countries BUT US citizens must
therefore get ill more often than any other country in the West in order to
achieve the truly appalling statistic that they are the 41 longest living
nation on earth with France, Spain, Norway, Switzerland, Italy, Austria,
Andorra, Holland, Greece and Sweden all featuring in the top 20 longest
living nations and the UK and Germany at 22.

“This is the big failure of the US system. It is unforgivable. You may get a better
chance of recovering from certain diseases but as a whole you will die younger
in the US than most developed countries. … Something is severely broken.”

I had many letters from all over the world on this issue both pro and con. And some
very lively discussions with health professionals. One pointed out to me that
the uninsured in the US when they need a doctor often go to an emergency room
for what should be a $50 office visit and end up with a $5,000 bill, which does
not get paid and runs up insurance costs for those who do have it. As Dr. Mike
Roizen points out in his many books, simply eating right, exercising and other
common sense things would cut out much of our health care costs. When one-third
of children in elementary schools are overweight, we need to get a grip on what
we are doing to the next generation.

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Category: Think Tank

Treasuries/Fed policy/Uh oh

The action in the two year note today where the yield is up a dramatic 30 bps to 1.25%, the highest since mid Nov, is happening coincident with a move higher in yield in the fed funds futures contracts where the market has somewhat reset their expectations of what the Fed will do. The fed…Read More

Category: MacroNotes

The King Report: An Inconvenient Truth



Our friend Brian alerted us to this USA/Today story: Benefit spending soars to new high
The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans’ income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That’s the highest percentage since the government began compiling records in 1929. [More than 30s] In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show… [This is not capitalism; this is a welfare state run amuck.]

Two major factors were at work on Thursday: 1) Expectations that the May Employment Report will be much better than expected; GS sees -475k; and 2) The Treasury will issue $127B of securities next week. This killed bonds and notes but induced traders to buy stocks and commodities on the asset allocation. The minor factor at work was RBC made Keycorp a ‘top pick’ and Bernstein upgraded Goldman to outperform. Thursday’s financial stock frenzy on only two upgrades illustrates market psychology.

Yesterday the Treasury said it will sell $127B of bills, notes and bonds next week – $35B in 3s, $19B in 10s and $11B of 30s, $31B in three-month bills and $31B in six-month bills.
Bloomberg: South Korea’s National Pension Service, the country’s largest investor, said it will maintain its U.S. government bond holdings even as it cuts the percentage they comprise. “We are planning to reduce the weightings of American Treasuries, but that doesn’t mean we will be selling Treasuries because our fund size is growing,” National Pension said in a statement in response to questions from Bloomberg News. “We don’t have a specific plan to sell Treasuries.”

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Category: Credit, Employment, Federal Reserve, Markets, Think Tank

Payrolls revised, mistakenly said unemployment rate fell

Payrolls fell by just 345k, much better than estimates of a drop of 520k and the two prior months were revised higher by 82k. However, due to a 437k fall in the household survey and a rise in the labor force, the unemployment rate ROSE to 9.4%, .2% more than expected at to the highest…Read More

Category: MacroNotes


May payrolls fell by just 345k, much better than estimates of a drop of 520k and the two prior months were revised higher by 82k. However, due to a 437k fall in the household survey and a rise in the labor force, the unemployment rate fell to 9.4%, .2% more than expected at to the…Read More

Category: MacroNotes

Payroll preview

According to estimates, the US economy shed 520k non farm jobs in May, the 7th straight month above 500k but the smallest job loss of the 7. The unemployment rate though is expected to rise to 9.2%, the highest since Sept 1983, from 8.9% in April as the US economy needs to generate at least…Read More

Category: MacroNotes


A day after Bernanke testified in Congress that “we anticipate that inflation will remain low” due to “the slack in resource utilization”, “notwithstanding recent increases in the prices of oil and other commodities,” gold is just 2.6% off all time record highs. In fact, of the 19 commodities in the CRB index, it is the…Read More

Category: MacroNotes