Jobs report surprises all… what the mainstream will tell you and what they won’t
John Williams with two charts showing a U.S. recession happening right now
Rate cuts might be over, but “liquidity injections” aren’t… three new moves by the Fed
S&P quits rating mortgage-backed securities, says it’s just too hard
China carves two more notches in its “world’s biggest” belt
The U.S. economy shed jobs for the fourth-straight month in April.
In post-Great Depression history, a four-month losing streak has always preceded a recession. The Labor Department told us this morning that the U.S. lost another 20,000 jobs in April. The economy has shed 260,000 jobs since the new year.
But we’ll spare you the suspense. Here’s the headline you’ll read tomorrow: U.S. Employment Report Better Than Expected. Stocks Rally on Jobs Surprise, Unemployment Down.
Indeed, economists were expecting a net loss of 75,000 jobs in April. And by some mysterious quirk of government math, the unemployment rate actually fell 0.1% from March. It’s now at 5%.
The U.S. stock market, having baked in higher job losses already, surged on the news this morning.
The small print on the BLS jobs report Web site proudly totes a +/-430,000 jobs margin of error for its less-popular household employment survey. If you care to know the margin of error for the headline numbers, you’ll have to send the Labor Department a check for $27.
Our sources claim it’s as high as +/-129,000 jobs. So, it’s safe to say, the U.S. lost as many as 149,000 jobs in April. Or maybe… it gained over 100,000.
“The current recession is being masked and can be masked further by bad reporting,” reports our government stats watchdog John Williams.
When the Commerce Department reported 0.6% GDP growth for the most recent quarter on Wednesday, the U.S. was “officially” not in recession. But John shared two data bits with us suggesting the U.S. is in a full-blown recession.
The first, retail sales on a three-month moving average:
“Inflation-adjusted retail sales, on a three-month moving average, show the year-to-year change in the key consumer series falling still deeper into recession in March.”
The second, the Help-Wanted Advertising Index:
The Help-Wanted Advertising Index hit its lowest level since the series was first calculated, near the end of the Truman administration.
“While some of the historic weakness is due to the shifting of advertisements to the Internet in the last decade,” says Williams, “the recent near-term plunge in activity nonetheless reflects a sharp decline in employment activity.
“These numbers suggest that a particularly severe recession in terms of depth and duration — one not easily hidden for long — is in the process of unfolding.”
For its part, the Federal Reserve sprinkled some sugar atop today’s jobs report. Just as it did last month, the Fed announced a growth-spurring alteration in monetary policy just moments before the jobs announcement.
This time around, the Fed came at the credit markets from all sides:
– Banks borrowing from the Fed’s biweekly TAFs can now borrow up to $75 billion, as opposed to its former measly $50 billion cap
– The Fed increased its “temporary reciprocal currency arrangements” with the European and Swiss central banks. Essentially, the Fed promised another $26 billion in liquidity support to the two nations
– Banks and major brokerage houses can now bring AAA asset-backed securities to the TSLF. Before, the Fed would exchange T-notes only for mortgage-backed securities… now Wall Street’s finest can bring damn near any kind of funky derivative to the Fed and get a shiny certificate of U.S. debt in return.
The credit crisis is far from over. Indeed, as the Fed felt obligated this morning to add hundreds of billions of dollars into the mix, the whole thing would appear to be getting worse.
The stock market rallied yesterday. A stronger dollar, lower oil prices and a perversely interpreted personal income number brought major indexes up over 1.5%.
The Dow regained its footing, to 13,000. It has now recovered all its 2008 losses.
The dollar listed upward yesterday and overnight… and then surged higher after this morning’s jobs report. The dollar index is up almost a full point in the last 24 hours, now scoring around 73.5.
As you’d expect, the greenback, feeling its oats, took a shot at its global competitors. The euro is down to $1.53, the pound to $1.97, the loonie to 97 cents and the yen is at 105.
“I’m a bit perplexed by this dollar strength,” admits our currency counselor Chuck Butler. “It looks as if the U.S. has turned things around. The deficit no longer needs to be financed with over $2 billion a day in foreign investment. Interest rates are where they need to be to fight this soaring inflation. The government has stopped spending wildly, and the budget is balanced. The mortgage lenders have recovered all of their losses. There is no longer a credit crunch. And finally, the war is the Middle East is over.”
Congratulations are in order for our friend Chuck this morning. He got the results of his latest scan back and what the doctors thought was a cancerous lesion on his rib turned out to be not that at all. The rib is actually cracked. Ouch, maybe. But no cancer. Go get ’em, Chuck.
Chuck, by the way, wrote the foreword to the fully revised and updated second edition of The Demise of the Dollar. Today we’re sitting at No. 1 on the business and investing list on Amazon. Check it out.
Get this: Standard & Poor’s announced yesterday that it will stop assigning ratings to mortgage-backed securities because, well… it’s too hard.
“We will not issue any new ratings until we are comfortable with the predictability of the performance,” said an S&P spokesperson. According to the statement released by the agency, recent deterioration in the securities has been “unprecedented” and thus “does not allow for meaningful analysis.”
This sounds about right to us… there’s no sense in trying to assess toxicity ratings on putrid chemicals, because that’s just too difficult. Better wait until everyone is infected with a horrible rash and beginning to scratch their skin off. Then step in and say, “Hey, don’t touch that white powder… it’s bad for you.”
In 2007, when the S&P similarly failed to rate nearly $18 billion in mortgage-backed paper worth… umn, nothing.
“I’ll tell you…” Extreme said over IM this morning while we were assembling this morning’s 5, “these ratings agencies make me mad.”
Some dollar strength and Exxon Mobil’s earnings disappointment gave oil a bit of a rash itself yesterday. Light sweet crude fell as low as $110. But the market doesn’t seem ready to let oil correct… crude is already back up to $113 as we write.
Gasoline finally took a day off in its record run. The AAA national average slipped one-tenth of a cent this morning, to $3.62, ending gas’ 17 straight days of record highs. Feel better?
Under pressure to “do something” about skyrocketing energy costs, Sen. Barack Obama unveiled an idiotic tax proposal of his own yesterday.
Obama’s plan would target the evil “Big Oil” companies by taxing them for every barrel sold for more than $80. “The profits right now are so remarkable that one could trim them 10% or so, which would turn out to be somewhere in the $15 billion range,” said Jason Grumet, an Obama adviser. According to the fact sheet announcing the plan, the new tax would help pay for a tax cut for working families.
We wonder if Mr. Grumet has ever heard the phrase “Capital goes to where it’s treated best”?
Gold fell again yesterday, this time down to $850. Asian traders stopped the bleeding overnight, and the metal now sells for $855.
“Financial markets seem to be discounting positive change,” Ed Bugos tells us, “so there’s a bit of risk insurance liquidation working against both gold and Treasuries. That is, risk appetites are returning, so investors are selling protection.
“As long as the Fed is not actually targeting inflation, or tightening, the gold bull market should shrug off any minor short-term changes in policy.”
China is chasing two more of the “world’s biggest” titles. We told you earlier this week when China overtook I.O.U.S.A. as the world’s second largest export economy. Yesterday, we saw China now has the world’s biggest banks. Now add this… biggest bridge and building.
This 22-mile marvel of modernity adds a helpful shortcut into Shanghai, saving drivers an 80-mile trip. The bridge, which opened yesterday, is second in length only to the Lake Pontchartrain Causeway Bridge in New Orleans. China’s new bridge goes over the ocean, though, so China can boast the world’s longest sea bridge.
Then there’s this:
That’s the creatively named Terminal 3 of the Beijing International Airport.
It might not look like much, but it’s more than two times the size of the Pentagon. China opened this airport recently, as well, hoping that the kinks would be ironed out in time for the Olympic Games.
If you’ve got an extra $4 billion lying around, you could build one, too.
Down the street from Terminal 3, construction is nearly complete on China Central Television’s new building, easily the world’s largest television station/media headquarters.
And that’s not too far from South China Mall, the world’s biggest shopping mall… which is powered in part by Three Gorges Damn, the recently completed world’s biggest damn and hydroelectric power plant.
Forget Dubai… China’s gone Guinness Book crazy. Maybe they’ll beging publishing that, too. We’re sure China already prints it.
But don’t fret. If inflation in the U.S. has you down, you can always just write yourself a bonus check, like this fellow, Charles Ray Fuller.
The 21-year-old Texan strolled into his local bank recently and cashed a check… for $360 billion. He told tellers, the bank manager and eventually the police that the check was a gift from his girlfriend’s mother — venture capital for Fuller to start a record business.
Fuller never saw a dime of his attempted withdrawal. Apparently, banks do a little homework before they hand out $360 billion… more than the entire annual GDP of Massachusetts.
“Sierra Leone, Herzegovina, Norway, Dubai, et al. are a long way from the USA,” notes a reader in response to our chart of expensive gas nations. “Damned if I can understand why you consistently ignore your closest neighbor and largest supplier of crude — in fact, of all energy — when comparing costs of gasoline.
“Where I live in British Columbia, regular unleaded is going for C$1.35 per liter. Roughly four liters to the U.S. gallon, so approximately C$5.40 per gallon. That’s what you’ll be paying if you gas up a rented car when you’re in Vancouver this summer.
“A touch of culture shock, eh?”
“Last year, I paid 50% of my income in taxes,” writes another reader. “If farming subsidies and all subsidies for all industries are discontinued, that would leave me with a lot of extra money with which to purchase food from the mega corporate farms. If I felt the corporate farmers were making ‘obscene profits’ at my expense, I would buy some of their shares, the same way I am doing with the oil companies. Not having to pay these subsidies would make this very easy to do.
“Maybe when the oil runs out, the family farm will be king again. I choose to let the free market decide this. Then the most efficient businessman wins. The loser that gets put out of business is forced to find a more suitable way to use his capital and talents to make a buck. The loser is also the beneficiary of cheaper consumer goods, due to the cutthroat competition in the business world.
“This loser is writing a letter on a computer that only a few decades ago only a nation could afford. I know the pain of failed business ventures. Let every man succeed or fail on his own merits.”
The 5 Responds: Ayn Rand would be proud.
The 5 Min. Forecast
P.S. Don’t forget, if you’re in the Baltimore area tonight, join us for the screenings of I.O.U.S.A. at the historic Charles Theatre. David Walker will be there, preaching the gospel, so to speak, along with a motley crew of Agora personalities.