by Addison Wiggin & Ian Mathias
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Ugly jobs numbers, ugly market reaction
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But is the recovery in jobs already over? A revealing chart
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How long to clear the overhang of housing inventory? A shocking prediction
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Readers ask us about drilling numbers, berate us for insufficient patriotism
Wow… You’d think the spinmeisters at the Bureau of (much be)Labor(ed) Statistics (BLS) could do a better job of putting lipstick on a pig than this.
At first glance, she looks well coifed and attractive. But when you lift the blouse a bit, there’s only one word that comes to mind — ugly. Miss Piggy ugly. Let’s examine the rolls on her belly…
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431,000 jobs added in May. Good start… except all but 20,000 of those added were Census jobs
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State and local governments cut 22,000 jobs last month. The private sector added a 41,000, compared with 218,000 newly employed in April. This number is lower than ADP’s estimate of 55,000 issued yesterday. (Usually, the ADP figure is lower. So the revisions on these numbers next month are not likely to improve “the jobs picture”
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On the BLS site, U-3 unemployment rate fell from 9.9% to 9.7%. The U-6 “underemployment” rate is down to 16.6%. Good news? Hardly. The numbers fell because 322,000 people dropped out of the labor force, reversing a trend that had been in place most of this year.
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Next month, the “Census halo” comes off as the bureau starts letting go all those temporary workers. At least, that’s how it played out in 2000 and 1990. Maybe this year, they’ll get rolled into ditch work under the Orwellian-titled American Recovery and Reinvestment Act.
The reaction on Wall Street has been likewise frugly. The Dow and the S&P fell 1.6% in the first three minutes of trading. The employment report added to a double dose of bad news from Europe…
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A senior member of Hungary’s ruling party is warning his country is on the same road to ruin as Greece without drastic measures. Up to this point, Hungary was on track to join the euro in 2014…
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Rumors abound the big French bank Societe Generale is up to its armpits in derivatives losses. SocGen shares fell 6% in European trading
Hmmmn… someone should have been warning people about the debt crisis building since the tech bust. Oh yeah, someone did… but those people were just “doom enthusiasts”.
The panic in stocks and the euro is working to the greenback’s benefit. The dollar index stands at 87.7 — a level last seen in April 2009.
The euro sits at $1.20. The last time we saw the euro this low we were moving house from Paris back to Baltimore in 2004. We’d lived in Paris for four years prior and saw the euro come into circulation. Gone was the centuries-old French franc. Freshly new was the Esperanto currency. It traded at US82 cents during the first several months as the paper made its way into the economy… then climbed dramatically. We saw our cost of living escalate 50% in about 18 months.
Now what?
Even that “other” safe haven is having trouble withstanding the onslaught today. Gold just breached $1,200 as we write… but not in a good direction.
Back briefly to the employment report: Our friend Barry Ritholtz has found a pretty strong correlation between the employment report and the ISM manufacturing index. In April, the ISM came in at 60.4; in May, 59.7. Going back 40 years, this index turns in a reading of 60 only about 10% of the time.
So the ISM has likely topped out. Now… the year-over-year change in nonfarm payrolls tends to lag by about seven months. Move that figure up by seven months, and the resulting chart looks like this…
“ISM has rebounded to around 60,” Barry says, “while employment, though certainly up sharply year over year from the trough, still has far to go in this game of catch-up.
“The point is this — is this as good as it gets? I have maintained that some releases (like ISM manufacturing, for example) seem to be flashing late stage before employment has had any opportunity to climb out of its ditch.
“Should this trend continue, and I suspect it may, it does not bode well for the sustainability of this ‘recovery.’”
Barry is among the provocative speakers lined up for this year’s Agora Financial Investment Symposium in Vancouver. Fewer than 63 slots remain… and you can still snag a $150 break on the admission fee, but only through midnight tonight. If you’ve never joined us before, make plans now.
Unless, of course, you think it’s unpatriotic to do so. Stick around for today’s reader mail.
If the jobs numbers can’t be massaged to look good, then what about some of the “real-world” economic indicators we like to examine. One of our favorites is freight traffic on the rails.
The four-week rolling average compiled by Atlantic Systems Inc. has leveled off. Yes, the numbers are the strongest they’ve been since November 2008. But remember what things were like in November 2008 and… oy.
AEP, one of the country’s biggest electric utilities, plans to keep ten of its smaller coal-fired power plants offline most of this year.
Demand for electricity is down during this recession. Maybe that’s not surprising, but this is: Electricity demand held steady, or even grew, during the vicious recessions of the mid-’70s and early ’80s.
The number of food stamp recipients has set an all-time high, according to the Agriculture Department: 40.5 million people were on the program in March — more than one in eight Americans.
All those people who say things aren’t so bad now because we don’t have 1930s-style bread lines? That’s the reason. Let’s thank the Chinese in unison for buying Treasuries…
Bank of America (BoA) has finally fessed up to something we’ve been telling you for months: Many of its mortgage customers are living rent-free by virtue of its extend-and-pretend policies.
BoA’s head of “credit loss mitigation” held a conference call this week. Jack Schakett told the assembled analysts, "There is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."
A typical foreclosure, he said, takes up to 14 months, and as a result, the number of strategic defaults is "more than we have ever experienced before."
“Foreclosure activity is crucial to the outlook for bank earnings,” explains our stock market vigilante Dan Amoss. “Mortgage losses will continue to be a growing problem for bank stocks in 2010.
“Since the suspension of mark-to-market accounting, banks have gained much more control over timing their credit losses, but they cannot get away with completely ignoring them when the evidence is overwhelming that credit losses are real.”
Dan cites the work of Mark Hanson Advisers, who did some basic math…
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There were a record 92,500 bank repossessions in April
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At the same time, 29,400 new notices of default were issued
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So the pool of “distressed” housing fell by 63,100.
At that pace, it’ll take more than eight years to clear all the inventory that’s in default. Double those April repos and the market still wouldn’t be clear until late 2013.
“It’s fairly obvious that the backlog of foreclosures has built up like water behind a dam,” Dan continues. “Once the dam gives way, the market may be shocked at how quickly the headline foreclosure numbers accelerate. A saying you often hear in the banking business is: ‘The first loss is the best loss.’”
In other words, look for a rush for the exits.
Dan’s record of calling BS on the finance sector is superb. As a result, he’s delivered gains of 162%… 220%… even 462% on his famous Lehman play. Be prepared for the break in the mortgage dam with a $1 trial of Strategic Short Report, still available for a limited time.
“You keep saying,” writes a reader, “that the Gulf drilling ban will shut off 6% of our daily oil. But it is a ban against drilling new wells, not against pumping what is already drilled — correct?
“Could be a big difference — at least in the medium term, after which those wells play out and we have no new ones to replace them.
“Love your daily reports — keep 'em coming!!”
The 5: Yes, in late April, the feds banned any new deep-water drilling. But then last week, they banned exploratory drilling at 33 existing sites. So current production is not affected. And you’re right, as those producing sites deplete (and deep-water sites tend to have a steep decline curve), nothing new will be coming online to replace them. That’s the 6% of daily U.S. consumption that’s at risk.
We’re happy you wrote in, because we’re discovering an ungodly amount of misinformation out there. Reporters, for instance, get sloppy about the distinction between drilling for exploration and drilling for production.
Even the bureaucrats are confused. Yesterday, a senior official at the Minerals Management Service told one company in an e-mail that exploratory drilling was also banned in shallow waters. When that hit the news wires, his bosses at the Interior Department put out a press release saying, no, that’s not the case.
Rest assured we’ll do our best to stay on top of this, so you can make informed decisions.
“I enjoy your comments,” writes another, “and have profited from your opinions about investing.”
The 5: Uh-oh, there’s always a “but” to these …
“But I'm grateful you have no influence on government policy. The past policies favoring the super rich, the drilling for oil anywhere and the unregulated financial service sector that you seem to favor have created a firestorm of problems.
“I would love to see the super rich pay their fair share of taxes, many of which are avoided because of loopholes in the law. I would love to see drilling reduced in sensitive areas, especially if this increases the cost of energy. We need the cost to go up to encourage a transition to noncarbon fuels.
“And I would love the financial industry to be under adult supervision. I'm feed up with having my hard work destroyed because some greedy bastard sells crap to unsuspecting investors. Profits are obscene when they are made by lying and manipulation,
including buy congressmen to get a favorable law passed.”
The 5: Amen. We’re glad we have nothing to do with government policy either.
Only in the public sector do you worry about the “super rich” and their “fair share.” Who’s the omniscient being that gets to decide who they are and what’s fair?
What do you define as “sensitive areas” where drilling should be off-limits?
And this one… holy Christmas… who are the adults you think should be in charge of the finance sector? It was the “adults” in government who purposely looked the other way the whole time that “crap” was being sold to unsuspecting investors, destroying your “hard work” — the same adults who are crying foul now and passing new regulations to restrain their buddies 270 miles up the Amtrak line.
Whether you realize it or not, our “opinions about investing” have as a tenet the simple recognition that no matter how badly somebody can screw something up, the adults in government will always find a way to screw it up even worse.
If you want to direct your outrage at us…and get run over by the oncoming train that has both Wall Street and Washington at the controls, that’s your prerogative. But please join us at this year’s Agora Financial Investment Symposium. We aim to have a rousing discussion about “Assault on Enterprise: How to Invest in an Age of Rising Taxes, Wall Street Crooks and Government Boondoggles.” Just a few hours remain to secure a $150 discount on the admission.
“No, we will NOT be at this year's conference,” reads an e-mail purporting to be from two “former” subscribers, “because it is in Canada, instead of the U.S.
“This, apparently, has no significance for you, as you seem perfectly willing to criticize America, and not support her, as well as the fact that we will not support a country which STILL has not banned that disgusting abomination known as the yearly seal hunt.”
The 5: We’ve been in Canada for the last eight years, jackass. It’s a beautiful place. More than 30% of our readers are Canadian, too. What jingoistic planet do you live on?
Also, curiously… don’t they hunt deer or elk or raise cattle or pigs where you’re from?
Either way, we hope you will have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S. Remember the “flash crash” one month ago? And how all those people who had stop losses took it in the shorts that day?
An entirely different strategy delivered astounding results on May 6, the day the Dow dropped 1,000 points in half an hour. This strategy yielded gains of 240% after just three days. And gains of 301% and 344% in less than a month.
On another day when stocks are getting whacked, you owe it to yourself to check this out.
P.P.S. “More than 20 years after the U.S.-funded contra war faded from the nightly news broadcasts of network television,” reads an article we received from a good friend this morning, “Nicaragua is about to make its return to prime-time TV in the United States. Only this time, the story is much more positive.
“Starting July 15, the Emmy Award-winning reality TV series Survivor will start filming its 21st season in various remote areas around San Juan del Sur.”
San Juan del Sur is about 50 miles down the coast from our own Rancho Santana and equally as dramatic.
Reserve Members take note: We had so much fun on the first sojourn, we’ve set the dates for our second “Chill Weekend”… Chill 2.0… at the ranch.
As an Agora Financial Reserve member, you will be invited on Monday to join us August 15-18 for sun and surf in an extraordinary setting. If you’d like to get a jump on the limited seats, you can contact Marc Brown right now.
But fair warning: Be prepared to invest in the project. It is amazing and sells itself. Forbes magazine, uninvited, called the property “stunning” in the lead sentence to an article on the area. But they weren’t the only ones. HGTV has featured several of the properties in their hunt for bargains around the world. The best thing to do is come down and see it for yourself. Or… check out the website.