The Depression Continues

ADP's hiring numbers are out. February was revised down by 4000 jobs to -24,000. March was listed as -23,000. Census hiring was irrelevant as the Gov't does not outsource its bookkeeping/payroll to ADP! And ADP says the storms in Feb. did not affect its numbers.

Gallup.com shows that hiring/not hiring shrank to -1 as of today, a number it first hit Nov. 2008. It also showed that elective spending was down to $61/day, a number first hit in Feb. 2009. Even at much better #s such as +10 (% seeing hiring - % seeing negative hiring), unemployment was increasing in 2008.

In the real world, there has been no economic recovery. There has simply been looting of the public's money to pay off Big Finance's bondholders and enrich its stockholders, along with various other shenanigans such as stealing through ZIRP from savers. Though the Govt might counter that absent FDIC, savers in many banks wouldn't have received 100 cents on the dollar from their savings. Given that in the Great D, almost all the money center banks were money good and only a very small % of all bank savings were lost to bank failures, the current crash has been far worse than that of the early 1930s. Nothing like modern life support methods. It used to be that a massive heart attack could not be survived. Dr. Ben: committed malpractice but the patient is sort of alive, suspended like Hamlet between heaven and earth.

Remember that the non-farm payrolls # in 2 days will be revised. It cannot be profitably traded off of unless one is a true pro.

Stock prices cannot go down: bad data means easy money forever; good data means that Larry Kudlow and other permabulls such as Brian Wesbury are right that America has one damn great economy.

At some point presumably ECRI and Conf Board will be correct. There will be hiring. But at about 200,000 jobs added monthly for 12 months needed to bring the unemployment rate down a mere 1%, even a nice job gain number needs to be greeted with restraint. Plus, normalization of Fed policy may accompanying greater economic activity and therefore may be further associated with another conundrum on interest rates and sluggish stock price reaction.

Copyright (C) Long Lake LLC 2010

Is the Hated Long Bond Ready to Rally?

The 10-year Treasury bond's yield advantage over the 2-year and the 3-month T-bill is at or near record amounts in absolute terms. Other similar spreads were seen in spring 1992, August 2003, and June 2009. All cases were positive for the bond market as well as the stock market.

What matters is not only the absolute yield differential but the ratio of yields. In 1992, Treasuries were yielding almost 7%, so the ratio of the 10-year to a short-term yield was not nearly so great as now. Taking this to an absurd case, what if the short term rate were 100% and the 10-year were 105%? That would be an even greater spread, but the yield curve would be flat.

Contrarians can once again buy long bonds for a trade. The Gallup hiring/not hiring difference just went to negative 6. This is consistent with a jobless recovery and is of a piece with recent non-seasonally adjusted unemployment claims (rising) and Q3 GDP downward revisions X 2 (old "news" of limited importance to be sure).

Whatever complacency about the course of this recovery exists-- with some very high GDP numbers for the quarter just now ending and early next year in the ether-- and with the VIX under 20, a lot of fear is for certain out of the market, any excuse to take profits may do. A weak jobs report next month could be that excuse.

Copright (C) Long Lake LLC 2009

Some New Data Not Colored Green as in Green Shoots

Data points we are noting:

1. From TrimTabs July 21:


The disconnection between perception and reality about the U.S. economy is stunning. As Wall Street gains confidence that the economy is recovering, declines in wages keep accelerating. Adjusting for the “Making Work Pay” tax credit, income tax withholdings plunged 9.6% y-o-y in the past week and two days (Friday, July 10 through Monday, July 20) and 6.8% y-o-y in the past three weeks and two days (Friday, June 26 through Monday, July 20). These declines are much steeper than the drop of 5.3% y-o-y in the past three months. Both we and our favorite official Washington economist are unaware of any calendar quirks skewing the data.

2. Next: Subprime-Mortgage Loss Forecast Is Raised by Standard & Poor's:

July 22 (Bloomberg) -- Standard & Poor’s again boosted its projections for losses from U.S. subprime mortgages backing securities, reflecting increasing delinquencies and defaults amid slumping home prices and growing unemployment.

Losses on loans backing 2006 securities will reach an average of about 32 percent of the original balances, while losses for similar 2007 bonds will total about 40 percent, the New York-based ratings firm said in a statement today. In February, S&P said the losses would total an average of 25 percent for 2006 bonds and 31 percent for 2007 securities.

3. Gallup has a nice graph reflecting polling on how people see their companies: Hiring, laying off, or neither.

I am unable to cut and paste it; click HERE to view it. Per the Gallup.com home page, 4% fewer respondents reported that their employer was hiring on the last survey. A look at the graph (first link) shows stability between percent of employers expanding/hiring vs. shrinking their workforces/firing, from December 2008 till now. Of course, during this time unemployment has been soaring. I'm not loving this trend, especially given the reality of a work force that is growing steadily and thus requires net hiring to keep the unemployment rate from rising, and the "New Normal" that older people are deferring retirement. I know of one local MD in his 70s who had to go back into practice due to investment losses. I'm sure he's not the only professional in that situation.

4. Larry Summers gave some downbeat comments within the past few days, suggesting that he was uncertain as to the pace of the expected economic upturn.

5. From a technical basis, here's a 3-month chart of GE, with the red line representing the 50 day simple moving average and the green line the 200 day sma. Bad news:
GE has moved below its 50 day ma, which has begun to descend. It never reached its 200 day sma. Concurrently, Yahoo reports that analyst estimates for GE's 2010 earnings have also begun to descend, from 95 cents 3 months ago, to 94 cents 7 days ago, to 92 cents currently. BofA ("BAC") has a stronger pattern but is not all that different, and perhaps ominously, 2010 earnings estimates for BAC keep dropping; click HERE to view them and scroll down to view EPS trends, "Next year/Dec.-10".

Meanwhile, CNBC may now be reporting that something like 200% of all reporting companies have beaten "estimates" from the group of deep thinkers laughingly called "analysts". No matter that IBM had to somehow lower its SG&A an astounding 19% to wow these seers on the bottom line while missing shrunken revenue estimates. (Note: DoctoRx is no longer long IBM, having sold it on strength this week.) Someone should tell someone else that a company can't starve itself and yet win either an endurance running race or a strength contest.

Nonetheless, what we also somewhat laughingly refer to as "money" has to go somewhere if one has investable funds. People who can afford the risk probably should have some money apportioned into dividend-paying stocks with strong short-term and long-term charts and a history of being shareholder friendly.

EBR will discuss its favorites over coming days: in its estimation, these are among the best of a mangy lot of pre-owned "in"-securities.

Copyright (C) Long Lake LLC 2009