This Week in Barrons – 10-27-2013
Now You See Me … Now You Don’t!
I remember the summer movie: “Now You See Me” all too well. However, most people miss the daily magic that is being performed by our equity markets and by our economic reporting systems. In fact on Tuesday, we watched a transformation of the jobs report – that was as astounding as any girl turning into a tiger.
One of the biggest headaches for Obama (and for Obamacare) is that companies have decided that if they're going to go bankrupt giving mandated health care to full-time employees, they will simply only hire part-timers, and also reduce their regular staff from 40 to 29 hours.
According to Obama and Mark Zandi (the CNBC jobs report ‘talking head’), if corporations were shifting to part-time workers – it would show up in the data. Over and over we have heard from Mr. Zandi that the data doesn’t reflect this shift – despite corporate headline after headline talking about either cutting healthcare or cutting their people to part time. However, on Tuesday the CNBC producers made a mistake and had on (as a guest) Bob Funk from Express Employment Professionals. Mr. Funk was also the past head of the Kanas City Fed. Honestly, he simply ripped Mark Zandi apart. But, he did it in such a calm, soothing manner that Mr. Zandi didn't even realize he had just been ‘given the business’. Bob Funk said: "I don't know where the Bureau of Labor & Statistics (BLS) is getting their numbers, or why the part timers aren't showing up in their data – because here (in the real world) we're seeing part-time employment up 123%. Years ago, companies (hiring through us) hired 60% for full-time and 40% for part-time workers. Today, it's exactly reversed. 40% are looking for full-time employees, and 60% are looking for part-time. Obamacare is indeed affecting business and jobs."
It was fun to watch Mr. Funk gently (and with class) correct Mr. Zandi. However, the real ‘magic’ didn't come from Zandi being schooled on TV, that was simply a preliminary act. The Grand Illusion came from the unveiling of the BLS’s Jobs Report. Although the ‘Monthly Non-Farm Payroll Report’ came out ‘inline with estimates’ with a gain of 148,000 jobs, it was the ‘Household Survey’ that produced the most outrageous illusion. According to BLS’s September Household Survey, a record 595,000 people were rotated OUT of part-time and into full-time work, PLUS an additional 133,000 full-time jobs were created.
This makes virtually no sense. Last month corporate CEOs were worried about:
- The Fed beginning to taper,
- The Debt Ceiling approaching and whether we would go over the cliff, and
- The Government shut down.
And now you’re asking me to believe that those same CEO’s – were so ‘full of love’, that they let almost 600,000 employees go from a less than 29 hour work-week to a 40 hour and above work-week. And, they did that in the month directly preceding the launch of the Obamacare web site. Pull my finger. In times like these I always remember the quote from Joseph Stalin: “It isn't important who votes. What is important is who counts the votes.”
Honestly, Obamacare promotes part-time low paying jobs. The BLS can hide some of the data, but real people like Mr. Bob Funk know the actual results. Full-time work (with benefits) is becoming harder and harder to find. Currently only 10% of our post-graduate degree candidates are finding full-time employment. But part-time service jobs are indeed plentiful. Obama told us that he wanted to "Fundamentally change America", and he's certainly doing that!
Dare I say the word…bubble? This market is beginning to look like a true 1999 bubble, and we all know that bubbles – POP.
Every day I am forced to listen to ‘talking heads’ on financial TV tell me why this time it’s different; and why the market isn't being driven solely by Benji bucks. They talk about our underlying economic strength. To which, I simply point to the sell off that occurred when there was simply a ‘hint’ of QE taper – and that’s where the conversation normally ends.
Imagine being an investment analyst at a major company. It's your job to dig into company internals, management, cost controls, expenses, sales, procurement, supply chains, supplier pricing, and more. It may take you months to put together a thorough review of the company – before presenting your findings to the J. Q. Public. The bottom line is: in this environment, the analyst can’t say: “The company is garbage, but it is going to go up because the Fed's printing money like crazy." The analyst would be terminated on the spot. So analysts across the board are being forced to find reasons why companies (that should otherwise be going down in value) – are instead – going up (in value).
Okay, so the market continues to move higher on extremely low volume. How long can this go on? It can go as far as the Fed’s $85 billion a month of buying will take it. I know that's an odd way of saying things, but it is true. There's a certain amount of economic activity and market levity that $85 billion a month will buy. When we get to that point, the market will stagnate until they produce more QE money. I don't know where that level is, but considering the current volume of buying and selling – there are very few players remaining with the cash to make things happen.
The SPY is the Exchange Traded Fund (ETF) that reflects the performance of the S&P Index. For 2012, the SPY traded an average of 22 million shares an hour, or approximately 143 million shares a day. Last Thursday (for example) we traded 73 million shares – half the average volume of last year. So as you can see, there is NOT the same level of market participation out there this year – as there was last year.
I have heard the rumor that The Ben Bernanke could announce a surprise taper this week, and I’ve dismissed it out of hand. Heading into a sub par quarter, with the Holidays fast approaching – it would be suicide for the Fed to pull a fast one. It's my guess (that except for a couple 2-3% pull backs now and again) we're just going to keep slowly levitating into the yearend.
It doesn’t make sense, and no, it won’t end well. But ‘the powers that be’ created this monster and it has to play out. We continue to lean long. Yes, we continue to be concerned. We have not had a ‘normal’ 10% correction for over 520 days. But, there’s no reason we can’t make it to 600 days. After all, it’s just Benji Bucks anyway.
In the very short term, the SPY has a bit of a challenge directly ahead of it. It tried to get over 1760 Friday, but came up slightly short. If the market can't get over 1760 on Monday, we could see a small fade to start the week.
This week I tweeted about a couple stocks that I liked – they included: SNDK over 70, PNRA over 155, and ANR over 7 – but realize that ANR reports earnings on Oct 31. We sold CERN, CIEN, HES, LRCX, and WRN – all for nice profits.
My current short-term holds are:
- JOY – in at 55.03 (currently 58.09) – stop at entry,
- SBUX – in at 77.50 (currently 79.96) – stop at 78,
- SIL – in at 24.51 (currently 13.67) – no stop
- GLD (ETF for Gold) – in at 158.28, (currently 130.54) – no stop ($1,352.40 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 22.60) – no stop ($21.87 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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Until next week – be safe.