This Week in Barrons – 5-8-2016:
Who are we kidding?
On Friday we received the Non-Farm Payroll report (NFP). This report is published by the government, comes out on the first Friday of every month, and contains a lot of information surrounding the previous month’s job hirings. Most economists have gone on record stating that for our nation to move forward, we need to show that over 200,000 jobs are being created each month. Last Friday we found out that only 160k jobs were created in April. What does that mean?
First let’s dissect the number. The OTHER jobs report is the Current Population Survey (CPS). It is based upon household interviews conducted each month by the U.S. Census Bureau for the Bureau of Labor Statistics. The CPS provides comprehensive data on unemployment along with labor force participation, age, sex, family relationship and marital status. Fifty thousand households across 792 sample areas (including every city and county in the U.S.) participate in the survey. This data is used to calculate a region’s Local Area Unemployment Statistics (LAUS).
The best way to compare the two types of employment numbers is to note that the LAUS data is based upon households whereas the government’s data is based upon payroll records. You would expect them to vary a bit, but last month – “Houston, we have a problem.” The government’s model showed that we CREATED 160,000 jobs, where the LAUS showed that we LOST 316,000 jobs.
Often the difference (in part) is due to the government including a ‘Birth/Death’ model calculation inside their report. What is a ‘Birth/Death’ model? The government assumes that for every hundred people that lose their jobs, a given percentage of those will go out and open a new business and hire new people. There is NO proof that these businesses or jobs even exist – just our government’s WAG (wild assed guess). This past month our government ‘guessed’ that the Birth/Death model created 233,000 jobs. These same 233,000 phantom jobs (that don’t exist) were INCLUDED in the 160,000 jobs created number. So if you remove the ‘fake jobs’ – you’ll see that according to the government we lost 73,000 jobs last month. At least that puts us in the same direction as the LAUS/household report. But naturally, the government couldn’t come right out and tell us that our economy really LOST 73,000 jobs last month.
But Ms. Yellen the government report told us two more things:
- 1. Last month an astounding 562,000 people dropped out of the labor force, sending the labor force participation rate lower once again.
- 2. Last month, if you subtracted out the number of part-time jobs from the total jobs created, you would have found that 253,000 full-time jobs were LOST.
However, something interesting happened on Friday. In the past, when the market received lousy jobs numbers – it would go up by 200 points in the hope that our FED would not raise rates or maybe even do more QE. This time we were barely green on the day. Maybe that's because the ‘smart’ money has been leaving the market for the past 15 consecutive weeks. Last week, $16B more fled the equity and ETF markets.
Ms. Yellen, could it be that even with all of your ‘slight of hand’, your ability to push the market higher on false pretense is becoming tougher? After all: earnings season stunk out loud, the global economy is in a recession, and now we are losing jobs at an alarming rate. I don't know how long you can keep the plates spinning, but in my view, selling stocks and buying more gold and silver wouldn't be a bad idea. Gravity always works, and one day it will pull stocks down to where they belong. FED or no FED, please be cautious out there.
- Big truck sales came in 38% lower than last year.
- Of the 6 major retailers reporting, they all missed achieving their sales and earnings estimates.
- The Manufacturing Index fell by 1.9% last month, suggesting no end in sight to the current downturn in manufacturing activity.
- The Purchasing Managers Index fell by 1.6% last month.
- Both Puerto Rico and Atlantic City are close to declaring bankruptcy.
- And medical errors have become the #3 killer of individuals in the U.S. They have moved ahead of: guns, cars, poisonings, and drug overdoses. So if I understand this correctly: By using my Obamacare Insurance (for which I’m paying the highest premiums ever), I have more of a chance of being killed by misdiagnosis, wrong meds, etc. than by guns or cars.
But politicians like a ‘green’ Friday – so they can talk about how wonderful things are on their weekend TV shows. The market going ‘red’ has become almost illegal on Fridays. If you examine the action on Fridays over the past year, you will see that no matter how low we are in the session, ‘the powers that be’ tend to get us flat or green on the close. This past Friday was no different. From a low of 2039 on the S&P in the morning, the afternoon saw the markets roar to life and close at 2057. The same thing occurred on the previous Friday when (at one point) we were down 155 DOW points; we came back in the final minutes to close green.
You don’t think that this kind of action is because millions of investors from hundreds of countries around the globe decided at the exact same time to buy stocks do you? Do you really think this is your ‘free market’ at work? These are the Central Banks doing their best to keep the economic illusion alive.
What happens now? Because we bounced off of the 50-day moving average, this should trigger some algorithmic buying early in the week, and we could see a couple green days. But it’s going to be hard for our Central Banks to conjure up a strong rally. We are still in a pattern where the volume is larger on down days, than on the up days. So, while they might get some mileage out of Friday’s bounce, I think they'll run into resistance at the 2075 level of the S&P, and run out of oomph. This market is so tired that even our Central Banks will need a bazooka to keep it up. Stay safe.
I took a long term ‘risk trade’ on Twitter (TWTR) this week. I bought the January 2018, $15 Calls. I did NOT buy Twitter because it was strong, or because I think the overall market will rise. I bought it because at some point I think someone that knows how to monetize it – will acquire Twitter. It's a gamble, but I've got a long time for it to work.
- Long various mining stocks: AG, AUY, DRD, EGO, FFMGF, FSM, GFI, IAG, KGC, and PAAS,
- Long an oil supplier: REN @ $0.56,
- Sold NDX – May – Iron Condor – 4125 / 4150 to 4750 / 4775,
- Sold RGR – May – Put Credit Spread – 55 / 60,
- Long RUT – May – Butterfly – 1000 / 1080 / 1130,
- Long TLT – May – Call Debit Spread – 128 / 133,
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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Until next week – be safe.