Interdum stultus opportuna loquitur...

Friday, September 03, 2004

Rubbery Payrolls

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Journalism hits a low point in its history each time it repeats propaganda without properly investigating it. When it is actively complicit in generating propaganda, it goes beyond simply "bad" and becomes genuinely rotten. Take last night's US Payrolls numbers. Consensus was for a rise in payrolls of 150,000: the actual number was 144,000. That's a "miss" of 4%. So why did "Journalists" write stories that indicated that payrolls were better than expected?
  • Why did Lincoln Feast of Reuters write a headline that said "European Stocks Firm after in-line U.S. Payrolls"?
  • Why did Steven Vames of Dow Jones write "Dollar Surges on as-expected payrolls Figure"?
  • Why did Brian Blackstone of Dow Jones write "Treasurys Tumble as Aug Payrolls Match Forecasts"
Are they simply incompentent - unable to calculate that 144,000 is less than 150,000? After all, most operating systems now have a little tool that enables you to key in 1 4 4 0 0 0 - 1 5 0 0 0 0 ENTER. Even if you're slow, you can get that done eventually. And you should get a negative answer.
Was the misdirection deliberate - that is, were they actually being deliberately dishonest? If so, why?

My take on it, is that journalists are largely members of the entertainment industry; the exception are those that desperately want to be part of a "bigger game" (politics, finance, law) but don't have the talent required... so they become cheerleaders.

Anyhow, anything written by the three mentioned above should from this day forward be treated with suspicion, if not outright derision.

While I'm ranting, let me mention the dishonesty of the US statistical authorities once again - and the fact that no journalist calls their bluff. Then I will get to the markets, I promise (this is actually important stuff - and not just because we are getting to watch an empire go through its death throes in real-time).

Why is it that nobody mentions that the 144,000 figure includes a whopping 120,000 "jobs" which are generated by the BLS's highly controversial "birth death model"? (As an aside - the other 24,000 jobs were Government - so apart from the "birth death adjustment", the private sector created no new jobs).

The birth-death model which has gone from a small "rounding error" type of number in 2001, to the overwhelming bulk of all jobs created this year. The table below demonstrates.

2001200220032004Last 7 months
B/D "Jobs"/month7.5816.339.287.6134.9

Now, bear in mind that the total new jobs in the BLS survey over the last 7 months is about 1.2 million - so a whopping 74% of all new jobs are being "created" by a statistical method that is supposed to account for the employment that results from new businesses being started.

The idea behind the net birth-death model is not controversial - it is the implementation by government-employed partisans which is the problem.

The core idea of the adjustment method is that some firms went out of business in the BLS sample, and fired some staff as a result (OK... I believe that).

Some other firms (which are not part of the BLS sample) began operations and hired some staff. Also not particularly problematic on the face of it.

However on balance, this combination of events has generated a rapidly rising net number of jobs, which also make up a rising share of all private sector jobs created. It is that aspect that I do not believe.

Here is a forecast that you can take to the bank: the birth-death numbers will all be revised away in the future. Every single one of the jobs created in the last three years using that method will be expunged from the record.

Anyow, the "headline" payroll number was not a disaster - although there is every indication that it is just another in an increasing list of government-issued rubbery figures. It's a bit like Soviet Production figures, or the production figures out of 1984.

It fooled the markets though - the US dollar rose, bonds fell, equities had a bit of a spike... exactly the desired effects.

The Fed only did one repurchase: a $5.5 bill, 6-day, all in Treasury-backed collateral; it didn't do any good whatsoever. Intel's update after yesterday's close (covered in yesterday's Rant) was the big drag today, and boy did it hit the Semiconductors hard. The SOX got whacked to the tune of 5%. The rest of the tech sector fell out of bed in a big way too.

There was a late-session effort by da Boyz to drive the Dow into the green which was successul up to a point: the Dow was down 24 points at 5:00 a.m. our time, and by 5:27 it was up 4 points.

But stocks were a bit like the girl that everybody "knows", but nobody wants to take home to meet their parents - particularly over a long weekend. The Dow Jones Industrial Average sagged badly in the last half hour, losing 30.08 points (0.29%) for the session and closing out the day at 10260.2 points. The Dow closed at its exact low tick for the day.

The broader S&P500 Index lost 4.68 points (0.42%), finishing the session at 1113.63. That was as near to its low for the day, as makes no odds (it set its low with less than a minute to go, only 0.06 points lower than it closed).

Over at Times Square, brown corduroy trousers were being soiled. The Nasdaq Composite lost 28.95 points (1.55%), to close at 1844.48, while the larger-cap stocks fared a bit worse with the Nasdaq100 Index losing 26.52 points (1.9%), to end at 1371.82 points.

Interestingly, the Dow and S&P futures did not break their Globex (night-session) lows during the day session. The Nasdaq100 futures, on the other hand, blew through its overnight low in the first hour: the session low for the NQs was below the previous session low... in other words, while the Dow and S&P held most of the prior-session gains, the Nasdaq gave it all back, with interest.

The vermin who shill stocks immediately seized on the relative outperformance of the Dow and S&P to contiue their despicable touting of a market which is priced at a historical extreme. I often wonder if they are actually the same species as the rest of us, or whether they are simply sociopathic.

The broader stock market measures were down: NYSE Composite Index lost 24.61 points (0.38%), closing at 6510.44, while the broadest measure of US equities, the Wilshire 5000 fell 44.58 points (0.41%), finishing the session at 10820.88

NYSE Volume was modest, with 0.92 billion shares traded - a drop of 17% from yesterday. Nasdaq Volume was also modest, with 1.24 billion shares changing hands for the day (172 million of those were Intel shares).

Nasdaq Composite1844.48-28.95-1.55%
NYSE Composite6510.44-24.61-0.38%
Wilshire 500010820.88-44.58-0.41%
NYSE Volume0.92bn--
Nasdaq Volume1.24bn--
US 30-yr yld5.06%0.08%1.52%

On the NYSE declining issues beat advancing issues by 1909 to 1358, and the loser-bias was greater on the Nasdaq, where decliners dominated gainers by 1791 to 1169.

Declining volume dominated NYSE trading, with 533.15 million shares traded in declining issues compared with just 377.68 million shares in advancing issues. The tilt on the Nasdaq was verging on the ridiculous, with declining volume at 531.79 million and advancing volume at a paltry 108.26 million - and alsmot 5:1 margin.

Despite the bias towards decliners, there were 124 NYSE stocks which posted new 52-week highs, and just 10 hit new 52-week lows. On the Nasdaq there were 57 stocks which hit new 52-week highs, and 42 posted new 52-week lows.

Advancing Volume (m)377.68108.26
Declining Volume (m)533.15531.79
New Highs12457
New Lows1042

Option volume was lower on both the put and call sides of the market, leaving the equity put-call ratio almost unchanged at 0.86 (vs. 0.85 yesterday). The biggest concern is the ludicrously low implied volatility; when the VIX is this low, it indicates that call sellers are pricing their wares low; given that they are the smart money, it means that they think they will not be able to get higher prices down the track.

Equity Call Volume1.49m-0.26m-14.81%
Equity Put Volume1.29m1-0.21m-13.85%
CBOE Volatility Index13.91-0.37-2.59%
CBOE Nasdaq Volatility Index21.06-0.56-2.59%

Bonds fell at the long end, with the benchmark US 30-year bond yield rising 0.076 points to 5.061%. The yield curve steepened, with the 2-year note yield rising 13 basis points as the market begins to re-price the odds of the Fed tightening by another 25 basis points in September.

UST 2Y (yld)2.570.135.16%
UST 5Y (yld)3.4790.092.75%
UST 10Y (yld)4.2790.071.57%
UST 30Y (yld)5.0550.051.06%
The Banks Index lost 0.1 points (0.1%), finishing the session at 99.13; within the index,
  • the Derivative King - JPMorganChase was basically unchanged, gaining a penny (0.03%) to $39.85; and
  • Citigroup lost $0.15 (0.32%) to close at $46.84

The Broker-dealer Index lost 1.18 points (0.94%), finishing the session at 124.79; the ticket clippers lined up as follows -

  • Merrill Lynch gained $0.08 (0.15%) to close at $51.84
  • Morgan Stanley Dean Witter lost $0.25 (0.49%) to $51.00
  • Goldman Sachs lost $0.86 (0.94%) finishing at $90.20
  • Lehman Brothers lost $0.48 (0.64%) at $74.20

The Philadelphia SOX (Semiconductor) index got absolutely hammered on the back of the Intel revised outlook. The index lost 19.76 points (5.23%), finishing the session at 357.84

  • Triquint lost $0.23 (5.9%) to $3.67
  • Micron Technology lost $0.42 (3.61%) at $11.23
  • Intel lost $1.58 (7.3%) to close at $20.05
  • Altera lost $1.25 (6.56%) finishing at $17.81
  • JDS Uniphase lost $0.07 (2.24%) to close at $3.05

Other indices popular with the beta-chasers were down, with the

  • Biotech Index losing 8.12 points (1.59%), finishing the session at 503.08; and
  • the Hi-Tech Index lost 10.09 points (2.34%), finishing the session at 421.67

Gold weakened by $6.50 (2.00%), and at one stage traded beneath $400. The Gold Bugs Index dropped 3.87 points (1.88%), finishing the session at 201.89. Silver fell by $0.22 to close at $6.57 per ounce. The Gold and Silver Index (XAU) lost 1.58 points (1.67%), closing at 92.93

PHLX Gold and Silver Index92.93-1.58-1.67%
AMEX Gold BUGS Index201.89-3.87-1.88%

Oil lost ground, shedding $0.35 per barrel, closing at $43.91 per barrel. The Oil and Gas Index (XOI) lost 0.97 points (0.15%), finishing the session at 651.57 while the Oil service stocks (OSX) Index gained 1.79 points (1.59%), to 114.09 points.

Reuters CRB275.25-3.75-1.34%
Crude Oil Light Sweet43.91-0.35-0.79%
AMEX Oil Index651.57-0.97-0.15%
Oil Service Index114.091.791.59%
US Dollar Index89.650.630.71%
Japanese Yen110.450.960.88%
Australian Dollar0.6918-0.0038-0.55%
Swiss Franc1.27040.00920.73%

The European markets reacted strongly to the US payrolls data (which raises the question... What the...???).

France's benchmark CAC-40 Index gained 32.56 points (0.9%), finishing the session at 3665.94, and the German DAX-30 Index gained 33.54 points (0.87%), closing at 3866.99. In the UK, the FTSE-100 Index gained 32.2 points (0.71%), finishing the session at 4550.8.


It's pretty clear that the entire planet is engaged in a monumental game of chicken (or "pass the ticking parcel") - everybody is trying to ride short-term momentum, and jump off at the last minute. Value investing is again a 4-letter word, and hedge funds are the topic of dinner conversation.

This should be a cause for real concern; it's not folks like me who get reamed when it all goes pear-shaped, because by and large I hold very few overnight positions. The poor bastards who are forced by government edict to "save" are the ones who will get slaughtered when the house of cards falls.

The thing that worries me most, is that there is a huge amount of activity that is purely arbitrage-based; buy one index, sell the other, based solely on (recent) spreads between the two. program trading is now the bulk of all turnover. There is no valuation performed on either index, and as LTCM showed, if you bet solely based on historical spreads you can get taken to the cleaners in the event that a revaluation occurs.