Interdum stultus opportuna loquitur...

Friday, January 04, 2008

USRant: No Jobs For The Boyz...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

Well, the musings in the last OzRant regarding a likely short-term slaughter of weak hands in the Crude market seems to have been pretty much on the money - front-month Crude, having touched $100.05 during yesterday's US session, dropped as low as $97.10 during the session just finished.

Of course such a call does not enter the RantRecord, because I explicitly accompanied it with the exhortation that I would never short Crude. Furthermore, I did not say longs should exit and try to re-enter lower... nor should it have been inferred.

But the overarching point is that sensible contrarianism bloody works. 

Today the Fed prepared the markets for the woeful Jobs Report, by pumping in two slabs of Treasury-backed repurchase cash:

  • a $5.205 billion overnight repo at 4% even; and
  • a $2 nbillion 14-day repo at 3.96%.

The  overnight repo was big enough to encourage the expectation of a bounce at 10 a.m. NY time, and it was a full 25 basis point discount to Fed Funds. And yet all it managed to do was to halt the slide induced by the latest piece of evidence that the US economy is in the toilet.

The Jobs Report showed a rather disappointing 18000 new non-farm payrolls - the market had expected +70,000. The unemployment rate slid upwards to 5.0% (it was expected to rise to 4.8%), and the growth in average earnings (0.4%) was slightly above expectations (of 0.3%) but still below any non-massaged estimate of the real inflation rate.

And if you thinks that's bad, consider that the CES Birth-Death Model (the invention of non-existent workers) added 64k phantom non-farm payrolls... I have banged on about statistical chicanery in the US for nigh on ten years, but it is getting ridiculous.

The other economic report was the Services ISM Report, which is so irrelevant that I refuse to even write anything about it.

So all things considered, the stinky economic data deserved a market-based response, and it got it in spades. The markets immediately formed the expectation that the Fed will have to cut again at its next meeting; this is still not seen by the bond market as being inflationary (although it unambiguously IS inflationary). 

The Bond - which had been performing as I expected, gently declining - spiked to above 118 16/32 (it got as high as 118-18/32) but now we can rest assured that anybody who took the advice to short the 30-year between Wednesday and Friday is now short at above 117-20/32... next week that trade will make a lot of money.

The Euro spiked to above 1.48 (hitting 1.4830 in the 5 minutes after the report)... but it was a classic 'nuffie spike', and institutions immediately sold the living hell out of it (driving the market back down - in the thin pre-opening period), looking to scorch the weak hands. 

You could smell the scent of burning nuffnuff all the way around the world. 

It is a Rant axiom: the first move in bonds and Euro after a big news item, is always dumb money: it is always in the wrong direction and should always be faded. Every now and then that strategy doesn't work, but it works about 80% of the time and frankly it pays off so well when it does that the sphincter doesn't suffer too much damage on nett.


Only the fortuitous combination of Dow 12800 and NasdaqComp 2500 - two round numbers at the same time - saved the markets from a greater decline.

At the close, the Dow was down 256.54 points (1.96%) closing at 12800.16; of the 30 Dow components, only one managed a gain - that was Coca Cola (KO +0.12 (0.19%) to $61.85 on volume of 8.99 million shares). The high for the session was set at the open, and the low of the session was at the close. No massive surprises there.

The broader S&P500 did significantly worse than the Dow in percentage terms. The S&P dropped 35-odd points (2.46%) to 1411.63. I don't have a reliable component list for the S&P at the moment (I have two lists which do not agree), so I can't (or won't) do the component breakdown.

The Nasdaq indices (the Nasdaq Composite and the Nasdaq100) were even more worser than the S&P: the NasdaqComp dropped 98.03 points (3.77%) to 2,504.65 points, while the Nasdaq100 slumped 88.24 (4.30%) to 1,963.52 points. Again, my component lists are not reliable, so bugger the internals... they were bad, as you might imagine.

All in all, we can agree that it was not a great day. The bluebird of happiness was not uplifting the heart of those whose eyes were fixed on the sea of red; in fact the b. of h. appears to have been somewhat absent lo these past few sessions (for the Nasdaq indices that makes six consecutive sessions of decline). 

NYSE volume was a staggering 4.1 billion units, of which 3.82 billion was transacted in declining stocks - for an advance-decline ratio of almost 11:1. On the Nasdaq the total volume was 2.46 billion shares, 93% of which was traded in losers.

I still have not done the sector index lists, but let's just agree that for the moment it suffices to say that pretty much everything was awful. I will beaver away like a Trojan this weekend in an endeavour to get a more complete USRant onto the RantSpace next week.