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Thursday June 3, 2004 – Issue 2931 “Independent View of the News” |
A convoluted market occurred on Wednesday. Oil tanked when OPEC said it would produce oil at its capacity. Okay, what’s next if that fails to thwart oil’s ascent? OPEC is now like the Fed and the BoJ.
When oil fell to a greater than $2 loss stocks rallied, including oil stocks until late in the session. Bonds fell and the semiconductor index tanked 2%. Gold and most other commodities fell significantly, yet bonds still fell ¼ to 1/3 of a point. A late sell-off truncated the equity rally…The FBI issued a US-wide alert for two stolen propane gas tankers that were stolen from a San Antonio propane gas distributor.
Today is a Thursday that precedes a very significant employment report. The jobless number is the final clue prior to the report. The previous three weeks have been worse than expected. The state numbers are in stark conflict with the BLS’s sanguine numbers [see below]. Though the evidence, especially if today’s jobless number is worse than expected, implies a worse than expected May employment report, the politics suggest, as we have already averred, that the report will be in line to a tad better.
How operators will play today? Early economic data will dictate the morn, but the main event should occur in the afternoon. That’s when the informed and the guessers will place their bets, probably on a strong report…We will anxiously await the Fed’s report on the money supply after the close…Expected economic data: Nonfarm productivity 3.7%, unit labor costs 0.4%; jobless claims 335k, continuing claims 2.925m; factory orders -1.4%; ISM Non-manufacturing 66.
The Fed did a $1.4B bill pass on Wednesday, about double the amount it has been doing in coupon passes. This is a permanent reserve add. By sheer coincidence there was a $30B 12-day cash management bill and a 4-week T-Bill auction of $24B yesterday. PS – The Fed bought $3.85B of the 4-week T-Bill auction! PSS- What’s this stuff about ‘freely traded markets?’
Yesterday, Easy Al’s May 14 letter to Sen. Paul
Sarbanes (D-MD) was released. Al warned the senator that “the
current highly accommodative stance of monetary policy must be returned to a
more neutral setting at some point.” The Ole Bubblemeister
adds, “…judging the likely pace and duration of that transition
solely on the basis of past episodes is not appropriate.” Once
again the most obvious question is: If things are so jiggy and booming, why
are interest rates being held at ‘emergency levels?’ And why is Al now
warning that the historical timing and steps of rate hikes will not be
followed? Does this mean rates can explode suddenly? After all Easy Al has
raised rates in very measured steps in the past? Or does it mean that Easy
Al is even more reluctant to raise rates than he was in 1994 when
Total vehicle sales are 17.8m SA for May. The reality number is 16.2975m NSA…Ford’s US sales fell 3.1% in May y/y, with gas-guzzling SUV leading the retreat. DaimlerChrysler sales rose 0.7%. GM sales rose 6.5% on aggressive rebates (avg. $4.3k, including free gasoline for guzzlers!) and an 11.3% surge in truck sales and strong SUV incentive-greased sales. Auto sales fell 0.4%...Ford’s scheduled Q3 North American production is 755k vehicles, a 3.9% decline y/y. GM cut Q2 production by 5k and reaffirmed Q3 production. Now we can add declining auto production as a characteristic of a ‘new economy’ boom.
Merrill’s chief North American economist, David Rosenberg, echoes our view that the housing market has an inventory problem. David notes that “vacant housing units represent 13% of the housing stock, a record level going back 40 years.” More on pages 2-5
Bloomberg notes that last year a record $384B in municipal bonds was issued. Moody’s avers than many municipalities, seduced by derivative pitchmen, have entered into significantly more interest rates swaps than the Feb/03 reading of $200B. Moody’s warns that conditions of the swaps, particularly termination costs, could generate substantial payments that the municipalities do not have the capability of meeting. Hey, don’t worry; it’s just the new economy booming along!
Jim Kubak at TheStreet.com has penned a great article, ‘Debt Bubble Stretches to Breaking Point’. Jim notes that bubbles last far longer than expected. He uses housing to illustrate some points. Though rising interest rates intuitively suggest the housing bubble should deflate (our note: prices are falling the last several months), higher rates are fueling “a flood for new buyers who fear getting shut out of the market…” Mr. Kubak notes ARMs account for 53% of Washington Mutual’s Q1 new mortgages.
This leads to Jim’s 2nd rule on bubbles: Bubbles expand faster as the cycle nears its end. “This tendency for bubbles to become more excessive as they mature is built into modern financial systems.” (the dreaded parabolic rise) “Countrywide Financial funded $15.7 billion in adjustable-rate mortgages in April 2004, up 130% from a year ago.” Asset-backed securities for 2004 are +22% y/y because ‘investors are bailing out of fixed-rate bonds for higher rates.’ Speculation intensifies until it implodes.
The 3rd bubble law is “It’s tough to admit the cycle is over. The impulse is to keep inflating the bubble.” Jim explains how consumers and financial entities desperately try to perpetuate the bubble. The anomaly now is no one is more determined to perpetuate the bubble than the man who is purportedly responsible to arrest bubbles before they develop. Easy Al is tantamount to a flame-throwing firefighter.
Jim notes: a) GMAC accounted for 71% of GM’s 2003 profits, and b) “One-quarter
of hedge funds surveyed recently by
Momaw Nadon of The Hindu Business Line: “In the past, the rise in
the spot price of crude as, for instance, ahead of both the Gulf wars, was
not accompanied by a sympathetic jump in the forward price simply because
the market expected the spike to be short-lived. But, this time, the forward
price has been going up sharply…One reason for the rise in crude
prices is the fall of the dollar, the currency in which oil is
denominated…The two other major causes for the price rise are the rising
consumption, mainly by China, and speculation.
Two weeks ago (May 18) Richmond Fed Prez ‘Lil’ Al Broaddus said he was “dusting off my old inflation hawk feathers…” Yesterday Broaddus said he is “even more comfortable” about inflation prospects. Does this guy really believe we’re supposed to swallow the 180 change without question? Of course he and his ilk do. They’ve been getting away with mendacity for years. Broaddus, surveying the country from the Fed’s perverted prism (like others of his ilk) doesn’t realize consumers’ checkbooks are NOT seasonally or hedonically adjusted. Or he has utter contempt for Americans’ intelligence.
Yesterday the BLS issued its Metropolitan Area Employment and Unemployment Report for April. The numbers are ‘p’ for preliminary. http://www.freerepublic.com/focus/f-news/1146394/posts More on pages 3-5
BLS has NYC April unemployment at 6.7% NSA. NY State has the number at 7.2% NSA. http://www.labor.state.ny.us/agency/pressrel/pruistat.htm
The BLS has LA unemployment at 6.2% NSA for April. The
State of
The BLS has
Economicmagic.com lists
State of
Recent changes by the Bureau of Labor Statistics (BLS) have necessitated the revision of labor force estimates for all areas (statewide, city, county, metropolitan area, and workforce development area). This change affects all labor force estimates (Employment, Unemployment, Unemployment Rate, and Civilian Labor Force) from 1990 to present. Please update your historical records to include these changes. If you have any questions, please contact the LMCI Department.” Major changes in an election year, just like Slick when the BLS de-emphasized NYC, LA, Chi, Hou etal in unemployment sampling in 1996 – because that’s where unemployment resides. http://www.tracer2.com/article.asp?ARTICLEID=1226&PAGEID=&SUBID=
Total Nonagricultural Employment within the
We’ve gone through this exercise many times so there’s no need to get pedantic. However the fact remains that BLS data is at odds with state data. This leads to overstatement of personal income and GDP. Too many economists, pundits and gurus make forecasts and orate about economic data without regard or knowledge of how the number is derived and what it actually represents or measures. But in a bubble economy, reality is avoided because hype and illusion are so much more comforting.
The
“The
On pollster Rasmussen Report’s web site, they have a synopsis of the Hudson Index.
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Percentage Who Say Their Employers Are Hiring |
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All Workers |
Private Sector Employees |
Managers |
|
May |
32% |
39% |
33% |
|
April |
33% |
39% |
35% |
|
March |
33% |
38% |
35% |
|
February |
31% |
36% |
33% |
|
January |
31% |
36% |
32% |
|
December |
29% |
32% |
33% |
“Collectively, the trend data over recent months suggests a labor market that may be taking a breather in May after gaining momentum since the beginning of the year," said Jeff Anderson, senior vice president of Hudson Global Resources.
Even though the percentage of workers saying their firms are hiring fell, these figures still remain higher than they were in December, January, and February.
The table below summarizes the Net Hiring totals on a monthly basis. This reflects the percentage who say their firms are hiring minus the percentage who say their firms are laying workers off.”
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Net Hiring Summary (Percentage Hiring Minus Percentage Laying People Off) |
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All Workers |
Private Sector Employees |
Managers |
|
May |
+13 |
+21 |
+14 |
|
April |
+15 |
+23 |
+16 |
|
March |
+15 |
+20 |
+18 |
|
February |
+13 |
+18 |
+14 |
|
January |
+16 |
+21 |
+17 |
|
December |
+12 |
+15 |
+14 |
Finally, the number of workers worried about losing their jobs inched up to 19% last month. http://www.rasmussenreports.com/hudson_employment_index-june.htm
Looks like Bob Novak was dead-on correct in his column
last week. Reuters: “The
Some pundits are trying to downplay the recent surge in the monetary aggregates. They suggest that because the economy weathered the monetary aggregate decline during the second half of 2003, due to the sharp decline in mortgage applications, the current sharp increase is irrelevant. The fallacies of logic in this thinking are numerous; we will address a few. First of all, astoundingly, they ignore the effects of fiscal stimulation, namely the humongous tax rebate. (We smell ardent monetarist thinking!) Without that massive stimulus the economic landscape would’ve been radically different.
Secondly they assume the effects of monetary stimulus are identical or linear without regard to direction or environment. A curtailment of reserves has a different magnitude of effect than does adding reserves and the environment (inflation/deflation, fiscal juicing, crisis) greatly determines the magnitude of impact.
Now let’s look at the data. M2 increased ~$337B from 12/20/02 to 8/18/03. It then fell ~$86B to 1/5/04. In others words the M2 decline that did not affect the economy was only a 25.5% retracement of the juice that had been supplied. M2 has increased $249B since 1/05/04. Why would an $86B correction of a $337B surge and a later $249B boost cause any economic ripple? What monetarist model would show a change in the economy on such a modest decline relative to the huge increase in M2? Plus, what is the lag time on monetary policy now? It’s certainly not instantaneous or two months. A correction of $86B in a $586B (net $500B) move is inconsequential, especially in a war-spending environment with a tax rebate that was a multiple of the $86B decline.
Lastly some pundits who sneer at the surge in M2 have been ‘wolfing’ the record leverage in the bond market. We agree that the leverage is disturbing and portends an ugly unwind, but we recognize that it is symptomatic of the ‘new economy’, which is essentially financial engineering. The engineering and speculation is fueled by Easy Al’s magic elixir of promiscuous credit. And there is a strong correlation between credit creation and the monetary aggregates…Perhaps the sudden bond collapse last summer might have induced the leveraged community to de-leverage their bond holdings. This would have contributed to the moderate M2 decline than occurred after 8/18/03.
Finally, some analysts suggest that the current monetary aggregate explosion is the opposite of late 2003’s refi-induced collapsed. This means the current condition is a refi-induced boom. And if we add in the fiscal picture, which is conveniently but illogically ignored, there would be a huge tax increase that offsets the effects of the refi stimulus; and a sharp contraction of government spending. That isn’t what we have.
The Mainichi Daily News reports, “Kasuga
Shrine, one of