Friday, August 6, 2010

Job Numbers "Meh", Federal Reserve Meeting Now Raises Risk

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I won't spend much time on these job figures... they all are starting to sound very familiar as we show very little progress in creating employment in the country.  People are going to try to find gems in temporary employment (which is supposedly a leading indicator but has failed this time around as corporations now are replacing full time employees with temps), the work week, hours worked, blah blah.

When you take a step back we are in terrible shape in employment - after such a sharp drop off in 2008-2009 we should be adding 250-400K jobs a month at this point, if this was any sort of real domestic recovery.  We are not... to debate 32,000 jobs versus 112,000 is really a moot point, especially when we know the government is 'creating' (via the birth death model) tens if thousands of jobs each month in "businesses too small to measure" even as small business is suffering the worst in the country.  Not to mention most of these data points we react to as if gospel, are getting revised down after the fact, as we saw yet again today with the government looking under a rock and discovering they missed 100,000 job losses from June (oops)..  So let's now waste much time here - the labor force participation remains at historical lows, and we are in serious trouble on the employment front but as I've said many times... less workers = more profits for corporations so as 'cold hearted speculators' there is a silver lining.  Especially if it means more "free and easy money!" headed our way.

p.s. anyone celebrating the 'growth' of 36,000 manufacturing jobs needs to remember the auto companies did not shut down in July as they usually do so seasonality is completely off - the same issue we highlighted on weekly claims.  (21K of theses +36K jobs were in auto)

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What does it mean for the market and the Fed?  Short term the S&P 500 has two support levels to watch, the 200 day simple moving average of 1114 and then below that 1100.  A break below 1100 would change the complexion of the game once more, but until we get there shorting remains a daytrader's game.


So far the initial reaction in premarket to bad news is negative - I thought it could go either way.  I wanted to see if the market acted well to 'bad news' i.e. the worse the news the more happy speculators will be that free money via Ben Bernanke is headed their way.  But I guess there is still much Kool Aid in the system with people believing the job creation machine is 'right around the corner' because that's what the text books say should happen.

More important now is the Fed meeting.  I've ignored these meetings for many months in a row because they have become non events.  Everyone knows the language of easy money for 'an extended period' won't change and aside from an adjective changed in paragraph 3, sentence 5 there is nothing to review.  However, the stakes are changing.  The "market" is now begging for more quantitative easing so it can take Ben's easy money and go run up risk assets.  As long as the "market" gets money handed to them so they can profit, the economy can go pound sand.  The "market" seems to think QE is going to happen next week.  I would be shocked if this is so.  You might get some language changes but Bernanke does not seem yet to be at the stage to go the full monty and I'd be surprised if it happened before the elections.

So unlike many other meetings over the past year, there could be a divergence between market expectation versus what the Fed is ready to deliver.  Hence the tail risk from next Tuesday's announcement is something to monitor... for the first time in a long while.  If the "market" wants its pacifier and Ben does not hand it to them immediately the "market" tends to throw a temper tantrum.

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