Wednesday, November 3, 2010

ADP Report Should Signal a Significant Beat by BLS

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Today's ADP employment report and Friday's BLS data usually have a pretty big margin of error - somewhere in the 70-100K range most months.  That usually can be explained away (in large part) by the figure the government makes up out of thin air - and that is the creation/destruction of small businesses in America.  [Jan 27, 2008: Monthly Jobs Report & Birth Death Model]  Throughout the worst recession since the Great Depression, our government laborers have insisted small business was creating jobs (often in such areas as construction!) so now that we are in a recovery* certainly even more small businesses are being created by the minute.  I used to fault them for their models, but I suppose when you work in an environment such as the federal government where there are never job losses, your views on how the "other 90% live" is a bit skewed.  There is never a recession for this sector.

The expectation Friday is 60,000 jobs.  With the ADP print in the mid 40Ks (all growth concentrated in service sector as 'good producing' continues its migration overseas), you can add some 100Kish birth/death model jobs and we should have a wonderful report to start the QE2 era.  Let us prepare for the gap up Friday on this 'surprising' news.  Hopefully by that point we are at S&P 1220 so we can gap through yearly highs.

ISM Services is 10 AM today and of course the fireworks begins at 2:15 PM.  From all accounts "open ended" (translation "we'll do it forever if necessary") QE is on the table; with a starting batch of $500 Billion-ish over half a year to get us warmed up.  Which if Goldman Sachs is correct, would mean in 18-24 months we'll have a nice $2 billion addition to the Fed balance sheet - and that should take us right to Elections 2012!
Hence my dreams of QE4, 5, 6, & 7 might be dead; it will just be QE2 from now until the Fed owns every piece of sovereign debt** in the land (of course then it can begin buying Las Vegas Sands and Netflix stock, in between MBS and CMBS).  QE2 Indefinitely is the clarion call.

*recovery doesn't mean we don't need QE!
**in theory, the Fed has limited itself to owning "only" 35% of any duration of sovereign debt in Cramerica, but rules are meant to be broken.

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