Sunday, July 31, 2011
Light at the end of the tunnel but is it a train coming
The President just announced a tentative agreement between the House and Senate on raising the debt limit ceiling. Tentative because both houses of Congress still need to vote to approve the terms of the agreement, but you would assume that the leaders wouldn’t announce the agreement if they didn’t think they had the votes to pass the legislation. There are two parts to the agreement, first part cuts roughly 1 trillion dollars from the deficit over the next ten years while setting up a 6 person committee to come up with further cuts to satisfy the rating agencies desire to downgrade the US debt instruments from AAA to AA. This downgrade may be inevitable as Standard and Poors said they need to see 4 trillion in cuts over the next decade or they would probably downgrade the US debt. The downgrade is the oncoming train I referenced above because if our debt is downgraded, interest rates across the board go up from credit cards to mortgages and most importantly the interest rates on our $14.3 trillion debt that China, Japan, India, etc own and continue to buy. I don’t believe a default was ever possible but the President and some politicians continually used the “D” word, but if we are downgraded then it begs the questions of whether China, Japan et al will continue to show up at our Treasury auctions to buy our debt. If they do not show up or reduce their purchases, our ability to service the debt and finance our government becomes very difficult as we are currently borrowing about $0.44 of every dollar the government spends. Not surprisingly the futures markets leaped higher on the news as the Asian markets also moved higher and US dollar and bond markets are marginally higher. The US dollar and bond markets are only marginally higher as they had hoped for more progress on reducing the long term debt issue, always keep an eye on the bond market as it is usually more right than the stock market. Over the last week the Dow Jones industrial average lost a little less than 600 points and is now set to gain 170 points on Monday’s opening, if the agreement passes, expect more gains, if not then look for the Dow to give up everything it is gaining right now.
Thursday, July 28, 2011
Tuesday, July 12, 2011
Macbeth's June jobs number
Just as in Shakespeare’s act 5 of Macbeth, today’s jobs report was full of sound and fury signifying nothing. Yesterday’s ADP report which showed the addition of 157k private sector jobs, sent economists scurrying to increase their estimate of jobs created from +100k to about +125k. In the end the Labor department just reported the nonfarm payrolls for June that shows a gain of 18k with the unemployment rate moving up to 9.2%. The last two month’s numbers that were revised down by 44k so adding that means a net loss of 26k. You can’t put lipstick on it and say this report is anything other than a pig as the hourly earnings dropped to -0.1% from a consensus of +0.2% which means employees were paid less. That means consumer spending down the road could be lessened. The average work week came in at 34.1 vs. the consensus of 34.4 so employers weren’t working their employees as hard. I am not sure the economy is as bad as this report shows as companies are still doing more with fewer employees and their profits are very good as the stock market shows. The specter of higher taxes in 1 ½ years, regulation from Dodd Frank, Obama care, NLRB interfering with Boeing wanting to build and expand its business has frozen corporate managers into not wanting to hire anymore. The real driver of the economy is small business and they absolutely are not hiring another employee right now for all of these regulatory fears and Washington does not get this.
Heads up on the Non Farm Payroll report
Early Friday morning the Department of Labor will be releasing the jobs report for the month of June and while I don’t expect a huge number(+250k), I would be surprised if it is weaker than +50k and flabbergasted if it is negative. The weekly jobless number that comes out every Thursday morning at 8:30 EST has moved above 400,000 every week for over 2 months now. This generally does not bode well for a robust jobs number, but today’s ADP private employment figure was up by 157,000 when the consensus was for +60,000 and so now all the forecasters are re—jiggering their Friday number to accommodate for this higher number. The ADP number is not directly correlated to the Department of Labor’s figure as the ADP data is from the private sector whereas the government’s number also includes federal, state and local government hiring, but over time the trend of each seem to coalesce. The consensus for the government’s number is +100k, but the real telling point is the internal data as the private sector should have created jobs nicely while the government probably was a net looser of jobs and the unemployment rate will probably stay at 9% or so but could move even higher as more job seekers got off the couch and are again looking for a job which pushes the rate higher. They have not been counted in the survey as they have not been looking for employment. Not enough has been made of the fact that over the last the six months or so, the unemployment rate while high at 9.1% is probably much higher and could be 16-17% as the truly unemployed and those who are part time workers not by choice but by force creates a scary picture of a terribly weak hiring environment. The economy which hit a soft patch in May, but appears to be finding some traction and should move higher in the second half of the year as the problems in the Japan supply chain and flooding in the Midwest will be resolved. I stated publicly on a talk radio show in the middle of June that the market pundits were far to negative and the stock market should move higher and like a blind squirrel that will inevitably find a nut once in a while, the next day the market went on a tear rising close to 6% in 8 trading sessions. I am still bullish for the second half just not as much now, but if we get a good number Friday (+250k or more), then I think the market can move higher as that is not built into the market’s current level.
Subscribe to:
Posts (Atom)