Friday, September 4, 2009

Morning Update/ Market Thread 9/4

Good Morning,

Futures plunged, spiked and then settled back down following the employment report (lack there of), and the equity futures look to be settling on up just a little:

The dollar is up quite a bit, bonds spiked down but came back substantially, gold drifted into the $999 mark yesterday and is now hovering around $993, and oil is down.

The big news, of course, is the unemployment rate which rose to 9.7% (nice call Joe!). According to the BLS, 216,000 jobs were lost in August. Here’s Econoday’s report, then we’ll look at the data a little bit deeper:
It's still ugly but not as ugly. Job losses eased in August while the unemployment rate rose on a reversal of July's questionable decline. Nonfarm payroll employment in August fell 216,000, following a revised decrease of 276,000 in July and a revised decline of 463,000 in June. The August contraction in jobs was close to the market forecast for a 200,000 dip. July and June revisions were down a net 49,000.

From the household survey, the civilian unemployment rate rebounded to 9.7 percent from 9.4 percent in July and compared to the consensus estimate 9.6 percent. As expected, the labor force increased after an unexpectedly large drop in July. The July number is the one that should be discounted-August is more realistic.

Wage inflation has warmed up a bit-likely due to a jump in the minimum wage. Average hourly earnings in August rose 0.3 percent, matching July's gain and topping the market forecast for a 0.2 percent increase. The average workweek held steady at 33.1 hours, matching the consensus expectation.

Today's report was mixed relative to expectations but close for all components. The bottom line is that labor market conditions are very slowly coming out of recession. A key point is "slowly." Going forward, the consumer sector almost certainly is going to be constrained for some time by high unemployment, job uncertainty, and sluggish income growth (increases in the minimum wage not withstanding).

Love that quote, “It’s still ugly but not as ugly.” LOL, were it not for the usual government statistical manipulation, oh yeah, it would be just as ugly. Keep in mind that we are now deep into the time frame with no job growth. It takes us manufacturing about 200,000 jobs per month just to stay even and we have had well over a year now of negative job production, that means that people are falling off the back end of the government system.

Since it’s been over a year now, the year over year comparisons are going to start looking not as bad because of the cliff dive that occurred last year. Just remember with all the economic reports that it would take very substantive growth just to get anywhere close to even. Any loss after a cliff dive is simply painful.

From the BLS:

Note their little chart showing the rate. It has broken upwards out of a small period of consolidation.

According to the BLS report, the number of “discouraged workers” has DOUBLED in the past year. Manufacturing lost 63,000 jobs in August, and the number of job losses in June were upped by 20,000 and in July by nearly 30,000!

Below are the alternate measures, U6 being the closest historical comparison, the seasonally adjusted rate jumped from 16.3 to 16.8%, while the not seasonally adjusted U6 actually fell slightly from 16.8 to 16.5%.

Below is John Williams chart of Unemployment, it will update itself automatically to reflect the latest data once he inputs it:

Chart of U.S. Unemployment

While I’m at John’s Shadow Stats site, let’s take a quick look at the other economic indicators he measures. It’s quite a site, and definitely not the picture your media, the government, or supposed “economists” are painting:

Chart of Growth in U.S.Gross Domestic Product (GDP)

Chart of U.S. Consumer Inflation (CPI)

Chart of U.S. Consumer Inflation (CPI)

Chart of U.S.Dollar Indices

I want to mention that McHugh is still looking at the possibility of higher to complete wave c up. He mentioned that he sees a bullish wedge on the Canadian exchange and the target if that breaks up is about 15% higher from here. He does not see the same wedge on the U.S. markets, and I see a BEARISH wedge with targets lower. He also has another turn date with a best fit on 9/9/09, next week. I still think the market looks very heavy and there are strong undercurrents in many markets including gold, bonds, the dollar, and oil. The financials are still zombified but could do a meltdown at any time. Very dangerous time, and now we have China declaring certain derivatives null and void, we have Hong Kong recalling physical gold from London… things are heating up and the mainstream, of course, is failing to discuss much of it.

Yesterday did produce some hammer candlesticks in many of the indices, those could represent a short term bottom. Definitely still a time to be prepared for anything in here… This morning the /ES spiked to the 1,010 region and then pulled back. That area is pretty strong resistance as is the 1,018 pivot. 1,000 is acting as support right now and the 990 pivot underpins it.

Regardless of the market action for the day, the picture being painted by most is still just a grand illusion...

Styx – The Grand Illusion: