Friday, April 2, 2010

Morning and Employment Situation Update 4/2

Good Morning,

Equity markets are closed today but futures are trading and the bond market is open - must keep that debt flowing after all. The futures rose sharply on this morning’s March Employment Situation Report, below is a 30 minute view of DOW futures on the left and 5 minute S&P on the right:

The dollar is rising on this report, while bonds are dropping like a stone and are right back on support at the large neckline.

The headline number came in with an increase of 162,000 and the rate remained steady at 9.7%. Let’s start with Econoday’s take:
Census hiring was not as strong as expected but private payrolls were healthy, posting a third consecutive gain. Nonfarm payroll employment in March rebounded 162,000, following a revised 14,000 decline in February and revised rise of 14,000 for January. The March gain came in below analysts' forecast for a 200,000 jump in employment. Importantly, the February and January revisions were up a net 62,000, inclusive of moving January from negative to positive territory.

While the headline payroll number was disappointing, the detail was positive. Private payrolls (which discount Census hiring and other government changes) jumped 123,000 in March, following an 8,000 rise in February and a 16,000 gain in January.

More specifically, Census hiring was up 48,000 in March, meaning that ex-Census, payroll jobs were up 114,000 for the month.

Sector detail was encouraging. Goods-producing jobs rebounded 41,000 after a 47,000 drop in February. Manufacturing employment was up 17,000, following a 6,000 boost in February. Notably, construction jobs rose 15,000 after a 59,000 drop the month before. This was the first gain in construction since June 2007. Mining advanced 8,000 in the latest month.

Private service-providing employment jumped 82,000 in March, following a 55,000 gain the month before. Temp jobs were up 40,000, following a 37,000 rise in February. Health care jumped 37,000 in March while leisure & hospitality gained 22,000. Retail trade increased 15,000 in March as wholesale trade was up 9,000. On the negative side, financial activities fell 21,000 in March.

On a year-ago basis, payroll jobs improved to minus 1.8 percent in March from minus 2.4 percent in February.

The big negative in the March report was for average hourly earnings. Wage inflation in March fell to a 0.1 percent decline from a 0.2 percent gain the month before. The consensus had expected a 0.2 percent advance. The average workweek (traditional series for production and nonsupervisory workers) improved to 33.3 hours in March from 33.1 the previous month. For all workers, the average workweek edged up to 34.0 hours from 33.9 hours in February.

From the household survey, the unemployment rate was unchanged at 9.7 percent in February and matched expectations.

Overall, today's report net was close to expectations. Stock futures rose somewhat and Treasuries rates firmed on the news.

It’s quite noticeable how they are skipping over anything even remotely negative. Let’s start with the fact that the economy needs to generate a quarter million new jobs each month just to keep up with population growth. Now let’s look at some aspects they didn’t cover, below is the full report:

Employment March

Only four paragraphs in we learn, “The number of long-term unemployed (those jobless for 27 weeks and over) increased by 414,000 over the month to 6.5 million. In March, 44.1 percent of unemployed persons were jobless for 27 weeks or more.”

In one month the long term unemployed increased 414,000! How bad is that 27 week figure and how does it compare to say, oh, the post WWII era? How about this:

Just another cycle, same as the others, right?

Okay, here is where you read the human part of what’s happening at the margins.
The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) increased to 9.1 million in March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

About 2.3 million persons were marginally attached to the labor force in March, compared with 2.1 million a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 1.0 million discouraged workers in March, up by 309,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.
Now let’s head to the alternate data table where we find the numbers that most closely relate to numbers how they used to be tracked:

Here we find that U6 is still running in the 17% range. The unadjusted data showed a slight decrease while the seasonally adjusted data increased.

Remember, positive numbers do not mean the trend of job losses has stopped. We must create more jobs than the population is growing. Below is the latest chart of the Employment Population Ratio. Clearly we have a long way to go to get anywhere near where we were. How does the economy do that when it is saturated with debt?

Our manufacturing employment is so decimated that despite doubling our population, we now employ the same number of people in manufacturing than we did in 1942.

Yes, we are efficient at manufacturing, but we are importing from the rest of the world instead of exporting. Place the blame for that where you may, but the ability to create real and meaningful jobs here boils down to a return to the fundamentals on building an economy based upon the rule of law.

Below is the chart John Williams produced. His way of measuring shows nearly 22% unemployment.

Chart of U.S. Unemployment

Want to see how the rule of law, or lack thereof, can destroy jobs? Look no further than the recent “healthcare”/Insurance Industry Bail Out Act. Verizon just announced it is taking nearly a billion dollar charge, and the companies writing down earnings continue to mount. Here’s a quote and chart from the Wall Street Journal:
Verizon Communications Inc. said Thursday it expects to record a one-time noncash charge of $970 million in the first quarter, to account for the anticipated impact of the recently enacted U.S. health-care overhaul.

The telecommunication company, which disclosed the charge in a Securities and Exchange Commission filing, is the latest company to take a charge to account for increased costs related to changes that will come from the health-care law. Specifically, the overhaul prevents companies from deducting tax-free subsidies it receives from the federal government for providing retirees with prescription-drug benefits.

Hey, want to create jobs by ramming massive amounts of debt into the economy? Okay, then when the economy “improves” and interest rates rise then you must pay the price for carrying that debt. There is no free lunch and rates are headed higher on this report. Pay me now or pay me later, you cannot fool Mother Nature.

Walter Trout - They Call Us the Working Class:

Thursday, April 1, 2010

Guest Post and More on “THE Most Important Chart of the CENTURY”

On March 20th, I posted the now famous Diminishing Marginal Productivity of Debt chart that I dubbed THE Most Important Chart of the CENTURY.

This chart has literally been passed around the globe, published in major newspapers, and its significance debated on YouTube. Of interest to me is how the mainstream media won’t touch a chart like this, yet foreign press will. That fact alone should be disturbing.

There were a lot of people who understood the premise of the chart and its implications and meaning in perspective to history. Then again it was obvious that it left others bewildered and looking for more answers. This article is an attempt to reach both upwards into the higher levels of thinking, and yet also an attempt to explain what’s happening on a more rudimentary level so that more people understand how this chart is made and what in the world it means.

Let me begin by stating that the use of the term “Chart of the Century” in the title was very purposeful. It’s meaning, though, could be read several ways. Some people interpreted that to mean that I meant “of the 21st Century,” while others thought of the past 100 years. I mean both. And I stand by the claim that this chart, when fully understood, debunks modern economic theory; it is the result of the very misguided Federal Reserve Act that was passed into law in the year 1913, almost exactly one century ago. The outcome of what happens will be the greatest influence on what occurs in the 21st century. I do not believe this to be hyperbole.

Those who have studied economics, monetary systems, and history know that the major events of history are almost always preceded by economic upheaval and usually by collapses in credit or in monetary systems themselves. To see this picture for yourself, simply look at what events preceded within one decade WWII, WWI, the Revolutionary War, the War of Independence, and then keep on going back in time looking in the decade prior to major events throughout history, all the way back to the fall of the Roman Empire. The events wind up in history books, but the underlying tensions, the root causes are often overlooked.

Is it simply coincidence that there was a credit bubble of massive proportions in the “Roaring Twenties” that led to an economic collapse and Great Depression in the 30’s? And that that collapse was followed in the next decade by WWII? Why is that pattern repeated time and again? If you can dive deeply enough into this chart, you will discover the WHY and the WHO.

The math doesn’t lie. The math of debt-backed money doesn’t work, and the Diminishing Returns chart reflects this. In my previous article I said that the chart was a very simple one, and it is. Understanding the calculation and grasping the concept is obviously more difficult, so I invited Chris Rupe, who actually performs the calculation and builds the basic chart following the formula developed by Legg-Mason, to take a shot at explaining the calculations for those wanting a more in-depth understanding.

Lost? Hang on, normally I write for the middle, here we are going to cover a wide path. I will add more of what I believe to be common sense explanations afterwards…

Chris Rupe - My Thoughts on the Diminishing Productivity of Debt

Recently, I shared this graph with Nathan Martin and he has since made it famous. It has been showing up on dozens of other blogs (here, here, here, here, here, here, here, here for example) and there are continuing questions as to the source of the data as well as the methodology used to calculate it.

The data sources are the Federal Reserve Z.1 Report, specifically, the Total Credit Market Debt figure and the annualized quarterly Nominal GDP number from the Bureau of Economic Analysis. I was sort of the progenitor of resuscitating this graph according to the original Legg Mason format and methodology.

Total Credit Market Debt includes all public debt (federal, state, local) and private debt (mortgages, auto loans, credit cards, etc.). It does NOT include the unfunded public liabilities such as Social Security, Medicare, etc.

Since I have the dataset, and have been compiling and thinking about it for a year and a half, I feel compelled to give my opinion on what I think it means.

The chart is not hard to reproduce, although a bit tedious.

The specific methodology is simply a 4 quarter moving average of (GDP(t) – GDP(t-4))/(Debt(t)-Debt(t-4)), where ‘t’ is in reference to the quarter in question.

That in and of itself isn’t so tedious, however, quarterly data disappears once you go back a few years and all you have left is annual data. So, you have to do a linear interpolation between each of the annual datapoints in order to generate the quarterly data. Incidentally, if you want to get rid of the simple moving average, you of course get a noisier chart with a deeper plunge:

The plunge goes to -0.91. So, that’s really all there is to the method, although there are a number of other ways you can calculate and plot a chart to get the gist of what is occurring here.

For example, Karl Denninger has also done a version of this chart on his own with his “Ponzi Finance Indicator Chart”:

Karl’s chart has some advantages over the other presentation. For example, I believe Karl’s chart uses a year over year % change format for his data rather than a year minus year format. Thus, his chart is not as susceptible to the problem of dividing by very small (close to zero) numbers that the other chart is. Indeed, if you go back in time far enough (I have this data back to 1916) this problem occurs more than once.

Now, there has been some debate as to the significance of this chart. Some think it is not very significant since it is recognized that if either the numerator OR the denominator goes negative, then the chart goes negative. If both are negative, then the chart yields a positive number. Others think that correlation is not causation w/r/t the impact of debt on GDP. Obviously, some think it is very significant. Nathan Martin referred to it as the ‘Chart of the Century’.

I agree with the detractors insofar as this is not a perfect metric of our predicament. GDP, for example, is kind of a fuzzy number. Not just because of tabulation games the government plays along with the constant revisions, but because GDP doesn’t even have a universal definition. Different countries calculate GDP in different ways.

I flatly disagree that debt and GDP are not correlated. Indeed, I view this chart as a measure of the Marginal Velocity of Debt in the economy. I have referred to it as such before. In this view, Total Credit Market Debt is synonymous with the Total Money Supply. All money is debt, and this debt has value and has varying degrees of liquidity. To the extent that debt loses it’s value or becomes totally illiquid (Home Equity Loans anyone?) it ceases to be money. To the extent that debt is paid back or is defaulted on, money supply shrinks!

This is an unconventional view of money. There would be howls of protest against this view ranging from mainstream (keynesian/monetarist) economists to the austrian economists. Gary North might disclaim me.

However, I have never liked any of the monetary statistics as compiled and named, M0, M1, M2, MZM, etc. I find them too narrowly focused on the liability side of U.S. bank balance sheets. A lot of money is missing in that view. Much of it is obscured by multiplier effects due to the advent of off-balance sheet entities. Some is not counted. Cash held by foreign central banks for example.

The way I see it, all loans must be originated by U.S. banks whether or not they are held on or off balance sheet. This is a distinctly asset side of bank balance sheet view of money. And ALL of this money is accounted for in the Federal Reserve Z.1 as Total Credit Market Debt. So, I have sometimes referred to this statistic as ‘Mtotal’.

This velocity measure thus follows the familiar equation of exchange: Velocity = GDP/(Money Supply) and Marginal Velocity = Delta(GDP)/Delta(Money Supply). Not just correlated, but plain old related as can be seen.

My own view overall is that the chart indicates (however imperfectly) that something significant has occurred. Indeed, nothing like it in 65 years. Anyone can check the Z.1 history and see that Total Credit Market Debt has never had a year over year decline in the postwar era.

Until now.

I view it as confirmatory (in our unique circumstances) that we have ‘hit The Wall’ with the amount of debt that the economy can carry (debt saturation). Politicians and policy makers have been able to keep the game going by continually and incrementally debauching lending standards.

Think about it this way. A large reason why we have emerged from every postwar recession and renewed the credit cycle to grow to ever greater heights is because the policy response has been to allow, nay, promote the decay of lending standards.

  • In the ’60s you had to have a 20% downpayment. PMI applied to tiny fraction of mortgage loans. Credit cards required either a security deposit or were secured by a savings account. The point is, they had some kind of collateral.

  • In the ’70s, PMI grew, especially encouraged by policies like the CRA

  • After the early ’80s recession, Usury laws began to go away so credit cards eliminated their collateral requirements now that they could charge very high interest rates. Also, the law was changed to take Social Security surpluses and use them to buy government debt. This effectively lowered the lending standards to the government since they now had a guaranteed buyer. Incidentally, this change plus the continued growth in credit set up a feedback loop to artificially lower rates on Treasury securities.

  • After the ‘91 recession, reserve requirements on most bank accounts were eliminated and Adjustable Rate Mortgages began to really grow as a % of home loans. FICO scores were developed in lieu of having any actual collateral for loans. Credit cards were now given away freely to any college kid with no job. Banks begin to financially innovate ways to originate loans but package them into off-balance sheet trusts which are sold, not counting against their capital requirements.

  • After the 2001 recession, the gloves come off and anyone can get a loan for anything, no downpayments, bad FICO score, no job. Sometimes the bank will even loan more than the asset is priced at.

In this way, the policy makers took down the artificial barriers (read safety net) of prudence in lending because no politician wants to deal with a nasty recession or perhaps fewer campaign contributions from Wall Street. So, we eventually reached the point where there were simply no safety nets left and all that remained was ‘The Wall’. You just can’t stuff anymore credit into the system.

We have crashed into the wall.

Marginal Velocity has collapsed.

For the rocket scientists in the audience who really want to understand the exact numbers and calculations, Chris started a thread on Ticker Forum where he walks people through the calculation and shows how the numbers become negative – Ticker Forum posts on Diminishing Returns Chart.

What Chris is describing in his bullet points above is “how to build a massive credit bubble.” Look at the second chart, the unsmoothed version, and see just how bad the math was at the end of 2009. While you’re up there looking over those charts, note how ever since the post WWII era that the productivity of debt has been diminishing the entire time, producing lower high after lower high. This reflects the anchor of carrying ever increasing amounts of debt.

The Federal Reserve Act of 1913 placed our nation, and then rapidly the world, into a debt-backed money box. Since that time the world’s productive efforts have been siphoned off in ever increasing amounts as the chains of debt-backed money began to bite harder and harder. The math of debt grew exponentially since that time. We transitioned from working with millions, to billions, and now trillions. No monetary system and economy has ever successfully made it to the next higher level. It’s literally impossible to because incomes have not grown at nearly the same rate. It requires income to service debt, and once you have pulled all your future earnings into today, it’s impossible to pull even more forward. That’s where we are today on the macroeconomic level. Income cannot service existing debt.

Yes, the numbers have been negative before and they have snapped back to produce a lower high. This chart will most likely make a turn back upwards, however, it is very likely to make yet another lower high. How long can the cycles continue? Not too much longer, once in the parabolic growth phase, the crush of the math happens quickly. It is non-linear and thus events that seem to come quicker are actually occurring quicker, that is an expression of the exponential function as is the chart below. Crazy and before unheard of swings in the market? A symptom. Riots in Greece? A symptom. No more mail service on Saturdays? A symptom. Massive underemployment? A symptom. The central bankers at the IMF “rescuing” countries with debt? A root cause.

The PRIVATELY owned and controlled central banks place everyone and every nation into a debt backed money box and an impossible math situation that drains the productive efforts from the societies placed into that box. To understand how that FACT is related to the diminishing returns chart, let’s examine three different rooms – A, B, and C.

In each room there are exactly 10 people: 1) A construction firm owner, 2) a hardware store owner, 3) a carpenter, 4) a restaurant owner, 5) a chef, 6) a school teacher, 7) clerk for the Hardware store, 8) a waitress for the restaurant, 9) a barber, and 10) a poodle – hey, dogs are people too and mine drives an entire economy all on his own!

In Room A, we are going to create an environment where there is no debt – zero. Then we are going to introduce an eleventh person who enters the room and hires the construction firm to build a house for $15,000 (think 1950’s). Thus new money enters the room.

The Construction firm owner is thrilled, he immediately turns to the hardware store owner placing a large initial order for supplies, he hires the carpenter who now has money to get something to eat at the restaurant. He in turn tips the waitress, and so on, right on through their little economy. Since there is no debt, the amount of money only decreases on each transaction as taxes are taken from it. Otherwise the rest of the money circulates creating what is termed “velocity.”

In that very simple example, it is easy to see how increasing taxes decreases velocity. What if the first transaction was taxed at the rate of 100%? Then the velocity would be zero as no money would pass to the first set of hands. What if there were NO taxes? Then there would be no friction and the money would continue to circulate around the room.

In Room B, we create an environment where the ten people in the room all possess an amount of debt to service that equals say 20% of their income. The eleventh person enters the room and hires the construction firm owner under the same terms. He passes $15,000 to the construction firm owner who, being 20% of his income in debt must immediately send $3,000 to the bank to service his prior existing debt. Thus $3,000 exits the room, leaving $12,000. He makes a deposit to the hardware store owner who also must send 20% of what he just took in to the bank, plus he must pay taxes. You can see where this is going… Duh, it’s only common sense, right? Of the money injected, the PRODUCTIVITY of the money is diminished, and by the time it filters down, there may not be enough left for the poor poodle who is likely going to go hungry.

In Room C, we take it to the other extreme where everyone in the room owes 100% or more of their income in debt. The eleventh person enters the room and hires the construction firm owner who owes so much of his income to the bank that when handed the $15,000 he MUST use it to make a payment on his debt with the bank. The $15,000 thus immediately leaves the room, no money makes it to the carpenter or anyone else, and everyone in the room subsequently goes hungry. It doesn’t matter how much money you pour into this room, debt will always outpace incomes. There is thus no economy. Money/ debt is created and it simply circles right back around to the bank.

Obviously this is an extreme. But let’s say that the room reaches a point that’s in-between room B and room C, say 70% of income in the room is used to service debt. Then let’s say that the Construction firm owner takes out a big loan. If the size of his income fails to increase to service the increased debt load, then it places greater strain on the velocity of the new money that enters the room and it affects not only him, but everybody in the room. In fact, if he takes on too much unserviceable debt, he may have to lay workers off, especially if his income falls. Macroeconomic debt saturation occurs well before it reaches 100% debt to income. Once you cross that fine line then adding more debt into the system results in insolvency and also in lower employment.

This is why in the 1940s, the nation only 30 years past the Federal Reserve Act, was able to generate a recovery without the quantity of money exploding into an exponential growth phase. Here we are nearly a century past and we are living through an explosive exponential money growth phase.

Remember, the Central Bankers created a system in which all money is backed by a liability. We’ll get back to that (why, who).

Okay, so now you get the picture, the Marginal Productivity of Debt is really a tale about the marginal velocity of debt. Debt is money. Economists don’t talk about the velocity of debt, they talk about the velocity of money. They have charts and formulas that work pretty well in room A and even in room B. But where they fail miserably is approaching room C – the room where debt saturation has occurred.

This is because their way of thinking, whatever you call it – Keynesianism, neo-modern economics, deficit spending, stimulus, deficits don’t matter, must get credit flowing, solving a debt problem with debt, lunacy, insanity, whatever – is simply erroneous and does not work in a 100% debt-backed money system. Modern economist’s calculations for the velocity of money, for example, do not take into account the very mechanical action that is plain to see happening in the rooms above. They have failed to take out their basic calculators and add up all the debts to see what level of saturation has occurred throughout the entire room.

When we examine an individual’s creditworthiness, for say an automobile loan, in the olden days of lore the credit industry used to examine individual’s debt-to-income ratio to ensure that a typical level of say 33% or less of a person’s income was being spent on debt. Then it became 38%, then 40%, and now what? Well, these ratios are typically calculated using gross incomes, not net. But wait, over the decades local governments grew, state governments grew, the Federal Government became a behemoth. To feed these governments, taxes grew. But taxes have the exact same effect as debt on the economy. That’s because they are a debt!!

When your state decides to build a bridge or a school, it will either finance it directly with a tax levy, or it will finance it with bonds that come from the very same central banks that lend money to our Federal Government. They issue bonds from nothing creating new credit money that did not previously exist (no productive effort). The people in the state are thus being indebted by their state, and it is their productive ability that is required to service the state’s debts. Thus the same people who are in debt for their homes, their cars, their credit cards, are also in debt to their city, their county, their state and to their federal government. The total burden of all those debts and obligations now stands well over $300,000 per man woman and child, nearly 750,000 per worker in America and it is growing very rapidly with new burdens such as the latest “healthcare” bill.

This bond and debt money system was developed for the benefit of the Central Banks, not the people. They profit from interest and fees for the use of the people’s money system – that is the WHY. Congress did not constitutionally have the power to assign that right away, but it was done regardless and the Judicial system is co-opted by the same money influence removing the check and balance designed into the system. If our nation were to go back to spending non debt-backed money into existence instead, the American public would not be burdened with the carrying costs of all that debt. This is the WHO part of the equation, and why what is more important than WHAT backs your money is who controls it. This saturation would not happen if the United States issued her own sovereign money, created as an asset, not a liability.

The Diminishing Productivity Chart is a very useful tool to gauge the level of saturation inside a country. All countries should develop and track this metric. We need good data to make that happen and I would like to point out that I believe the situation is actually much worse in the U.S. than even that chart shows due to the inaccuracies in the way our own GDP is calculated. In fact, if the effects of speculative derivatives and mark-to-fantasy accounting were removed from our financial industry, GDP would plummet back to the reality that it should reflect.

There are other very simple metrics that can and should be measured to track debt ratios but they are not. One method is to calculate an overall debt to income ratio for the mean working American. The $52 Trillion Z1 figure (what Chris referred to as MTotal) divided by our working population (140 million) equals $371,000 of total system credit per worker, not counting future liabilities. what does the median worker over the age of 25 earn? $32,000 is all. That leaves the amount of credit per worker to service at 1,160% of income... is all, not counting future liabilites. Can he even keep up with the interest? Of course not, it's ridiculous and that metric should have never been allowed to get so out of control.

If you don’t wish to reside, or for your children to reside, in room C or in a debt-backed money box, then please visit, register and participate in the Swarms. It’s completely possible to step outside of the box in which we have been forced to live, and it’s possible to avoid the events which history says may be coming.

Morning Update/ Market Thread 4/1

Good Morning,

Equity futures are higher this morning, no it’s true! I wouldn’t fool you just because it’s April Fool’s day, everything in this report is true, no joke. And if you examine the 30 minute chart of the DOW on the left, or the 5 minute chart of the S&P on the right, you will see that I’m not pulling your leg, as hard as it is to believe that the quants could run the market still higher. No, 76% isn’t enough, there are still people who have yet to say “I better get in or otherwise I may not get another chance.”

In the DOW chart, above left, you can see that the no volume overnight ramp took prices above the latest overhead resistance. This puts a run to about 11,100 on the DOW, or to 1,200 on the S&P on the table. There is a turn date on April 7th, we are entering the window for that soon, and the employment situation report comes tomorrow – not that turn dates have meant anything in the past year.

The dollar is about flat after touching the uptrend line from last November. Bonds are down, oil is setting a new rally high near $85 a barrel, and gold has broken up and out of its latest formation, now about $1,125 an ounce. Below is a chart of oil on the left and gold on the right. Oil is making what appears to be a rising wedge and is at the top of that wedge now. Gold is breaking out, it is either from a smaller flag, or it is breaking out of an even larger wedge/ triangle formation:

The Monster Employment Index edged up in March 1 point to a reading of 125.
The weekly jobless claims fell from 442,000 to 439,000. The consensus was 440K, here’s Econoday:
Fewer Americans are filing jobless claims in what is a key signal for underlying improvement in payrolls. Initial claims for the March 27 week came in at 439,000 vs. 445,000 in the prior week (revised from 442,000). The four-week average fell 6,750 to 447,250 and is down roughly 20,000 from levels in February. There were no special factors in the week.

Continuing claims for the March 20 week fell 6,000 to 4.662 million with the four-week average, at 4.680 million, down roughly 100,000 from a month ago. The unemployment rate for insured workers is unchanged at 3.6 percent.

Claims levels are the lowest since late 2008, reflecting improving economic demand and the need for firms to expand their output of goods and services. Stocks are rising in reaction to the data, data which should bolster confidence for a strong employment report tomorrow.

What, no weather excuses?

From the Department of Labor’s report, “States reported 5,894,337 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending March 13, an increase of 267,012 from the prior week. There were 2,172,852 claimants in the comparable week in 2009.”

That’s an increase in Emergency Unemployment Compensation of only 267,012 people in just one week! And it’s an increase of 3.72 MILLION in the past year. No joke.

And how about the the Challenger Jobs Cuts report? Oh, it only rose a whopping 61% in March… no joke. Note the lack of comment from Econoday:

Challenger's count of layoff announcements rose to 67,611 in March vs. 42,090 in February. Layoffs at the postal service accounted for the majority of the month's layoffs. Hiring announcements rose in the month, to 13,994 vs. 8,300 in February.
Let’s see if we can put a little more color on that, shall we?
Job cuts surge 61% - Challenger

NEW YORK ( -- Job cuts accelerated in March, driven by planned reductions on government payrolls, a report released Thursday showed.

Employers announced plans to cut 67,611 jobs in March, according to outplacement firm Challenger, Gray & Christmas Inc. That's up 61% from February, when 42,090 jobs were lost, the lowest level in nearly four years.

"Unfortunately, many people are still jobless and many businesses still shuttered," said John Challenger, chief executive officer of the firm, in a statement. "This combination is having a significant negative impact on state and local tax revenues and, in turn, leading to continued downsizing in this sector."

Government job cuts led March's surge, accounting for nearly 75% of the total jobs shed. Year to date, government job losses have made up about a third of all announced cuts.

There were 50,604 announced government job cuts in March, and the United States Postal Service alone plans to reduce its workforce by 30,000 workers this year through retirement and attrition. The rest of the government jobs will be shed by state and local agencies suffering from budget shortfalls.
Aha! Remember how the primary creator of jobs for the past two years has been the government? Well it appears that’s finally coming to a screeching halt – as you knew it had to. It was inevitable because government revenue has been crashing while at the same time their expenses are skyrocketing. States and many levels of government are running huge deficits and simply need to be shrinking their size, not growing it.

Can you see the economic path of destruction? Credit bubble, subprime, housing collapse, stock market collapse, commercial real estate collapse, massive unemployment, and now the crisis is rippling into government. No more Saturday delivery, but we can send $450 Billion directly to the bankers to pay for the privilege of using our own money system, and we can spend trillions more cheating interest rates lower.

Remember, the chart of government spending is parabolic, it is heading straight up:

Now watch, as governments are no longer able to keep that rate of growth going, they will be pressured into interrupting the exponential rate of growth and that curve will begin to roll over. It doesn’t have to collapse to severely impact the economy, all that has to happen is for the rate of growth to diminish. The bankers were able to take their insolvency (they are still insolvent at market prices), and they pushed their insolvency onto the public.

Who has the money to make the rules?
Wall Street cabal seen derailing serious swap reform

(Reuters) - A major crisis is building in the derivatives market yet a cabal on Wall Street is blocking the formation of a clearing house that could stop the next financial meltdown, a senior official with the Kauffman Foundation said on Tuesday.

The need for disclosure in the swap markets is enormous, yet the will to act is missing because of a small cadre of special interests, said Harold Bradley, who oversees almost $2 billion in assets as chief investment officer at Kauffman.

"There is no incentive from the moneyed interests in either Washington or New York to change it," Bradley told the Reuters Global Exchanges and Trading Summit in New York.

"I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus," he said. "Everybody is afraid to regulate them."

U.S. and European officials are trying to craft new rules to regulate the $450 trillion private derivatives market in broad efforts to avoid another financial crisis.

Policy-makers generally agree that most standardized derivatives should be traded on exchanges or cleared through a clearinghouse, which would assume the risk of a default.

Bradley said those efforts fall short. There needs to be a national market system for fixed income and credit with displayed prices and the posting of open interest and market positions, he said.

Instead, he said regulators have found a boogeyman in high-frequency trading, which has taken the focus off the highly levered derivatives market. After falling in 2008, the nominal value of derivatives is now greater than ever at about $204.3 trillion, according to Ned Davis Research Inc.
Let’s face it, any way you slice it, the joke’s on us. Happy April Fool’s. Support Freedom’s Vision and become an active member of the Swarm!

Supertramp – Fool’s Overture:

Wednesday, March 31, 2010

Morning Update/ Market Thread 3/31

Good Morning,

Equity futures are down this morning following a negative jobs outlook by ADP. Below is a 30 minute chart of DOW futures on the left and 5 minute overnight view of S&P futures on the right:

The dollar is plummeting overnight while the Euro soars as Greece announces they are going to indebt themselves more by issuing dollar denominated bonds this go around. Long bonds are higher, breaking bullishly out of that bearish flag that was sitting right on support. Oil is breaking higher, now pushing $84 a barrel, despite Obama announcing that he’s opening up the Gulf to more oil drilling, completely necessary because, well, there’s a glut of oil in storage and because obviously oil must be the energy of future. Good thing we have a president who isn’t beholden to special interests and uses his clear future vision to get things done. Watch gold, it is higher and on the verge of breaking upwards.

Below is the same chart of the dollar and long bonds I showed yesterday. You can see the long bond on the right breaking wrong direction higher. Resting on support like it was, it either breaks down through it or some event occurs to send money back into bonds:

The totally worthless MBA report produced yet another wild weekly figure. Totally not real, none of this so called report should be given any credence whatsoever. In fact, as far as I’m concerned they are producing their best attempt at a marketing product designed to obscure any real data they may possess. In the old days they called it fraud. Today we call it spin and just chalk it up to marketing – of course the citizens are left to filter this information for themselves. Just another break down of the rule of law:
Housing demand may be thankfully emerging from winter hibernation. The Mortgage Bankers Association's purchase index is showing significant life, up a very sharp 6.8 percent for the fourth gain in the last five weeks. Buyers are appearing to take advantage of the government's second round of housing tax credits that expire at April's end. As the report says the pattern is similar to the rush ahead of the expiration of the first round of tax credits in November: "We may be seeing a similar pattern now, as the extended version of the tax credit ends next month."

Refinancing is showing less life, the result of heavy refinancing activity over the past year and also the result of rising rates. The average 30-year mortgage rose 3 basis points to 5.04 percent. Note that talk of an emerging bear market for Treasuries points to the risk of higher rates in the coming rates.

Remember, it was just five weeks ago that the MBA admitted their “index” was at the lowest point in history although they never tell us what their index is, what it is based upon, and then they revise it at will all without allowing us to see the data. Worthless spin and completely not real.

You know, where is the neutral party to generate statistics? Where is the oversight to prevent special interests from taking over economic statistics to prevent them from being “spun?” This should be one of the core and basic jobs of your government, they have failed miserably in this respect exactly because they too are co-opted by special interests. The root of this problem is the Federal Reserve Act, and the solution is Freedom’s Vision.

The ADP jobs report has not been the best indicator of what the B.L.S. produces for their Unemployment Report, but because it always comes out first, it is used to set expectations. In this case, expectations were rising for a positive number come this Friday. I think there’s big disappointment coming down the road as I think the insurance industry bailout Act and other forms of higher taxes are going to produce even more pressure on hiring in the near future. Here’s Econoday:
ADP is calling for a disappointing 23,000 decline in private payrolls for March. A gain was expected. Stocks are falling and money is moving into Treasuries following the results. Commodities first declined but quickly recovered as the dollar moves lower.

I thought the following article was amusing. It reminded me of the family who, deep in debt and paying their credit card bills with other credit cards, finally gets caught and must begin selling their possessions and looking for loose change under their sofa cushions. This article shows the ripple effect and how families going through crises causes governments to subsequently go through the same crisis. This is why real and functioning economies are built from the bottom up, not from the top down.
Cities look to debt collectors for help

NEW YORK ( -- In the northeastern Pennsylvania town of Pittston, the seemingly manageable issue of garbage became a much bigger problem than anyone could have ever anticipated.

While the streets were hardly strewn with litter, the city of 8,100 is now saddled with roughly $250,000 worth of unpaid garbage fees owed by city residents.

Hoping to stamp out the problem, the city council recently contracted with an outside collection agency, hoping to recoup some of the outstanding debt.

"They are going to go after them with whatever means they can," said Greg Gulick, a city spokesman.

Pittston, which dubs itself the "The Tomato Capital," is hardly alone. School boards, county courts, local libraries and even prison systems across the country are increasingly looking to private collection agencies for help.

"Given all the budget constraints at the state level and the problems with the economy, we are seeing quite a bit of outsourced activity," said Bruce Cummings, the CEO of Municipal Services Bureau, an Austin, Texas-based firm which assists more than 500 state and local governments across the country collect unpaid bills.

It remains unclear precisely how much in unpaid court fees and parking tickets has been farmed out to collection agencies by state and local governments since the recession began. But experts say this is one of the faster-growing segments of the multi-billion dollar debt collection industry.
That’s it, go after the deadbeats who can’t pay their garbage bill because big government sucks the life blood out of the economy. That will solve the problem. Better keep the food stamps and unemployment money flowing, civil unrest won’t be too far behind otherwise.

But hey, not to worry because the stock market is up 76% in just a little over a year. That’s a sign of health, right? I mean isn’t that what healthy economies and markets do? No?

I can’t even watch CNBC for more than 5 seconds anymore. I made the mistake of turning it on and there stood the “analyst” (marketing spokesman) stating that he thought 15% returns were completely possible over the next few years like that was on the low range and a completely normal type of number. Fifteen percent? Are you kidding me? That is such a huge number that not sustainable instantly jumps into my mind and all I can think is how people who buy into that BS are going to get burned. Yet it pales in comparison to 76% which evidently is the new benchmark for health. I say stupidity and folly. Yeah, those guys deserve what’s coming for them, and in many respects Americans, all of us, deserve what’s coming too for not putting an end to it sooner.

But hey, 25% of the market volume comes on just Bank of America, or on Citi Bank. That’s normal. That’s healthy.

And yet another small movement in the McClelland Oscillator yesterday, expect any directional move to be large.

As I type, the March Chicago PMI was released, 58.8 was the number, consensus was looking for 61, and the prior was 62.6. Must have been the weather in February.

Yesterday a comment was made about our economy and bond market walking a tight rope. Absolutely a high wire act. Exciting to watch, but given enough exposure, sooner or later somebody’s going to fall.

Leon Russell – Tight Rope:

Tuesday, March 30, 2010

Morning Update/ Market Thread 3/30

Good Morning,

You remember Bill Murray in the movie “Groundhog day?” I’m beginning to wonder if there’s a point in writing about the markets anymore, lol.

The equity futures are up a little, the dollar is down slightly, interestingly the Euro is down a little, bonds are down again right on support, and both oil and gold are down just slightly. Below is a 30 minute chart of DOW futures on the left and 5 minute chart of S&P futures on the right:

The 30 minute chart of the dollar (left) and the long bond futures (right) is interesting, the dollar is forming what looks like a bullish wedge or flag, and bonds are forming the same pattern but the bearish version for price, bullish for interest rates:

They look to be breaking just as the market opens. Of course this is the dilemma of a debt saturated society. Interest rates rising will make life difficult for debt holders. Who’s made themselves the world’s largest debtor? That’s an easy one, we have by allowing the “Federal Reserve” to co-opt our money system and then our government.

The Case-Schiller Home Index showed a drop of -.2% month over month in January, but seasonally adjusted they claim it rose .4%. Prices declined .7% year over year, in line with forecasts. The index itself dropped from 158.18 to 157.89. Obviously the rate of fall has subsided for now. However, looking into the future do not forget that chart of the wave of Option-Arm mortgages that must reset, and gee, just in time to meet rising interest rates. That will be interesting. Here’s Econoday’s spin:
Case-Shiller points to continued gains for home prices in January, gains that may be accelerating given more recent data on new and existing homes. Case-Shiller's adjusted reading for its composite 10 index shows a solid 0.4 percent gain in the month, the second straight 0.4 percent gain. The 20 index shows a second straight 0.3 percent gain. Note that home prices swing lower in the light demand months of the winter, a factor to keep in mind when looking at the unadjusted rates. Unadjusted data, which the news wire run prominently, show a third straight 0.2 percent monthly decline for the 10 index and a very deep 0.4 percent decline for the 20 index.

Among individual cities, gains stand out for Los Angeles, San Diego, and Phoenix, all areas hit deeply by the housing collapse. Prices in Miami, also hit hard, continue to decline but now only marginally, while prices in Tampa show strength.

The housing sector is at a pivot point, hopefully an upward point as second-round stimulus should begin to improve sales and perhaps prices going into the spring. But the expiration of stimulus together with what may be rising long rates are negative wildcards for the longer outlook.
Big difference between a pause and a pivot point.

Citizen Confidence was just released for March, jumping from 46.0 to 52.5, 50 was expected. Feels good to be on a roller coaster that just climbed a giant hill, eh? We’ll see how we all feel at the next low point. By the way, normal readings of Consumer Confident reside in the mid and upper 70’s, not at 50.

As we struggle to put in another economic cycle, the pressures become greater as the debts have not been allowed to be cleansed, they have been additive. This is exactly why we now talk in trillions and why the next swing downward is very likely to be a monetary or nation changing event.

Boy, do we know how the IMF wants to change the world. Power and control. Money from nothing.
March 30 (Bloomberg) -- The International Monetary Fund would determine terms of assistance it provides Greece, Managing Director Dominique Strauss-Kahn said, underlining concerns some European leaders have expressed over the lender’s participation in a possible rescue.

Leaders of the 16-nation euro region last week endorsed a combination of IMF and bilateral loans at market interest rates should Greece run out of fund-raising options, while saying they would maintain control over the process.

Any Greek package would “be an IMF program decided by the IMF as it happens with each and every country,” Strauss-Kahn said in an interview on a flight to Bucharest from Warsaw today. “The IMF will define the conditionality, as we do with any country.”
Greece, I certainly hope that you take the lead offered by Iceland and tell these people to pound sand! These are the same people that brought you to crisis by selling their debt backed and financial engineered systems to you in the first place. Being “rescued” by the IMF is like rushing into the arms of someone trying to drown you.

Bloomberg ran a piece this morning on a hopeful outlook for state tax collections. Let’s look at it, but as you read it, ask yourself if they are actually going to materialize, what the numbers are compared to, and would any increase in tax be due to improvement in the real economy, or would they be related to higher tax initiatives and price increases in things like the cost of utilities?
March 30 (Bloomberg) -- The two-year slide in tax collections that opened a $196 billion gap in U.S. state budgets has stopped, easing pressure on credit ratings and giving leeway to lawmakers as they craft spending plans for next year.

The 15 largest states by population forecast a 3.9 percent gain in tax revenue in fiscal 2011, budget documents show. The 50 states on average may increase collections by about 3.5 percent, the first time in two years the figure is expected to grow, said Mark Zandi, chief economist at Moody’s, California took in 3.9 percent more since December than projected in January, Controller John Chiang said this month. New York got $129 million above forecasts in its budget year through February, according to a report from Comptroller Thomas DiNapoli. In New Jersey, the second-wealthiest state per capita, January sales-tax collections were 1.9 percent higher than a year earlier, the first annual increase in 19 months, forecasters said in a report last month.

“This time last year, we were sliding down a mountain,” said David Rosen, chief budget officer for the New Jersey Legislature. “I don’t think we are now; it’s stabilized.”

States collected almost $81 billion less in sales, income and corporate taxes in 2009 than in 2008, according to the Nelson A. Rockefeller Institute of Government in Albany, New York, as the economy struggled through its deepest slump since the Great Depression. Emergency spending cuts and tax increases became routine during the recession that began in December 2007.

‘Panic Mode’
The end of the collections crash will ease fiscal strains that led New York-based Moody’s Investors Service to lower the ratings of five states last year, after no downgrades in 2008. It will also enable governors and legislators to draw up budgets for fiscal 2011, which starts July 1 for most states, with more confidence that money they plan to spend will arrive.

“As long as revenues were sliding, budgeters were in a panic mode,” said Zandi, whose West Chester, Pennsylvania-based company provides economic analysis to businesses, government and investors. “It’s not as scary when revenues are rising.”

States’ combined budget gaps will still total $180 billion in fiscal 2011 and $120 billion in fiscal 2012, the Washington- based Center on Budget and Policy Priorities estimates.

This fiscal year, the 15 largest states expect to collect 11 percent less taxes than in fiscal 2008, budget proposals show. It won’t be until 2013 that revenue returns to 2008 levels, said New Jersey’s Rosen and Barry Boardman, the North Carolina General Assembly’s chief economist.
The panic is letting up for now? Yet they are still facing another $180 billion in shortfalls next year? Here’s what I love about economists and financial planners… they are always projecting out a straight line growth rates of whatever growth just occurred, unless it’s negative of course, then they just panic. But the lines are not straight at this juncture in history, government spending and debt are on a parabolic rocket shot, headed straight to the moon. Good luck with those deficit projections, they will need it.

Still, to see the rate of tax receipts stabilize does show that the cliff dive has subsided for now. How far ahead of that is the stock market? Well, the S&P 500 is now 76% off the 666 March bottom of last year. That is a scary wild number, but remember the way percentages work, we are still way off the highs of late ’07 and we are in a bizarro drug induced debt induced convulsion. Remember, we had a debt bubble, that bubble is likely bursting and the spash of money will create odd looking things as that money looks elsewhere to where it may be treated better.

I haven’t shown a big picture chart in awhile, so let’s back out two years and look at the SPX. We created a huge rising wedge on diminishing volume, then we diverged from that wedge, and although still rising, you can see that we are still inside the confines of what appears to be a large megaphone formation, defined by the diverging blue lines:

Megaphones are usually reversal patterns, although not always. You can see that we’re getting near the top of this one, the first resistance line is about 1,185, there is a pivot at 1,187. Support is now at 1,176 then 1,168.

As I look at the debt markets I see that bonds are clearly under pressure. We’re still sitting on that neckline, what’s it going to be? If we wish to cycle up in the economy and markets, then we pressure debt. There’s only one way to get off the roller coaster, and that’s to step outside of the Fed’s debt backed money box. AZRainman made one heck of a great pinkslip yesterday, we’ll be sending these into the “Federal Reserve” soon:

Queen & David Bowie - Under Pressure:

Monday, March 29, 2010

Bill Still - Nasa and Big Banks

Morning Update/ Market Thread 3/29

Good Morning,

It’s a Monday, equity futures are higher… for now. How long has this Monday phenomena been going on? Seems like forever. And the rush to get in is moving from starting late on Fridays just prior to the close, to earlier in the day, then to Thursday to beat the rush. Now Pavlovian traders believe that markets only move in one direction – we shall see. Below is a 30 minute chart of DOW futures on the left and a 5 minute chart of S&P futures on the right:

The dollar is lower, bonds are slightly lower, oil and gold are both a little higher. Below is a 30 minute chart of long bond futures, you can see a very clear flag formation. That is bearish for bonds and if it breaks in the expected direction for that formation, down, then prices will land convincingly below the large H&S neckline validating that 2 year head and shoulders pattern, thus signaling higher rates:

This is an import formation to watch, prices need to break wrong way out of that formation or the Fed has a problem.

The trend away from debt is not, I believe, any kind of positive trend, it is not saying that the economy is rip-roaring healthy, instead it is saying that there is too much supply of debt and that people are beginning to revulse. Keep in mind that the last bubble was in debt and that money flows/ flees from one asset class to another. Of course money can just be destroyed as assets classes deflate, so there is likely some of both occurring while at the same time governments around the world attempt to issue more and more debt because they are trapped inside of the central banker debt box. The bankers have developed ways to trap fees from the constant roll-over and the movement of money from one asset class to the next. This is benefiting no one but them.

Personal Income and Outlays was reported this morning for February. Personal Income did not change month over month, but consumer spending supposedly did. Let’s see, no income but spending up = debt. Is consumer debt growing again? Possibly some, but I highly doubt the consumer is in a position to take on a bunch of debt to create a sustainable trend. Here’s Econoday’s spin:
February was tepid for the consumer as personal income was held down by weakness in wages and salaries while personal spending was softened by a dip in auto sales. But this sluggishness may be temporary. Personal income was flat in February, following a 0.3 percent rise the month before. The important wages & salaries component also was unchanged in February after jumping 0.4 percent in January.

Spending was mixed by component. Overall, personal consumption advanced 0.3 percent, following a 0.4 percent boost in January. By components for the latest month, durables fell 0.4 percent, nondurables gained 0.7 percent, and services increased 0.3 percent. Durables were pulled down by a drop in motor vehicle sales while nondurables appear to have been propped up by higher gasoline prices.

Inflation numbers were subdued in February as the headline PCE price index was flat as was also the core PCE price index. Analysts had expected a 0.1 percent uptick in the core. For January, the headline price index rose 0.2 percent while the core rate was unchanged.

Year on year, personal income growth for February came in at up 2.0 percent, rising from up 1.2 percent in January. Year-ago headline PCE inflation eased to plus 1.8 percent from 2.1 percent in January. Year-ago core PCE inflation came in at up 1.3 percent, compared to up 1.3 percent in January.

But we may see a turnaround in income and spending. First, spending in February likely was held down by severe snow storms during the month and likely will bounce back in March. Also, if economists and analysts are correct that March will see a sizeable gain in payroll employment in Friday's employment situation, then personal income also will likely get a lift for the month.

LOL, how long are these guys going to talk about the weather? What a joke. Expectations of a sizeable growth in employment could be a set up for disappointment, the report is released on Friday morning.

Volvo, the Swedish, no U.S. auto manufacturer owned by Ford, no wait it was announced over the weekend that Ford reached a definitive agreement to sell its Volvo car unit and related assets to China's privately held Zhejiang Geely Holding Corp for about $1.8 billion. Notice how real assets follow the holders of debt? Assets do not stay in debtor hands for long. Power and control, you lose it when you live life in debt.

Friday produced yet another small movement in the McClelland Oscillator, meaning that we can expect a large directional move today or tomorrow. The markets are now on daily sell signals and the divergences in breadth are becoming more apparent. There are signs of distribution occuring so cautious is the only way to be.

Below is a 60 minute chart of the SPX with the current upchannel shown. We poked beneath the channel slightly on Friday but are Monday ramping back inside so far this morning.

Watch the debt and currency markets, that’s where the action is, the equity markets are moving as if up is the only direction from now on. Hey, that’s the way it’s got to be, living in a fantasy.

Supertramp – From Now On: