More Predictable Changes in Weekly Unemployment Claims

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Weekly unemployment claims increased to 465,000 last week rising by 12,000. The number was above analyst expectations, although it shouldn't have been.

Weekly unemployment claims almost always have a significant drop around major holidays and then rise afterwards. This happened right on schedule for the Labor Day weekend. The last major drop was around the July 4th weekend. It was reported today that the four-week moving average is now the best since late July. Somehow, mainstream media reports failed to mention the reason for this was because both periods contained major holidays.  The major reason for the holiday drops is that the bureaucrats responsible for processing the claims and reporting the numbers seem to take longer vacations than anyone else. Nine states were missing data for the week before Labor Day, so the numbers had to be 'estimated'. For some reason, this very important piece of information didn't appear in press reports either.

What the press did report was that weekly unemployment claims were suddenly improving and this was evidence the economy wasn't falling into another recession. This was an amazing analysis considering a claims number under 400,000 would be needed to justify that statement and the best number around Labor Day wasn't even below 450,000. Furthermore even the most casual examination of the claims data shows that claims have been consistently in the 450,000 to 500,000 range all year. So instead of reporting "Not Much Changes in Employment Picture" or "Weekly Claims Improve As Usual Because of Holiday", the press fell all over itself to report a big improvement in the U.S. employment picture. The only thing they left out was cheerleaders in the background and audio that intermittently said 'rah, rah, rah'. Stocks rallied strongly on the surprising news that seemed to indicate a strengthening economy.

Maybe the mainstream media had already pre-written their articles about the 'recovery summer' that the administration had promised and didn't want to waste good copy. As for the recovery summer, there was essentially no change in weekly unemployment claims, or in the overall unemployment rate. Claims are somewhat better now though than they were a year ago when they came in at 538,000. It took around $1.5 trillion of on-the-books deficit spending to achieve the improvement to 465,000. Apparently a trillion dollars of borrowed money just doesn't go as far as it used to.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Will Stocks Continue to Rally After Quadruple Witch?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Today is one of four days during the year when index futures, index options, stock options and stock futures all expire. The market has rallied throughout September into the quadruple witch, but will it continue to do so?

As has been the case with every rally since the bottom in 2009, volume this September has been below average on the Dow Industrials. Low volume is an indicator of lack of enthusiasm for a trend and indicates the trend is likely to reverse soon. Nevertheless, stocks have managed to defy the lack of buying support and hold up for almost a year and a half now. This is theoretically impossible in a free market. It is very possible in a manipulated market however where one or a few large players control the game. In such circumstances, some tip sheet on Federal Reserve liquidity pumping would be the best guide to be used for trading stocks.

The mainstream media has been giving the rally as much support as possible as well. Weekly unemployment claims which invariably fall around holiday weeks, not surprisingly went down the week before and after Labor Day. Instead of reporting this as business as usual, the cheerleading media claimed it was new evidence of an improving economy. Retail sales supposedly had a minor jump in August, although the report was not credible. The smoking gun was the auto component which barely declined over August 2009 when Cash for Clunkers was giving auto sales a huge boost. Independent industry sources showed a huge drop in sales year over year, but somehow government statisticians know nothing about it. Both reports were replete with missing data, so some component numbers were merely wishful thinking estimates. The mainstream media didn't manage to report this key information. A consumer confidence survey today indicated confidence dropped to its lowest level since August 2009. The cause for the drop was consumers getting really gloomy about the future prospects for the economy. Apparently they are increasingly tuning out the information they are getting from the government/media complex and believing what they see with their own eyes instead.

So even though the economy is continuing to deteriorate, government statisticians are doing their best to hide this from the public. The mainstream media is doing its best to help them out by not questioning any number they produce no matter how unreliable or unbelievable it is. The Fed and other central banks and treasuries (think the one trillion dollar euro-TARP program) are doing their best to keep the world financial system afloat in a sea of liquidity. The most obvious evidence for this is a range of assets - stocks, bonds, and commodities - are all rising at once. This happens if there is more money in the system, otherwise traders would need to sell one asset in order to get funds to buy another. When they can bid up every asset, there has to be more available money and less risk aversion, which makes no sense given all the problems that currently exist.

Given the current environment, stocks can certainly continue to go up. Investors should assume the Fed will do everything possible until at least the election on November 2nd to make the market look good. There is no free lunch however. While liquidity driven markets can go higher and last longer than anyone thinks possible, they can also drop faster and much further than anyone would imagine. And this can take place suddenly. Constantly keeping the liquidity trough full also risks massive and sudden inflation. Don't expect to hear about this from the mainstream media though because they will be too busy telling you not to worry because everyone knows that liquidity fattened pigs can fly - or at least that's what the latest government report said.

Disclosure: No positions

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Sorting Out Contradictory Jobs Information

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Four jobs related reports were released in the first two days of September and they seem to indicate a contradictory view of the U.S. employment situation.

The weekly unemployment claims number was 472,000 for the last week of August, almost exactly the same as the 470,000 figure for the first week of January. Payroll processing firm ADP predicted yesterday that the U.S. private sector lost jobs in August because of a big employment drop in the 'goods producing sector'. At almost the same time, the ISM manufacturing index was released and indicated substantial hiring took place in U.S. manufacturing companies in August. Adding more confusion to the mix, outplacement firm Challenger, Grey, and Christmas said there was a sharp drop in planned layoffs in August.

The rule of thumb for recession is a weekly claims level over 400,000. This has existed continuously in the data for over two years now. Eight months into 2010, the only difference from the beginning of the year is that the four-week moving average is now 20,000 higher at 485,500. At no point during the 'recovery' did weekly claims fall to a level indicating the Great Recession actually ended. Weekly claims however should automatically fall during a protracted recession because big companies can only cut so many jobs until they get to a bare bones staff. This doesn't mean the economy is getting better, it means there is no one left to lay off. The Challenger, Grey and Christmas report on planned layoffs supports this view. Weekly claims will remain high under such circumstances if a lot of companies are going out of business because of ongoing recessionary conditions.

While there is no inconsistency with the weekly claims and the Challenger, Grey and Christmas data, the ADP and ISM employment data directly contradict each other. ADP's numbers are based on payroll processing while ISM's numbers are based on a survey of purchasing managers (the government's employment report is also based on surveys). The ADP report stated there was a significant drop in manufacturing hiring in August and the ISM report claimed there was a significant gain. The ISM report also showed a decline in the new orders component (Why would there be a substantial increase in hiring when there is less work to do?). Perhaps we will get some clarification in the government's August employment report tomorrow. 

There will be no sustainable economic recovery until private sector hiring picks up. This hasn't happened yet. While the mainstream media has reported otherwise, government numbers on private sector hiring include education jobs (almost all of which are government) and health care jobs (many of which are paid for indirectly by government programs). The private sector temporary jobs category in the employment report also has a footnote stating jobs from other categories are included. Could those other categories be government jobs? Looks like it, since once the Census stopped hiring, new temporary employment seems to have dried up. At the moment, it looks like any real recovery in private sector employment is a long way off.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Stocks Trying to Trade Against Negative News

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Stocks have been attempting a recovery in the last few days for technical reasons. While they have managed to hold up despite a wave of damaging economic reports, some weakness is showing up in today's trading. Nevertheless, the market's performance has been impressive.

The S&P 500 and Dow Jones Industrial Average spent 18 days in a row trading either fully or partially below their simple 200-day moving averages. On Tuesday, they both managed to close above their respective 200-days and above the neckline of a possible double bottom. This was technically quite bullish. The S&P 500 fell below its 200-day for a while in morning trade today, which is a sign of weakness however. The Dow managed to hold at that line. The S&P has been trading below its simple 50-day moving average since May 5th and the Dow has been below its 50-day since the flash crash on May 6th. The 50-days for both indices are still above their 200-days. The 50-days falling below the 200-days would be a significant bear market signal. We are not there yet.

The news today did not indicate either a healthy economy or financial system. Weekly jobless claims increased 12,000 to 472,000. Anything around 400,000 or above is evidence of a recession. The Philadelphia Manufacturing Index dropped from 21.4 in April to 8.0 in May. It turns out that 90 banks missed their TARP payments on May 17th and many of them are trying to alter their repayment schedules. Spain managed to sell its full compliment of bonds in its auction, but had to pay very high rates to get them out the door. Spain looks like it will be the epicenter of the next crisis to erupt in the eurozone.

The future economic picture is not looking good. The most disturbing aspect of this is that government spending, the traditional Keynesian solution, just doesn't seem to be working this time. The U.S. federal government borrowed $1.42 trillion in fiscal year 2009 (ending on September 30th) to pump up the economy and the GDP during that time fell from $14.547 trillion to $14.178 trillion. This year the feds are on track to borrow $1.6 trillion. Will the GDP increase by $1.6 trillion?  It's not likely. In order to do so, it would have to be over $15.84 trillion by this September. The most recent figure is $14.60 trillion. So for every dollar of borrowing, we are not getting anywhere close to a dollar of GDP growth, but we do get more debt that we have to pay interest on from now until forever. In the long run this is a losing game. In the short run, things don't look so good either.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.