Financial topics

[Reality Check]

It already has but the body has not hit the floor yet. The truth is that fiat economics has been designed to completely hide the monetary system that is the economy as conveyed. And you expect political economy to hold all of it up. Nope some will just not make it. They are years ahead you in cluster failures.
You get zip...
Z - Spread Best measure of comparable bond value as adjusts for shape of Swap curve
I - Spread Not as good as Z spread as ignores Swap curve shape, but usually a reasonable approximation for high grade bonds
Par ASW Spread A tradable value, not a good value measure for bonds far from par

You guys understand a language here I can not speak.

But I have a question?

in 1987, as I understand it - these 100s of Trillions of Synthetic Futures Contracts, or Synthetic Option Contracts, or Synthetic Insurance Contracts ( or whatever you want to call them ) placing speculative bet's on the economy just did not exist. Some small part of such existing contracts are actually hedge contracts on the economy, not speculative, as I understand it.

Does the existence of such derivatives with those kind of numbers involved make all past crashes, like 1987, have a lot less value for comparison and predictive purposes regarding what is happening, and will, happen now?

[Higgenbotham]

In the third quarter of 2007, as the stock market peaked out, the BLS was reporting nonfarm payroll numbers in the same range as those reported over the past 3 months. The archives of what was actually reported at the time of the news releases can be found here:
http://biz.yahoo.com/c/e.html
Since 2007, those numbers have been revised, showing job losses where gains had been reported at the time of the releases. That data can be found in this table:
ftp://ftp.bls.gov/pub/suppl/empsit.compaes.txt
So don't be surprised if the economy is actually losing jobs now.

Just to make sure I am reading these tables correctly:

The revised (corrected) numbers show( Third Quarter 2007 ):

July 2007 - a loss of -40,000 Non-Farm Jobs
Aug 2007 - a loss of -18,000 Non-Farm Jobs
but Sep 2007 - a gain of 73,000 Non-Farm Jobs

Or am I missing something here ?

You are reading them correctly.

To be more clear, one of my recent posts said the BLS reported Friday that the economy gained 80,000 jobs in June. Similar monthly releases that occurred during the third quarter of 2007 were revised to negative numbers. For all of the third quarter of 2007, subsequent revisions have shown overall job losses for that entire quarter (2010 for example) but the latest revision does show a slight gain. Also, there was a negative initial release one month back in 2007 (I can't remember the month) of -4K which was revised UP the next month to something like 60K, then revised back DOWN to a negative number later. A lot of people take a BLS release like 80K to have a fairly high degree of precision when in fact it is so imprecise that the actual number could be negative. The tendency is toward downward revisions over time.

For the same months you posted above (based on 2011 revisions), I have the first revision of the third quarter 2007 BLS nonfarm payroll numbers as:

July 2007 +68K
August 2007 +89K
September 2007 +96K

The first revision is reported the first Friday of the month two months later - for example, the first revision of the July 2007 number was reported Friday, September 7, 2007.

We can see that the average downward revision of these 3 numbers was 79K; therefore, if future downward revisions are in line, a first revision to a three month average below 79K could imply negative job growth.

The past 2 monthly first revisions plus the initial release Friday which has not been revised yet are tracking at an average of 79K (77K, 77K and 84K). Therefore, it would not be a total surprise to see future revisions of this data years down the line to show that the labor market is in fact not growing at the present time at all, and assuming future revisions are in line with third quarter 2007 revisions, there is a 50/50 chance of negative job growth.

There are several other reasons I would mention this possibility - among them that weekly claims are tracking MUCH higher than they were in the third quarter of 2007.

[Higgenbotham]

As opined before, I don't believe it is possible to correlate a market high with just one variable. Having gotten that disclaimer out of the way, with regard to nonfarm payrolls, we are seeing that the data from July, August, and September of 2007 looks very much like the data from April, May, and June of 2012. The all time high in the US stock market occurred on October 11, 2007. If that were to repeat in accordance with the nonfarm payroll data, which of course is extremely improbable, then we might expect some kind of stock market peak to occur right around here. Based on many other things I am watching, some of which was posted yesterday, it does seem possible that the stock market is putting a high in here and is turning down.

Now back to some things I mentioned previously which might indicate the stock market is not done going up. Upon a poor data release a few weeks back, I had noted that the Chinese Central Bank gave some indications a few minutes after the release that they would undertake operations in response (maybe an interest rate reduction as I can best recall). The market stalled for a little bit, then continued down. I took that to mean that the Central Banks are losing their power to influence the markets with liquidity operations. In other words, extra liquidity is no longer viewed by market participants as the cure for what ails the global economy. However, on Friday, in theory anyway, Bernanke, through his mouthpiece at the Wall Street Journal, may have floated the idea that the poor jobs report could be used as a basis for more liquidity operations. The market did respond to that. My feeling is that if Bernanke is indeed leaking this kind of information to the media it is for the purpose of seeing how the market responds to the leak in order to try to determine whether the QE or whatever he is considering will in fact have any effect. The last thing he would want to do is announce a new program only to have the market fall flat on its face.

[Higgenbotham]

This could be very wrong, but here's my best attempt.

Normally, after a bad employment report, the market will tend to sell off at the end of the day, probably to the low of the day. I had estimated that the futures would perhaps rally to 1348 or so some minutes before the close, then sell off to 1342 by day end. Upon the release of "the leak", the futures rallied past 1348 on up to 1352.50 at day end, then were closed at 1351.75. Tonight they just opened up at 1349.25 and have traded in a range of 1348 to 1349.75. Preliminary indications are that "the leak" did not have much impact beyond the knee jerk response.

[John]

> Preliminary indications are that "the leak" did not have much
> impact beyond the knee jerk response.

I think the interesting question is this: What is there left that has
any impact beyond a knee jerk response? For example, Europe's "shock
and awe" bailouts don't affect much anymore for more than 30 seconds.
We've now had several years of downward trends, and everyone knows by
now that nothing is working and nothing is going to work.

John

[Higgenbotham]

> Preliminary indications are that "the leak" did not have much
> impact beyond the knee jerk response.

I think the interesting question is this: What is there left that has
any impact beyond a knee jerk response? For example, Europe's "shock
and awe" bailouts don't affect much anymore for more than 30 seconds.
We've now had several years of downward trends, and everyone knows by
now that nothing is working and nothing is going to work.

John

Good question which made me think a bit deeper.

When the LTRO (I think it was) was put together in late November 2011, there was a huge up day in the US stock market and the market then inched higher for 5 more sessions, then traced back into the range of the huge up day. After that, the market continued on up to new highs, rallying for 5 months. Economic numbers were mixed but did improve in many areas for a few months. As you know, this took me completely by surprise.

I think to more or less "prove" that there is nothing left that the Central Banks can do that will have an impact, we'd first want to see the stock markets (particularly Europe) quickly erase all the gains that came out of the European Summit announcement, preferably by the end of this week, I would think (really, before the German high court formally nixes the agreement). This would indicate that there is no belief left that anything can be done that will improve the situation in Europe. If the rest of the world stock markets follow, that would further indicate the Europe is the driver behind the collapse and will lead the rest of the world down.

At the same time, though, we know that the bond markets have already done this as yields in Spain are back up near their high from before the announcement. So I think it's only a matter of time before the stock markets confirm.

Any thoughts you have along these lines?

[Reality Check]

We now have one very good indication that things are falling into line with the regular generational cycle, and this will be better proven if US regulators remove the CEOs of the large US banks who were also involved in this scheme. According to the DOJ press release, it may be possible but it should also be noted that the DOJ stated they will not be filing criminal charges against any Barclays employees due to the fact that they were cooperative. We should watch for that to be reversed and for these criminals to be charged and sent to prison. If that doesn't happen I'm still somewhat skeptical that the wherewithal is out there to turn things around. I believe indications are that the British are taking that on and it seems like John posted that on the main site.

Wow, I was not trying to suggest that anyone was taking action to avoid the Moral Hazard, just that everyone, including the regulators and the politicians, could if they chose to.

I do not believe the crisis is bad enough yet. When it get's bad enough, there is no guarantee it will then get better, rather than much worse, for most people.

My point was just that we should not believe there was no choice but allowing the "Moral Monsters" to continue reeking havoc ( because the banks are too big, or because the bankers "have not been convicted of a crime". We all have a choice. Some of us may choose not to, and some of us may not know we have a choice, but we all still have a choice. For now.

Which is not to say that when the generational crisis comes that choice may not disappear as part of the response to it.

[John]

> At the same time, though, we know that the bond markets have
> already done this as yields in Spain are back up near their high
> from before the announcement. So I think it's only a matter of
> time before the stock markets confirm.

> Any thoughts you have along these lines?

What I think is that the bond and stock markets are all saying the same
thing. As long as there are various forms of "stimulus" going on,
the money will flow into "safe" investments, like U.S. stocks and bonds,
German bonds, Danish bonds, and out of "unsafe" investments,
like Spanish and Italian bonds.

The unemployment figures were interpreted that way. I don't think I heard
anyone talk about what the job figures mean directly for the economy. Most
of the talk was about what it meant for the election. Insofar as there
has been any talk at all about the economy, it's whether the figures are
bad enough to cause the Fed to start QE3.

Nothing else matters now, except how much "stimulus" money is pouring out.
No one ever says anything like, "American industry was so innovative last
year that workers are creating products that people want to buy." That's
almost an alien thought. It's rarely anything more than, "Gimme some money
so I can continuing doing the same thing."

So my direct answer to your question is that things will continue
along the same path until some kind of panic occurs. It might be a
financial panic, or it might be a war panic. The stresses on the
system grow more and more each day, and sooner or later something has
to snap, some straw will have to break the camel's back, some group of
people will say "We're as mad as hell, and we're not going to take
this anymore!" But instead of shouting it out a window, they'll start
a war.

John

[Reality Check]

Here is some near real time micro data to compare with the macro data in the news.

My wife works in a big box store that sells home improvement and construction materials.

She has worked there over 12 years. A really good day in her department is 30K to 40K. An average day is 7K to 9K.

A really bad day ( horrible weather on a Tuesday for example ) is 4K or 5K.

Yesterday, on a Saturday, it was great weather, the local economy has been slowing but nothing abrupt like a plant closing. This is one of the few areas in the United States where the housing prices remained moderate during the housing bubble and construction activity continued at a moderate rate for the past several years.

Saturday, normally the best day of the week, on a beautiful day, sales in her department were 2K.

Sales have been slowing through the spring and early summer, normally the busiest parts of the year. Days of 4K or 5K were occurring much more than usual during the last couple of weeks, but normally that indicates delayed sales, with a future spike coming. Not this year. At least not so far.

Worse sales day in 12 Years. Only 2K in sales for the entire department.

[John]

That's scary.