Daily Archives: June 6, 2010

Take-Out Charts

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As proof my obsession has no limits, this is my placemat from dinner tonight. Hey, at least it wasn't cloth.

0605-chinois
 

I was also sneaking peeks at the /ES and EUR throughout dinner. It looks like we could have an interesting Monday ahead of us. As a repeat, my portfolio is 120% cash-committed with 199 shorts, 1 ultrashort, and 51 new short positions waiting in the wings. Zero longs.

A Dissection Of The May Employment Report (Market Sniper)

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In the spirit of the words of the legendary samurai swordsman, Miyamoto Musashi (Book Of Five Rings), "Think of what is right and true. Learn to see everything accurately", let us parse the number we have been given on Friday, June 4, 2010. Hat tip to John Williams of Shadowstats for methodology.

Employment increased by 431,000 jobs was the reported number. Of that 431,000 jobs, 411,000 were temporary census jobs created by the 2010 Census. These jobs disappear in a few months. The Bureau Of Labor Statistics says that 31,000 new jobs created in May were TEMPORARY service jobs. These 31,000 jobs were also included in the May figure.

Next we come to the infamous birth/death deflater. This attempts to measure the creation of new jobs due to the formation of new small business enterprises. In an economic expansion, there maybe some merit to this. In an economic contraction, it creates pure fantasy. Included in the May report was the fantasy of an increase 215,000 jobs due to this "factor."

Let us do the math here together. 431,000  jobs less the census temporary hiring leaves us with 20,000 new jobs. Subtract out the 31,000 TEMPORARY service jobs and we have a LOSS of 11,000 jobs. From this, we need to subtract out the birth/death deflater fantasy number of 215,000 jobs and we are now at a LOSS of 226,000 jobs! Now it really starts to get "fun." Though not statistically rigorous, a case can be made that in order to keep up with population growth, 150,000 new jobs must be created per month just to stay even. IF you were to add that number in, the jobs that were NOT there would be a negative 376,000.

Month of June. A month for joyous graduations. We should all have a moment of silence and send out good thoughts to the June graduates of 2010. They are coming out of our institutions of higher learning, most laden with student loan debt and will have a very difficult time finding part-time jobs at WalMart stocking shelves at a minimum wage.

The market did not believe the numbers on Friday either. It seems that the managers of the perception manipulation machinery are running out of tricks. MOPE (Management Of Perspective Economics) is beginning to fail.

I will leave you with the wise observation of Herr Doctor Joseph Goebbels, Reich Minister for The Ministry of Public Enlightenment and Propaganda. 

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

The first sentence is often quoted. Once you read the complete quote, you will understand WHY the rest is usually omitted.

Cognitive Dissonance (by Leisa)

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Have you started your blog yet? What are you waiting for? Your world of bright ideas is at your finger tips. Here's a re-tread post from my blog.  This post was my attempt to articulate the trouble I was having with the USD shorts in view of the relative risks I saw elsewhere. 

That internal turmoil also served as my fuel for tackling subprime mortgage problem (which turned out NOT to be just subprime but rather a larger CDS problem) and eventually connecting the dots to the mortgage insurers AND the insurance companies who were large purchasers of these fixed income securities.  All of that lead me to conclude that we were setting up for a systemic risk event, and that no asset class would be safe.

My point is not to crow, but rather to highlight how YOUR blog (remember, it can be private!) will help you concretize and organize your thoughts–you can instantly recall them as follows…

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Saturday, November 21, 2009

Cognitive Dissonance

Any of us that have had a psychology class are familiar with cognitive dissonance, though it is unlikely that we think about it in our everyday life. I needed a refresher on this definition, and I give it to you, courtesy of Dictionary.com.

cognitive dissonance

Mental conflict that occurs when beliefs or assumptions are contradicted by new information. The concept was introduced by the psychologist Leon Festinger (1919–89) in the late 1950s. He and later researchers showed that, when confronted with challenging new information, most people seek to preserve their current understanding of the world by rejecting, explaining away, or avoiding the new information or by convincing themselves that no conflict really exists. Cognitive dissonance is nonetheless considered an explanation for attitude change.

I like to pay attention to things that bother me, as my subconscious has a lot on the ball. Readers are familiar with my "What do I have to believe is true?" wonderings out loud when I'm confronted with things that are perplexing to me. My current troubling wonder is the so-called dollar carry trade.

I don't pretend to be knowledgeable about the intricate logistics of carry trades, currency reserves and the like. I know enough to be dangerous….and I know enough to sense danger. I do know this: The USD is still the reserve currency, commodities are still priced in USD, and the boat is listing rather heavily to the side of the boat where the shorts are congregated. And being a contrarian just for the sake of being a contrarian risks one's being label a curmudgeon. Or, perhaps I'm just a coward and unable to take risks commensurate with reward.

But for all of the problems with the US economy and the dollar, we still have a pretty good system. (Or perhaps that is my rationale for dealing with this dissonance!). To me, being short USD (and long commodities) feels like shorting a stock that may have a takeover bid at any moment. Is it (short the dollar) the 'smart' or the 'too-good-to-be-true' trade? Father Time always answers that question for us. And perhaps I need to do a little navel gazing to make sure that I'm not the one in the weeds and everyone else on the path to low risk riches.

(Editor's note: If you don't want to do your own blog, but you do want to write an article from Slope on occasion, please write me!)