I ended last year with a bang, and unwittingly have started this year off with a resounding thud. All Idiot no Savant pour moi. The SOH bulls, led by the always Fabulous Moolah, and his side kick Googley Moogley, have had a field day trumpeting my demise. I cringe when I hear them, as they incessantly mock me, like a vast horn section of rabid vuvuzelas gone mad. I Can't say I don't deserve it, as I have been flat out dead wrong for the past seven weeks, as this market has relentlessly headed towards new post-2009 highs, day after day grinding BDI to a pulp along the way.
How could I have been so so wrong? After all, there were certainly plenty of decidedly valid concerns along the way that should have, at the very least, brought about a correction of some degree. Yet nothing seemed to do it?
The Greeks, clearly in an aeonian debt death spiral, did not do it. The European banks in tow, circling the drain with them, did not do it. The Eurozone, the largest economic block on the globe entering a protracted recession, did not do it. The BRICS sputtering in unison towards slower growth, did not do it.
Only 63% of 4th quarter earnings results beating estimates, the worst since the 3rd quarter of 2008, did not do it. Only 43% of companies exceeding revenue estimates, the weakest since the first quarter of 2010, did not do it. Oil prices above $100 WTI & $120 Brent for months on end, did not do it. A steadily weakening Euro, did not do it. An overbought market did not do it. Complacency did not do it. Elevated sentiment figures did not do it. Insider selling, did not do it.
And yes, even BDI's trusty BDI has failed to do it thus far. The list goes on and on, yet the market steadfastly ignores all, and continues to grind up uninterrupted, unrelentingly towards new highs.
The bulls will say that we are simply climbing the proverbial wall of worry, and that the trend is your friend, and that the Fed has got our backs, and that the liquidity hose will blast us higher, and that the economic data is improving (ever so slightly)…..blah, blah, blah. This is then followed by taunting affirmations, that the market is a forward looking discount mechanism, and that the hapless bears are stubbornly stuck in the financial crisis of the past, which is now clearly behind us.
Yes, my brothers in arms, as incredulously as it may seem, these accomplished & experienced traders have concluded that a new bull market has officially begun. And, that it is plainly obvious for all savvy market participants to see, that the Dow is inevitably heading for 15,000, and that Teaser's infinity and beyond is right around the corner.
I don't buy it for a second! If the market is truly a forward looking discount mechanism, then that would portend that our future is so bright, that we all have to wear shades. Yet, all the on going macro head winds outlined above are still in play, and actually poised to increase the drag on the global economy as we move forward, not lightening the load in the least.
Even future earnings are suspect. Consensus year-over-year earnings estimates for the 1st quarter of 2012 are now down to zero, and the trend of estimates is actually falling. And, as for the fire hose of perpetual liquidity, please be advised, that Mr. Brent is ablaze, and may well torch the place.
Furthermore, does anyone here actually believe that the global debt crisis dragon has been slayed for good, and will never again rear its ugly head? Wake up, and smell the Cafe Frappe, bulltards! Greece is simply the canary in the coal mine for all the grossly overly debt-laden, and extortionately financially-engineered nations of the entire western post industrialized world. They are clearly caught in a debt spiral of epic proportion, and when the little Hellenic bird finally keels over, most other larger fowl will soon follow. It's only a matter of time.
Over indebtedness can only be resolved through realistic re-structuring based on solvent new terms, which can actually be paid back via real tangible accelerating growth. Simply piling on more debt with endless injections of free capital, combined with draconian austerity measures which stifle growth, can not, and will not work. Deep inside our true natures, we all know, that the unconscionable & usurious, massively over issued debt of the advanced economies of the western civilization, must be liquidated before we can move forward in a genuine sustainable fashion. The piper always gets paid.
Let's not continue to kid ourselves. We are just being blatantly lied to, things are simply being papered over, falsehoods are clearly being perpetuated, and too many of us are gulping down the koolaid, like naive, overly trusting, spoiled little children.
The recent employment numbers are a case in point. Normally I would paraphrase this very telling article below, by the testosterone pit, however it is clearly so pertinent, that I feel it must be layed it out in full.
Suddenly, a Sharp Deterioration in the Job Market : A hullabaloo broke out on February 3 after the BLS released its jobs report that indicated that a surprisingly robust 243,000 jobs were created in January, and that the unemployment rate had dropped to an even more surprising 8.3%. Cynics, academics, BLS heretics, BLS true believers, hype mongers, and politicians of all stripes waged a veritable media battle over these numbers that President Obama serenely trotted out as validation of his policies. Even Rush Limbaugh jumped into the fray. Rarely, if ever, had BLS numbers caused so much public disagreement—and scorn. But that’s history. Now we're in February, and unemployment, after a year of fairly consistent improvement, is suddenly showing a sharp deterioration.
On Friday, Gallup’s mid-month unemployment reading, which covers the preceding 30 days, jumped from 8.3% in mid-January, the low point since the financial crisis, to 9.0%. An astounding increase. And its Job Creation Index confirmed that trend, dropping from +16 in January to +13 in February.
Worse, 10% of the employees in mid-February were part timers in search of full-time jobs, though down a tad from January's of 10.1%, the all-time worst level in Gallup's history! Underemployment—a combination of the unemployed and part-timers who are looking for a full-time job—jumped to 19% from the mid-January reading of 18.1%. While Gallup’s unemployment reading has improved steadily over the course of 2011, the underemployment reading has simply gotten worse.
Gallup's mid-month reading has been a good predictor of the non-farm payrolls report that the BLS releases two weeks later on the first Friday of the following month. For example, Gallup’s mid-January reading improved to 8.3%, in line with what the BLS would report two weeks later (causing the above hullabaloo). Unlike the BLS, Gallup, does not seasonally adjust its unemployment reading, so some uptick during this time of the year is normal. But that kind of jump is far beyond normal.
Of course, the BLS might tweak its formula to further decrease its utterly confounding workforce participation rate to the point where the resulting unemployment rate will actually, and once again, surprise on the upside, despite the hue and cry that may cause.
And there was another indicator: the Philly Fed employment index collapsed from 11.6 in January to 1.1 in February—a warning shot for Jack Ablin of Harris Private Bank whose concerns on this were published by Politico's Morning Money on Friday. The index reflects hiring plans by employers, and they have pulled in their horns. They're now adequately staffed, though they might add a few people here and there, while they’re waiting for demand to show signs of life. That wait may tax their patience, however: gasoline prices are at an all-time high for this time of the year, and other debacles are tearing into the toughest creature out there that no one has been able to subdue yet. But even that tough creature may have reached its limit. Read…. The Inexplicable American Consumer Takes an Unexpected Breath.
Over the years, the Philly Fed employment index has shown a strong correlation with the BLS jobs report, and Ablin estimated that based on it, only 50,000 new jobs were created, a far cry from the 243,000 in January—fictual or not. This and the nasty mid-month unemployment number from Gallup revive an odd idea: has the ECRI’s much ridiculed recession call been right all along?
Unless the BLS can figure out how to statistically adjust its next set of data and estimates to relegate any negative elements to blissful oblivion, there will be disappointment. And it will slam into lofty expectations—which may cause the stock market to, well, spike because, in these crazy times of ours, QE3 with all its wondrous, illusory, and ineffectual magic will suddenly reappear on the table.
The below graph courtesy of Harris Private Bank’s Jack Ablin, shows the clear correlation between the Phily Fed's employment data & the NFP numbers, it could well be telegraphing what February may have in store for us on the Jobs front:
BDI SOH's Idiot Savant