Monday, November 25, 2013

Temporary Jobs Swamp the Economy


- Stocks add to the Thursday renewal of the renewal rally.
- Bernanke's Bluff: His emphasis on creating a higher stock market created wealth, but at the very upper end, and it is not being put to work.
- JOLTS versus Non-Farms: both BLS data, but JOLTS net jobs picture is much dimmer.
- Temporary jobs swamp the economy.
- Bonds and gold suggest Fed has no choice but to pull QE, now sooner than later, but will the Fed have more resolve than China?
- Thanksgiving week is typically higher, but more and more downside possibilities are presenting.

Another move higher as SP500 posts 7 weeks upside, crosses 1800.

DJ30 pushed past 16K on Thursday so it was fitting SP500 pushed over 1800 on the Friday close. Ah, another milestone.

'Well, June, another milestone . . . ' Ward as he ponders Wally heading out on his first solo date. 'Leave it to Beaver'

The two market leading indices pushed to new highs Friday, pulling the rest of the market with them.

SP500 8.91, 0.50%
NASDAQ 22.50, 0.57%
DJ30 54.78, 0.34%
SP400 0.20%
RUTX 0.47%
SOX 0.06%

Volume mixed: -7.8% NYSE, +2.2% NASDAQ

SP500 posted its seventh upside week, something not done since, get this, back in 2007. With all the QE pushed into the markets since early 2009, you have to go pre-crash to get a 7 week run. Now the cynical could look at that and say that suggests the current run is getting old; after all, the stock market crashed starting 2007.

Fed at the crossroads: new chairman but new policies or the same old? QE has NOT worked.

Whether it crashes or not remains to be seen. For now the Fed is still flooding the economy and thus the stock market, with liquidity, though I believe Bernanke really wants to end QE as he realizes that it has not worked to plan. Yes the stock market has surged, but the 'wealth effect,' if any, resides in the top 0.1% of the socioeconomic scale. Sales of yachts, armored automobiles, homes with price tags in the tens of millions are strong, providing most of the consumption in the economy.

Economy is NOT strong.

It is a misstatement to say that the economy is strong. The upper end has concentrated more and more of the wealth as several studies have detailed the financial market gains are in the most part going to the wealthiest with net worth in excess of $10M. We of course have made great money in this stock market run, but you are the exception in the 'ordinary' US citizen.

The 1970's again as Obama gets the second term Carter was denied because of actual media reporting.

This is so very similar to the 1970's and the rolling recessions and rolling stock market of that time. Money was made by the top end, but much of it was simply not put to use given high tax rates, regulations, and uncertainties. Today uncertainties and high regulation are keeping those who have made money from spending it. They are using the virtually free money available to the upper end to make more money, but that money is not being invested in the US. It is, as it was in the 1970's, put away, sheltered, waiting for a better risk/reward climate to return to productive use. Why start a business when you have regulatory risk (the EPA is virtually unfettered in writing regulations over businesses), uncertain insurance risk, uncertain foreign policy risk? If you are ultra-wealthy you can afford to sit it out and wait.

There was an oil boom in the late 1970's just as there is one now. At the same time some areas of the country benefit from that boom, the majority of other industries are stagnant. Auto sales remain rather solid, but the US has a peculiar love for an auto and will sacrifice most everything else to drive a new vehicle. Indeed, new, upscale vehicles are the opiate of the middle class. Give them a nice car to drive and they feel they have 'made it.' The federal government is happy to oblige, underwriting millions up millions of dollars of auto loans. Recall that consumer credit saw NEGATIVE credit card debt but surging auto and student loan debt. Why? Because we have been well-taught that we don't have to pay back government loans.

There are few jobs created, most part-time.

You are told that the economy is creating 184K non-farm jobs per month over the past year. Yet the JOLTS data (jobs created net jobs lost) released Friday, also straight from BLS records, indicates just 150K jobs per month.

And what is the makeup of those jobs? Investor's Business Daily compiled the data and found that since August 2009, post the President's 'stimulus' package, temporary jobs have grown 57% versus 4% gains for all other categories.

But let's go beyond the parsing. Those in the news and economics industry get caught up in indicators here and there. The Administration only looks at the numbers the BLS produces, and those are now at least HIGHLY questionable given the recent revelations about the pre-election sharp unemployment rate decline.

No, the cold, hard, naked, and sobering big picture facts show how this is a non-jobs producing economy. I have stated these figures before, but they are devastating to the argument that a 5 year recovery is gaining speed and indeed is even a recovery.

91.5M working aged citizens are completely out of the workforce. 14M working aged citizens are looking for work but are either out of work or cannot find a fulltime jobs. Thus, approximately 105M people of working age are not working.

41.3% of the US population receives federal government benefits as of January 2013 (Heritage Foundation). That is 128M people, but Heritage notes that most likely undercounts the number as it is based on 2011 census stats. 46.5M people receive food stamps. Growth in the percent of people receiving assistance far exceeds population growth: since 1988, 62% more people receive benefits while the population has grown just 27%. Benefit recipients are growing at more than 2x population growth.

The bottom line:

-The US population is 316M, young and old, working age and non-working age.
-105M WORKING AGE people are out of work.
-One-third of the TOTAL US population is not working.

How can ANYONE argue the economy is good today? In March 2009 when QE started there were roughly 81M people out of the workforce. In the 'recovery,' another 10.5M have dropped out of the workforce. If you look at late 2007, 'just' 78.5M were out of the workforce. The 'recovery' should see people return to the workforce. Not happening.

The result: wealth created (given?) is being hoarded thanks to the economic/government climate.

These stats make my point: any benefits from QE have gone to the very few just as the stimulus benefits went to a few select favorites of the Administration. It is now apparent that the effects/benefits have been the same for the overall economy: none. The money goes to the select and they recover and growth their wealth, but they do nothing with it for now because of such a poor and uncertain economic environment.

By uncertain, I don't just mean the poor economic performance, but the whim of the Administration, particularly now that the filibuster rule in the Senate is gone for judicial appointments and will be gone for even legislation before this is all finished. No one is willing to risk what they were given back in the great stimulus wealth redistribution and the QE bubble creation.

Taper at Christmas or wait until January?

Bernanke sees that QE is not working as hoped and is creating massive imbalances. Yellen sees the same thing. While they will try to keep interest rates low for decades, QE is another story. Whether there is a taper in December frankly depends the level of coordination in the Bernanke to Yellen transition. They know each other well and both believe in money printing at the first sign of trouble, having orchestrated QE together. Thus it is altogether possible that QE, conceived in Princeton under the notion that all money printing is stimulus, will be shelved or 'un-tapered' as early as December. I do believe the Fed is THAT worried about it.

The bond market is already of that opinion. It has in reality been convinced since the summer 2012. For now the Fed has fended off the wolves, i.e. the bond market has bounced three times off of a key level at 2.8% 10 year. The real key is 3%, but if it breaks, it will take no time to get there.

Gold has made that decision as well, and at the same time bonds made it, i.e. the summer of 2012. Compare the gold chart with bonds. Identical.

Can the Fed stick to it?

We have already heard from the Fed that if it tapers, it can 'un-taper' just as easily. Sounds a LOT like the PBOC. It has tried for a year to wean from continued stimulus, and every time it vows it is finished with it and implements policies, the markets go ballistic and it is dragged back in.

'Just when I thought I was out, they pull me back in.' Don Corleone, God Father Part III

Thus you heard on at least three occasions last week Fed speakers saying that the Fed would stay accommodative with low interest rates for years, implying they would remain accommodative even if QE is withdrawn. The Fed is talking. It is going to taper sooner than later, December or in January. That is a change from my QEternity, but the Fed has stepped up its 'ending QE is not tightening' ads.



Dollar: Faded to the 50 day EMA in its two week test of the break higher. Should continue upside. 1.3549 versus 1.3470 versus 1.3435 versus 1.3541 versus 1.3504 versus 1.3496 versus 1.3456 versus 1.3459 versus 1.3434 euro.

Bonds: Gapped upside, tapped the 10 day EMA, faded some. May try an oversold bounce, but longer term the trend is lower as bonds factor in a Fed taper.

2.80% versus 2.80% versus 2.71% versus 2.66% versus 2.70% versus 2.71% versus 2.71% versus 2.73% versus 2.77% versus 2.75%.

Oil: 94.83, -0.51.

Gold: 1244.30, +0.60. Modest bounce as Gold has hit support and is trying to hold, but thus far it is unable to bounce. A triangle at support the past four months but nothing thus far.


NASDAQ: Bounced for the second session after the decline Monday to Wednesday. Now at the upper trendline of the wedge pointing upwards (tend to break lower). Lower volume upside. Now we see what kind of strength this move has, i.e. can it breakaway from the upper channel line.

RUTX: Recovery high on this bounce off the 50 day EMA test from two weeks back. Mid-channel, higher low, not bad.

SP400: Higher low last week, very close to the upper channel line of its uptrending channel. Pinching off just below the upper channel line, and similar to NASDAQ, an important test this week.

SOX: Held the Thursday bounce off the 50 day EMA and that is about all. Held where it had to at the bottom of the recent 5 week range, sitting in the middle of it. Still more or less weak overall but holding on where it needs to.

SP500: new high as it continued its bounce off the 10 day EMA test.

DJ30: Same as SP500, bouncing off the Wednesday test of the 10 day EMA.


Stats: +22.5 points (+0.57%) to close at 3991.65
Volume: 1.711B (+2.21%)

A/D and Hi/Lo: Advancers led 1.57 to 1
Previous Session: Advancers led 3.28 to 1

New Highs: 240 (+56)
New Lows: 23 (-11)

Stats: +8.91 points (+0.5%) to close at 1804.76
NYSE Volume: 532M (-7.8%)

A/D and Hi/Lo: Advancers led 1.6 to 1
Previous Session: Advancers led 2.83 to 1

New Highs: 246 (+89)
New Lows: 114 (-3)

Stats: +54.78 points (+0.34%) to close at 16064.77


VIX: 12.26; -0.4. Heading toward 2013 lows, but as noted before, VIX can move laterally as stocks move higher.
VXN: 13.65; -0.36
VXO: 11.45; -0.36

Put/Call Ratio (CBOE): 0.94; +0.15

Bulls and Bears:

Bulls resumed their upside move after that week hiatus. Bears are less certain, holding for a third week at the 15.5 level. Still at high levels for bulls and low levels for bears.

Bulls: 53.6 versus 52.6 versus 55.2% versus 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Right back up after fumbling a point. That leaves it still quite high.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 15.5 versus 15.5% versus 15.6% versus 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Holding steady at the 15.5ish level for the third week. The dive has stopped but no rebound in fear. Likely some next week given the early week selling this week, but it would appear this too will pass.

Background: Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


'Gobble, gobble. (snort).' 'I want a f*****g car!'
--'Planes, Trains, and Automobiles', a Thanksgiving classic.

Conventional wisdom is Thanksgiving week is upside. It typically is and with an upside run in place that seems to find buyers when it needs to as funds chase performance to year end, the odds seem to favor continued upside overall.. Indeed, I read an article this weekend that discussed how hedge funds had an average 6% return the back half of the year. They DO need to play catch up and at least make it look a bit better. Strong impetus for a self-created run.

That said, there are more downside plays presenting themselves. After a big run that makes sense. The key is whether they follow through or just again find buyers and continue upside.

Retail is interesting as an example. Charts overall show uptrends. Results are very mixed: Macy's, HD, WSM, FL on one side, ROST, TGT, DLTR on the other. Their charts reflect the divergence in earnings results. Will buyers return to ROST, DLTR, etc? We will see some response this week.

That said, we have a split of new upside and downside on the report. Be prepared, right? Overall you have to lean toward a continued upside run in the holiday season to year end as funds chase performance, but at the same time there are stocks breaking lower as results from the economy are just not that strong. Harsh reality could hit after year end or when the Fed really tapers as investors might figure the economy is not strong enough but the Fed has had to bow out thanks to QE just not fixing the economy (surprise!).

We have some good positions, but if more present this week as they come out of good tests, we won't mind picking them up. A run is a run, and year end runs can be good. So we will watch plays, but we are not going to do much in the way of reports. Giving myself and the staff a break. We will trade; we always do . . . but, no full blown reports. Enjoy the week with family and friends, make some money, try not to worry too much about Congress, the Administration, power grabs, the Fed, weak economic numbers, etc.


NASDAQ: Closed at 3991.65

3995 is the November 2013 high and the post-bear market high.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

3967 is the October 2013 post-bear market high.
3959 is the upper channel line for the November 2012 to present uptrend.
The 50 day EMA at 3860
3855 is the November low
3838 is the November 2012 trendline
3819 is the early October high
3801 is the September 2013 high.
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
The 200 day SMA at 3530
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3475
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high

S&P 500: Closed at 1804.76

8.9% over the 200 day SMA, not so extended.

1775.22 is the October prior all-time high
The 20 day EMA at 1774
The 50 day EMA at 1742
1730 is the September 2013 peak
1713 is the December 2012 up trendline
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
The 200 day SMA at 1645
1627 is the August 2013 low
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high

Dow: Closed at 16,064.77


The 10 day EMA at 15,913
15,798 the November 2013 high
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 50 day EMA at 15,559
15,542 is the May 2013 intraday high
15,318 is the June closing high
The 200 day SMA at 15,052
15,050 from the August 2013 interim recovery high
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation

Economic Calendar

November 22 - Friday
JOLTS - Job Openings, September (10:00): 3.910M actual versus 3.844M prior (revised from 3.883M)

November 25 - Monday
Pending Home Sales, October (10:00): 1.3% expected, -5.6% prior

November 26 - Tuesday
Housing Starts, September (8:30): 915K expected, 891K prior
Housing Starts, October (8:30): 920K expected,
Building Permits, September (8:30): 932K expected, 918K prior
Building Permits, October (8:30): 932K expected,
Case-Shiller 20-city, September (9:00): 13.0% expected, 12.8% prior
FHFA Housing Price I, September (9:00): 0.3% prior
Consumer Confidence, November (10:00): 72.4 expected, 71.2 prior

November 27 - Wednesday
MBA Mortgage Index, 11/23 (7:00): -2.3% prior
Initial Claims, 11/23 (8:30): 330K expected, 323K prior
Continuing Claims, 11/16 (8:30): 2875K expected, 2876K prior
Durable Orders, October (8:30): -2.2% expected, 3.8% prior (revised from 3.7%)
Durable Goods -ex tr, October (8:30): 0.2% expected, -0.2% prior (revised from -0.1%)
Chicago PMI, November (9:45): 58.0 expected, 65.9 prior
Michigan Sentiment -, November (9:55): 73.0 expected, 72.0 prior
Leading Indicators, October (10:00): -0.1% expected, 0.7% prior
Crude Inventories, 11/23 (10:30): 0.375M prior
Natural Gas Inventor, 11/23 (10:30): -45 bcf prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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