Friday, May 8, 2009

Got Jobs?

The market continued to roar today as the "green shoots" sold to us by Wall St continue to bloom! Meanwhile back here on earth, "Rome" continues to quietly burn in the background.

The latest jobs report came out today and the news was not good but better then expected. The unemployment rate soared up to 8.9% as the economy shredded another half a million jobs.

The stunning rise in unemployment that we are witnessing is breathtaking when you compare it to previous recessions:

My Take:

Uhhhh...Can you say WATERFALL? As you can see above, we are seeing job losses on an unprecedented scale. I am sure Wall St is right though. The recession should be over by the second half of the year. NOT!

Question here:

How does Wall St expect everyone to continue to pay their bills when they have zero dollars coming in the door?

The markets liked the number today because we "only" lost half a million jobs. Folks, this is utter bullshit. You need job growth of +400k in order to see economic growth in this country. The trend on job losses is still firmly downward.

The fact that we slowed down the losses should have been expected. At the rate we were losing jobs the past few months, no one would be working a year from now! The fact that the media and Wall St are spinning this as a green shoot is simply ludicrous!

Market Gone Wild

The financials continued to roar as the S&P 500 closed up 21 points at 929. Bear market rallies tend to be severe and powerful. The more violent this move gets the more I think its just a bear market rally. Bear markets don't end in a straight line higher. especially one of this magnitude.

There is obviously some severe manipulation going on here. The government and Wall St. realize that their lives are on the line.

Here is my best guestimate as to whats going on:

I believe that the trading desks on Wall St all turned desperately bullish after learning about the stress tests.

They all knew that they would be forced to raise equity on their own or die because Congress was done throwing billions of dollars in bailouts to them. The Fed warned them this would be the case while these stress tests were being conducted. The easiest way for the banks to raise cash is by selling new shares of stock. You saw bank after bank repeatedly roll out new offerings last night following the stress test announcement.

Wall St knew that the higher their stock prices were, the easier it would be to raise capital. It would also result in less dilution in their stock price. For example: If you need to raise $5 billion in capital your dilution effect is twice as much if your stock is at $10 versus $20 because you need to sell twice as many shares in order to raise the same amount of capital.

So, as a result, the large banks all had a huge vested interest in taking the market higher.

What made this easier to do was the fact that the banks became buyers at a time in which their liquidity had increased significantly after receiving huge infusions of cash via the Fed. The banks coffers were already a little more full to begin with after severely reigning in their lending.

Further fueling their liquidity positions was the suspension of market to market accounting. This relief allowed them to spend reserves that they had been holding to pay off losses per the FASB accounting guidelines.

When you add this all up you end up with a pack of bank bulls on steroids!

Bottom Line:

I think once these offerings are wrapped up you may see a change in market sentiment.

Trying to fight the banks and the Fed on the short side is a tough tough battle right now. That being said, I will take a shot at them with a few SPY PUTS once we get up over 950. There is some severe resistance in this area as the S&P approaches its 200 day moving average.

Once the banks have ensured their survival via capital raisings you may very well see a pretty solid correction.

Next week should be interesting. Have a great weekend.

13 comments:

opportunistic said...

I believe the unemployment number may pick up a bit as teachers and state employees, at least here in California, are laid off. The fiscal year begins July 1, and with tax revenues as they are the cuts will be huge. At some point government jobs will go negative along with the other sectors.

jeff said...

oppor

Great point. Add to that the college graduates who can't find work because there are so many experienced workers in line in front of them due to all of the unemployment.

There is lots of chatter around the jobs number being rigged and many are calling for a huge revision next month.

I think I am going to pick up some SPY PUTS on Monday. I wanted to wait until 950 and we may get there on a spike on Mon.

The Fannie numbers were UGLY. They tapped the Treasury for another $20 billion I didn't get a chance to go over that today.

Minton Mckarkquey said...

Jeff - great chart.

The fact is that everyone keeps talking about employment as a lagging indicator but in this recession it's actually a *leading* indicator. Which is sorta-kinda what they suggest anyway when they say these unemployment numbers are good news, right? You can't have it both ways.

For my money, I would like to see unemployment completely static before I call a bottom on anything at all. I don't see the slight deceleration in numbers positive at all. Everyone forgets this is just a delta, not a total number, and I don't see how the situation even begins to reverse without it stopping.

The bulls were out again today, weren't they...

Anonymous said...

Yeah, short squeeze by the monkeys.

jeff said...

Minton

The Bulls were stampeding!

Great points around the unemployment. Cheering a loss of 1/2 a million jobs is quite comical isn't it?

Anon

Big time short squeezes. The bears need to get some balls and hold on to their positions.

I feel pretty comfortable on the short side right now. The VIX collapse is making PUTS cheap once again.

I still plan on playing really small. There is a lot of manipulation going on right now.

Anonymous said...

Loaded big into XLF and QQQQ puts today-sept and Dec expiration.

I think the top is at most 1 week away. It might have even happened today.

Radar said...

Absolute must read about the gobberment's job #'s "massaging" -

http://zerohedge.blogspot.com/2009/05/real-memo-out-of-bureau-of-lies-and.html

Hey Jeff, I'm new to your blog as of yesterday. Good work, well articulated. thanks!

Speaking of yesterday, I'd love to hear a followup re: the bonds auction shortfall. That article was featured on http://evilspeculator.com/ yesterday. So, now...your on my daily hit list. Again, thanks, Hello, and keep up the great work.

RaDar...

jeff said...

Radar

Thanks! Glad you found me.

The evil speculator is an awesome site and I really appreciate their support.

I plan on doing a follow up on the bond situation this weekend.

jeff said...

anon

Things do look very toppy here.

I am starting to date my PUTS as well due to the volatility.

This is a great point from an entry standpoint IMO.

GL!

johndaniels said...

The Labor Department said employers cut 539,000 jobs last month, as the unemployment rate climbed to 8.9 percent in April; the highest level since 1983. Economists said government hiring of temporary workers for the 2010 census helped blunt the job losses. We can expect the true rate to be much worse than disclosed, because government numbers are always fudged. In fact, in the last report, the government had revised upward it's previous unemployment numbers for December and January. We are seeing this more and more; sugar coated numbers that get "revised" in the next report.

jeff said...

JD

Yup

The government numbers have become nothing but a sham.

I never could have imagined that we would see so much fraud over here as a result of this financial crisis.

I always thought things were different here. I have lost a lot of respect for the rule of law over here.

Our enforcemnt of justice has been thrown right out the window.

We now have a bunch of thugs running the country.

Sad.

Joey said...

Jeff,

I second your theory. Ive been thinking the same for weeks now. Oh, well....I doubtful after such a large stock sale the market would be allowed to retrace "heavy". We'll probably see heavier selling in summer or early fall is my guess.

p.s. Check you in box.

Jeff said...

Joey

Check e-mail

post up around 5