Got Jobs?

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The major indices broke supports and have visited some lows. Blame has been tossed around from North Korea’s supposed bomb test to Saudi Arabia’s relation with Iran. The boring reality is the flow of capital, which is controlled by interest rates, margin (leverage), and money supply. As the Fed Co-Chair mentioned, the Fed’s policy (QE + ZIRP) created a three-year bull market. It is what I have been saying for years. The problem is you can only fuel (monetize) leverage spending at a pace faster than private sector growth (revenue) for so long. Eventually, either you top out or private sector growth (revenue) catches up to continue to fund the spending spree. Of course there is a third option, which is the one we are actually heading down and that is the Fed injecting another round uber-stimulus (QE, ZIRP, TALF, Operation Twist, something). The rest of the world’s government are accelerating their printing (stimulus) to prosperity, we of course (if you are a Keynesian) have no choice but to follow. No one likes the pain of financial responsibility.

Got Jobs?

Labor Report

There needed to be some good news to give the market a pause from the New Year sell-off. Many were hoping and looking toward the Labor Report that came out this morning as the savor from this death spiral. However, is good news really bad news?

The Labor Report surprised everyone with a massive jump in non-farm payrolls at 292,000 jobs created during December. That was far from the 200,000 jobs expected. It is certainly one economic data point of good news in a sea of weak economic data. Holiday sales in many sectors missed, manufacturing decline sharply, shipping tonnage down 3 out of the last 4 months, exports declined widening the trade deficit, corporate profits growth are contracting, and it looks like 4th quarter earnings are going to be significantly weaker than anticipated. The sea of bad news has led many economists to predict a mild recession in 2016 and stagnation at best. So having a massive upside surprise headline jobs number was sure to inject, if brief, a moment of hope.

Courtesy of FRED

Pre-Market Action

The pre-market futures knee-jerked higher on the news, but I am not sure if it will last. Dow futures spiked up to 200+ points, but that has already come off as I type this morning. It does seem like an anomaly as all the other economic data looks to be weaker. One has to consider that if corporate profits are down and earnings weaker, with more announced layoffs in the 1st quarter, you begin to wonder if we can have continuing strong +275,000 per month job creation. It certainly has some skeptical, not necessarily of the jobs report, but whether if this is a realistic trend to expect.

Silly Rate Hike Talk

What I do find silly is that this one jobs report for December has already fueled the “Fed is going to hike rates again” talk. Seriously, is this the harbinger of 2016 in which the entire market wonders from FOMC meeting to FOMC meeting if the Fed will or will not hike rates? Which will only drive more volatility into the market. I was hoping that the silliness of 2015 Fed rate hike talk would be over, but it looks like we just can’t shake those expectations. When can the market value and investments be based solely on the soundness of earnings reports, value determinations, growth expectation, same-store sales, and all the data in which we are supposed to value investments. We have become so reliant on Fed expectations that any consideration about fundamental and value investing has been thrown out the window. Even Warren Buffet had one of his worse investment years in 2015. One must be a master of Fed expectations and how the market will react.

Courtesy of FRED

Pay Attention

While we continue to focus on the Fed Rate Hike expectations and the Job’s Report, the only two things that seem to matter if you watch CNBC, we should really pay attention to the dollar value (DXY), money supply vs. velocity, and the yield curve. Those will be key indicators of commodity prices, actual changes in rates, and ultimately inflation. The tail that wags the Fed Dog is really the dollar and the currency war – that determines the monetary rate of inflation. Fed also has a money dam (money supply with no velocity) they have to keep from breaching.

Good news is bad news?

I believe as the great jobs report sinks in and the talk of Fed Rate Hikes crescendo the market will realize that a rate hike is bad news for the markets. The market really wants ZIRP so we can all continue to leverage and push up asset prices. Think about what higher rates mean; higher mortgage rates (stalling the housing market), higher borrowing cost (less spending), higher carry costs (lower leverage in the market), bonds decline so yield can rise, increase in savings. Once that reality sets in with those that actually believe the Fed is going to raise rates and they are Hawkish (which I do NOT believe), the market will have a harder time rallying.

Support & Resistance

INDU 16,400
We broke 16,800 and have visited 16,400. We could get a bounce in here and perhaps a consolidation as the Job’s Report gives hope that the economy is better, but brings anticipation that the Fed would hike rates could create a sell off. I think the low is really in the 16,000 range if we breach the 16,400 support. For now, expect some consolidation around 16,400.

NDX 4300
We could consolidate around this level; I would look at some sloppy volatility around 4200 – 4400. Apple has been an unexpected drag, but there is a possibility that so much talk about this stock hitting a bottom could drive some speculative buyers in. That could give this index support as it is a big over-weight. It could also help the Dow Jones.

SPX 1940
The sloppy volatile range is 1920 – 1980. If this index rallies into 1980 or declines more into 1920 try not to read too much into it. We could be in for some false starts and some knee jerk sell-offs. I think we will see some consolidation in this area – unless some other shoe drops.

RUT 1080
My one concern about the general market order flow is seeing the Russell index smash down through 1080 and on the low. We really need to see this index get back above 1080 and close there with some strength. If we can get up in to the 1080 area on volume and close strong – it could bring confirm some support or at least consolidation in here.

Better Hedged, then Dead!

The last few months has been a time when hedging positions and reducing long delta exposure has paid off. I continue to remind those that we insure our health, car, home, and even life – so why not insure our investments. Our KFYIELD fund (conservative income fund) has done well over the last few months. It is not because we are lucky or right about direction, it is solely because we are smart and always hedge (insure our positions). It is nice to go to sleep at night and know you are not going to lose money when the market sells off. In fact, have been over-hedged since November and as the market sold off actually made money.

If your financial advisor or broker doesn’t use options to insure your investment, ask them why not and if they can’t give you a solid answer – it is time to find a new financial advisor.

5 Responses to “Got Jobs?”

  1. McRocket says:

    If you look at the household numbers, they paint a different (and potentially very troubling, imo) picture.

    It says that – Seasonally Adjusted – the number of employed increased by a whopping 485,000. But if you look at the not seasonally adjusted, the number of Americans employed actually dropped by 63,000.

    But then it turns into potentially a lousy report. The 25-54 age range (by far the most important one, imo). Their seasonally adjusted number went up by only 16,000 – which is not too great considering this age range makes up roughly 60% of the entire numbers of employed persons and generally comprises the highest paid group that has by far the most dependants and buys the most big ticket items.
    But the not-seasonally adjusted number states that there were 335,000 LESS Americans employed in the all-important 25-54 age range in December over November. If that is true, that is awful (imo).

    The age group (on the not seasonally adjusted side) that gained by far the most employed in December were the 16-19′s who gained 225,000. And I am guessing they were created for the Christmas shopping season only.

    Lastly, the average hourly and weekly earnings dropped. Which makes sense given the huge number of 16-19′s hired (I assume for the holiday season) and the fact that they will obviously be the lowest paid jobs on average.

    • Silexx says:

      Thanks for sharing the details. It seems the headlines is driving silly Fed talk, but the reality is the sea of economic data doesn’t paint a strong economy by any stretch of the imagination.

      Have a great weekend.

  2. McRocket says:

    Thanks…and as always thanks for your great previews.

    Have a great weekend as well.

  3. McRocket says:

    Btw, I did some more research as someone I know who claims to have worked at the BLS says that jobs are almost always lost in December.

    And my reply was:

    ‘That maybe true (I do not know).

    But since the end of the Great Recession, the largest reduction (2010-2014) in the not seasonally adjusted 25-54 age group in December was no where near the 335,000 for Dec. 2015…by a factor of at least 30%.

    PLUS, over those five years, the 16-19 age group (not sea adj) barely budged or dropped…this year it skyrocketed 225,000. The largest increase in teenaged hiring by miles over that time frame mixed in with the largest reduction in 25-54 aged employment by far in the last five years (well paying employment being replaced with lower paying employment) is not a good sign, IMO.

    PLUS, over those last five Decembers, only the last two saw a reduction in the hourly wages.

    To me, that certainly paints a different picture then the rosy 292k headline number.

  4. McRocket says:

    Sorry, just noticed this.

    All of the following is to do with not seasonally adjusted December employment numbers (Table A-9) between 2010-2015.

    The 45-54 age group is the highest average earning age group in America.

    For 2010 and 2011, their numbers went up 69,000 and 12,000 respectively.

    For 2012, 2013 and 2014 they went down 68,000, 166,000 and 23,000 respectively.

    This year they went down 259,000…way more then any year in the past 6. And light years more then any year other then 2013 of those 6 years.

    To me, that shows a definite pattern…and it ain’t a good one.

    Throw in the fact that this year saw a massive increase in 16-19 employment (compared to the previous 5 Decembers) further points to what I have suspected for a long time…that good jobs in America are slowly being replaced with not-so-good jobs.