Thursday, September 1, 2011

Stocks Down in Advance of August NFP Numbers

The Markets

All of the major indices ended well into the red on Thursday, and for good reason. Initial Unemployment Claims came in at 409,000 for the most recent reporting period, and that number will be revised higher (as it always is) next week.

Here's the kicker. Continuing claims came in at 3735K, well higher than last week's reported 3641K, though that number was revised higher, to - get this - 3753K, which is 112,000 more. So, one would think, "gee, that continuing claims number is down 18,000 this week," but one would be wrong, because this week's continuing claims number will no doubt be revised higher next week.

The fact that the Bureau of Labor Statistics (BLS), which compiles these reports, is so god-awful bad at keeping numbers straight causes consternation, not only in investors, but it spreads to reporters, analysts and eventually, consumers, who are forced to digest whatever the government decides to barf up on any given week.

No wonder consumer confidence and overall approval ratings for congress and the president are so dismally low. The statistics they present are scarcely believable.

The government also reported that second quarter productivity fell by 0.7% (Should we believe this? Were a lot of people Facebooking instead of working?), while unit labor costs rose by 3.3%. That last number is not believable. How, pray tell, can labor costs rise when the economy is stalled out and unemployment is rampant? It goes against the grain of all accepted business wisdom. In a soft labor market, wages stagnate or decline, and especially so when productivity drops.

The takeaway from this is that either we have a bunch of numbskulls running American businesses (not likely, though at the top of the chain, maybe) or American businesses are about to meet a serious margin squeeze, from higher raw materials and higher labor costs. While the latter argument makes a little bit of sense on the surface, we're reminded that the figures are from te government and thus, highly suspect, and, it's an amalgamation across industries. The truth is somewhere in between: certain sectors of the economy are going to be harmed, soon.

That was all the markets dealt with before the bell. As usual, they shrugged it off to some degree, and stocks sank in the early going, until the August ISM index came out with a reading of 50.6 at 10:00 am EDT and produced the most interesting market response of the day (maybe the week). The Dow, for instance, which was down about 35 points, did a 120-point about face and made what would be the highs of the day within minutes (like two or three, seriously). The computers were whizzing, for sure.

The amusing aspect of the market's rise on this number is that the 50.6 number is not very good and was down from an unrevised 50.9 in July. But the market was looking for 48.5, which would have set off alarms, because anything under 50 on the ISM signals contraction, i.e., recession. So, we're not going into a recession unless, um, productivity falls off, or maybe costs rise, or orders slow, or the ISM revises that 50.6 to 49.9 next month?

Don't breath hard on any economic data. You might cause a recession.

But, that was it. Everything was downhill the rest of the session, especially after Goldman Sachs cut their August non-farm payroll estimate in half, from a gain of 50,000 jobs to just 25,000, right around noon. Everything fell off the table at that point.

Considering that job growth of 50,000 for August would, in and of itself, be a horrible number, half of that is terrifyingly bad, and so, we can only expect a major sell-off should Goldman's forecast be even close to the mark. It should be noted that Goldman Sachs has a horrible record on predicting the NFP number, so there's some hope that they're wrong, though not much.

Dow 11,493.57, -119.96 (1.03%)
NASDAQ 2,546.04, -33.42 (1.30%)
S&P 500 1,204.42, -14.47 (1.19%)
NYSE Composite 7,443.46, -84.93 (-1.13%)
NASDAQ Volume 1,771,030,250
NYSE Volume 4,722,466,000
Combined NYSE & NASDAQ Advance - Decline: 1643-4877
Combined NYSE & NASDAQ New Highs - New Lows: 54-38
WTI crude oil futures: 88.93, +0.12
Gold: 1826.30, +2.10
Silver: 41.59, +0.08

Comment: Today the fire was lit on the pile of rubble collected on Wall Street. Tomorrow's NFP number, if it's anything under 70,000, will be like gasoline. (MoneyDaily predicted +25-35,000 last week)

Idea: Grow your own.

There's literally nothing new about suggesting you grow some of your own vegetables in your own yard. The problem is that hardly anybody does so, we being conditioned by the Kleptocracy to buy all fresh produce from local supermarkets. Oddly enough, prices at roadside stands or farmer's markets have been roughly the same as in the supermarkets, though farmers tell us that may have been true early in the season, and should correct in September.

It's not as easy as just throwing down some seeds and watching them grow and later in the season picking the lush, juicy, ripe produce. It takes time, care and some good luck from Mother Nature. Ask any full-time farmer. It's work, but the results can be highly rewarding in good, fresh fruits and/or vegetables which costs almost nothing. The added benefit in tending to your own garden is that it gets one closer to nature, making one "grounded" so to speak.

Crops will grow almost anywhere in America. You only have to know which ones will grow best, and when, in your neck of the woods. The internet is a wealth of information on gardening.

Good luck.

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