August Jobs -54,000; Stocks Soar. Can Anything Be Trusted?

Total Nonfarm Birth/Death Adjustment +115

Why is that the most important number in this month's Non-farm Payroll Report issued by the Bureau of Labor Statistics (BLS)?

It's because the Birth/Death adjustmentis employed by the BLS to estimate the number of business openings (births) and the number of business failures (deaths) and is imputed into their formulas to come up with their monthly estimate of total US employment, better known as the monthly Non-Farm Payroll report.

Accordingly, when the BLS believes that there are more businesses opening than closing, the number is positive, boosting the overall employment picture, and the opposite when more businesses are failing.

From the charts provided by the BLS themselves, the birth/death model is accounting for a rapidly-expanding number of new businesses in the US (predominantly small businesses) as compared to businesses closing their doors. Should we be inclined to believe this fantasy, we would think the US economy, specifically small business, is booming and hiring new workers, though we know this is not even remotely the case.

We can make some comparisons and use other data to demystify the claims of the BLS. Specifically, we can look at the number of businesses filing for bankruptcy in 2010, and magically, we find a WSJ report that gives us a glowing headline - in support of the BLS birth-death model - though the devil, as usual, lies in the details.

The article states that while Chapter 11 reorganizations were down 17% in the first half of 2010 as compared to 2009, but Chapter 7 filings remained flat. So, what does this really tell us? Since Chapter 11 keeps a business's doors open, while probably reducing to some extent either wages or workers or both, that's positive, since fewer businesses are jumping through the Chapter 11 hoops and thus laying off fewer workers. But, when it comes to Chapter 7, which is liquidation, and was flat as compared to 2009, we should evidence no upside benefit to the birth-death model.

Now, let's check on new business startups, which is the "birth" part of the equation.

Here's an article which postulates that the average new business is hiring fewer employees now than in the past, which makes sense, as regulations and required filings have increased the small business burden while technology has allowed workers to be more productive. Add in the quest for outsourcing and you get the perfect scenario for new businesses not putting on as many employees as they used to, so when the BLS imputes the data for business births, they should consider that any new business will likely add fewer jobs than previously encountered.

On the positive side, the Ewing Marion Kaufmann Foundation reports that 2009 was a banner year for entrepreneurship, making the claim that, on average, 558,000 new businesses were started EACH MONTH in the year.

That is a monumental claim, postulating that 6,669,000 new businesses were formed in he year. Were that number even close to being true, the gains from new businesses should have almost completely eclipsed the losses from 2007-2008.

In contrast to the claims made by Kaufmann, which uses BLS data for baseline methodology, the WSJ posits that the number of new businesses fell by 24% in 2009, and 2008, though reportedly strong, was no banner year.

Outplacement firm Challenger, Gray and Christmas find that new business creation has fallen precipitously in the first half of 2010:

CHICAGO, July 19, 2010 – A new survey shows that start- up activity plummeted in the first half of 2010 as would-be entrepreneurs were either scooped up by employers or scared off by fragile economic conditions, a tight lending market and uncertainty over the sustainability of the recovery.

The Challenger study puts the figure at 3.7% of surveyed job-seekers, the lowest two-quarter average on record. The firm began collecting data in 1986.

The World Bank chimes in with a study of their own, stating:

We find that firm births contribute substantially to gross and net job creation. New firms tend to be small and thus the finding of a systematic inverse relationship between firm size and net growth rates is entirely attributable to most new firms being classified in small size classes.

Going back to the BLS birth/death charts, we note that in 2009, when business births were supposedly on the upswing, the BLS shows the model producing sizable gains in March, April and May, but then becoming pretty static for the remainder of the year. In 2010, the model number falls off a cliff in January, at -427,000, but then rebounds and posts gains in each proceeding month, eliminating and overshadowing the January losses.

In conclusion, there are simply too many numbers being thrown around in opposing directions for all of them to be right or to draw any conclusion except that the BLS birth/death model is structurally inconsistent, at times in opposition to competing data and more than likely employed to massage or move the overall non-farm payroll data month to month in whatever direction is politically palatable at the given moment.

Simply put, the birth/death model, on top of or imputed into raw estimates and seasonal adjustments, shrouds the entire non-farm payroll data in layers of stealthy and obscure adjustments.

Finally, here's a 2009 story from Bloomberg that screams, U.S. Job Losses May Be Even Larger, Model Breaks Down. That is about as close as one can come to saying that the government figures are useless and probably should not be trusted without actually saying it.

With the joyous news that August non-farm payrolls decreased by only 54,000 - beating expectations - stocks were off to the races, gapping once more at the open to lock in as many short sellers as possible. The markets maintained their positive bias throughout the remainder of the session, finishing close to their highs.

Investors looked past a terrible ISM Services index reading of 51.5 in August after showing 54.3 in July. Not surprisingly, bank stocks were among the leaders.

Dow 10,447.93, +127.83 (1.24%)
NASDAQ 2,233.75, +33.74 (1.53%)
S&P 500 1,104.51, +14.41 (1.32%)
NYSE Composite 7,055.03, +88.78 (1.27%)

Advancers clobbered declining issues, 4934-1488. New highs overwhelmed new lows, 415-49. Volume was non-existent, yet another signal that the rally is made on nothing but desire to trade, and is probably being directed by a small number of insiders.

NASDAQ Volume 1,512,487,250
NYSE Volume 4,127,134,500

Of the commodities we track, silver was the only winner, cementing a lengthy rally with a 28 cent gain, closing at 19.92. Gold slipped $2.30, to $1,249.20, while crude oil fell 42 cents, to $74.60.

It was quite a remarkable week for stocks. The Dow, which closed at 9985 just last Thursday, has managed a gain of 462 points in the last six sessions. There is likely more upside, though it may be limited in size and duration, as resistance begins around 10,600 on the Dow and 1125-35 on the S7P 500.

Enjoy the Labor Day holiday by not laboring. Get out and have some fun. Life is too short not to.

Nice Show, But Everybody Knows It's a Fake

Stocks continued to rally on Thursday, following up on the ridiculous upside surprise from the first day of September. There are many reasons to doubt that the US economy or US stocks are actually worth investing, and the overwhelming opinion from the average Joes and Janes of the world is that stocks are really just for suckers.

Outflows from mutual funds continued for the 17th consecutive week, so, if anyone is thinking that this is a good time to buy into the market, there are quite literally hundreds of thousands of people who are fleeing equities as quickly as they can. Bonds funds and cash are the asset classes du jour, and probably will remain so unless radical changes are made to the way Wall Street handles trading.

Investors have become wary of the Street's "wild West" approach and many believe the game is rigged against the small investor. These people have a case, after the meltdown of 2008, Bernie Madoff and the "Flash Crash" this past May. One cannot blame them for being careful; after all, it is their money we're talking about.

Today's action was in contrast to the prevailing news, again, as initial unemployment claims remained stubbornly high at 472,000 for the reported week and productivity was reported to have declined by 1.8% in the second quarter after slowing 0.9% in the first. About all this economy needs is less productive people working at the few jobs remaining. Unit labor coast are also on the rise, another bad omen for publicly-traded corporations.

For the most part, trading is, and has been, orchestrated by the five big banks - Goldman Sachs, JP Morgan Chase, Bank of America, Citigroup and Morgan Stanley. That's reflected in the overcrowding of trades and the herky-jerky motion of the indices. When the big boys act in unison, with large blocks, markets jump. It truly does crowd out the small investor. The playing field is dramatically tilted in favor of HTFs (High Frequency Traders) and big money.

Nonetheless, the show must go on, so the money was spent today to boost stocks once again, though the rally may be cut short by tomorrow's non-farm payroll, which, maybe this time, will actually be regarded as something substantial to trade off. The past few monthly employment reports have been on the weak side. if not outright horrible, but traders seemed to keep their wits on days when the numbers are released. It's the following Monday that all hell breaks loose, giving more credence to the rigged nature of the markets.

Dow 10,320.10, +50.63 (0.49%)
NASDAQ 2,200.01, +23.17 (1.06%)
S&P 500 1,090.10, +9.81 (0.91%)
NYSE Composite 6,966.25, +55.27 (0.80%)

As expected, advancing issues finished well ahead of decliners, 4327-2026. New highs bettered new lows, 360-56, but volume reverted back to a pathetically low level. The indication is that there was some allocation into winning positions, though without much commitment.

NASDAQ Volume 1,691,904,250
NYSE Volume 4,269,796,500

One telling sign that the rally in equities is mostly a figment of the imaginative inside traders was that oil stood still, finishing unchanged at $73.91. Gold continued to close in on all-time highs, finishing up $5.20, to $1,251.50. Silver rocketed ahead another 28 cents, to $19.64. It has been by far the best performer over the past two weeks.

David Rosenberg penned a thoughtful piece, claiming that we're in a Depression, not a recession, and, of course, he's right.

Stocks Pop, But Will It Last?

Based on some rather dodgy assumptions, like growth in China and Australia, which have some limited impact on some multi-national listed firms, and a better-than-expected ISM Index reading for August, traders sent stocks soaring out of the gate and continued to float them high above Tuesday's closing levels on the first day of September.

The fact that a new month had dawned probably had more to do with the sudden appetite for stocks of all flavors than any foreign or domestic economic news. After a dismal August, buy-siders were looking for anything that might boost their prospects and supposedly, a measly 0.8 rise - from 55.5 in July to 56.3 currently - in the ISM Index was sufficient to get traders all excited about equities.

Of course, we've been warned about "irrational exuberance" before, but the Wall Street masters of the universe can't be expected to take a crumbling global economic system lying down, so they conveniently ignored all previous data, including the morning's most important number, a loss of 11,000 private sector jobs in August, according to ADP. Also unnoticed was the 1.0% drop in construction spending, also worse than estimated.

No, the stock jockeys had their horses all set up and ready to rock at the open this morning, and nothing short of nuclear war was going to keep them from bumping up all prices on the first day of the month. Let's not forget that monthly stock options expire in just eleven more trading days, that being where much of the profits are being generated these days.

Yes, things are going well in China and Australia, but that doesn't say much about prospects here in the land of the free ride and the home of the knave. We still have wicked structural imbalances, a cratering infrastructure, worsening unemployment and a real estate market that is an absolute disaster of the first order. So, let's go out and buy some more stocks, hang the valuations and damn the skeptics. This is America! Money rules!

What a bunch of absolute rubbish. The crooks are still in control and leading the masses, pied-piper-like, to the brink of insolvency. While they expect mutual funds, pension funds and individuals to follow their lead, they are hedging and shorting every gain. They know what's up. They are aware of the severity of the crisis from which we have not recovered, yet they continue to herd the masses into ovens burning with stock certificates on top of faulty mortgages and promissory notes.

March on, idiot sheeple! These one-day events are typical in bear markets, and we are in a bear market and have been since August 2007.

Dow 10,269.47, +254.75 (2.54%)
NASDAQ 2,176.84, +62.81 (2.97%)
S&P 500 1,080.29, +30.96 (2.95%)
NYSE Composite 6,910.98, +206.83 (3.09%)

As one would suspect, advancing issued danced all over decliners, 5340-1091. It was one of the most lopsided A-D lines of the year. New highs paraded past new lows, 376-75. Even volume was a bit better, with the best overall showing in three weeks, though still well below levels consistent with a healthy market.

NASDAQ Volume 2,160,659,000
NYSE Volume 5,142,812,000

Making sure that all the greedy bastards in the world got a piece of today's action, oil spiked $1.99, to $73.91, while gold was lower by $2.00, to $1,246.30 and silver down 4 cents, to $19.36.

Here's a note to remember. When stocks are up massively, like today, gold and silver would normally be down quite a bit. Today's trade shows that the rich and powerful can actually have their cake and eat it too, as they are now hoarding gold and silver while chumping everyone with stupid stock bets.

Word to the wise: equities are a racket controlled by an unregulated Wall Street mob which is hedging its bets, buying gold and silver with part of every dollar they skim off the uninformed investors. The only way to play this is as I've suggested in the past: hold cash, buy arable land, tools of trades, gold and silver and prepare for radical changes over the next five to seven years, as they are unavoidable.

The Train Wreck Keeps a-Rollin'

Keeping one eye on the US economy and the other on US equity markets is something like watching two train wrecks in slow motion, wondering which will fall completely off the rails first. On any given day, stocks seem like the sure-fire winner, destined to send a signal to the broader economy. And when that occurs, ka-boom! Everything goes at once.

Today's stock action was actually quite silly and pointless. Down at the open, with a quick-strike rally up to the release of the Chicago PMI (down sharply from 62.3 in July 56.7 in August) and the Consumer Confidence Index from the Conference Board (up to 53.5 in August after a reading of 51.0 in July). Both bits of data were buoyed by the pre-market announcement of the Case-Shiller 20-city Index, which showed a quite remarkable improvement of 4.23% in June.

Release of the August FOMC minutes at 2:00 pm apparently rattled the market, sending all indices lower after maintaining gains through most of the session. Odd, because most of what was contained in the minutes has already been hashed out and priced into stocks. Nothing in the report shed any new light on Fed policy or the health of the economy (which everyone, even the Fed, knows is bad).

What's really interesting about the movement of the stock market is that it spent the first half hour and the final 1 1/2 hours of trading in negative territory. Ongoing is a rather stout defense of three positions: 10,000 on the Dow, 2100 on the NASDAQ, and the furtive 1040 on the S&P 500, but today's action, and, the overall market dynamics of the past three weeks, having a dearth of upside momentum indicate that those levels will likely not hold, are mere temporary hope points for the ignorant, almost sure to be taken out by Wednesday morning's ADP private employment report for August and further downside when August non-farm payroll data is released on Friday.

Some unsightly buying in the final few minutes of trading brought the Dow and S&P back from the dead, but was not enough to move the NASDAQ above the unchanged mark. Imagine your entire net worth and future pension all riding on the market-closing whims of Wall Street robber barons who are interested only in perception of the market rather than reality. That's precisely the position most American workers find themselves in today, never questioning the soundness of their investments or the trustworthiness of the marketplace.

It shouldn't surprise anyone, as American workers subjected themselves to slavery long ago, by acceptance of the income and payroll tax system. A man or woman is paid wages for his or her work. Taxing that output is nothing more than state-sponsored slavery, unconstitutional and immoral, but accepted nationwide. The tax burden on Americans is the single most detrimental factor to prosperity. Add up "contributions" in the forms of Social Security, Medicare, payroll tax, state income tax, sales tax, hidden excise tax (gas, cigarettes, etc.) and real property tax and the burden is over 50% of earned income for many Americans.

The US stock market, like the government, is neither fair nor impartial. Those who toil for taxable wages and invest in unfathomable securities are bound to meet their rightful destiny at some point. For some, the stock market collapse of 2008 was enough, and they have exited the system. For every one of those, however, are 100 to 500 more who toil in utter ignorance and fear. Despite countless examples to the contrary, they still believe that state and federal governments and Wall Street can be trusted for their well-being and general welfare. And on welfare is where many of them will eventually retire.

The month of August turned out to be a bummer for holders of paper wealth in equities. The S&P led the way with a 6.80% decline, followed by the NASDAQ, with a 6.24% drop, and finally, the Dow, which shed a mere 4.32%. Ah, that $100,000 earmarked for retirement shrank to around $95,000, depending on your investment preferences. Lovely.

Dow 10,014.72, +4.99 (0.05%)
NASDAQ 2,114.03, -5.94 (0.28%)
S&P 500 1,049.33, +0.41 (0.04%)
NYSE Composite 6,704.15, +8.87 (0.13%)

Advancing issues held sway over decliners by a narrow margin, 3337-3027. New highs edged new lows, 256-254. Volume was a little better than the normal moribund average of the past four weeks.

NASDAQ Volume 1,839,803,500
NYSE Volume 5,044,525,000

Commodities told a much different story than the "no change" stance taken by stocks. Crude oil for October delivery fell by nearly 4%, losing $2.78, to close at $71.92. Precious metals, on the other hand, were priced substantially higher, as faith in fiat-based money continued to erode. Gold gained $11.20, to $1,248.30, and silver, which has been a star of late, gained 36 cents, to $19.40.

The world is not coming to an abrupt end, though American society is undergoing a radical transformation, from a spendthrift, credit-driven society to one concerned more with bare essentials. We have more today than ever before, but most of it is either mortgaged, financed or overvalued and those who fail to amend their profligate ways shall be burdened with unpayable debts and a life of squalor.

Our national condition may take years to unwind, but there's no doubt that more pain awaits us all. If avoidance of unpleasantness is the key to happiness, Americans have been forewarned. Partisan rhetoric notwithstanding, we face more uncertainty and calamity right now than at any time in the past 60 years.

Awful August Continues; September Worst Month for Stocks

Since topping out at 10,698.75 on August 9, stocks have been in a pretty steady decline, losing almost 700 points on the Dow over the past 15 sessions. And what used to be known as "mutual fund Monday" - because so many fund investors would pony up with fresh cash - have been losers the past three weeks.

According to Reuters, today was the lowest combined volume for the three major exchanges: AMEX, NYSE and NASDAQ. In the absence of any kind of market-moving news, investors took the path of least resistance and shed shares in favor or more likely candidates. Bonds, gold and cash were where money was being parked until some certainty over the future of the US economy is ascertained.

The general mood being dour and weary, traders have found nothing upon which to hang a trade and that's a serious problem, not only for investors, but for the companies whose stocks trade on the public dollar. Without ample support, a slew of companies will simply cease to exist, especially when borrowing has become somewhat of a nuisance.

Sure, corporate debt is at high levels, but companies are finding it more palatable to borrow at low rates than touch the bales of cash they are hoarding, symptomatic of a deflationary depression, upon which the nation has embarked, without doubt.

Stocks never made it into positive territory, and declines worsened throughout the session. The usual thought of month-ending "window dressing" has been replaced by a flight to safety and out of risky assets.

Dow 10,009.73, -140.92 (1.39%)
NASDAQ 2,119.97, -33.66 (1.56%)
S&P 500 1,048.92, -15.67 (1.47%)
NYSE Composite 6,695.28, -99.63 (1.47%)

Declining issues buried advancers, 4931-1489, though new highs managed to beat out new lows, 240-125, only because so many stocks have been delisted of late.

NASDAQ Volume 1,614,811,125
NYSE Volume 3,411,060,000

Commodities were also weak. oil lost 47 cents, falling to $74.70. Gold managed a tiny gain of $1.50, to $1,237.10. Silver was unchanged at $19.04.

As bad as August has been, September is historically the worst month to own stocks.

Bank of America (BAC) fell 2.5 percent to $12.32, as fears that the Fed may begin dumping all of its toxic paper (originally owned by BofA and others) back upon the beleaguered institution. Somebody has to take the fall and there probably is no better candidate than BofA.