Labor Report Shows Gains, The Market Impact, EU Troubles

Editor’s Note – The monthly jobs report is in and many are calling it an improvement while others are much more skeptical. Yes, there was a sizable gain in jobs, and the U1 rate stayed at 5.5%, but those are deceptive because of the numbers that underlie the broader picture.

Americans are finding jobs, but at a dismal rate when you look at history outside of recent recovery years prior to this one.  Too many people are out of the work force but those numbers are also slightly lower.unemployment Blues

Overall, it is still a lackluster recovery, and when one looks at the details and also includes the global picture, we are a long way away from a ship sailing right on its keel.

We caution optimism here because these better numbers are still quite small and other factors are not improving.

The 1st quarter GDP numbers were surprising as the economy retracted, but the Bureau of Labor Statistics revised and excused the “anomaly” and showed us a rosier picture to coincide with the more positive labor report.

But as usual, it is little solace to the millions not even in the labor force or those forced into part-time work – underemployment not even close to their potential.

BLS LogoWith this news, the stock markets were weary that a positive change may forestall the much discussed rise in interest rates, maybe even into the election season.

The markets closed down today and showed a loss for the week. (Read more below.) The markets like certainty, and they are not getting it from Janet Yellin as the reports emerge like today.

Here is a compilation of these numbers, and a reminder that things in Europe are more uncertain and now it appears that the Greeks are seeking advice from Russia’s Putin.

Global uncertainty, and a detached stock market make for highly uncertain times and somewhat implausible numbers as Zero Hedge points out below as well:

92,986,000 Non-participants in the workforce:

The month of May saw 92,986,000 people not participating in the workforce, according to new data released Friday by the Bureau of Labor Statistics reveals. May’s total represented slight decline compared to last month’s record, which saw 93,194,000 people outside the workforce.

The BLS defines those not in the labor force as people ages 16 and older who are neither employed nor “made specific efforts to find employment sometime during the 4-week period ending with the reference week.” The labor force participation rate came in at 62.9 percent, a slight uptick compared to April’s 62.8 percent. (Breitbart)

55,951,000 Women out of the workforce:

Mirroring the national numbers, the number of women outside the workforce experienced a slight decline in May, according to data released Friday by the Bureau of Labor Statistics. In April, the number of women not in the workforce hit a record 56,167,000. Come May, that number declined to 55,951,000.unemployment

With the number of women out of the labor force decreasing, so the number of women in the civilian workforce increased from 73,267,000 in April to 73,577,000 in May. The workforce participation rate among women also experienced a slight uptick to 56.8 percent. (Breitbart)

6,652,000 More Americans Working Part-Time, but not by choice:

Another 72,000 workers were working part time last month because their hours were cut or they couldn’t find full-time work. The total number of involuntary part-time workers jumped to 6,652,000 in May, up from 6,580,000 in April, but well below the 7,268,000 in May 2014, according to data released Friday by the Bureau of Labor Statistics (BLS).

According to BLS, involuntary part-time workers are “persons who indicated that they would like to work full time but were working part time (1 to 34 hours) because of an economic reason, such as their hours were cut back or they were unable to find full-time jobs.” (CNS News)

“The Job Numbers Literally Do Not Add Up” – Productivity:

Payroll Stats Become Even More Implausible – Since Q1 GDP was revised lower by almost 1% that meant estimates of productivity were going to be even more out of alignment than they were at the first release. Of course, in a less massaged environment productivity might have preserved some sense if there was less rigidity from the BLS on the employment side.

In other words, when “output” estimates were reduced (and they were, by more than GDP) it would make sense that everything would be revised downward in a more cohesive process. Instead, output was reduced significantly, by 1.4%, while total hours worked was marked down by all of 0.1%. As a result, productivity is revised from a nonsensical -1.9% to an even more skeptical -3.1%. (Zero Hedge)

Greek Crisis & Great Britain Threat to leave the EU:

Greece crisis live: PM tells parliament a debt deal can be done as stocks slide and Athens looks to Moscow. Greece will have to pay €1.6bn to the IMF and €1.5bn in pensions and wages by the end of the month. (Video from the UK Telegraph)

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Follow the almost hourly update read more here.

IMF director Christine Lagarde and Greek finance minister Yanis Varoufakis in happier days (AFP)
IMF director Christine Lagarde and Greek finance minister Yanis Varoufakis in happier days (AFP)

More from Zero Hedge on Greece:

Greek Banks On Verge Of Total Collapse: Bank Run Surges “Massively” As Depositors Yank €700 Million Today Alone – While the Greek government believes it may have won the battle, if not the war with Europe, the reality is that every additional day in which Athens does not have a funding backstop, be it the ECB (or the BRIC bank), is a day which brings the local banking system to total collapse.

As a reminder, Greek banks already depends on the ECB for some €80.7 billion in Emergency Liquidity Assistance which was about 60% of total deposits in the Greek financial system as of April 30. In other words, they are woefully insolvent and only the day to day generosity of the ECB prevents a roughly 40% forced “bail in” deposit haircut a la Cyprus. (Read more here.)

The British Issue from the AP:

The prospect that economic and diplomatic heavyweight Britain might leave the European Union within two years has pushed EU leaders to consider concessions to keep the country in the fold.Unemployment-2

EU founding members like Germany and France are moving outside their comfort zones, surprisingly receptive to British Prime Minister David Cameron’s call for change ahead of a referendum that will allow citizens to vote on whether to stay or go before the end of 2017.

With Europe’s top priority the very real risk that Greece might fall out of the euro single currency, Cameron has found a surprisingly open ear in many capitals of the world’s biggest trading bloc.(Read more at AP)

GDP drop in the first quarter of 2015:

June 25th in the Wall Street Journal:

Gross domestic product, the broadest measure of goods and services produced across the economy, fell at a seasonally adjusted annual rate of 2.9% in the first quarter, the Commerce Department said in its third reading of the data Wednesday.

That was a sharp downward revision from the previous estimate that output fell at an annual rate of 1%. It also represented the fastest rate of decline since the recession, and was the largest drop recorded since the end of World War II that wasn’t part of a recession. (Read more at the Wall Street Journal)

But the Bureau of Labor Statistics reports today:

Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — decreased at an annual rate of 0.7 percent in the first quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, real GDP increased 0.2 percent. With the second estimate for the first quarter, imports increased more and private inventory investment increased less than previously estimated (for more information, see “Revisions” on page 3).

The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. (Read more here at the BLS)

Stock Market:

U.S. Stocks Close Slightly Lower

Jobs report provides evidence to investors, traders that economy is lifting out of first-quarter slump

By DAN STRUMPF – Wall Street Journal

Stocks fell Friday as the strong May jobs report cemented expectations that the Fed will begin raising borrowing costs this fall, capping a volatile few days for stocks that leaves major benchmarks slightly lower for the week.

Traders and investors said the May jobs report offered evidence that the U.S. economy was pulling itself out of its first-quarter slump. While a firming economy is usually a good backdrop for stocks, investors say the hiring pickup keeps the Federal Reserve on track to start raising short-term interest rates as soon as September, potentially boosting borrowing costs for businesses and consumers alike.

Stocks spent the Friday session swinging between gains and losses before settling with a modest decline. The Dow Jones Industrial Average lost 56.12, or 0.3%, to 17849.46, bouncing back from an loss of as much as 83 points earlier in the session.

The S&P 500 index fell 3.01, or 0.1%, to 2092.83, while the Nasdaq Composite Index rose 9.33, or 0.2%, to 5068.46.May5.15DowClose

Stocks ended the week lower, after an early-week rally that petered out. The S&P 500 is down 0.7% for the week, while the Dow is down 0.9%.

Major stock benchmarks have pulled back in recent sessions from record highs reached just last month, weighed down by a cocktail of uneven economic data, murkiness over the Fed’s course of action and lofty valuations. The Dow is off 2.5% from its high reached May 19. The S&P 500 is down 1.8% from its May 21 high.

“For the economy, the bottom line is that [the jobs data] is a good number,” said Brent Schutte, senior investment strategist at BMO Global Asset Management, which oversees $249 billion. But he added:

“To the extent that it brings people closer to believing that the Fed will raise rates in September, it will be near-term hit to the equity markets and the bond markets.”

The solid jobs report sparked sharper selloff in the bond market, lifting the yield on the benchmark 10-year Treasury note to an eight-month high of 2.402%, from 2.309% on Thursday. It is the highest closing level since Oct. 6. Bond prices fall as their yields rise.

For the week, the yield climbed by 0.305 percentage point, the biggest weekly rise since June 2013 when the bond market was rattled by the “taper tantrum,” or fears over reduced bond buying from the Fed.

The bond market has sold off since late April after a strong run-up in price over the past year. Many investors are recasting their portfolio as they believe the rise in bond yields reflect an improving economic and inflation outlook in the U.S. and the eurozone. (Read the rest here at the Wall Street Journal.)

BoA Warns Of Scary Summer Ahead In Stock Market

Editor’s Note –  This “Twilight Zone”—the transition period between the end of quantitative easing and the first rate hike by the Fed, as it tries to normalize its fiscal policy.

SUA Staff  feel it is necessary to warn of the possibility that this could cause great volatility for any investor or pension fund holder and the value of the US dollar.

Bank of America: Markets Are in a ‘Twilight Zone’ and It’s Time to Hold More Cash and Gold

By Bloomberg Business

In a note sent out this morning, Bank of America Merrill Lynch has a warning for investors:bear-market-treasury

Investors remain trapped in “The Twilight Zone”, the transition period between the end of QE and the first rate hike by the Fed, the start of policy normalization… until:

(a) the US economy is unambiguously robust enough to allow the Fed to hike and;

(b) the Fed’s exit from zero rates is seen not to cause either a market or macro shock (as it infamously did in 1936-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes.

For this reason we continue to advocate higher than normal levels of cash, adding gold and owning volatility in mid 2015.

Given extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield.

The note also highlights two interesting disconnects in the markets:

  • Investors say they are optimistic, but there is a high level of cash on the sidelines;
  • U.S. stock prices are at record highs, but equity funds are seeing outflows;

Regarding the first point, one of Bank of America’s surveys showed investor sentiment as being “risk-on,” which it says is normally associated with less cash on the sidelines.

Chart1

To the second point, the note says U.S. equity funds have suffered $100 billion of outflows in 2015 while the S&P 500 is near all-time highs, which its data says isn’t exactly typical.

Chart2

The analysts led by Michael Hartnett attribute this to clients favoring European and Japanese equities at the expense of the U.S and that buying from those not captured in flow data (sovereign wealth funds, pension funds and central banks) could be what’s giving U.S. equity indices a boost.

The note hints that that you actually ought to sell in May and go away, at least for certain asset classes.

The summer months offer a lose-lose proposition for risk assets: either the macro improves and the Fed gets to hike, which will at least temporarily cause volatility; or more ominously for consensus positioning, the macro does not recover, in which case EPS downgrades drag risk-assets lower.


Edited by Suzanne M. Price – Staff Administration

 

Greek Tragedies, Bursting Bubbles, China and the AIIF

Editor’s Note – Is another Greek Tragedy about to rock the European Union? Has the United States lost its ‘Superpower’ status in the universe of global economics? Is there another bubble about to burst in the U.S. stock Market?

If you say yes to all three, we have much more than a Greek Tragedy; we could have a melt-down of epic proportions say several leading economic voices. In Greece, they have a hefty payment due Thursday to the International Monetary Fund that may cause another political crisis in their government:

The worsening Greek debt crisis has reanimated talk within the ruling Syriza party of a snap general election if discussions with creditors fail, as the country faces a Thursday deadline to repay a €450m (£330m) loan to the International Monetary Fund.

The Greek finance minister, Yanis Varoufakis, during a parliamentary session in Athens on Thursday. He was scheduled to meet the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday. Photograph: Alkis Konstantinidis/Reuters
The Greek finance minister, Yanis Varoufakis, during a parliamentary session in Athens on Thursday. He was scheduled to meet the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday. Photograph: Alkis Konstantinidis/Reuters

The Greek finance minister, Yanis Varoufakis, held informal talks with the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday, and Lagarde said he confirmed that the repayment would be made on Thursday.

Meanwhile, warnings of early elections underscored the political unrest in Athens. (Read more here at the Guardian.)

Their decisions and negotiations could ripple across the globe just as a bubble is about to burst here and some are calling it inevitable.

In addition, Larry Summers, the person once considered to take the job now held by Janet Yellin is telling us that he believes the U.S. has been surpassed by the likes of China already.

In his recent article entitled: “Time US Leadership Woke Up To New Economic Era,” he explains why he thinks the left and the right, and collectively all in Washington have really isolated the U.S. from global economic system and the ability to sway policy:

This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. True, there have been any number of periods of frustration for the US before, and times when American behaviour was hardly multilateralist, such as the 1971 Nixon shock, ending the convertibility of the dollar into gold.

Larry Summers, former Secretary of the Treasury under Bill Clinton and former President of Harvard is now the President Emeritus and Charles W. Eliot University Professor of Harvard University
Larry Summers, former Secretary of the Treasury under Bill Clinton and former President of Harvard is now the President Emeritus and Charles W. Eliot University Professor of Harvard University

But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it.

This failure of strategy and tactics was a long time coming, and it should lead to a comprehensive review of the US approach to global economics.

With China’s economic size rivalling America’s and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment.

Political pressures from all sides in the US have rendered it increasingly dysfunctional.

Largely because of resistance from the right, the US stands alone in the world in failing to approve the International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their new economic heft.

Meanwhile, pressures from the left have led to pervasive restrictions on infrastructure projects financed through existing development banks, which consequently have receded as funders, even as many developing countries now see infrastructure finance as their principle external funding need. (Read more here at Zero Hedge.)

Now read this take on that darn bubble:

Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts

By Jesse Colombo – Forbes

Six years after the Global Financial Crisis, the U.S. stock market continues to soar to new heights with nary a pullback or correction. In this piece, I will explain why the stock market is experiencing a new bubble that is actually another wave of the bubble that has existed since the mid-1990s.

A two-decade old bubble? Yes, you’ve read that correctly. Most people will consider this assertion preposterous, but the facts don’t lie. Though the U.S. stock market has been experiencing a bubble for two decades, it will not last forever. I believe that the ultimate popping of this bubble will have terrifying consequences for both investors and the global economy that is tied so closely to the stock market.

The SP500 stock index has more than tripled since its low in 2009, but that doesn’t mean that we are out of the woods. On the contrary, this is the calm before the storm.

BubbleCoveryChart1

Source: St. Louis Fed

Since the mid-1990s, the U.S. economy and stock market has experienced three different bubbles: the 1990s Dot-com bubble, the mid-2000s housing bubble, and now another bubble that includes stocks, bonds, tech startups, certain segments of the housing market, higher education, and much more. I believe that this new bubble is creating what I call a “Bubblecovery” or a bubble-driven temporary economic recovery that will end in another crisis.

The U.S. Federal Reserve also created a Bubblecovery in the early-2000s to recover from the Dot-com bust, which led to the housing bubble. After the housing bubble burst, the Fed inflated the post-2009 Bubblecovery. After each bubble/Bubblecovery ends, the Fed simply inflates another bubble to recover from the last one. In essence, the U.S. economy and stock market has been in a bubble cycle for the past two decades. Each time, the bubble gets larger, and the Fed has to keep re-inflating it to avoid the economic Depression that would occur if asset prices were allowed to find their true value.

The incessant push to inflate our economy and financial markets has created an unprecedented situation in which stocks have been trading at overvalued levels for a record length of time. Nearly every stock market valuation indicator is giving the same reading: stocks are currently at levels that preceded other major historic busts.

For example, look at the Cyclically Adjusted P/E Ratio (CAPE), or the price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years. The 1929 Stock Market Crash and 1970s stagnation occurred after the CAPE rose over 20 – a level that indicates stock market overvaluation. Incredibly, the CAPE has remained over 20 for much of the past two decades, aside from a few short months during the Global Financial Crisis. Without constant Fed intervention, there is no doubt that the U.S. stock market would have corrected violently like it has in the past.

BubbleCoveryChart2

 

Source: VectorGrader.com

“Anonymous” to attack Wall St. to support “Occupy Protesters”

Editor’s Note– Having suffered at the hands of the hacker group “Anonymous”, here at our web site for SUA; we were part of their last major hacking event, and we know they mean what they say, and say what they mean. They are world-class hackers, do not kid yourself, and they are likely well ‘planted’ in how they are going to support the “Occupy Wall Street” thugs. They plan on taking down part of our financial engine, in this case, Monday, the stock market is slated for attack.

Monday attack threatened on Stock Market

As editor at SUA, I can assure you, these threats are taken very seriously, and I am also sure that there are thousands of man-hours involved in dealing with such threats and attacks. Every time the ‘good guys’ fix their latest attack fall-out, these reprobates are already focused on the next attack, and the one after that, and again after that…

Prepare now…its never too late! But, maybe, its all part of an orchestrated, cascading event, a “fire-sale” they seek to inflict on world order, no matter what you think of it. They gin up the know-nothings to mob the system, foment discontent, and create havoc for havoc’s sake. Most don’t even know why they are at these events, but they know its “FUN” to ‘dis ‘da man, to harken back a few years.

Hacker Group Anonymous Threatens to Attack Stock Exchange

By Perry Chiaramonte & Jana Winter

Fox News

The FBI is investigating threats purportedly from the hacking collective that calls itself Anonymous to bring down the New York Stock Exchange on Monday by hacking into its computer system.

Members of the notorious hacker group appear to be threatening to bring the Occupy Wall Street protests in New York to a dangerous new level, sounding a call to “declare war on the New York Stock Exchange” on Monday by “erasing” it from the Internet.

“The FBI is aware of these schemes and threats and is looking into the matter,” FBI spokesman Tim Flannelly told FoxNews.com.

The hackers say they plan to launch a DDoS (or distributed denial of service) attack on the NYSE’s computer systems — the same type of computer attack that brought down numerous websites last Spring, making them inaccessible.

Anonymous has also separately declared the Stock Exchange announcement a hoax, and it remains unclear whether this is an official effort by Anonymous, a group of rogue hackers or someone else entirely.

Either way, the FBI is investigating.

“It is a crime to show the intent to carry out a hack when you are in possession of software or computer applications to do so and we take it seriously,” FBI spokesman Flannelly said.

In one of the videos, which was addressed to the media, a narrator states, “We can no longer stay silent as the population is being exploited and forced to make sacrifices in the name of profit. We will show the world that we are true to our word. On October 10, NYSE shall be erased from the Internet … expect a day that will never, ever, be forgotten.”

In a video addressed to the public, the narrator states, “We are the 99 percent. You have complained that something needs to be done. You now have an opportunity to make a difference. Join the protests. Organize your own. Watch online. Be a part of the movement.”

A digital flier has circulated online with the banner “Operation Invade Wall Street: This is not an occupation. This is an invasion,” and instructions how to participate in “three simple steps.”

It provides a link to download a program to participate as well as the URL for the Stock Exchange (www.nyse.com) and the date and time, October 10th at 3:30 p.m., to attack.

Would-be participants are also urged to “spread the F—– word.”

Still, other Anonymous representatives denied the plans.

A second letter has been posted online, also with Anonymous on the masthead, that references rumors of the planned attack and disclaims the group’s association:

“We have taken notice to a planned attack which has been named #InvadeWallStreet …We strongly advise against this action and everything it entails to,” the letter says.

“We do not want history to repeat itself, and are sincerely worried,” the letter adds, referencing past attacks on Visa, Paypal, and Mastercard after they refused to accept transactions for payment to WikiLeaks.

Some have taken to Twitter, claiming the DDoS threat is a hoax, or even a setup.

“Smells like a trap! Don’t participate,” said one tweet with the hashtag #invadewallstreet.

“HOAX: #invadewallstreet is not a valid OP. Beware of provocateurs!!!” said another posting.