Employment Data

by Larry Levin

Friday's employment data was not only bad, but worse than expected. In the wake of the news, the market rallied. Were you surprised? Some folks on a few blogs I visited were surprised indeed. Given the prior two-day decline of nearly 1,000 Dow points, I wasn't surprised at all. It was "priced in" as we say. Whether the market builds off of Friday's rally, however, is another story.

Economists were forecasting a national payroll decline of about 200,000 and an unemployment rate of 6.3%. The actual figure from the Labor Department was -240,000 jobs lost in October with an unemployment rate of 6.5%. Moreover, job losses of the past few months were revised 179,000 jobs lower. With this revision, job losses over the past three months now total 651,000 and have driven the unemployment rate to its highest level in 14 years.

Regarding Friday's data, an analyst at the Royal Bank of Scotland said - The October employment report is an easy one to analyze. It was a disaster.

Over the past few months when the government has released this jobs data, I have pointed out how the official unemployment rate and unofficial/real unemployment rate are quite different. When counting the unemployed the government used to include all of the people that wanted a job but gave up, all the people with part-time jobs that wanted a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc. With this tally you get a closer picture of what the unemployment rate really is. That number, -11.8%, is in the last row labeled U-6 of the Labor Department's own data.

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Many people are now expecting the official unemployment rate to reach 8.0% before this recession is over. If so, I shudder to think what level the unofficial rate will be.

In other news, the WSJ online reports that the government wants to make it official - a handout for the auto industry is coming. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent a letter to Treasury Secretary Henry Paulson urging him to assist the Big Three auto makers by considering broadening the $700 billion Troubled Asset Relief Program to help the troubled industry.

The two top Democratic leaders in Congress are likely to make the request in a letter to the White House, which could be forwarded as soon as Saturday afternoon, said individuals familiar with the matter. President-elect Barack Obama is generally supportive of the appeal, but at the moment is moving on his own track to assist the industry, these individuals said.

Amazingly, the $25-BILLION the Congress recently approved isn't enough.

What else is about to be included under the TARP bill? Credit card defaults. That's right; there is no end in sight to the handouts at your expense. Banks pressured Congress to make it more difficult for individuals to file for bankruptcy a few years ago. And now that these individuals are stuck between a rock and a hard place, what do the banks want? They want another handout from the TARP, this time to payoff 40% of bad credit card debt.

These bankers are shameless! They bombard us daily with credit card applications containing hidden interest rates, fees, and onerous overall rates if just one payment is a day late. The bankers now want you to relieve them of 40% of the potential debt they would have to eat if their consumers couldn't pay. Like a State employee's pension plan, these banks want all the upside with little to no risk.

At this rate CONgress (spelled this way due to the rampant amount of con-artists and grifters in the House & Senate) will be approving a new TARP bill when the Treasury finally gets around to buying troubled assets from banks. Will there be any money to left fund this madness?

I ask because China, the #1 lender to the profligate spending USA, is now slumping as well. China unveiled a $586 billion stimulus package Sunday in order too keep from catching walking pneumonia from the US's cold. With China using its own savings pool to finance its own stimulus (what a concept), will there be extra money to fund endless bailouts in the USA, England, Europe, and now emerging nations? For now perhaps, but over the long run I have my doubts.

When China eventually stops lending the only thing left for the bankrupt West to do is monetize the debt, thus spurring rampant hyperinflation. It will be either that or the Western governments will have to make the tuff choices: stop promising everything to everyone, and actually CUT spending. And since the latter has about the same probability as a snowball's chance in Hades, I'll bet the West opts for inflation - thinking throughout that "this time" they will be able to manage it properly.



Previous Day's Trading Room Results:

Trade Date: 11/7/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 9:20am at 945.75 = +2.50 (1 lot)

2) OTF buy @ 10:00am at 921.25 = -1.50 (1 lot)

3) Algorithm positions (32)...combined daily total...+28.00

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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