Full Employment

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The headline Establishment Survey number disappointed at just 151k in January. The figure does not represent the actual amount of jobs gained, of course, since employment in January is typically about 3 million less than December. What that estimate represents is a combination of imputations about seasonality (comparing the actual change in the data set to the “typical” decline December to January) and at the start a stochastic modeling based on a non-exhaustive sample. That sample size is admittedly large, about 163,000 businesses and government agencies representing 623,000 individual worksites, but that does not mediate the necessity to refer to statistical processes.

The technical notes claim that the confidence interval for the CES is about 115,000 + or -, and that just for a 90% level of significance (1.6 standard deviations). So what the Establishment Survey just reported was in no way job gains of 151k but rather that January 2016 likely would have been between +36k and +266k had January been a “typical” and smooth month for employment. And even that interpretation is slightly misleading, since the confidence interval really only means that if the BLS ran the survey 100 times (polling a different 163,000 businesses each time), only 90 of those 100 are expected to fall in that range.

In short, there is entirely too much focus on the immediate monthly numbers – including when they are disappointing. Overall, the payroll figures remain as they have been; irrelevant for reasons that have to do with how they are constructed in the first place. There are any number of clues as to this statistical situation, but the easiest and most ready signal is basic common sense. Was January 2016 likely to have been a somewhat softer continuation of an otherwise robust employment condition unbroken by all that has occurred dating back almost two years now?

The fact that even the CES has clearly slowed in 2015 and into 2016 suggests that the true state of labor and payrolls did as well; what is left is to argue about is the degree of that slowing and from which point (“best jobs market in decades” or something much less than that) it began.

ABOOK Feb 2016 Payrolls Est Sur 6m

I still believe that jobless claims have been a “guiding factor” in configuring the CES (Establishment Survey) this whole time; up and now down. Jobless claims have plateaued if not somewhat reversed, which might suggest that the slowdown in the Establishment Survey at the start of last year was worse than currently projected (in terms of magnitude as well as starting point).

ABOOK Feb 2016 Payrolls Jobless

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The Adjustment Cycle

Submitted by Doug Noland – Credit Bubble Bulletin 

Crude has rallied about 5% off of last month’s lows. The Brazilian real closed Friday at 3.90, having posted a decent rally from the January closing low of 4.16 to the dollar. Brazilian equities have bounced about 10%. This week saw Brazil’s currency rally 2.4%. In general, EM currencies and equities have somewhat stabilized, notably outperforming this week. Stocks posted gains in Brazil, Turkey and China. From Bloomberg: “Yuan in Longest Weekly Rally Since 2014 as China Raises Rhetoric.” The dollar index this week dropped 2.6%, which most would have expected to lend some market support.

If crude, commodities, EM, the strong dollar and the weak yuan were weighing on global market confidence, why is it that global financial stocks have of late taken such a disconcerting turn for the worse?

Thursday headlines: “Credit Suisse posts first loss since 2008”; “Credit Suisse shares crash to 24-year low.” This week saw Credit Suisse sink 15.2%, pushing y-t-d losses to 30.4%. European financial stocks continue to get hammered, some now trading near 2009 lows. Notably, Societe Generale this week fell 8.7% (down 25% y-t-d), Credit Agricole 6.1% (down 21%) and Deutsche Bank 5.2% (down 30%). From Bloomberg’s Tom Beardsworth: “Credit-default swaps tied to subordinated debt issued by Deutsche Bank rose to the highest since July 2012…” The STOXX Europe 600 Bank Index dropped 6.2% this week, boosting y-t-d declines to 19.9%. FTSE Italia All-Shares Bank Index sank 10.1%, increasing 2016 losses to 30.6%.

February 4 – Bloomberg (Tom Beardsworth): “European banks and insurers’ financial credit risk rose to the highest in more than two years, following a $5.8 billion loss at Credit Suisse Group AG and signs of a slowdown in the global economy. The cost of insuring subordinated debt climbed by 19 bps to 254 bps, the highest since July 2013, based on the Markit iTraxx Europe Subordinated Financial Index. An index of credit-default swaps tracking senior financial debt jumped six bps to 110 bps. Both indexes have risen for six days in a row…” Continue reading

The Federal Reserve – the Deep State’s Central Bank

Submitted by William Bonner, Chairman – Bonner & Partners

Fighting to Lose

BALTIMORE – Where are we now? Dow down 296 points on Tuesday – or just under 2%. Cruz and Clinton win the Iowa caucuses. Oil is back below $30. An election has been described as two wolves and one lamb voting on what to have for dinner.


Sheep-On-Voting-For-a-Lion-Or-a-Wolf-On-Election-DayWe’re going to make a difference on election day! Or maybe not…


Actually, there was never any doubt about what was on the menu. An election is really when the wolves scrap over who gets the choicest pieces. To bring new readers fully into the picture… It doesn’t matter who won in Iowa. Major policies are not determined by the voters but by the more or less permanent elite who run the government, aka the “Deep State.”

The Fed is an instrument of the Deep State, not of the people. This sounds conspiratorial. But it doesn’t require any hidden agenda or secret handshakes. Most people want power, money, and status. If you can get control over the government – the only institution that can steal and kill, legally – you’ve got it made. That’s why so much money is spent trying to get elected or to influence public policy.

The U.S. presidential campaign has seen surprisingly strong showings from two “outsiders”: Donald Trump and Bernie Sanders. Why? As former Congressional staffer turned Deep State whistleblower Mike Lofgren recently told Bonner & Partners Investor Network editor Chris Lowe, it’s because each in his own way warns voters about the wolves. The insiders, according to Trump and Sanders, are predatory and incompetent.


2016-Presidential-Election11Bernie and the Donald – voters like them because they are seen as the anti-establishment choices. The press decries them as “populists” and “nutcases”, which means they must be doing something right. As an aside, the European press is completely apoplectic over Trump, to our unending amusement.


But the Deep State is more predatory and less incompetent than it appears. It fights wars, for example, not to win them… but to lose them. The War on Poverty has been going on for more than 50 years. Still no sign of victory. But it has financed countless careers and retirements of government operatives. Continue reading

If Services Stumble Too There Truly Is Nothing Left

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

So much for the services savior? The worries about manufacturing weakness spreading are spreading. It’s maddening only because it was entirely predictable, maybe even inevitable. If consumers aren’t buying goods, and they aren’t, it is not because they are otherwise healthy (in financial terms) and have only just recently decided they have in the aggregate accumulated enough stuff. The economy just doesn’t work that way outside of some cartoons.

After both non-manufacturing PMI’s came in much weaker than expected, especially the ISM, the word “spreading” or some variation of it was in every commentary.


Service industries expanded in January at the slowest pace in nearly two years, raising the risk that persistent weakness in manufacturing is starting to creep into the rest of the U.S. economy.
The Institute for Supply Management’s non-manufacturing index fell last month to 53.5, the lowest since February 2014, from 55.8, the Tempe, Arizona-based group’s report showed on Wednesday. Readings above 50 signal expansion. The result was less than the 55.1 median forecast in a Bloomberg survey. [emphasis added]


The worrisome data came from the Institute for Supply Management’s non-manufacturing survey for January, which came in at 53.5 when economists predicted 55.1. Last month the index was at 55.8.
While it is still above 50, which signals expansion, the slip has investors worried that the weakness in manufacturing is spreading. [emphasis added]

The Markit Non-manufacturing PMI was particularly blunt, especially in raising the specter of “cyclical” slowing. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Oil Market Spiral Threatens To Prick Global Debt Bubble, Warns BIS (AEP)
• Gundlach Says Financials Below Crisis Prices ‘Frightening’ (BBG)
• Global Financial System Risk Is Soaring Worldwide (ZH)
• Standard Chartered Down 57%, Returns to 1998 (WSJ)
• US Exports Fell In 2015 For First Time Since Recession (AP)
• Oil Rout Threatens Vicious Cycle for US Economy (WSJ)
• The Chart of Doom: When Private Debt Stops Expanding… (CHS)
• Why It Would Be Wise To Prepare For The Next Recession (Wolf)
• Citi: World Economy Trapped In ‘Death Spiral’ (CNBC)
• Negative-Interest-Rate Effect Already Dead, Central Banks Lost Control (WS)
• China’s Reserves Pose The Next Hurdle For Yuan (CNBC)
• Europe’s Economic Outlook Darkens, Sends Shudder Through Markets (BBG)
• LinkedIn Sheds $11 Billion In Value On Stock’s Worst Day Since Debut (Reuters)
• Armed With New US Money, NATO To Strengthen Russia Deterrence (Reuters)
• Why Pensions Are The New Flashpoint In Greece’s Crisis (AP)