The bits of evidence that provided the strongest support to green shoots backers have been the rise in stock prices and possible signs of slowing in job losses. However, the rally warrants considerable critical scrutiny. First. violent rallies are more characteristic of bear market head fakes than new bull markets. And this rally has featured big gains in the old leadership groups, namely financials, when new bull markets feature the emergence of new leadership groups. Volume has been underwhelming, when bull markets tend to feature rising volume. Last and most troubling have been the signs of ham-handed market manipulation. We’ve had four days in the last two weeks of tape-painting in the closing minutes, with near vertical trajectories in major indices. Last Thursday was particularly sus (who would buy late in the day, on a day when a major statistical release was due out pre-opening the next morning?). Tyler Durden has also contended that some of the major equity desks have been actively squeezing shorts in stocks where short interest is relatively high.
On the employment front, the data has been less impressive than the cheerleaders would have one believe. First, some of the supposed “improvement” in new releases has been by virtue of revisions downward to prior month data (meaning the month prior was lower than previously believed, making the improvement in the new “front” month look better than it would have been if compared against the initial release). Second, the change may simply be short term noise. The Chrysler and GM bankruptcies alone mean we have a large number of job losses baked in due to plant closures and shuttering of dealers. And that’s before we get to the impact on suppliers.
And the unemployment story looks wobbly on other fronts as well. For unemployment to fall, employers need to start to hire more people, but there has been virtually not change in plans. From “Hiring Plans Stick at Record Low,” MarketWatch (hat tip reader DoctorRx):
Employers’ hiring plans for the third quarter didn’t budge from their record-low second-quarter outlook, according to Manpower’s latest Employment Outlook Survey.
A net -2% percent of employers said they plan to hire in the upcoming third quarter, flat from the -2% who said they would hire in the second quarter….(The second-quarter outlook was revised down to -2% from -1%.)…
The survey’s previous low point was in 1982, when a net 1% of firms planned to hire in the third quarter.
A year ago, a seasonally adjusted net 12% of firms said they would hire in the third quarter. The Manpower survey measures the percentage of firms planning to hire minus those intending layoffs. Manpower doesn’t measure the number of jobs. The survey’s margin of error is +/- 0.49%…
The Manpower survey’s seasonally adjusted figure smoothes out monthly fluctuations. Without that seasonal adjustment, the survey found a net 2% of firms intend to hire in the third quarter, up from 1% in the second quarter. Sixty-seven percent of firms plan no change in the third quarter — a figure that has stayed constant now for three surveys. Another 5% of firms said they don’t know what their plans are.
Looked at by industry, six sectors showed a negative hiring outlook for the third quarter, while employers in the “other services” category had a 0% hiring outlook. In January, Manpower changed its industry classifications; because of that change, it currently can’t provide seasonally adjusted figures by industry.
Firms in the leisure and hospitality industry were the most optimistic, with a net 18% planning to hire, while another four industries also had a positive employment outlook.
While this has not been as big a focus of news coverage in the US, another argument has been that trade is starting to recover. However, that appears to be at least in part due to Chinese stockpiling of raw materials (as opposed to buying, say, Treasuries), which in turn means they are not abandoning their attachment to keeping the RMB low to preserve their competitive advantage. China’s peg currency was a big contributor to the crisis, and while moving away from that and building a consumer society is a 10 to 20 year process, trying to stick to status quo ante is likely to lead at best to temporary stabilization followed by further dislocation.
This story from Maritime Global News (hat tip reader Michael) discusses how China is buying iron ore well in excess of its needs:
Thailand-based handy operator Precious Shipping says that the current rise in the Baltic Dry Index is unsustainable in the long run and will lead to a consequent crash in rates as new tonnage enters the market.
“China binge buying iron ore against all expectations with imports rising at 27+ pct higher in 2009 than for 2008, based on the annualized results of the first 4 months of this year, shows you where the big move from the demand side has come from,” the company said. “This rise in iron ire imports is despite the fact that steel production in China in the first four months of 2009 has been roughly at the same levels as we had seen in 2008. An explanation for these increased iron ore imports could be the fact that domestically produced iron ore in China is of a rather poor quality and quite expensive when compared to spot imported prices. Another explanation could be that of speculators getting into the import market to try and get hold of ‘cheap’ iron ire that would possibly be required under the Chinese government’s US$586bn stimulus plan. And a third could be the impending conclusion of the iron ore contract price negotiations.”
“Obviously, when you binge buy and compress imports of a single commodity, carried mainly by capesize ships, into a very short space in time, you tend to create two issues at the same time. Firstly, you tend to push up freight rates due to the time-compressed/explosive demand growth for that ship-sector. And more significantly, you create queues at loading and discharging ports which tend to reduce availability of spot ships driving prices even higher. Combine this with delayed delivery schedules of dry bulk ships during Q4 08 and Q1 09 and you have the ingredients of a perfect storm especially when you take the number of capesize ships that have been sent to the scrap-yard during the last 6/9 months…
“In our opinion, based on the congestion at Chinese discharge ports and the present increased level of iron ore imports the index could actually cross 5,000 points. We think that congestion should clear up once this binge buying of iron ore abates or more new Capes are delivered from the ship-yards than the demand can absorb. Once one or both of these events take place, congestion will vanish very quickly with the BDI crashing down as quickly as it has advanced. The fundamentals still overwhelmingly point to a world economic recession with tremendous job losses and we suspect that will put a real dampener on the current burning hot BDI.”