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More Data Casting Doubts on Green Shoots Theories

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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.”

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7 comments

  1. attempter

    It seems to me that volatility in general is not indicative of health but of sickness.

    And the fact that the spurts are resulting mostly from the zombie banks' feeling politically stronger and stronger is the worst sign of all.

    After a brief period of anxiety, the FIRElords are now completely confident in their absolute purchase/capture of this political system, and that short of an actual popular uprising, no one will ever again try to interfere with their looting of the country.

    So of course the stock market has been partying. By now its highs and lows run in direct proportion to how disempowered, disenfranchised, and unable to defend themselves vs. creeping serfdom the people seem.

    And the jobs figures being rigged by more data manipulation? No surprise there.

    I would only like to remind people to always remember the fundamental lie of all "unemployment" stats, that they elide the fact of how good jobs are always being destroyed, while the "new" jobs that replace them are always much closer to slave labor. But the two kinds are considered identical in the stats.

    Thus when a Walmart destroys x number of self-employed proprietors and middle-class quality jobs which pay living wages, and replaces them with x + y minimum-wage no-benefit "greeters", in the eyes of the stats, of "economics" and "globalization", that was a gain for "the economy".

    And then we have the asset-buying sprees of China and others. Not real "trade", but preparing for hypothetical future restored infinite growth. This is never going to in fact happen, but China is every bit as terminally committed as America. So here too they can only zombify the status quo, prop it up as much and as long as possible.

    Nope, these "green shoots" look just as tenuous as the corn shoots I've been unsuccessfully trying to protect from pests in my garden.

  2. Bruce Krasting

    I was looking for stocks to short about ten days ago. You have to be sure to get the stock to borrow before going short these days.
    Sears stock borrowing cost was 33% per annum.

    You can't be short when it costs that much to borrow stock.

    Stocks with high borrowing costs have been good performers. It is just a big short squeeze on these names.

    Caveat emptor.
    bk

  3. campbeln

    Ok, walk with me here…

    Near the end of the game of monopoly you're sitting on a pile of currency that is about to become worthless when the game ends, so why not build those last few hotels, right?

    Now, if I were China and I was worried about my monopo… er… US dollars becoming "worth less", I think I'd move to the short end of the yield curve (check), attempt to buy up those "hotels" (or Rio Tinto in Australia) (check) and with my left-over excess duckets you might as well get something you're going to use anyway, like say iron ore (check).

    Now, not being a central banker myself I'm doing nothing more then talking out my buttocks… but when I'm in the final 2-3 in monopoly I play like China seems to be playing now.

    Cn

  4. marsha donner

    market manipulation happens on many levels…all probably legal given the trend in the past 20-30 yrs.
    but now we have, clearly, as situation where banks have been told to raise capital, their 1Q reports show they made money in trading (the all are also brokerage firms! ,dah). so on like last thursday some bank (goldman seems to have been the one this time) pumped in over 20Bn into the market in the last 2 minutes. yesterday it was some other bank/banks probably that jacked ALL the markets up in the last 40 minutes..and took some profit in last 10 minutes besides..this up move cost at least 100bn for all markets in those few minutes.
    naturally..higher markets, better to sell the shares needed to raise the capital required…to pay back tarp in time to declare big bonuses…
    now also we have have one brokerage after another changing the ratings of the other banks from hold to buy etc…you scratch my back, i'll scratch yours…
    besides, they are using tarp money to do all this..or free FED money…both our money..to jack the market higher and not even allow a 'normal' correction after so many weeks up….while shares are being sold.
    of course the media goes along with this illusion..green shoots etc etc and rosy stats to boot.
    now we enter the near 2nd Q end game…anyone want to bet that 'they' want the market to end higher by june 30? anyone want to bet that any manager for some mutual fund wants to show tons of cash on hand at the end of the Q and look like they missed the 'big' rally??
    now, they might allow a tiny correction soon..enough to bring some bears into the market and grab their money (mine) as the market rises again towards the end of the Q2.
    i doubt the'manipulation' wont' come home to roost until end july earliest when it might, might become harder to keep the obvious hidden longer.
    add to this the necessity of the FED to 'prove' in the short term they have not abandoned the dollar..the dollar will rise soon again…for a bit..and the market will go down..a bit in balance..and certainly they will try to keep gold under 1000 at all costs during this process. would look bad if there were some other safe haven besides the dollar and US equities wouldn't it?
    bets anyone??

  5. Eric L. Prentis

    Never trust, at face value, the propaganda that comes out of Washington, readily published and broadcasted by the mainstream corporate media, it’s full of hooie! The real story on unemployment is: the total number of hours worked in May continues to plummet. Please see “The Enforced Leisure Society” by Andrew Leonard. published 6/9/09 on Salon.com, link: http://www.salon.com/tech/htww/2009/06/09/the_enforced_leisure_society/

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