Jobs Numbers Revised Back to 2003: Confirm Recession

You may have missed this in today's Jobs Report, but when we started to update our Excel spreadsheets with the jobs data we noticed that the Bureau of Labor Statistics has revised the Jobs Data. It was not the usual revision back a month or two. It went back all the way to early 2003.

Admittedly they could have worked this revision in February or even January, since we don't often go back into prior years to look for major changes. But the fact remains that the data has been significantly revised, and downward.

We're working with really large numbers here overall, and its hard to see these changes in graphs. We're not sure its even worth looking at the monthly changes in the graphs.

What is important is the TREND. And the revised numbers showed a significant confirmation in the downtrends, that our 12 Month moving average has been showing since the beginning of last year.

The US is in a slowdown. More precisely, the US entered an economic recession in the first quarter of 2008 at the latest, and perhaps the fourth quarter of 2007. We'll say what Nouriel Roubini probably wishes he could say: anyone who says we are not in a recession now is either a stooge or merely ignorant.

Look for the Wall Street and government spin to shift from denying that we are in recession, to a new slant that we are in recession but its now half over and its time for stocks to start pricing in recovery in the second half of the year.

Let's see if the President's Working Group can keep stocks propped up to give the average Joe the impression that things are not so bad.

There is only one play in this current team's playbook: fraud - bubble - bust. Because that's all that they know how to do.

They don't know how to facilitate a productive economy to build genuine prosperity for the nation. For the most part they have never created anything worthwhile in their lives, but lived off the labor of others. But they do know how to enrich a few of their cronies, and to deceive, inflate and try to patch the mess once the bubble they created breaks. At least so far.

And here's a report on the Jobs number from John Williams over at Shadow Government Statistics.

March Payroll Decline Easily Topped 120,000

When a Fed Chairman begins talking recession, a recession is in place. Chairman Bernanke's comment on Wednesday that the U.S. economy "even could contract slightly" in the first half of 2008 was more reporting than a prognostication. He certainly had an advance idea of the March employment data that now show a decline in average first-quarter 2008 payrolls versus fourth-quarter 2007, where seasonally-adjusted March 2008 payrolls are down at an annualized 0.7% rate from December 2008.

Despite the bad news in the monthly jobs data, the reported numbers still were overly Pollyannaish, thanks to extreme gimmicking. As anticipated, the industrial production benchmark revisions showed considerably weaker economic activity than previously reported, while the purchasing managers survey again showed a deepening economic contraction and surging inflation.

Also on the inflation front, money supply M2 continued to surge in the latest weekly reporting up a seasonally-adjusted, annualized 24.3% in the week ended March 24th, with annual growth in March M3 now a fair bet to top 17.2%, up from the 16.9% historic high set in February. The money supply numbers will be updated over the coming weekend on the Alternate Data tab at www.shadowstats.com, after tonight's data releases.

Jobs Data Should Continue Fueling Recession Forecasts.

The reported third consecutive decline in monthly payrolls, as of March, will do much to reinforce recession outlooks, but the data remain severely gimmicked, understating the monthly declines in payroll employment, thanks to the usual statistical shenanigans at the Bureau of Labor Statistics (BLS). Net of gimmicks, the decline in payrolls and the rise in the unemployment rate were statistically significant......

Seasonal-Factor Gimmicks.

Year-to-year growth should be virtually identical in both the seasonally-adjusted and unadjusted series, and applying the unadjusted annual change to the seasonally-adjusted year-ago numbers for February and March suggests that the seasonally-adjusted month-to-month change should have been a contraction of 124,000. This reporting gimmick is made possible by the "recalculation" each month of the monthly seasonal factors. If the process were honest, the suggested differences would go in both directions. Instead, the differences almost always suggest that the seasonal factors are being used to overstate the current month's relative payroll level, as seen last month and the month before....

Household Survey.

The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including those of multiple job holders), showed household employment dropped by 24,000 in March against a 255,000 decline in February.

The March 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-significant increase to 5.08% +/- 0.23% from 4.81% in February. Unadjusted, U.3 held at 5.2% in March. The broader U.6 unemployment rate rose to an adjusted 9.1% (9.3% unadjusted) in March, versus 8.9% (9.5% unadjusted) in February. Adjusted for the "discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to 13.0% in March, up from 12.8% in February....

Purchasing Managers Surveys Show Inflation and Recession.

The stock market truly is irrational if it rallies sharply on a minor upswing in a still-negative purchasing managers survey (manufacturing in March was 48.6 versus 48.3 in February). The alternatives are that either silly hype can rally these extremely vulnerable markets, or that some analysts have a compulsion (or real need) to explain all market movements in terms of any published news, regardless of actions or market manipulations by major players and/or government/Fed. Both factors likely are at play....

Bernankian Rhapsody

Sung to Queen’s Bohemian Rhapsody
(hat tip to Bill Murphy at Lemetropole Cafe for concept)

Is this the real price?
It is just fantasy.
Mark it to model
But watch out for FASB,

Opened my eyes,
Looked at your buys and see,
You're just a poor Bear
Triple A casualty

Because you bought it high, sold it slow,
Rated high, values low,
Any way the spreads go
Doesn't really matter to me, to me...

Obama - just killed a Fund
Let the market run ahead
Cut too slowly, now it's dead,
Obama - I had just begun
These foreign banks have blown my dreams away

Obama - oooh ~~~~~
I still wanna try
I sometimes wish I'd never left Princeton at all.
Carry trade, I'm afraid, its going to K-winter....

[Musical Interlude]

I am the little silhouetto of a man
Hammer Hank! Barney Frank! Can you save my appointment?
Midnight calls they want my balls - very very frightening -- please!
SP's tanking, so frustrating,
Cramer called, he's menstruating,
Brokers deeply into blow -
Where's Gasparino! oh 0h 0h....

I'm the death of subprime, nobody loves me
He's the death of packaged debt, perma-bullish fantasy
Spare us we pray from this monstrosity.

Easy come easy go, Paulson wants to know,
Gold Repos! No - you will not let them go - not let them go!
Spot Silver! No - you will not let it go - not let it go!
The Dollar! We will not let it go - not let it go!
Will not let rates go, not let them go!
Won't take Funds down below, crack Zero!
No, no, no, no, no, no, no, -

Obama mia, set me free-ya, Obama please just keep me on
Sir Alan had this devil put aside for me
For me, for me, for me

So you think you can fund Bear and spit in the Democrats' eye?
And cross swords with Schumer and leave Timmy twisting to die?
Obama - can't do this to me Obama
Just keep me on - your party wants my butt out of here!

Moral hazard doesn't matter,
Anyone can see,
I want to keep the Fed chair -- no price really matters to me

Any way the wind blows.....

When Markets Crash...

For those new readers in 1998 we started an intense study of market bubbles, in preparation for what we thought was coming. We came to some general conclusions about the elements that contribute to a market correction, break, failure, or crash, each of which has a particular character and depth that is similar but still unique enough to be classified.

We expressed this in a series of price charting patterns, and a set of mathematical relationships of price over time in a large Excel spreadsheet labeled CrashTrak©. The verbal description of the analysis was never polished or published, since this has been for private use only. It has been expressed piecemeal in occasional writings, charts and postings in the past seven years around the web. Its still evolving as more is learned and new things occur as you would expect.

We are reading what looks to be a very promising analysis of a particular period of history which includes a financial market panic in 1907 that helped to set up the creation of the Federal Reserve Bank in 1913. Since we have not yet completed the book we won't comment yet on it except to say that it appears to be a substantial, serious and highly readable history of the time from a financial and social perspective. The Panic of 1907: Lessons Learned from the Market's Perfect Storm: Bruner & Carr

Our own view tends to see 1907 as a market event more like 1987 in its character and aftermath, as opposed to 1929 which is a crash and depression. But we have an open mind and hope this book will help to refine our knowledge.

In the introduction the authors provide an excellent description of the characteristics that together create a crash environment. Its remarkably close to what we think, although expressed much more capably. We'll have to see how they expand on this in the rest of the book, and are keenly interested to see if they have captured the element of a trigger event and if so how they have done it. We recommend this template not only as a general recipe for crash environments, but as a benchmark against which to understand not only what set up 1907, 1929, 1973-4, 1987, 2000-3 but also the situation in which we are in today.

"The following detailed account of the events of 1907 draws upon this rich literature to suggest that financial crises result from a convergence of forces, a perfect storm at work in the financial markets. Throughout the dramatic story of the panic of 1907, we explore this metaphor as we highlight seven elements of the market's perfect storm.

1. System-like architecture: Complexity makes it difficult to know what is going on and establishes linkages that enable contagion of the crisis to spread.



2. Buoyant growth: Economic expansion creates rising demands for capital and liquidity and the excessive mistakes that eventually must be corrected.



3. Inadequate safety buffers: In the late stages of an economic expansion, borrows and creditors overreach in their use of debt, lowering the margin of safety in the financial system.



4. Adverse leadership: Prominent people in the public and private spheres implement policies that raise uncertainty, which impairs confidence and elevates risk.



5. Real economic shock: Unexpected events hit the economy and financial system, causing a sudden reversal in outlook of investors and depositors.



6. Undue fear, greed and other behavioural aberrations: Beyond a change in the rational economic outlook is a shift from optimism to pessimism that creates a self-reinforcing downward spiral. The more bad news, the more behaviour that generates bad news.



7. Failure of collective action: The best-intended responses by people on the scene prove inadequate to the challenge of the crisis."

The Nature of the US Financial Crisis

The US financial crisis is not one of liquidity or a credit crunch.

That could only be a symptom of some other problem in a fiat monetary system with low interest rates and wide acceptability on Treasury debt. Liquidity is just a symptom and one cannot cure the disease by trying to relieve the symptoms. You have to treat the illness, or hope that the patient can cure themselves through the natural processes of the body while you relieve the symptoms.

What has happend, what no one in the financial business seems willing to say, is that a number of corporations have been caught in a massive and pervasive financial fraud (or as their lawyers would prefer, a sustained lapse in judgement). This includes a number of the Wall street banks, big accounting firms, and in particular ratings agencies.

Who will lend or buy when the judgement of those who create, sell, and rate the product has been shown to be corrupted, false, and not valid? If you were on eBay, and the seller had a rating that showed repeated deceptively false product descriptions, would you buy from them even if Paypal offered you a favorable discount on interest rates? Of course not.

The problem is accountability and credibilty. Integrity and honesty.

Any of us would not do significant business with anyone who has shown a lack integrity and honesty in their recent business, especially knowing that they will not be held to account for any frauds they may commit against us. At least most of us would not, and at some point the supply of greater fools is exhausted.

The banks are no different. They are reluctant to deal with each other without a third party guarantee from the Fed or the government. They know that THEY have been imprudent at best, and intentionally deceptive at worst.

Have we become so used to corruption and deceit that we cannot even notice it anymore, like a family that lives near a train or a busy highway?

Until serious steps are taken to restore integrity all we are doing is perpetuating a financial system that is broken, and stumbling into a real and serious collapse that may be catastrophic when the rest of the world walks away in disgust.

The public in the US is running out of credit and cash, after many years of wage growth supression and degradation of the productive economy, and can no longer sustain this almost parasitic arrangement which Wall Street has created. The banks' solution is to find new and healthier subjects to feed upon in Asia and Europe which is what they were doing when the subprime scandal surfaced.

That is the heart of the problem. And we won't hear the truth because the boys with the cookies in their hands are afraid of getting punished by having their cookies and bonuses and maybe even their freedom taken away. And besides, they have gotten away with it before, and are trying to bluff their way out of another tight spot.

Let's see what happens, but start thinking what we can do if the system is not capable of repairing itself through the actions of our representatives in Congress. Dropping them a quick note or call to let them know what we expect would be an excellent first step.

If you wish to do more, walk away. Stop buying non-essential purchases for the rest of this month. Buy only what you absolutely need to live. Pull your money out of any of the big money center banks and broker/dealers. Stop using credit cards from the big money center banks. Pull your money out of the US stock market. Bring your money closer to home and put it into a sound local bank.

At the worst, you'll have some extra money saved. And at the best, maybe we'll feel better and see some change and help to break this cycle of fraud, bubble and bust.