SP 500 September Futures Daily Chart

Rough week for bully.

Stocks need to find a footing right here, or continue heading lower, conceivably much lower, next week.

Note to Mish: The BLS Added About 145,897 Imaginary Jobs to the Non-Farm Payrolls Headline Number

I like Mish Shedlock. He has intellectual integrity, and even when we occasionally disagree, as I recall over the inevitability of deflation and some of its particular consequences and manifestations, I listen to his arguments carefully. He draws conclusions that are difficult to fault. Most of the time we seem to be in agreement.

In his most recent blog, he indirectly poses an interesting question.

"Hidden beneath the surface the BLS Black Box - Birth Death Model added 145,000 jobs. However, as I have pointed out many times before, the Birth/Death numbers cannot be subtracted straight up to get a raw number. It contributed to this month's employment total for sure, but the BLS will not disclose by how much."

Mish Shedlock, Jobs Decrease by 125,000

Here are the Imaginary Jobs added to the Non Farm Payrolls from the Birth Death Model of the BLS. As Mish reminds us, (thank you Mish. I have been nagging bloggers about this for years), the Imaginary Jobs are added to the unadjusted payroll numbers, which are dramatically impacted by the seasonal adjustments, which are sometimes quite significant.



I include this second chart show the Birth - Death numbers over time to show the historical trend. It is remarkable how 'regular' this number has been over the past six years despite an epic recession that devastated small businesses, which is purportedly what this model tracks.



Here is a visual depiction of the Seasonally Adjusted and the Unadjusted Non-Farm Payroll Numbers. As you can see, the adjustment is sometimes very significant. Remember, the Birth Death imaginary jobs are added to the unadjusted number, which is indicated in maroon on this chart.



So obviously one can calculate the 'seasonality factor' using a simple formula

Seasonality Factor (SF) = Seasonally Adjusted Number (SA) / Non-Seasonally Adjusted Number (NSA)

I do this each month in the Payrolls Spreadsheet that I maintain. I like to see if the BLS changes its calculations and assumptions over time, especially when they do major revisions.

And although I have never shown it in this blog before, it is relatively easy to add a few lines to account for the net impact of the Imaginary numbers on the Headline Number.

And so here it is:



It seems counterintuitive that the adjustment is so slight, given the big difference between the net SA and NSA headline numbers as shown in Figure 3. But this is how it is. The reason for this is that the gross input numbers are very large, and so even small deviations from month to month can appear quite large on the net of it. But since the Seasonality Factor is a ratio, it does not have to fluctuate much to have a large impact on the nominal net changes.

The spreadsheet also contains a calculation showing what the numbers would be without the Imaginary Jobs numbers added at all. This month it would have been a loss of 270,897.



One *might* conclude that without the temporary Census jobs and the Imaginary Jobs from non-existent small businesses consisting largely of unemployed people turned consultant, there has been no recovery in net job creation.

This is most likely because of the Fed's and Treasury's policy errors in flooding the banks with largesse to cover their fraudulent insolvency, while neglecting, if not screwing, the public and consumers with one faulty economic prescription after another.

Benny is no Keynesian. If John Maynard. could come back and see what they are doing in his name, I don't think he would be able to stop throwing up. Ohh, bad visual.

A faithful servant of the big banks and corporations, the American version of the kereitsu crony capitalism, I think he's turning Japanese. Timmy, Larry, Volcker and Obama are the Night Pandas, amusing the world with their economic antics while Asia eats their lunch. Disclosure: Timmy is Wee Man, Summers is Preston Lacy, Volcker is Steve-0 when he can stay awake, and of course Obama is Johnny Knoxville.

(All together now.) The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

Gold Weekly Chart: Gold 10 Yr Bond Correlation; Bond Crash

"The CME Final indicates that on volume of 291,445 lots (27.2% or 62,000 lots higher than estimate) open interest fell 15, 107 lots (46.99 tonnes or 2.49%) to 590,685 contracts. On a stock market close basis gold was down 3.66%.

This was the heaviest volume since late May, a period of significant activity somewhat distended by the roll-over. Open interest is merely back to the level of mid-June.

A purely long-liquidation driven drop would most likely seen open interest contract more than the price fell. Some important short selling took place yesterday as well."

John Brimelow

“Gold's huge drop on Thursday is not the beginning of a new major leg down for the yellow metal. That at least is the conclusion reached by a contrarian analysis of gold market sentiment. There does not currently exist the kind of stubborn optimism among gold timers that is the hallmark of major market tops...The bottom line? The sentiment winds will be blowing strongly in the gold market's sails in coming sessions”

Mark Hulbert

I am mindful of a further breakdown in equities, but the more likely we will see an important sector rotation in July from bonds to stocks, and this may provide further lift for gold.

However a short term trading range seems more likely to me now, since the bullion banks seem so terrified of gold breaking up through the 1260 level. It is not inconsistent to have a protracted handle on the current cup and handle formation on the daily chart.

What are they afraid of? The physical offtake at the COMEX, especially in silver, was beginning to cause enough strain to raise concerns of a market 'break' which would be highly embarrassing to the Obama Administration. The last thing they need now is another scandal of failed regulation and crony capitalism. But this does not resolve the problem; it merely kicks the can down the road.



Although the correlation is far from perfect, indicative of the variety of drivers that constitute the gold price, the relationship between the 10 Year Note and the Price of Gold has long been in my dataset. It makes fundamental sense when you think about it. But it should be stressed that it is only a minority correlation, and its influence waxes and wanes, especially since the prices of both assets are subject to official meddling by the Treasury and the Fed.



Someone asked me if Big Daddy was Warren Buffett. No, its trader slang for the 30 Year US Treasury Bond.

Speaking of an expected sector allocation smackdown in July, I would not be surprised to see the wiseguys driving investors out of the bonds in July, shoving them into riskier trades, the better to eat you with, my dears.

The US bond is a fairly safe place for now, as long as you don't worry about the coming devaluation of the dollar which I would expect to hit around 4Q this year when they recalibrate the SDR.

But Bonds do crash. Here is a representation of the Bond Crash that followed the stock crash of 1929. See the flight to safety, and then the collapse as the dollar was devalued, a form of soft default? Cyclepro originally posted this. As I queried him he said it was based on data from Martin Armstrong. My own analysis indicated these were not Treasuries but corporates. Treasuries did 'crash' but not to this degree. But the point remains that bond at some point will be no safe haven.

When will this crisis bottom? I don't know, but it will almost certainly end badly because the kleptocracy forgot rule number one of the Trade: bears make money, bulls make money, but pigs get slaughtered.

US Non-Farm Payrolls Report for June; Unemployment at 16.5%

Despite the 'improved' rate of unemployment, achieved by eliminating unemployed people from government statistics as if they no longer matter, the plunge in jobs growth broke an important uptrend which had been fueled by temporary, lowpaying Census jobs.

This chart looks like Obama's post election popularity. The Democrat's are heading into a November bloodbath at the polls. Obama might wish to consider firing Tim and Larry now, rather than as a reaction to angry party members and supporters. Timmy is a busboy, and Larry has failed at every real job he has attempted. Looks like he is running out of tricks. Robert Reich and Elizabeth Warren are the kinds of people you should be bringing in.

A weak and insecure leader surrounds themselves with sycophants, cronies from the old neighborhood, and the hand picked stooges of the powerful. But at some point you need to get the job done for the people when you hold the reins of power. In the commercial world we used to say, "You are not really promoted, until you are successful." And in case you have not noticed, you are on your way to palooka-ville.

People of substance, Barry, people of substance. There is no substitute.




Unemployment according to the U6 Alternate Measure was steady at 16.5% thanks to discouraged workers dropping off the radar screen.



U6 Unemployment: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workersLabor force status: Aggregated totals unemployed