Friday, February 3, 2012

February, Friday 3, 2012

DOW + 156= 12862
SPX + 19 = 1344
NAS + 45 = 2905
10 YR YLD +.12 = 1.95%
OIL +1.44 = 97.80
GOLD – 32.50 = 1726.90
SILV -.69 = 33.77
PLAT – 7.00 = 1626.00

The unemployment rate dropped to 8.3 percent in January. The economy added 243,000 jobs, the biggest monthly increase in nine months. The results were about 100,000 stronger than most estimates. Revisions added a total of 60,0000  jobs to payrolls in November and December.

Gains in employment last month were broad-based, including manufacturing, construction, temporary help agencies, accounting firms, restaurants and retailers. Manufacturing payrolls increased by 50,000 in January, the most in a year. Construction companies added 21,000 workers last month. We talked about this about one month ago; the mild winter and warm weather across most of the country has really helped construction jobs.  Private payrolls, which exclude government agencies, rose 257,000 in January after a revised gain of 220,000 the prior month, marking the biggest back-to-back gain since March-April. Government payrolls decreased by 14,000 in January. If it weren't for public sector cutbacks, the labor market would be looking even better.

Average hourly earnings rose 0.2 percent to $23.29, today’s report showed. The average work week for all workers increased to 34.5 hours (from 34.4) The underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 15.1 percent from 15.2 percent.

Whenever the unemployment rate drops, economically savvy observers know to ask a key question: What happened to the employment-population ratio?

Under the government’s definitions, people only count as unemployed when they’re actively looking for work. So when the unemployment rate drops, it could mean that unemployed people found jobs, or it could mean that they gave up looking for work. The employment-population ratio, which measures how many people are actually working, is harder to fool.
Today’s jobs report carries good news on both fronts. The unemployment rate fell, and the employment-population ratio rose. That means the improvement in the labor market is real — people actually found jobs.
Every January, the Labor Department adjusts its data for changes in the population. This year, the employment/population ratio improved by 0.3%. Here's what happened.  The civilian population grew by 1.5 million people in 2011. But the growth wasn’t distributed evenly. Most of the growth came among people 55 and older and, to a lesser degree, by people 16-24 years old. Both groups are less likely to work than people in their mid-20s to early 50s. So the share of the population that’s working is actually lower than previously believed. Taking that into account, the employment-population ratio went up. The unemployment rate wasn’t affected.
There was not a big increase in discouraged workers. The Census found a bunch of old people we had assumed died.”
The adjustments had other effects, as well. They made the drop in the number of unemployed look smaller than it really was, and the rise in the number of employed look bigger. And because the Labor Department doesn’t readjust its historical data to account for the new calculations, it isn’t possible to compare January’s figures on employment, unemployment and similar measures to those from earlier months.
U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, declined to 15.1%. This remains very high - U-6 was in the 8% range in 2007. There are a total of 12.8 million Americans unemployed and 5.5 million have been unemployed for more than 6 months. Still very grim.

So, all this data can be a bit confusing. And it is easy to dismiss the numbers as inaccurate, but it is probably more correct to say the numbers aren't perfect. Still, we are adding jobs, not subtracting jobs. At the current rate, the economy will add about 3 million jobs to the payrolls this year. Take away the government drag, which might happen by mid-year and we might start looking at the possibility that the economy is growing its way out of the hole we've been in. One month isn't enough, but the bottom line is this was a very good month. A whole bunch of people are working again, and that is a very, very good thing.

An update on the Greek rescue plan; it is expected to be finalized in the next few days. Wow, I just had an overwhelming feeling of deja vu. The plan reportedly includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and once the bonds get cut down, Greece gets loans likely to exceed the $170 billion now on the table. That won’t stanch the bleeding. Greece will be saddled with too much debt, too little growth and too large a budget hole to do without even more money that euro nations led by Germany are increasingly reluctant to offer. Greece is in deep trouble. The current Greek adjustment program is failing. Excessive austerity, a lack of supply-side reforms, administrative incompetence and political deadlock have pushed the Greek economy into an apparent death spiral. More of the same will not work. The Greek people may finally realize they are getting a raw deal, and they might revolt. The Credit Default Swap investors might blow up the whole deal before it gets off the ground.

Meanwhile, we're still waiting for the $25 billion dollar multi-state settlement with the big 5 banks and the states attorneys general. That deal should be wrapped up any day now. Wow, I just had an overwhelming feeling of deja vu.  What's holding up this deal? Well, much like the CDS investors in the Greek deal, we're trying to work out which investors ox will be gored in the mortgage settlement plan. Part of the settlement deal includes loan mods on first lien positions. And that means there will be problems with second lien positions, and then the question is “who will pay for the losses on the Mortgage Backed Securities?” And the other question is “who holds the second?” And the answer there is the banks. And that should tell you everything you need to know. If this settlement goes through, it will almost certainly be challenged in the courts on the idea of taking from the first lien holder to save the second lien holders to keep otherwise insolvent banks from going under, which is really just a transfer from private parties to the government, because if the banks go under, they are backed by the FDIC. So, that's part of the reason we haven't seen a deal announced just yet, and maybe never will. It is a lousy deal that is just another back door bailout for the banks.

Meanwhile, Bank of America, Wells Fargo, and JP Morgan Chase have been sued by New York Attorney General Eric Schniederman over the creation and use of the mortgage database known as MERS. The claim is that the banks created the MERS system as an end-run around the property recording system to facilitate the rapid securitization and sale of mortgages. In turn, this has led to fraudulent foreclosure filings in state and federal courts. Delaware Attorney General Beau Biden has already sued Merscorp Inc., which operates the mortgage registry, accusing it of deceptive trade practices. Merscorp was also named as a defendant in Schneiderman’s lawsuit. The implications are pretty huge. A couple of years ago a judge in Kansas ruled that MERS was just a straw man in the transaction. Any honest ruling in New York will find that MERS is just a part of a fraudulent scheme. Sorting through the foreclosure problem is like trying to turn applesauce into apples. It’s going to take a long time, but it is just part of a bigger deleveraging process.  

An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios. JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.” Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers.

The California State Teachers’ Retirement System, the second-largest U.S. public pension, cut its assumed annual rate of return to 7.5 percent from 7.75 percent, the second reduction since 2010.

The board of the $144.8 billion fund voted yesterday to adopt an actuary’s recommendation to lower its investment forecast because of what a staff report called “dramatic market declines” beginning in 2008. The change means the plan will need larger contributions from taxpayers, teachers, school districts, or a combination of all three, to cover pension costs.  Calstrs posted a 2.3 percent investment gain in 2011, reducing its ability to meet long-term obligations to 856,000 members and their families. Over the 10 years that ended Dec. 31, the fund gained 5.4 percent, according to a statement.

The Murdoch Street Journal hacked the phones of real people attending a Super Bowl party and they wrote a story about the do's and don'ts of surviving a Super Bowl party. One thing I didn't know. It is OK for a host to sell "premium seat upgrades"—a reservation on the couch, center of the room, complimentary soft drinks—for $35 each. Everyone's been on a plane recently. They'll grumble but understand.

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