Friday, April 11, 2014 - Corrupt or Incompetent, Take Your Pick

Corrupt or Incompetent, Take Your Pick

by Sinclair Noe

DOW – 143 = 16,026
SPX – 17 = 1815
NAS – 54 = 3999
10 YR YLD - .01 = 2.62%
OIL - .07 = 103.33
GOLD + .30 = 1319.40
SILV - .07 = 20.06

The S&P 500 closed at its lowest level in two months. The gauge slipped 2.7% this week, the biggest loss since 2012. The Dow Industrial are down 2.4% for the week. The Nasdaq Composite Index dropped 1.3% today, capping its biggest two-day retreat since 2011; and down 3.1% for the week; closing at its lowest level in 4 months. The major US indices are all back in the red year to date. Biotechs fell for the 7th week in a row; the worst run since 1998; and now down 21% from recent highs. About 7.4 billion shares changed hands on US exchanges, 5.8% higher than the three-month average.

We are entering a period that has historically been very poor for stocks. The idea is called “Sell in May” or the worst six months. According to the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500 every May 1st starting in 1950 and sold October 31 of the same year, your initial position would only be worth $10,026. Put another way, by investing only from May through October, a $10,000 stake invested in 1950 would have only made $26.

The Labor Department reports the producer price index, gained 0.5% for March. Excluding the volatile categories of food and energy, core PPI prices rose 0.6% after falling 0.2% in February. The University of Michigan/ Thomson Reuters consumer sentiment rose to a preliminary April reading of 82.6, the highest reading since July, from a final March level of 80.

You’ve probably heard about the Heartbleed bug.  Heartbleed is a flaw in OpenSSL, a piece of code intended to create a secure connection between a server and Web browser; for example, between an online shop and customer. The bug allows an attacker to make the server surrender bits of information out of its memory that should not be accessible. What's more, the exploit leaves no trace. The fear is that the bug may expose credit card numbers, passwords, and more.

By some estimates the Heartbleed bug puts two-thirds of all websites at risk. Millions of smartphones and tablets running Google’s Android operating system have the Heartbleed bug. The government has issued a warning to businesses and banks to be on alert for hackers possibly stealing data.

The Federal Financial Institutions Examination Council, made up of representatives from the Federal Reserve Board of Governors, the Consumer Financial Protection Bureau and other regulators, said: “The vulnerability could allow an attacker to potentially access a server’s private cryptographic keys compromising the security of the server and its users. Attackers could potentially impersonate bank services or users, steal login credentials, access sensitive e-mail, or gain access to internal networks.”

And there’s not a lot you, as a consumer, can do until the websites fix the problem on their end. It may take some time. The Heartbleed bug has been found in the hardware connecting homes and businesses to the Internet. Cisco Systems and Juniper Networks said some of their networking products are susceptible to the encryption bug. Security experts say it might help to change passwords on sites you visit, but fixing the network equipment and software means the companies will rely on customers applying patches as they become available. Cisco said it would tell customers when software patches for its affected products are available.

Now for the scary part.

Bloomberg News reports the National Security Agency has known about the Heartbleed bug for 2 years, and rather than report it, or take steps to close it down, the NSA instead regularly used the encryption flaw to gather intelligence. Putting the Heartbleed bug in its arsenal, the NSA was able to obtain passwords and other basic data that are the building blocks of sophisticated hacking operations. The agency found the Heartbleed glitch shortly after its introduction, according to one of the people familiar with the matter, and it became a basic part of the agency’s toolkit for stealing account passwords and other common tasks.

The revelations have created a clearer picture of the two roles, sometimes contradictory, played by the US’s largest spy agency. The NSA protects the computers of the government and critical industry from cyberattacks, while gathering troves of intelligence attacking the computers of others, including terrorist organizations, nuclear smugglers and other governments.

Questions remain about whether anyone other than the US government might have exploited the flaw before the public disclosure. Sophisticated intelligence agencies in other countries are one possibility. If criminals found the flaw before a fix was published this week, they could have scooped up millions of passwords for online bank accounts, e-commerce sites, and e-mail accounts across the world.

If the reports are true, they would represent a serious breach of the NSA's mission.  There’s no excuse for leaving Americans and businesses vulnerable to breaches on this scale. They should be helping to shore up vulnerabilities, not exploiting them. The NSA has issued a statement denying prior knowledge of the Heartbleed bug; which is not a reassuring denial. This is one of the biggest breaches in the history of the internet, and the NSA, which is supposed to watch this stuff, claims they know nothing. For now, the NSA is sticking to their story that they are incompetent rather than corrupt.

Earnings reporting season is gearing up, with an epic miss from the biggest US bank. JPMorgan Chase said its first-quarter earnings fell 20%, driven by a decline in investment banking and mortgage lending. The bank reported net income of $4.9 billion for the first quarter, after stripping out payments to preferred stockholders. That was down from $6.1 billion in the same period a year earlier. On a per-share basis, the earnings amounted to $1.28, missing estimates of $1.39. Revenue, after stripping out the effect of an accounting charge for credit losses, was $23.8 billion, down 8 percent from $25.8 billion a year earlier. Revenues at the bank's fixed income trading business, part of its investment banking unit, slumped 21% to $3.8 billion. Mortgage originations plunged 68% to $6.7 billion, compared with the same period last year; the bank doesn't expect the trend to change anytime soon.

Wells Fargo posted a profit of $5.9 billion, up 14% from the same period in 2013. Still, the bank’s revenue for the quarter fell to $20.6 billion from $21.3 billion in the same period a year ago.

A federal judge has approved the city of Detroit’s latest attempt to extricate itself from some long-term derivatives contracts that have been costing it tens of millions of dollars a year, holding up a settlement as an example of “the very spirit of negotiation and compromise” that he hoped other creditors would follow. Judge Steven Rhodes of United States Bankruptcy Court ruled that Detroit could proceed with a plan to pay $85 million to UBS and Bank of America to terminate the financial contracts, known as interest-rate swaps, that were used to help finance pensions.

Under the terms of the settlement, the two banks agreed to back Detroit’s overall plan of adjustment, which is critical for the city’s push to resolve its bankruptcy by early fall. Municipal bankruptcy rules say that if one class of impaired creditors votes to approve the city’s plan of debt adjustment, the judge may be able to impose the terms forcibly on everybody else. The judge’s decision gives Detroit leverage for settlements with other creditors.

Earlier this year, Judge Rhodes had rejected a previous attempt to end the swaps that called for Detroit to pay the banks $165 million. He called that proposal “just too much money” and noted that Detroit would have a reasonable chance of success if it sued the banks outright, calling the swaps invalid and refusing to make any termination payments at all. The message was to re-engage in negotiations, and apparently it worked.

Detroit’s emergency manager, Kevyn Orr, and other officials have been calling for creditors to negotiate settlements quickly out of fear that Detroit’s case will become a hopeless quagmire if creditors keep fighting the city’s proposals for resolving their debts. The state law that put Detroit under emergency management is scheduled to expire in September.

Detroit entered into the swap contracts in 2005, when it tapped the municipal bond market for $1.4 billion to put into its workers’ pension funds. Much of the deal was structured with variable-rate debt, and the swaps were intended to work as a hedge, to protect Detroit if interest rates rose. But rates fell, and under those circumstances, the terms of the swaps called for Detroit to make regular payments to UBS and Bank of America. The swaps cost Detroit about $36 million a year.

The 2005 borrowing also required an unusual structure to avoid violating the city’s legal debt limit. In 2009, the debt was downgraded to junk, putting the city out of compliance with the terms of the swaps. So Detroit restructured the swap obligations, offering the two banks the tax revenue that it received from local casinos as a backstop.

When Detroit declared bankruptcy last summer, it estimated the cost of terminating its swaps at about $345 million. Days before filing its bankruptcy petition, Detroit said Bank of America and UBS had given it a break, so that it would have to pay only about $250 million to cancel the contracts. But other creditors, facing bigger relative losses, complained that the two banks were still getting way too much. They argued, among other things, that the interest-rate swaps were invalid from the beginning because the use of casino taxes for financial hedges is not allowed under state law. So, Detroit either got off cheap at $85 billion or the banks just stole $85 billion.

Tuesday, March 25, 2014 - Want to Buy a Cookie?

Want to Buy a Cookie?

by Sinclair Noe

DOW + 91 = 16,367
SPX + 8 = 1865
NAS + 7 = 4234
10 YR YLD un 2.73%
OIL - .39 = 99.21
GOLD + 2.10 = 1312.70
SILV + .07 = 20.10

According to the S&P/Case-Shiller home price report, the home price index covering 10 major US cities increased 13.5% in the year ended in January. The 20-city price index advanced 13.2% for the year. Month to month, the 20-city index dropped 0.1%; the drop is not just weather related; from December to January, prices fell in 12 of the 20 cities Case-Shiller tracks.

Taking a look at a few cities: LA was down 0.3% for the month but up 18.9% for the past year, San Diego was up 0.6% for the month and 19.4% for the year, Phoenix was down 0.3% for the month but up 13.8% for the year, San Francisco was up 0.5% for January and 23.1% for the year, the hot spot was Las Vegas up 1.1% for the month and 24.9% for the year, to lead the nation.

The Commerce Department reports new home sales dropped 3.3% from January to February to a seasonally adjusted rate of 440,000. Sales fell in all regions except the Midwest, where they jumped 36.7%. Sales dropped 15.9% month to month in the West. The national median price for a new home was $261,800 last month, up from $260,800 in January. Compared with February 2013, the median price fell 1.2%. At the current sales pace there is a 5.2 month inventory.

A recent Trulia report gauges whether home prices are over or undervalued, and where. Nationally, home prices are still undervalued by about 5%. When home prices hit their bottom at the end of 2011, national home prices were about 15% undervalued. That’s no longer the case, and in some select markets rising prices are coming unchained from their long-term fundamentals. Six of the nation’s ten most overvalued cities were in California. Trulia figures the Orange County metro area is about 16% overvalued, and Los Angeles is 13% overvalued.

The Commerce Department also reported today that nationwide personal income growth slowed to 2.6% last year from 4.3% in 2012. Personal income rose 0.3% in January from a month earlier. Residents in every state saw weaker income growth from a year earlier. The personal income report measures everything Americans receive from all sources, including wages, salaries and property income. Several factors contributed to the slower overall income growth, including the expiration of a 2% payroll tax “holiday” last year. As a result, many people received salary bonuses and personal dividends in 2012, which boosted that year’s incomes. Earnings grew in 2013 in every industry except civilians who work for the federal government. Inflation pressures remained weak over the year, with the price index for personal consumption expenditures rising only 1.1% in 2013 from 1.8% in 2012.

The Conference Board Consumer Confidence Index rose to 82.3, up from 78.3 in February. Overall, consumers expect the economy to continue improving and believe it may even pick up a little steam in the months ahead, but they are feeling less optimistic about their current economic circumstances. Hope springs eternal.

Each year about this time, the Girl Scouts send forth minions to sell cookies for 7 weeks. Katie Francis, a sixth grader from Oklahoma City, set a new sales record of 18,107 boxes, topping the old record of 18,000; that works out to about 370 boxes sold per day; figure 12 hours a day, that works out to a sale every 2 minutes. Her secret to success: time, energy, and asking absolutely everyone she comes in contact with to buy cookies.

The Federal Reserve today published 11 research papers which tend to confirm information we have relayed in the past; big banks get a hidden subsidy in the form an implied bailout, or the idea they are too big to fail. The new research focuses on the primary bond market where banks sell their new debt to investors, instead of measuring the taxpayer subsidy through bank bond “spreads” in the secondary market. And the new research only covers up to 2009, so things may have changed a bit, but the biggest US banks enjoyed an extra $60 million to $80 million of cost savings per average new bond sale over their smaller competitors.

Fed staff wrote in one paper that a greater likelihood of government support leads to more risk-taking at big banks, including impaired lending and net charge-offs. Regulators have shied away from suggestions that they should break up banks, pointing instead to the new rules that require banks to reduce leverage, maintain a supply of assets they could sell quickly, and stop making risky trades with their own money. Officials say they also have made strides to ensure regulators are equipped to resolve big banks in a crisis rather than bail them out.

The Murdoch Street Journal is reporting the SEC is investigating whether a boom in complex new bond deals is being used to hide certain illegal risks. A number of likely cases are in the pipeline. Separately, the government has expanded an inquiry into how Wall Street banks may have been cheating their clients by mispricing certain bond deals.

If you are still trying to figure out what Bitcoin is, you are not alone, but the IRS thinks they have figured it out; it is not legal tender in any jurisdiction; it is property and should be taxed as such. That means that employers who choose to pay wages in Bitcoins will have to report those wages just like any other payment made with property, and Bitcoin income will be subject to the normal federal income withholding and payroll taxes. And the same goes for profits on the sale of Bitcoins, at least the Bitcoins that aren’t lost in the digital wallets of Mt. Gox.

Another study says that you should pay closer attention to annual shareholder meetings, and maybe the most important thing to watch is where the meeting is held. Companies that schedule annual shareholder meetings in unusually remote locations tend to announce bad news fairly shortly thereafter; the more surprising the location, the worse the news, and the harder the company's stock price falls. It’s not a hard and fast rule, just a general indicator.

Global markets have been increasingly concerned about the impact of slowing economic growth on Chinese financial institutions. Apparently the locals are also nervous. Hundreds of Chinese citizens had an old fashion run on the banks, trying to withdraw cash from branches of 2 small Chinese banks in the Jiangsu province after rumors spread about the solvency of one of them.

The Houston Shipping Channel remains closed today because of a weekend oil spill. The closure from this weekend has delayed shipments of crude and refined products in and out of the channel. Roughly 11% of the US refining capacity is transported through the channel. The incident was coincidentally timed around the 25th anniversary of the Exxon Valdez disaster. If the closure lasts much longer, refiners will begin to miss scheduled deliveries and companies expected to have product to load and offload may have to declare force majeure. You know what happens to oil and gas prices if that occurs and continues.

The White House and the House Intelligence Committee have leaked separate proposals that are supposedly aimed at ending the mass collection of Americans’ phone records. The full draft of the House bill is not yet available but it is tentatively named the “End Bulk Collection Act. The plan would have telephone companies hold on to phone data and the government could search data from those companies based on "reasonable articulable suspicion" that someone is an agent of a foreign power, associated with an agent of a foreign power, or "in contact with, or known to, a suspected agent of a foreign power". The NSA’s current phone records program is restricted to a reasonable articulable suspicion of terrorism.

A judge would reportedly not have to approve the collection beforehand, and the language suggests the government could obtain the phone records on citizens at least two “hops” away from the suspect, meaning if you talked to someone who talked to a suspect, your records could be searched by the NSA. A report in The Guardian says that coupled with the expanded “foreign power” language, this kind of law coming out of Congress could, arguably, allow the NSA to analyze more data of innocent Americans than it could before.

The New York Times reports the White House proposal would supposedly end the collection of phone records by the NSA, without requiring a new data retention mandate for the phone companies, while restricting analysis to the current rules around terrorism and, importantly, still requiring a judge to sign off on each phone-record search made to the phone companies.

We still don’t know what would happen to other types of bulk data collection, such as internet and financial records. Also, the NSA has been collecting phone data on people up to three hops away from a suspect so long as it had “reasonable articulable suspicion” that the suspect was involved in terrorism; then they hold that bulk data, dumping it into something they call a “corporate store” where they feel free to conduct further analysis even if they don’t have “reasonable articulable suspicion”.

The existence of the NSA program was disclosed and then declassified last year following leaks by Edward Snowden, the former NSA contractor. The current court order authorizing the collection of data is set to expire on Friday. The FISA court is expected to renew authorization for at least 90 days while changes are considered. The government has been unable to point to any thwarted terrorist attacks that would have been carried out if the program had not existed, but has argued that it is a useful tool.

Friday, January 17, 2104 - This Page is Being Monitored for Your Safety

This Page is Being Monitored for Your Safety

by Sinclair Noe

DOW + 41 = 16,458
SPX – 7 = 1838
NAS – 21 = 4197
10 YR YLD  - .02 = 2.82%
OIL + .20 = 94.30
GOLD + 11.40 = 1255.10
SILV + .22 = 20.42

It was a fairly volatile session on Wall Street today, in part because today was an options expiration Friday. For the week, the Dow rose 0.13 percent, the S&P 500 slipped 0.20 percent and the Nasdaq gained 0.55 percent. Earnings season is still in the early phase, but S&P 500 companies so far are beating analysts' expectations at a rate that's below what's typical. With earnings from 10 percent of the S&P 500 companies so far, 50 percent have exceeded expectations, below the historical average of 63 percent for a full season.  Intel and General Electric were the latest to dampen the view on fourth quarter earnings. Morgan Stanley wrapped up a week of earnings reports from the big banks by posting a sharp drop in profit, which they blamed on legal bills, but on an adjusted basis they beat estimates. Woo-hoo.

The NSA gathers nearly 200 million text messages a day from around the world and has put software in almost 100,000 computers allowing it to spy on those devices. If you think that seems a bit excessive, you are not alone. And so today, President Obama delivered a major speech to reassure the world that the US is concerned about privacy issues. Thank you Edward Snowden.

Obama said: "The reforms I'm proposing today should give the American people greater confidence that their rights are being protected, even as our intelligence and law enforcement agencies maintain the tools they need to keep us safe." Which is another way of saying that the spy agencies won’t be dismantled; they will continue to spy, and we should all just chill out and accept it.

Obama promised that the United States will not eavesdrop on the heads of state or government of close US friends and allies. One of the biggest changes will be an overhaul of the government's handling of bulk telephone "metadata"; lists of millions of phone calls made by Americans that show which numbers were called and when. Obama said the program will be ended as it currently exists. The government will not hold the bulk telephone metadata. While a presidential advisory panel had recommended that the data be controlled by a third party such as the telephone companies, Obama did offer a specific proposal for who should store the phone information in the future.

Obama instructed the Attorney General Eric Holder and the intelligence community to report before the metadata program comes up for reauthorization on March 28 about how to actually continue the program without having the government actually holding the metadata. And until then, the government will have to get approval from the FISA court, the Foreign Intelligence Surveillance Act Court every time intelligence agencies want to check the database of all those phone calls, unless they consider it an emergency; in which case, big brother can do whatever they think they need to do.

So, apparently the big speech on privacy was that we can expect more of the same, more or less. The one thing it was not was an ability to strike a "balance" between the current surveillance state and civil liberties "concerns"; or what many of us fondly remember as the Bill of Rights.

Here is the punch line from the president’s speech: “When mistakes are made, which is inevitable in any large and complicated human enterprise, they correct those mistakes, laboring in obscurity, often unable to discuss their work even with family and friends -- the men and women at the NSA know that if another 9/11 or massive cyber-attack occurs, they will be asked by Congress and the media why they failed to connect the dots. What sustains those who work at NSA and our other intelligence agencies through all these pressures is the knowledge that their professionalism and dedication play a central role in the defense of our nation.”

I used to keep a quote from Benjamin Franklin on my computer; something about giving up liberty for security. I was looking for that quote, but somehow, it looks like it’s been deleted.

So to recap: the phone metadata still exists; the government will keep the metadata, and records of financial transactions and texts and so forth until the government can figure out what to do with all the data; the government will search the data when they get approval from a secret court with a history of being friendly to the government and a secret court which has no privacy advocates; the government will search the data without court approval when they think they can get away with it; all of this will remain secret, or as nearly secret as possible because Edward Snowden is stuck in Russia; so just chill out because the spies are trying to do a good job.

National-security leaders behave as if preventing even a single terrorist attack is so important that, to marginally decrease its likelihood, it was incumbent upon us to torture prisoners, to invade Iraq, and to establish a system of mass surveillance on hundreds of millions of innocents to identify a tiny minority of terrorists. So long as the NSA is charged with stopping every potential attack, and given more power until it can do so, it will verge toward totalitarianism, because no society can stay free and eliminate the risk of terrorism.

The Senate yesterday passed the budget bill, as expected. It goes to the president for a signature. The government will remain open at least until September. However Congress could take the rest of the year off, and probably will. Congress is unlikely to pass any other major piece of legislation this year—with the possible exception of a long overdue farm bill.

They just don’t have much on the “To Do List”; actually there is plenty to do, but little that has a realistic chance of getting done. There is a long list of issues, including immigration reform, NSA and privacy concerns, health care, unemployment compensation, or even more important – jobs.

The Senate last year passed comprehensive immigration reform with the support of 14 Republicans, establishing a 13-year pathway to citizenship for millions for immigrants in the country illegally, but the measure remains dead in the House. Immigration reform has turned political and there is little urgency to pass anything before the 2014 midterm elections.

There will be some tweaking to the Affordable Care Act, and this remains a focus for many lawmakers; last week 70 Democrats supported a bill that would alert users of breaches involving their personal data. Beyond minor adjustments, the administration continues to grant some occasional exemptions and deadline extensions in an inconsistent pattern. Maybe by the end of the year, the website will be running smoothly, maybe.

The Farm Bill will likely pass. Historically, the bill has been easily renewed, but the last five-year measure was passed in 2008. This year the hurdles include dairy price supports, catfish inspection jurisdiction, and a controversial amendment that forbids states from imposing agricultural standards, such as California’s barring of eggs from states that allow their farmers to pen hens in tiny cages. But even as the two sides appear to be coming together, there are no guarantees the bill will pass.

Even the first high-profile legislative fight of the year, extending emergency unemployment insurance, has faltered. Democrats claim to have a winning issue on their hands, with more than one million Americans losing their benefits, but most Republicans so far aren’t feeling the political pain. Of course, the best solution for unemployment is a job, but Congress is probably incapable of coming together on anything resembling a bipartisan effort to stimulate employment.

So, the budget bill was passed, and we don’t have to worry about that or worry about Congress doing much of anything until September.

A new paper published in the journal called “Health Affairs” makes an interesting connection between income inequality and health. The finding is that poor people get sick more than rich people, and they get sick at very specific times. The research looked at when people go to the hospital for hypoglycemia (low blood sugar).

The basic idea is that people struggling to make it paycheck-to-paycheck (or benefits-to-benefits) might run out of money at the end of the month—and have to cut back on food. If they have diabetes, this hunger could turn into an even more severe health problem: low blood sugar. So we should expect a surge of hypoglycemia cases at the end of each month for low-income people, but not for anybody else.

That's what researchers found when they looked at the numbers for California between 2000 and 2008. The researchers also looked at when people go the hospital for other health problems such as appendicitis, which doesn't depend on diet. So there shouldn't be any end-of-the-month increase in appendicitis cases for low-income people if tight budgets are the problem. There wasn't. Poor people don't need more care at the end of the month for every kind of condition; just the ones that get worse when you don't have enough to eat. So, the solution is apparently to try to make sure that people have enough food to eat all through the month; which sounds expensive, but is actually not as costly as the nearly $1200 that an average hypoglycemia episode costs.

Friday, June 07, 2013 - The Ministry of Truth is Now Accepting Job Applications

The Ministry of Truth is Now Accepting Job Applications

by Sinclair Noe

DOW + 207 = 15,248
SPX + 20 = 1643
NAS + 45 = 3469

10 YR YLD + .08 = 2.16%
OIL + 1.17 = 95.93
GOLD – 29.10 = 1385.60
SILV - .90 = 21.79

It's the first Friday of the month and so today we start with the jobs report. The economy added 175,000 net new jobs in May. The unemployment rate moved up to 7.6% from 7.5%. I'll explain how that works in just a moment. The March and April jobs numbers were revised slightly, and the final numbers are 12,000 less than previously reported. The headline number was slightly above expectations of 165,000 jobs added.

So, another month of moderate job growth, why did the unemployment rate go up? More people jumped into the labor pool, looking for work. The participation rate increased to 63.4% in May from 63.3% in April. This is a measure of the working age population in the labor force, and historically this number is closer to 66%; some of the decline is due to people who have dropped out of the labor pool, but some of the decline is due to demographics. About 420,000 people got back into the market for a job and 319,000 found a job, but the additional 101,000 who are now in the market for a job and did not find work – that pushed the unemployment rate higher.

There are still 7.9 million involuntary part time workers, basically unchanged from the prior month. There are 4.3 million people who have been unemployed for 26 weeks or more but still want a job. That number decreased slightly last month. The U6 is an alternate measure which includes long term unemployed and underutilized, or involuntary part time, workers; U6 unemployment decreased from 13.9% to 13.8%.

There are a couple of ways to consider this; first, the jobs market is improving enough that discouraged workers are now getting back into the labor pool, or discouraged workers have exhausted all other options and are getting back into the labor pool. As more people look for jobs, this is likely to make it difficult to see the unemployment rate drop, even if more jobs are added. To absorb the people returning to the labor force and added to the labor force as population grows, the economy would need to add more than 250,000 jobs per month to bring the unemployment rate down, even if incrementally.

Total nonfarm employment is up 2.115 over the past 12 months and up 946,000 so far this year. For 2013 we are looking at an annualized pace of 2.27 million jobs. Private employment is up 2.173 million over the last year. That means that public employment continued to shrink; down 58,000 over the last year, part of a 4 year trend of lower public employment.

Government employment dropped 14,000 last month. Manufacturing lost 8,000 net jobs. The service sector, which includes bars and restaurants and retail, added 57,000 jobs. Temp hiring increased by 26,000 workers.

The average workweek, meanwhile, was unchanged at 34.5 hours, just one tick below a post-recession peak. The workweek usually rises when the economy gets stronger. Hourly wages of American workers edged up 1 cent in May to $23.89, and they have risen 2% over the past 12 months; that is not enough to provide any real spark to consumer spending.

The private sector does not appear to be cutting jobs. The percentage of the workforce losing jobs has fallen near an all-time low. Even though companies are not hiring as many people as expected at this stage of a recovery, they are increasingly reluctant to cut workers loose. For the politicians, the jobs data is just another opportunity to bash the other side, no matter what side you're on; and nothing gets done.

Remember the rally cry during the election? It was Jobs, Jobs, Jobs. The manufacturing sector lost 5 million jobs between 2000 and 2010. President Obama laid out  a specific jobs goal that he said would help rebuild the country's struggling middle class: add 1 million new manufacturing jobs by 2016. That goal is looking less and less likely. There may come a time where we lose so many manufacturing jobs that it destroys the manufacturing infrastructure.

The economy continues to add jobs, just not enough; and this has been the pattern for the past three years. After a while, not enough causes damage; the unemployment problems become structurally embedded in the economy and it just means that they will be harder to solve down the road, compared with tackling the problems head-on today.

The reaction to the monthly jobs report is also becoming predictable. The market traders and economists all fret and speculate about how the Federal Reserve will respond to the jobs data. The big concern is not about the economy but about the free flow of easy money. For the equity markets, the data is like a light switch for risk on/risk off. Wall Street wasn't cheering job growth today; they were cheering weakness. The Wall Street crowd is acting like a child threatening a full blown temper tantrum. The financiers seem to think they have a divine right to profit from central bank largesse, even while they claim they deserve the big bucks for risk management and investing acumen.

So, we're probably approaching a point where the Fed will have to break the mold. This is not to say they will give up on their Zero Interest Rate Policy, but it might be time to alter QE. So far, QE has involved buying Treasuries and mortgage backed securities, to the tune of $85 billion per month. The result has been a bigger and bigger disconnect between weak fundamentals and more bubbly asset prices in the bond market, the stock market, and the housing market. If the politicians can't deliver some sort of fiscal policy to deal with weak fundamentals, the Fed needs to. There are ways for the Fed to provide more direct stimulus. The only question is whether they have the guts.

Let's look at the rest of the world.

The National Security Agency has obtained direct access to the systems of Google, Facebook, Apple and other US internet giants, according to a top secret document obtained by the Guardian, a British newspaper. The NSA access is part of a previously undisclosed program called PRISM, which allows officials to collect material including search history, the content of emails, file transfers and live chats, the document says.

The document claims "collection directly from the servers" of major US service providers. Although the presentation claims the program is run with the assistance of the companies, all those who responded to a Guardian request for comment on Thursday denied knowledge of any such program. Several senior tech executives insisted that they had no knowledge of PRISM or of any similar scheme. They said they would never have been involved in such a program.

The NSA access was enabled by changes to US surveillance law introduced under President Bush and renewed under Obama in December 2012. The program facilitates extensive, in-depth surveillance on live communications and stored information. The law allows for the targeting of any customers of participating firms who live outside the US, or those Americans whose communications include people outside the US. It also opens the possibility of communications made entirely within the US being collected without warrants.

Disclosure of the PRISM program follows a leak to the Guardian on Wednesday of a top-secret court order compelling telecoms provider Verizon to turn over the telephone records of millions of US customers.

Some of the world's largest internet brands are claimed to be part of the information-sharing program since its introduction in 2007, including Microsoft, Yahoo, Google, Facebook, PalTalk, Skype, AOL, Apple, and more than likely just about any of them. The extent and nature of the data collected from each company varies. Companies are legally obliged to comply with requests for users' communications under US law, but the PRISM program allows the intelligence services direct access to the companies' servers.

What kind of data are they getting? Email, video and voice chat, videos, photos, voice-over-IP (Skype, for example) chats, file transfers, social networking details, and more. The document also shows the FBI acts as an intermediary between other agencies and the tech companies, and stresses its reliance on the participation of US internet firms, claiming "access is 100% dependent on ISP provisioning". In the document, the NSA hails the PRISM program as "one of the most valuable, unique and productive accesses for NSA".

So, the Guardian, a British news organization published these two NSA top secret documents and revealed that the government is tapped into everything on the internet and probably your phone as well. But wait, there's more. The Guardian reporter Glenn Greenwald has published a third top-secret NSA document in less than 48 hours. The third document is entitled “Offensive Cyber Effects Operations” and it is described as a presidential directive which can "offer unique and unconventional capabilities to advance US national objectives around the world with little or no warning to the adversary." The effects of such approaches "rang[e] from subtle to severely damaging."

The document orders various government agencies to prepare for offensive cyberwarfare operations and says the government will "identify targets of national importance." The article quotes an intelligence source with knowledge of NSA programs as saying the directive makes US complaints about China's state-sponsored hacking "hypocritical," because the US has "participated in offensive cyber operations and widespread hacking."

"We hack everyone everywhere," the intelligence source told The Guardian. "We like to make a distinction between us and the others. But we are in almost every country in the world."

Some of the talking points in the directive were declassified in January, but the emphasis on offensive hacking wasn't made public, nor was the order to create a specific target list.

This third leak comes at a sensitive time, as President Barack Obama prepares to meet Chinese President Xi Jinping in California today. One of the subjects Obama is expected to bring up is Chinese cyber-attacks. Just this morning Obama defended both the widespread collection of call data and the PRISM program that relates to collecting e-mails and other Internet information, saying the government had reached the "right balance" on civil liberties.

Your weekend reading list should include this article from Glenn Greenwald; he's the reporter at the Guardian, who broke all this top secret information about how the government has destroyed any inkling of digital privacy and is involved in cyber attacks. This is what you need to read about these three big leaks of sensitive government shenanigans. Greenwald wrote an excellent article On Whistleblowers and Government Threats of Investigation.

And I'll remind you that the Bradley Manning trial is currently underway, and Julian Assange is still in exile. And I'll remind you that Assange has long promised he would have a data dump on the big banksters. We're still waiting.

And a final note: US and British authorities are preparing to bring criminal charges against former employees of Barclays for their alleged roles trying to manipulate Libor interst rates. The current probe appears to be targeted at midlevel traders. So, the whole exercise really continues an established pattern of sacrificing underlings as human shields for managers and executives.