Why Tomorrow's Jobs Report May Surprise

With all eyes hope-full-y transfixed on tomorrow's non-farm payrolls data and its confirmation-biased 'select-a-headline' post-data farce, we thought it worth a look at the noise in the signal and a reminder, as Bloomberg's Joseph Brusuelas notes, the annual benchmark revisions that will be published and likely obliterate everything we thought we knew about job growth (or lack of). As Brusuelas notes, the January jobs report is likely to be better-than-forecast because the weather-impacted December estimate will see upward revisions as firms probably made up for hiring postponed during the previous month. While weather effects may dominate the topline estimate, the underlying trend in hourly and weekly earnings is likely to remain quite weak since it’s not contingent on swings in seasonal patterns.

 

Via Blomberg's Joseph Brusuelas,

Temperatures in the U.S during January were warmer than normal through the end of the Bureau of Labor Statistics employment reference week ended Jan. 12.

The January jobs report is likely to be better-than-forecast because the weather-impacted December estimate will see upward revisions as firms probably made up for hiring postponed during the previous month. Almost 300,000 new jobs may be added because of the combination of revisions and catch-up hiring, versus the 183,000 forecast according to a Bloomberg survey of economists.

Looking at the previous jobs reports from the past 18 major winter storms, the BLS has revised upward its initial estimate two-thirds of the time.

 

While first revisions to the initial estimates have not always been that impressive, the broad nature of the slowdown in hiring indicated by the December estimate suggests investors may see an outsized upward revision.

The December estimate saw sharp de-celeration in service sector jobs created, with outright contraction in construction and government additions. Goods-producing and service sector employment will probably see upward revisions in the December data and a resumption of their six-month trends of 19,000 and 148,000.

The ISM non-manufacturing survey indicated an increase in service sector hiring and the Richmond Fed survey pointed to a rise in retail hiring.

There may also be a boost in transportation hiring in the December data given traditional seasonal factors and the demand for shipments around the holidays.

 

While weather effects may dominate the topline estimate, the underlying trend in hourly and weekly earnings is likely to remain quite weak since it’s not contingent on swings in seasonal patterns. A weak earnings environment is partially a function of the large number of unemployed and underemployed people. On a yearago basis average hourly earnings are up 1.8 percent and average weekly earnings up 1.5 percent. Neither are encouraging if the 3.3 percent level of consumption posted last quarter is to be sustained.

An area of focus will certainly be the direction of the unemployment rate, which may decline to 6.5 percent due to the 1.3 million people who had their emergency unemployment benefits cut at the end 2013 and who therefore may leave the workforce. If the topline estimate exceeds the Bloomberg consensus of 183,000, and the unemployment rate declines to 6.5 percent, investors may be forced to navigate central bank policy confusion.

While the topline gains would be sufficient to keep the withdrawal of policy accommodation on pace, the decline in the unemployment rate may force the Fed to reduce its unemployment threshold to 6 percent from 6.5 percent and to consider pushing back when it begins to normalize its policy rate.

Lastly, the Department of Labor will publish its annual benchmark revisions to its comprehensive estimate of employment on Friday. That should add about 350,000 to the overall level of employment. Even so, the two-month average of the total change in employment should remain at or near the six-month average of 185,000 in private job creation.


    



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Why Tomorrow’s Jobs Report May Surprise

With all eyes hope-full-y transfixed on tomorrow's non-farm payrolls data and its confirmation-biased 'select-a-headline' post-data farce, we thought it worth a look at the noise in the signal and a reminder, as Bloomberg's Joseph Brusuelas notes, the annual benchmark revisions that will be published and likely obliterate everything we thought we knew about job growth (or lack of). As Brusuelas notes, the January jobs report is likely to be better-than-forecast because the weather-impacted December estimate will see upward revisions as firms probably made up for hiring postponed during the previous month. While weather effects may dominate the topline estimate, the underlying trend in hourly and weekly earnings is likely to remain quite weak since it’s not contingent on swings in seasonal patterns.

 

Via Blomberg's Joseph Brusuelas,

Temperatures in the U.S during January were warmer than normal through the end of the Bureau of Labor Statistics employment reference week ended Jan. 12.

The January jobs report is likely to be better-than-forecast because the weather-impacted December estimate will see upward revisions as firms probably made up for hiring postponed during the previous month. Almost 300,000 new jobs may be added because of the combination of revisions and catch-up hiring, versus the 183,000 forecast according to a Bloomberg survey of economists.

Looking at the previous jobs reports from the past 18 major winter storms, the BLS has revised upward its initial estimate two-thirds of the time.

 

While first revisions to the initial estimates have not always been that impressive, the broad nature of the slowdown in hiring indicated by the December estimate suggests investors may see an outsized upward revision.

The December estimate saw sharp de-celeration in service sector jobs created, with outright contraction in construction and government additions. Goods-producing and service sector employment will probably see upward revisions in the December data and a resumption of their six-month trends of 19,000 and 148,000.

The ISM non-manufacturing survey indicated an increase in service sector hiring and the Richmond Fed survey pointed to a rise in retail hiring.

There may also be a boost in transportation hiring in the December data given traditional seasonal factors and the demand for shipments around the holidays.

 

While weather effects may dominate the topline estimate, the underlying trend in hourly and weekly earnings is likely to remain quite weak since it’s not contingent on swings in seasonal patterns. A weak earnings environment is partially a function of the large number of unemployed and underemployed people. On a yearago basis average hourly earnings are up 1.8 percent and average weekly earnings up 1.5 percent. Neither are encouraging if the 3.3 percent level of consumption posted last quarter is to be sustained.

An area of focus will certainly be the direction of the unemployment rate, which may decline to 6.5 percent due to the 1.3 million people who had their emergency unemployment benefits cut at the end 2013 and who therefore may leave the workforce. If the topline estimate exceeds the Bloomberg consensus of 183,000, and the unemployment rate declines to 6.5 percent, investors may be forced to navigate central bank policy confusion.

While the topline gains would be sufficient to keep the withdrawal of policy accommodation on pace, the decline in the unemployment rate may force the Fed to reduce its unemployment threshold to 6 percent from 6.5 percent and to consider pushing back when it begins to normalize its policy rate.

Lastly, the Department of Labor will publish its annual benchmark revisions to its comprehensive estimate of employment on Friday. That should add about 350,000 to the overall level of employment. Even so, the two-month average of the total change in employment should remain at or near the six-month average of 185,000 in private job creation.


    



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Thomas Massie on Congressional Snowden-Bashing, Mandatory Minimums, and Self-Sufficient Farming…Plus The Independents Get Their Two Minutes Hate!

On
last night’s episode
of The
Independents
, Rep. Thomas Massie (R-Kentucky) gave a
pretty great rap about congressional attempts to slime National
Security Agency whistleblower Edward Snowden, collusion between the
president and intelligence-committee chairs, reducing mandatory
minimums for drug sentences, legalizing (at the least) industrial
hemp…and creating a self-sufficient farm:

Watch Nick Gillespie’s longer interview with Massie for
Reason.tv last year:

 

Also on The Independents last night was the
second installment of the disturbingly popular feature Two Minutes
Hate, featuring some of the best insults thrown our way (including
by beloved Reason commenters). Feel the non-love:

Tune in again Friday at 9 pm for a special “Off the Grid”
show!

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Snowden's US Detractors Say He Was Smart Enough to Fool Americans But Not Russians

Over at The Daily Beast,

Eli Lake reports
on how U.S. officials and pols are almost
certainly exaggerating the extent of the damage done by National
Security Agency (NSA) whisteblower Edward Snowden.

For instance,
the admitted liar
and Director of National Intelligence James
Clapper

said a week ago that Snowden’s activities have placed the lives
of intelligence officers and assets at risk. Sen. Susan
Collins, a Republican from Maine, said if one were to stack the
documents stolen by Snowden it would be three miles high….

But the DIA [Defense Intelligence Agency] assessment is based on
two important assumptions. First, it assumes that Snowden’s master
file includes data from every network he ever scanned. Second, it
assumes that this file is already in or will end up in the hands of
America’s adversaries. If these assumptions turn out to be true,
then the alarm raised in the last week will be warranted. The key
word here is “if.”

Lake points out a huge number of
contingencies at play:

The DIA’s assessment assumed that every classified system
Snowden visited was sucked dry of its data and placed in a file.
DIA director Gen. Michael Flynn put it this way on Tuesday in
testimony before the House Permanent Select Committee on
Intelligence: “We assume that Snowden, everything that he touched,
we assume that he took, stole.”

According to various sources, it’s likely that many of the
documents that Snowden took are not only encrypted but that the
keys to the docs are distributed among various individuals in the
government to make it next to impossible for one person to decrypt
material. That’s done so spies can’t simply nab one person with the
goods.

But Rep. Mike Rogers (R-Mich.), who has accused Glenn
Greenwald without evidence
of selling state secrets
and who
routinely exaggerates
the role of mass NSA surveillance in
capturing terrorists, figures the Russkies have the drop of
Snowden:

“If [Snowden] really believes he has created something the
Russian intelligence services can’t get through, then he is more
naïve than I think he already is,” Rogers said. “That makes a huge
leap of assumption that a guy by the way who has not been quite
honest about how he got where he was and what he stole and for what
purpose to believe the fact that no one can get to this but me. I
don’t believe it.”


Read Lake’s full piece here.

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Snowden’s US Detractors Say He Was Smart Enough to Fool Americans But Not Russians

Over at The Daily Beast,

Eli Lake reports
on how U.S. officials and pols are almost
certainly exaggerating the extent of the damage done by National
Security Agency (NSA) whisteblower Edward Snowden.

For instance,
the admitted liar
and Director of National Intelligence James
Clapper

said a week ago that Snowden’s activities have placed the lives
of intelligence officers and assets at risk. Sen. Susan
Collins, a Republican from Maine, said if one were to stack the
documents stolen by Snowden it would be three miles high….

But the DIA [Defense Intelligence Agency] assessment is based on
two important assumptions. First, it assumes that Snowden’s master
file includes data from every network he ever scanned. Second, it
assumes that this file is already in or will end up in the hands of
America’s adversaries. If these assumptions turn out to be true,
then the alarm raised in the last week will be warranted. The key
word here is “if.”

Lake points out a huge number of
contingencies at play:

The DIA’s assessment assumed that every classified system
Snowden visited was sucked dry of its data and placed in a file.
DIA director Gen. Michael Flynn put it this way on Tuesday in
testimony before the House Permanent Select Committee on
Intelligence: “We assume that Snowden, everything that he touched,
we assume that he took, stole.”

According to various sources, it’s likely that many of the
documents that Snowden took are not only encrypted but that the
keys to the docs are distributed among various individuals in the
government to make it next to impossible for one person to decrypt
material. That’s done so spies can’t simply nab one person with the
goods.

But Rep. Mike Rogers (R-Mich.), who has accused Glenn
Greenwald without evidence
of selling state secrets
and who
routinely exaggerates
the role of mass NSA surveillance in
capturing terrorists, figures the Russkies have the drop of
Snowden:

“If [Snowden] really believes he has created something the
Russian intelligence services can’t get through, then he is more
naïve than I think he already is,” Rogers said. “That makes a huge
leap of assumption that a guy by the way who has not been quite
honest about how he got where he was and what he stole and for what
purpose to believe the fact that no one can get to this but me. I
don’t believe it.”


Read Lake’s full piece here.

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Where Today's Max Pain Is

While the stock market ramp on the disappointing ECB press conference can be, somewhat, explained and was to be expected by the central bank-addicted market’s renewed focus that since the ECB did nothing, it is now the BOJ’s turn to ramp up Quantitative Easing – a thesis which has been floating since November, and at one point resulted in 700 pips of “priced in” USDJPY upside – one group of investors is having a bad day: all those short Green Mountain Coffee shares, which as we pointed out last night exploded to 52 week highs in the aftermath of the Coke minority investment announcement. This is today’s maximum pain trade.

This trade has been further exacerbated by the fact that as the chart of Short Interest below shows, the higher the stock price went into yesterday’s (disappointing) earnings announcement, the more shorts piled in (if not reaching the highs seen in late 2012) , encouraged by repeated utterances of the short thesis by the likes of David Einhorn and, of course, perpetual piggybacker Whitney Tilson, and as of the most recent report amounted to 37.6 million shares.

 

Incidentally, and since we still operate under a brokne, centrally-planned market, this was partially to be expected: as we explained last September in “Presenting The Best Trading Strategy Over The Past Year: Why Buying The Most Hated Names Continues To Generate “Alpha”” sadly the only sure way to generate returns under Chief Risk Officer Bernanke and now Yellen, has been to go long the most shorted names and wait for the “come to Goldman” moment.

All that said, those short and still refusing to cover may have some reasons for hope. Here is some perspective from Doug Kass who shorted the stock after yesterday’s pop:

I have a number of reasons for my skeptical take and my short position:

  1. The Coca-Cola agreement masked weak fourth-quarter earnings and forward guidance. (On TheStreet, Herbela Greenberg covered this well.)
  2. It could be argued that in light of the fourth-quarter results and absent the Coca-Cola deal, Green Mountain’s share price would be under $70 a share on yesterday’s release — perhaps even lower.
  3. The coffee story has likely played out for Green Mountain. If the current fundamental trends continue, Green Mountain Coffee Roasters’ sales could shortly turn negative.
  4. A 10% holding in Green Mountain, though too much to ignore, might be too little to matter. (Note: The Green Mountain deal was only $1.25 billion compared to Coca-Cola’s $165 billion market capitalization.)
  5. The value proposition of at-home soda (costing about $0.50 a serving) vs. the purchase of a 12-pack for $2.75 at the supermarket is suspect. (At least coffee is brewed, soda is simply poured out of a bottle. In fact, you don’t even need a glass!)
  6. The business opportunity is small and might be viewed as an affront to Coca-Cola bottlers who are trying to accelerate bottle and can sales.
  7. The business opportunity involves a lot of execution risk. In particular, the technology for the cold beverages that Coca-Cola and Green Mountain are contemplating (i.e., a carbonation tablet) hasn’t even been developed — there is not even a prototype yet.
  8. It is uncertain that the home soda market is all that large and whether it is taking market share. The heaviest users of SodaStream (SODA) use it for sparkling water, as the flavor market and usage has been slow to develop.
  9. The soda market is in a clear secular decline.
  10. Coca-Cola might have taken the stake in Green Mountain in order to enter the coffee market — it might want the coffee not the cold!
  11. Coca-Cola paid 168% of SodaStream’s market cap for 10% of Green Mountain. Does this make sense in light of SodaStream’s large (7 million) installed base while

Green Mountain currently has no installed base and still appears to be one and a half years away from its product launch?
Similar to Italian director and scriptwriter Frederico Fellini’s films, Thursday evening’s outsized share price advance was a combination of investors’ and traders’ desires, fantasies and dreams.

 

To me, Green Mountain’s sharp share price rise was like one of Fellini’s LSD-driven experiences in which objects (and their functions) have lost their significance and deviated from reality.

So is this time different? We will find out, however, we fear by the time the true intrinsic value of GMCR emerges, there will be no shorts to pick up the pieces.


    



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Where Today’s Max Pain Is

While the stock market ramp on the disappointing ECB press conference can be, somewhat, explained and was to be expected by the central bank-addicted market’s renewed focus that since the ECB did nothing, it is now the BOJ’s turn to ramp up Quantitative Easing – a thesis which has been floating since November, and at one point resulted in 700 pips of “priced in” USDJPY upside – one group of investors is having a bad day: all those short Green Mountain Coffee shares, which as we pointed out last night exploded to 52 week highs in the aftermath of the Coke minority investment announcement. This is today’s maximum pain trade.

This trade has been further exacerbated by the fact that as the chart of Short Interest below shows, the higher the stock price went into yesterday’s (disappointing) earnings announcement, the more shorts piled in (if not reaching the highs seen in late 2012) , encouraged by repeated utterances of the short thesis by the likes of David Einhorn and, of course, perpetual piggybacker Whitney Tilson, and as of the most recent report amounted to 37.6 million shares.

 

Incidentally, and since we still operate under a brokne, centrally-planned market, this was partially to be expected: as we explained last September in “Presenting The Best Trading Strategy Over The Past Year: Why Buying The Most Hated Names Continues To Generate “Alpha”” sadly the only sure way to generate returns under Chief Risk Officer Bernanke and now Yellen, has been to go long the most shorted names and wait for the “come to Goldman” moment.

All that said, those short and still refusing to cover may have some reasons for hope. Here is some perspective from Doug Kass who shorted the stock after yesterday’s pop:

I have a number of reasons for my skeptical take and my short position:

  1. The Coca-Cola agreement masked weak fourth-quarter earnings and forward guidance. (On TheStreet, Herbela Greenberg covered this well.)
  2. It could be argued that in light of the fourth-quarter results and absent the Coca-Cola deal, Green Mountain’s share price would be under $70 a share on yesterday’s release — perhaps even lower.
  3. The coffee story has likely played out for Green Mountain. If the current fundamental trends continue, Green Mountain Coffee Roasters’ sales could shortly turn negative.
  4. A 10% holding in Green Mountain, though too much to ignore, might be too little to matter. (Note: The Green Mountain deal was only $1.25 billion compared to Coca-Cola’s $165 billion market capitalization.)
  5. The value proposition of at-home soda (costing about $0.50 a serving) vs. the purchase of a 12-pack for $2.75 at the supermarket is suspect. (At least coffee is brewed, soda is simply poured out of a bottle. In fact, you don’t even need a glass!)
  6. The business opportunity is small and might be viewed as an affront to Coca-Cola bottlers who are trying to accelerate bottle and can sales.
  7. The business opportunity involves a lot of execution risk. In particular, the technology for the cold beverages that Coca-Cola and Green Mountain are contemplating (i.e., a carbonation tablet) hasn’t even been developed — there is not even a prototype yet.
  8. It is uncertain that the home soda market is all that large and whether it is taking market share. The heaviest users of SodaStream (SODA) use it for sparkling water, as the flavor market and usage has been slow to develop.
  9. The soda market is in a clear secular decline.
  10. Coca-Cola might have taken the stake in Green Mountain in order to enter the coffee market — it might want the coffee not the cold!
  11. Coca-Cola paid 168% of SodaStream’s market cap for 10% of Green Mountain. Does this make sense in light of SodaStream’s large (7 million) installed base while

Green Mountain currently has no installed base and still appears to be one and a half years away from its product launch?
Similar to Italian director and scriptwriter Frederico Fellini’s films, Thursday evening’s outsized share price advance was a combination of investors’ and traders’ desires, fantasies and dreams.

 

To me, Green Mountain’s sharp share price rise was like one of Fellini’s LSD-driven experiences in which objects (and their functions) have lost their significance and deviated from reality.

So is this time different? We will find out, however, we fear by the time the true intrinsic value of GMCR emerges, there will be no shorts to pick up the pieces.


    



via Zero Hedge http://ift.tt/1cYI68q Tyler Durden

The Mafia State Of Mind

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Once the mafia state of mind has seeped into every nook and cranny of the society and economy, it's not even recognized as corruption: it's simply the way the system works.

We recently spent a few days with a friend who was born and raised in Sicily who now lives elsewhere in Europe with his wife (also Italian, from Naples). Though we talked of many things, one of his comments struck me like a bolt of lightning.

The Mafia isn't about shoot-outs, he said; the mafia is a state of mind.

He then pointed to a city trash collection truck driving by. Those guys are mafia.

I should stipulate that our friends are left-liberal in their views, and deeply concerned about the direction of free enterprise, democracy and social equality in Europe. He did not make these comments as a joke but with the utmost seriousness.

Why are the union sanitation workers a mafia? Because they have the leverage (via strikes) to extract and extort what they want from a populace who earns less than they do in wages, benefits and salaries–a population with no other choice. Is there some other option to giving the striking municipal workers what they demand? Is there another choice to clear the streets of garbage? Is there another train system to get to work when the train operators are on strike? No.

The mafia state of mind is all about establishing a monopoly that leaves the populace no other choice, and that creates sufficient leverage to enable systemic extortion. In the mafia state of mind, the government is a partner in the racket. When thugs arrive in a peasant village in China to drive the residents off their land so a corrupt developer can build hundreds of highrise flats, where are the corrupt officials of the government? In line to collect their "fees", which will fund their purchase of homes in Vancouver, B.C. or Sydney, Australia.

Where were the government officials when BART employees held the San Francisco Bay Area hostage? Quietly collecting their usual bribes (politely called "contributions") from the union mafia.

The mafia state of mind is all about extracting wealth that could not be extracted without state enforcement, monopoly and covert systems of control and extortion. When the "too big to fail" banks received $16 trillion in direct subsidies and loans to keep from imploding (i.e. what would have happened in a truly free enterprise system), that was the mafia state of mind in action: the central state extorted whatever was necessary from the populace to aid and protect its banker cronies.

What is the shadow banking system other than a shadow financial mafia? The "too big to fail" banking sector is a mafia of the cartel-crony capitalist sort, and the shadow banking system is a cloaked version of the same extortionist system that depends on the government for protection. In the shadow banking mafia, the government protects the racket by acting as if it doesn't exist.

When there is no other choice but submission, when voting for either party yields the same results, the mafia state of mind reigns supreme. The mafia state of mind exists in all ideological flavors–socialist, capitalist, communist. The mafia state of mind is simple: leave the populace no choice but submission, enforce monopolies of control and power, and then extract and extort to your heart's content.

Once the mafia state of mind has seeped into every nook and cranny of the society and economy, it's not even recognized as corruption: it's simply the way the system works. And so the residents of nominal democracies in Asia, Europe and the Americas do not even realize how thoroughly corrupted their societies and economies really are; they cling to the illusions of choice even as their incomes, wealth and political influence are funneled into the hands of various elites by overlapping extortion rackets.

Once you realize that the mafia is a state of mind, you recognize just how thoroughly it has corrupted and criminalized our entire society and economy.


    



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