Stocks Tumble To Red As “Good News Is Bad News”

Having heard the great and good declare this morning’s “beat” on the headline NFP data as indicative of 1) the recovery is awesome; 2) the reason why stocks have been rallying; and 3) the recovery is awesome… it appears between a rising unemployment rate, tumbling average hourly earnings, and Gazprom’s threat in Europe, stocks are taking this “good news” as “bad news.” Confirmed by Hilsenrath that the taper is on – which is what bonds, gold, and the dollar appeared to be saying – the S&P 500 having spiked 10 points is now 13 points off its highs and in the red for the day…

 


    



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Where The Jobs Are: More Than Half Of All February Job Gains Are In Education, Leisure, Temp Help And Government

As we showed moments ago, the scariest chart of today’s nonfarm payroll report was the plunge in average weekly earnings. For those curious why US workers are unable to make any headway in obtaining higher wages, the following breakdown of just where the 175,000 (seasonally adjusted, because apparently now seasonal adjustments work again) February job gains were should provide some color.

Unfortunately, as has been the case for the past several months, well over half the total job gains in February were in industries that pay the least.

To wit:

  • Education and Health: +33K
  • Leisure and Hospitality: +25K
  • Temp Help Services: +24K
  • Government: +13K

Taken together, these 95K jobs amount to well over half of all job gains in the past month. It goes without saying that there is little wage growth of note one can hope for in these sectors.

Also of note: the high-paying information sector lost a whopping 16K jobs in February, following 8K losses the month before, while only 9K financial jobs were added this month (offsetting the 2K drop last month).

Finally, that US manufacturing renaissance? Stick a fork in it, with just 6K jobs added in February, the exact same amount as the month prior.


    



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Chart Of The Day: Average Weekly Earnings Growth Drops To New Post-Lehman Lows

The “good news” about today’s jobs report – the weather is no longer a factor and monthly jobs can resume ramping higher. Supposedly. Because the “bad news” – according to the BLS, is that  weather actually was a factor, however not for the number jobs but hours worked, which dropped to just 33.3 for production and nonsupervisory employeesm down from 33.5 in january and 33.8 a year ago. So there was a weather impact once again, but only for what looked out of the normal.

Ok fine – let’s ignore hourly earnings.

In order to normalize for the weekly hours worked, we decided to look at the big picture which ignores hours worked, and average hourly earnings. In February, this number was $682.65, down from $683.74 for production and nonsupervisory employees. However, the real impact of declining wages is seen nowhere better than in the annual increase in average weekly earnings. The chart below needs no explanation: when wage growth is at 1%, or half of the Fed’s inflation target, you will not get any sustained economic recovery.

 

And what if one looks at the average weekly earnings of all employees? Well, we just hit a new post-Lehman low. Five years into the “recovery”, weekly earnings growth is the lowest it has been in five years!

So with no wage pressures, employers can continue hiring as many people as they want: after all they are paying them at a rate reflecting of true economic growth.


    



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Gazprom Warns Of “Repetition Of 2009 Gas Situation” In Ukraine

We have discussed the sword of Damocles that is hanging over the heads of the Ukrainian (and European for that matter) people for some time. The dominant role that Russia plays in providing energy is becoming critical, however, as Gazprom notes:

  • *GAZPROM SAYS TODAY IS DEADLINE FOR NAFTOGAZ TO PAY FOR FEB. GAS
  • *NAFTOGAZ OVERDUE PAYMENTS AT $1.89B FOR GAS SUPPLIES: GAZPROM
  • *GAZPROM SAYS NAFTOGAZ ISN'T OBSERVING CONTRACT
  • *GAZPROM: UKRAINE DEBTS CREATE 'RISK OF RETURN TO SITUATION AT BEGINNING OF 2009' (when Gazprom cut off Ukraine gas supplies)

Of course, the US agreed to $1b bailout yesterday – but that's not supposed to be used as a direct transfer payment to the Russians.

 

Via Interfax,

The debt that Ukraine's Naftogaz Ukrainy owes for Russian natural gas has risen to $1.89 billion, Gazprom CEO Alexei Miller told journalists.

 

"In fact, this means that Ukraine has stopped paying for gas," Miller said.

 

"This is completely at odds with the provisions of the contract and international trade practice. For our part, we have always met and will meet our contractual obligations. But we can't supply gas free of charge. Either Ukraine repays its debt and pays for current deliveries or the risk of returning to the situation at the beginning of 2009 will appear. We will notify the Russian government concerning the situation that is taking shape," Miller said.

 

"Today, March 7, was the payment deadline for February's deliveries of gas to Ukraine. Gazprom has not received payment on the debt. Including the price discount in effect in the first quarter, the overdue debt for gas has increased significantly and now totals $1.890 billion," he said.

It would appear this is the most important map in Europe once again…

 

and what happened in 2009…

Gazprom demanded a price hike to $400-plus from $250, Kiev flatly refused, and on New Year's day 2009, Gazprom began pumping only enough gas to meet the needs of its customers beyond Ukraine.

 

Again, the consequences were marked. Inevitably, Russia accused Ukraine of siphoning off supplies meant for European customers to meet its own needs, and cut supplies completely. As sub-zero temperatures gripped the continent, several countries – particularly in south-eastern Europe, almost completely dependent on supplies from Ukraine – simply ran out of gas. Some closed schools and public buildings; Bulgaria shut down production in its main industrial plants; Slovakia declared a state of emergency. North-western Europe, which had built up stores of gas since 2006, was less affected – but wholesale gas prices soared, a shock that was declared "utterly unacceptable" by Brussels.

Forget those sanctions…

The market is not happy – Ukraine is not fixed as June 2014 bond yields soar to 47%!!

 

 

The acting Premier is in panic mode:

  • *UKRAINE NEEDS `URGENT' FINANCIAL AID, PREMIER YATSENYUK SAYS
  • *UKRAINE SEEKS TO END TALKS WITH IMF AS SOON AS POSSIBLE: PM

We suspect, as the bond market makes clear, that any IMF money will go direct to Gazprom and not to debt repayment

 

 


    



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With Average House Prices At $6.8 Million In Central London, Is A Property Bubble Set To Burst!

Today’s AM fix was USD 1,348.25 EUR 971.22 and GBP 805.16 per ounce. Yesterday’s AM fix was USD 1,334.25, EUR 971.57 and GBP 798.00 per ounce.

Gold rose $12.90 or 0.96% to $1,350.30/oz. Silver also rose $0.30 or 1.42% to $21.47/oz.

Gold has continued to edge higher and should achieve a fifth consecutive weekly higher close. This continued rise in gold’s price is bullish from a technical and momentum perspective.

Is London’s Property Bubble Set To Burst?

There are increasing signs that the London residential property market is displaying bubble like qualities.

Authorities such as the Bank of England have denied that a house price “bubble” is developing due to ultra-loose monetary policies.

However, if present trends continue, national house price inflation may rise above 10% within a few months, far higher than the current rate of CPI inflation, which stood at 1.9% in January.

UK Department for Communities and Local Government House Prices London – UK ONS via Bloomberg

Although it’s often argued that London is a unique property market fuelled by a buoyant London economy and continued international interest from overseas buyers, recent price appreciation has taken on a distinct frothy appearance.

This is not to say that London property prices may not keep rising in the short term – momentum is a powerful force. However, investors should tread carefully and evaluate evidence of a bubble.

“This time is different.”

These are the four most expensive words in financial history. Yet, this is the mantra regarding London property prices.

The same thing was said about Dublin property prices in 2006. Dublin? But Dublin is not a financial capital. That is correct, however it is worth remembering that the same things were said about Zurich and Tokyo before the property bubbles in these two financial capitals burst.

Evidence Of A Property Bubble

Official house price reports from organisations such as the Land Registry for England and Wales and the Office for National Statistics (ONS), the Halifax House Price Index and from the Nationwide all show that property prices in most parts of the UK are rising. All these surveys are pointing in the same direction and show that London property prices have risen and are rising at a particularly fast rate.

Halifax House Price Index

According to the widely used Halifax house price index, annual house price inflation is currently running at 7.5% for the UK, but at 15.4% for Greater London, where the average house price has now reached £310,000.

House prices are continuing to accelerate across the UK, according to the latest snapshot from the Halifax mortgage lender.

HBOS UK Property Prices (Bloomberg)

Its latest survey, for February, shows that prices rose by 2.4% last month, leaving them 7.9% higher than a year ago. That was the fastest annual pace of increase since October 2007 and means the average UK home now costs £179,872.

However, record levels of debt and continuing pressures on household finances, as earnings fail to keep pace with consumer price inflation, are expected to remain a constraint on the rate of growth of house prices in the UK.

Sales have been picking up strongly too in the past year. In January, house sales in the UK had risen for the ninth month in a row. The number of mortgages approved for home buyers, but not yet lent, was 42% higher than a year ago, suggesting a further rise in sales is still to come.

At the top end, or prime, segment of the London market, which generally means the top 5-10% of properties, the average price of a property is now £4 million in central London, £1.8 million in Greater London and £1 million in the surrounding Home Counties. While overseas buyers investing in central London have long been credited to have pushed out the majority of other buyers, their impact is now starting to boost prices in the prime segments of Greater London and surrounding areas, as rich domestic buyers are also forced to buy further afield.

That overseas rich cash buyers are primarily responsible for driving up central London prime residential prices is not just hearsay. It is well documented. London’s Evening Standard recently highlighted at least 740 ‘ghost mansions’ worth £3 billion in total that are currently sitting empty and unused around central west London and a number of other enclaves. Even the current uncertainty in the Ukraine is adding to the mix, with London’s prime estate agents having noticed an increase in enquiries from rich Ukrainian and Russian clients over the last few weeks.

Knight Frank

According to Knight Frank, the reputable London estate agent, house prices in the prime central London segment rose for the 40th consecutive month in February, the longest consecutive rise since the firm began producing its London prime index in 2004. They note that 12 month price appreciation to February 2014 was 12.8% in the sub-£2 million category and 3.4% in the £10 million plus bracket. Knight Frank notes that the rate of increase at the very top end £10 million plus has slowed compared to the previous year, when it reached 6.1%, and the year prior to that, when it touched 10.7%. With central London so expensive, the ripple effect is going ever outwards.

Savills

Savills, a similar firm to Knight Frank, forecasts that London prices over the next five years to 2018 will still rise strongly with the larger gains outside the very centre. Savills predicts a 23.1% gain in central London over the five years to 2018, a 22% gain in ‘other London’, and a 25% gain in inner commuting belts. However there is evidence that these forward looking rosy forecasts by industry agents need to be tempered with the consideration of additional evidence.

Shiller

U.S. economist Robert Shiller recently warned that London property prices could be in a bubble. Shiller, the Yale based economist who shared last year’s Nobel Prize in economics, is notably for his work on demonstrating that asset prices can become irrational and out of step with economic fundamentals. He is co-creator of the widely followed Case-Shiller Home Price Indices in the US. Last October, Shiller commented that the rapid price rises in London property looks like a bubble that is being fuelled by easy credit availability.

RICS

In its latest monthly survey of the UK residential market, the Royal Institution of Chartered Surveyors (RICS) confirms an overheating London market, finding that price rises are by far the strongest in London and the South East relative to the rest of the country. Every month RICs collates market feedback from its’ members into a blended net balance indicator of sentiment using factors such as house prices, new buyer enquiries, agreed sales, and new vendor instructions.

The overall net balance figure for the UK is now at +50 and has been so for five consecutive months. The last time this occurred was in mid-2002. Most strikingly though, the net balance figure is now +87 for London and +80 for the South East region. As a comparison, the same figure is +21 in Wales and +12 for the North of England.

Feedback from RICs members in London is nearly unanimous in highlighting “a lack of supply pushing prices higher”, “a dire shortage of new sales”, “most properties going under offer as soon as they hit the market”, and “international buyers still showing a good interest, particularly in new builds”. Commenting on the February report, RICs director Peter Bolton-King said that London prices may become unstable.

EY

Adding to the evidence of a London bubble, EY Item Club, the independent economic forecast group sponsored by Ernst Young, released its own report last month, aptly titled “UK housing: no bubble to burst…except in London”. The EY report warns that housing bubble conditions are emerging in Greater London with the acceleration of prices now extending beyond the prime properties of central London and out to the broader London residential market.

EY notes that policy makers and regulators could attempt to cool demand by enforcing London specific lending limits on borrowers based on mortgage to income multiples, but the authors concede that without any real changes in government policy or market dynamics, London’s unique factors of a) super-rich cash buyers in the prime market and b) well paid London professionals in much of the rest of the market, appear to indicate that price appreciation is not going to cool off anytime soon.

Civitas

Independent social policy think-tank Civitas also released a property study last month and called for the imposition of controls on wealthy overseas buyers in the London property market. The authors refer to the “rampant house price inflation” in London, where the “global super-rich” are using London property as an investment vehicle and a safe haven shield from more volatile countries, while younger and less well-off London residents are being squeezed out of the market.

The report highlights that while the ratio of average income to average property prices across the UK has risen from 2.3 in 1980 to 4.6 in 2013, the same ratio for London hit 6.1 in 2013. As a supply boosting measure, Civitas calls for regulations that would only allow overseas investment buyers to acquire existing properties in London if they proved this would add to the available housing stock. Similar rules already exist in economies such as Australia, Switzerland and Singapore.

OECD

The most recent OECD semi-annual economic outlook warned that UK house prices might be experiencing a potential bubble since economic policy and supply constraints are causing an overheating market.

Government Policy

UK residential market prices are currently being supported by various favourable economic factors and government led schemes. The government’s ‘help to buy scheme’, supposedly structured for those who otherwise could not afford a property, offers an interest free loan of 20% of the purchase price of a house up to £600,000, with a 15% lender loan guarantee by the government. This scheme is helping to drive mortgage applications and has been criticised by the IMF and others for potentially stoking a property bubble, and for having specified an upper house price that, while realistic for London, is very generous for other parts of the country.

Historically low official Bank of England rates are feeding into relatively favourable mortgage rates. The official stance of the UK Treasury and Bank of England is not expected to change anytime soon since they require low interest rates to support an economic recovery. However external economic shocks are not unknown and can come when least expected.

Affordability of property in relation to earnings is an issue and is becoming a bigger issue as prices continue to rise, not just in London, but across the UK. There are also signs that various parts of the market are becoming choked as those who would otherwise move up can’t and so this impacts younger potential buyers who can’t get on the property ladder.

Asset bubbles don’t always announce themselves and can sometimes be violent when they begin. This then can create liquidity issues on the sell side as many participants rush to sell simultaneously.

Interest Rates

Interest rates are at historic lows. Given the precarious financial position of the UK it is highly likely that interest rates will only go higher in medium and long term. The ramifications for property markets and especially the residential sector should not be ignored.

Conclusion

London is a truly global city, as such its fortunes rise and fall on the tide of the global international marketplace.

Evidence clearly suggests the London property market is attracting safe haven funds from global investors seeking reprieve from a post financial-crisis world where the competitive devaluation of currencies, prolonged low interest rates, unorthodox monetary policy such as QE have all combined to make London an attractive haven for investment monies.

As monetary officials the world over wrestle with deep systemic imbalances, geopolitical uncertainties and the looming threat of bail-ins, investors will continue to seek shelter in assets that operate as a safe haven such as property but also more conventional safe haven assets such as gold.

We believe that ultimately these elevated asset price levels in London property are unsustainable and will be subject to violent correction. Given that interest rates are at historical lows, the London property prices will become increasingly sensitive to any upward movement in interest rates.

This Market Update is reprinted in full in Issue 7 of GoldCore’s Insight Series. Download your copy here: Is London’s Property Bubble Set To Burst?


    



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Stocks Jump And Bonds Dump As Unemployment Rate Rises

The knee-jerk reaction to a better-than-expected (and entirely noise-driven) payroll number (with a rise in the unemployment rate) is a rip higher in stocks and collapse in bonds and precious metals. The USD is surging as USDJPY instantly hit 103.50 (breaking through its 50DMA) providing all the juice stocks need to test that critical Goldman 1,900 year-end target for the S&P 500. It seems, just as we warned earlier, "whatever the number, the algos will send stocks higher – that much is given in a blow off top bubble market in which any news is an excuse to buy more."

 

 

Of course there's only one real reason why stocks surged…

 

 

Charts: Bloomberg


    



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February Payrolls 175K, Beat Expectations Of 149K, Unemployment Rate Rises To 6.7%

So much for the weather. As we warned earlier today, when we said that with everyone expecting a miserable print the only possible result would be a large “beat”, sure enough that’s precisely what happened. Breaking it down:

  • February payrolls: +175K, Exp. 149K, Last revised from 113K to 129K).
  • Household survey jobs added: 42K, far less than the Household survey.
  • Unemployment rate: 6.7%, Exp. 6.6%, Last 6.6%.
  • Labor participation rate: 63.0%, Last 63.0%
  • Private payrolls: 162K, Exp. 145K, Last 145K
  • Manufacturing payrolls: 6K, Exp. 5K, Previous revised from 21K to 6K

Visually:

 

From the report:

Both the number of unemployed persons (10.5 million) and the unemployment rate (6.7 percent) changed little in February. The jobless rate has shown  little movement since December. Over the year, the number of unemployed persons and the unemployment rate were down by 1.6 million and 1.0 percentage point, respectively. (See table A-1.)

Among the major worker groups, the unemployment rates for adult men (6.4 percent), adult women (5.9 percent), teenagers (21.4 percent), whites (5.8 percent), blacks (12.0 percent), and Hispanics (8.1 percent) showed little or no change in February. The jobless rate for Asians was 6.0 percent (not seasonally adjusted), about unchanged over the year. (See tables A-1, A-2, and A-3.)

The number of long-term unemployed (those jobless for 27 weeks or more) increased by 203,000 in February to 3.8 million; these individuals accounted for 37.0 percent of the unemployed. The number of long-term unemployed was down by 901,000 over the year. (See table A-12.)

Both the civilian labor force participation rate (63.0 percent) and the employment-population ratio (58.8 percent) were unchanged in February. The labor force participation rate was down 0.5 percentage point from a year ago, while the employment-population ratio was little changed over the year. (See table A-1.)

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 7.2 million in February. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. (See table A-8.)

In February, 2.3 million persons were marginally attached to the labor force, a decline of 285,000 over the year. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 755,000 discouraged workers in February, down by 130,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in February had not searched for work for reasons such as school attendance or family responsibilities. (See table A-16.)


    



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Previewing Today’s 1.5 Million Payrolls Seasonal Adjustment

Today’s consensus estimate for the non-farm payroll is for a 149K increase broken down as follows among some select banks:

  • Bank of America 115K
  • Deutsche Bank 120K
  • Goldman Sachs 125K
  • Citigroup 135K
  • JP Morgan 140K
  • Barclays 150K
  • UBS 165K
  • HSBC 167K

Why is the expectation so low? Why cold weather of course – the same cold weather that supposedly impacted December and January data. Then again, one wonders just what is the seasonal adjustment factor for if not to adjust for the, gasp, seasons.

So when one puts the February actual number in the context of its average adjustment over the past decade, what does one get? Simple – a boost of 1.5 million “jobs” which exsit nowhere in the real world but in some Arima-X-13 spreadsheet.

The chart below shows what the average seasonal factor by month has been in the past 10 years.

In other words, today’s entire pick up in jobs is one tenth of the overall seasonal adjustment factor, which as we know by now is woefully broken since it is so incapable of grasping the simple concept of cold and snow in the winter.

And now you know why today’s number is once again meaningless and only there to stimulate HFT algos into buying whether the news is good or bad.


    



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Russia Threatens Retaliation To Sanctions, Announces Support For Crimean Referendum

It appears Obama’s latest “one hour” conversation with Putin has just made things downshift from bad to worse.

Moments ago Russia accused the European Union of taking an “extremely unconstructive position” by freezing talks on easing visa barriers that complicate travel between Russia and the EU over Ukraine.

Russia will not accept the language of sanctions and threats” and will retaliate if sanctions are imposed, the Russian Foreign Ministry said in a statement about agreements reached at an emergency EU summit on Thursday.

And assuring that the imminent Crimean referendum due in just over a week will rapidly deteriorate the current detente was overnight news that Russia’s upper house of parliament will support Crimea in its bid to join the Russian Federation, the speaker of the upper house of parliament said Friday. “If the people of Crimea decide to join Russia in the referendum, we, as the upper house, will certainly support this decision,” Valentina Matvienko said at a meeting with Vladimir Konstantinov, his counterpart in the Crimean parliament.

WSJ reports that a delegation from the Crimean peninsula were in Moscow to meet parliamentarians who warmly welcomed the guests and signaled their willingness to support the neighboring region.

Shortly thereafter, the western inspectors learned they are not exactly welcome in the Crimea later on Friday when a group of military and civilian personnel from the Organization for Security and Cooperation in Europe will be making another attempt to enter the Crimean peninsula, after being stopped at two border checkpoints the day before, a spokesman for the organization said.

“The group is on their way from Kherson, where they spent the night, and is heading to a checkpoint in the area of a village called Chungar,” Shiv Sharma said, adding that the group of about 40 people is scheduled to arrive around 1330 local time (1130 GMT).

But while the OSCE inspectors will hardly receive a warm welcome anywhere in the pro-Russian parts of the Ukraine, one thing is certain: while for the next week the world is stuck listening to more hollow rhetoric, once the Crimea formally splits from the Ukraine and joins Russia as per the will of the parliament and the people, that’s when things get rough, as that will be the formal expansion of Russia into a region of the Ukraine which everyone in the west has called an unconstitutional process, while Russia itself calls the coup that overthrew Yanukovich just as unconstitutional.

So enjoy the downtime: in mid-March things get hot again. Or, if you live in the Ukraine, quite cold:

  • GAZPROM SAYS TODAY IS DEADLINE FOR NAFTOGAZ TO PAY FOR FEB. GAS
  • NAFTOGAZ OVERDUE PAYMENTS AT $1.89B FOR GAS SUPPLIES

Leverage.


    



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($XXII) 22nd Century Groups Gets NYSE Approval, VIRTU is DMM

22nd Century group, a biotech firm that specializes in the DNA reconstruction of tobacco plants to be used in the smoking cessation process announced yesterday that it has cleared the hurdles required to list on the NYSE, Virtu will be the DMM:

22nd Century Group, Inc. (OTCQB:XXII)
today announced that the Company received approval to list its common stock on the NYSE MKT. Trading on the NYSE MKT is expected to commence on Tuesday, March 11, 2014 under the Company’s current symbol, XXII. In connection with this NYSE MKT listing, 22nd Century Group will cease trading on the OTCBB and OTCQB….[Read More Here]

22nd Century is a Buffalo based firm and aside from trying to find value looking at metrics of growth or debt sensitivity will make you nuts.  XXII has it’s Alpha inside of it’s technology, the same technology that was verified when British American Tobacco signed a business/re-licensing agreement.  

I’m standing by this stock.  I met with the management guys and seen both operations in Buffalo, haven’t traveled to NASCO facility but this operation is legit and the technology is outrageously valuable.  I would seriously consider your risk levels and take a gander at grabbing exposure sooner than later.

I’ll cover more over the weekend.   In the meantime, I’m takign today off and going shooting and riding out at my families land with a buddy.  Enjoy NFP and Twitter Hate, at least I won’t be there to add more to the disintegration of Twitter’s effort to bring us together.

(LINK) XXII Message Forum Board


    



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