There was nothing much good about Friday’s employment report in the United States. In fact, if the sharemarket were looking for a reason to have a fairly solid correction right now, that would be it.
During the 60% Wall Street rally since March, the US has lost about 2.5 million jobs, including another 263,000 in September. Unemployment is now 9.8%; for males aged 16-19 it’s 30%, the highest rate since at least 1948 (when the Department of Labor started supplying data); U6, which is called “total unemployed” and includes those working part time for economic reasons, is 17%, up from 11.2% a year ago.
Dave Rosenberg, the strategist for private investment firm Gluskin Sheff, wrote in his “Market musing and data deciphering” note over the weekend: “There were absolutely no redeeming feature(s) in the data…”
Alan Greenspan, speaking on TV over the weekend, said: “…my own suspicion is that we’re going to penetrate the 10% barrier and stay there for awhile before we start down.”
Former Fed staffers and now economic advisers, John Ryding and Conrad DeQuadros, told the Wall Street Journal: “…the jobs market remains the potential Achilles Heel in the recovery story.”
The US bond market has been forecasting problems for a couple of months, or as Dave Rosenberg puts it: “…the bond market crowd smells a rat somewhere – as it did when it rallied like this as the stockmarket was making new highs in the summer of 2007.”
The 10-year bond yield has come back to below 4%, which where it was in April, when the S&P 500 was 855.
So all in all, the bears will have plenty to chew on today with the jobs data and the bond yields coming down, not to mention the declining Baltic Dry shipping rates index pointing to weakening trade numbers.
It all suggests that while the US economy is moving out of recession, the recovery is likely to be bumpy and sluggish.
I had lunch last week with a senior mining industry CFO. He said commodity prices had been pushed up by hedge funds getting excited: the demand/supply fundamentals, in his view, did not support current price levels and that all except metallurgical coal would fall.
In the stockmarket, it’s the same thing. Dave Rosenberg asks: “Who has been doing the buying?”
“…it hasn’t been Ma and Pa Kettle – in fact, the FT quotes data from TrimTabs showing that only $2.5 billion in net inflows has gone into US equity funds and ETF’s since the March lows. Inflows into bond funds have been 10 times as strong. We know that corporate insiders have been net sellers of size. And the buying power from short-covering subsided months ago.
“The answer…[is] the hedge funds. And once they begin to see signs that a V-shaped recovery is about as real as Santa or the tooth fairy, watch out. Because there aren’t any other buyers out there that can be identified.”
Meanwhile the signs in Australia continue to point to something approaching a V-shaped recovery, to the point that the Reserve Bank is likely to be the second central bank to raise interest rates in this cycle (after the Bank of Israel, which moved a month ago).
But probably not tomorrow.
This article first appeared on Business Spectator.
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