SLIDING ONE PAST

 
What this chart should tell you is look for the old slider as in slide one past you.

If you think these numbers are not going to be revised upwards, well, there's probably not much we can do for you except say be sure to regularly take your meds.

With these numbers the Fed doves will be beside themselves as we recently posted earlier today in "The Muddle Thickens." Some of these monetary visionaries think interest rates are still too high.

Upward revisions are par for this Fed. And this one will be no exception. After nearly six years of zero interest rates, a smoking printing press and a balance sheet that's about as ugly as ugly gets, and you can only create 142,000 new jobs. 

Hand me that pencil, the one with the big eraser.

August NFP = 142,000
This morning’s jobs report was surprisingly weak. The U.S. economy created only 142,000 net new jobs last month. We had a nice six-month streak of topping 200,000. That’s come to an end. The unemployment rate ticked down to 6.1%. If you break out the decimals, the unemployment rate was 6.14969 which rounds down to 6.1%. Less than 500 more unemployed would have pushed it up to 6.2%.

To see some interesting charts see the link below.
 www.crossingwallstreet.com/archives/2014/09/august-nfp-142000.

THE MUDDLE THICKENS

Interest rates are not low enough," Minneapolis Federal Reserve President Narayana Kocherlakota said at a Town Hall meeting in Montana, citing subdued inflation and "unacceptably high" unemployment as evidence.

http://www.reuters.com/article/2014/09/05/us-usa-fed-kocherlakota

Here's one of the reasons things are getting more muddled at the Fed. Unlike beauty and many other things in life, inflation is not in the eye of the beholder but in the pocket of those of us who pay it. And there's plenty to go around.

The recent drop in gasoline prices is a concerted attempt to pry consumers' money from whatever might still be limping around in their wallets, Toss in what is now an official attack on consumers for cash hoarding by Fed officials and MSN and you're starting to get the picture.

Heroes, regulators and bureaucrats always need a villain.

Desperate is as desperate does. Flooding the market for nearly six years with zero interest rates without their desired results proved one thing: their tool shed is nearly empty. 

Selling off the country's Strategic Petroleum Reserves to ostensively right many of the current global geopolitical disturbances is among them
http://blogs.platts.com/2014/09/05/sell-oil-spr/ 

 What's even more scary is that many of these ideas come from those in so-called high places.

That the U.S. currently is enjoying a glut of energy, most of it from fracking, a procedure that's hardly the most welcome guest at dinner for a growing number these days, clouds the picture. There are some smart folks out there--you define the term for yourself--who believe this glut is temporary. 

And many of those geopolitical hotspots may turn out to be anything but. 
t. man hatter

TAKEAWAY LESSONS

One writer yesterday following ECB President Mario Draghi's perfromance postulated the the euro is the poor, besieged central banker's only friend.

We on the other hand have taken a different approach saying it's the U.S. dollar. Though it might be just splitting currency hairs, for a long time those ECB bureacratics have been hoping and praying,
praying and hoping that the Greenback would ride to their deflation-stranded rescue.

We'll spare you all the other working parts like the U.S. recovery that might be beginning to recover after being AWOL for five years. The Wall Street Journal yesterday ran the following story. http://blogs.wsj.com/briefly/2014/09/04/5-takeaways-from-the-ecbs-september-meeting/

WILL IT REALLY WORK?

                         

As we keep pointing out, there are many views out there about the European Union what should be done to fix what might turn out to be the unfixable without big, big changes.

Big, big changes usually come wrapped in fancy promises. You can paint a house to make it look better, but the infrastructure can still be rotting.

Everyone wonders if this will work. Let me ask a different set of questions:

1. Why should it?
2. Does the announcement fix any structural problems with the euro?
3. Does the announcement fix any fiscal issues in any European country?
4. Does the announcement fix any competitive disadvantages of France vs. Germany?
5. Does this provide any impetus for structural reforms in France or Italy?
6. If -0.1% rates for funds parked with the ECB did not stimulate lending, why should -0.2% rates?

Yield Down

• The yield on the Spanish 10-Year bond is now 2.16%, down from 4.51% a year ago.
• The yield on the Italian 10-year bond is now 2.35%, down from 4.42% a year ago.
• The Yield on the Portuguese 10-year bond is now 3.15%, down from 6.77% a year ago.

Meanwhile, yield of the US 10-Year treasury is 2.45%. Apparently there is 0% risk of a restructuring of Spanish, Italian, or Portuguese bonds.

Greece was a one-time event, until Cyprus came along. Then it became a two-time event. But don't worry, it will never happen again. 


Anyone believe this?

The above is from http://globaleconomicanalysis.blogspot.com.

NEVER ENOUGH LAND

When is something never enough. Never.

If you're a bit confused, then you've most likely been following the pundits on Mario Draghi and his ECB capers.

Draghi made some changes today, cutting three key interest rates by 0.1 percent and lowering its inflation forecast from a whopping 0.7 percent to a whopping 0.6 percent. Toss in Draghi's plan to start buying euro-denominated covered bonds and some asset-backed securities.

One can only hope those asset-backed securities are not of the subprime species. Just a thought about irony. 

The moves will please some but not all. What Drahi and his central bank compatriots have been waiting an hoping for is the Federal Reserve to pull the EU out of its deep, dank economic slumber.  And that may happen yet wth a stronger dollar and if new Cleveland Federal Reserve President Loretta Mester has much to say.

WASHINGTON (MarketWatch)— New Cleveland Federal Reserve President Loretta Mester sided Thursday with hawks on the central bank on a key issue: whether to scrap the forward guidance at the Fed meeting later this month.

The Fed now pledges to keep rates near zero for a “considerable period” after the end of its bond-buying program.

In her first speech on the economy and monetary policy, Mester said that pledge has outlived its usefulness.

“With the end of the program nearing, I believe it is again time for the committee to reformulate its forward guidance,” Mester said in a speech to the Economic Club of Pittsburgh that was streamed online. “While it might sound best to simply give a date about when liftoff is likely to occur, I believe using a calendar date at this point would be poor communication.”

Mester argued that the new forward guidance should convey that the first rate increase will depend on economic conditions and the speed of its progress toward the Fed’s twin goals of low unemployment and stable prices.

This new language should imply that “a faster pace of progress toward our goals would argue for a faster return to normal, while a more subdued pace would argue for a slower return,” she said.

Mester’s comments put her in the camp of hawkish Philadelphia Fed President Charles Plosser, who dissented from the last Fed statement in late July because he wanted to scrap the “considerable period” language.

“I viewed such language as an inappropriate characterization of the future path of policy and so may limit the FOMC’s flexibility going forward,” Plosser said in a statement in early August explaining his dissent.

Mester worked as a key adviser to Plosser at the Philadelphia Fed before assuming her post at the Cleveland Fed in June. She is a voting member of the Fed’s policy-making Federal Open Market Committee this year.

The Fed's next policy meeting in later this month on the 16th-17th when Fed Chair Yellen will brief the media afterwards. 

What should be clear is the lines are being drawn. If it sounds like an upcoming version of gridlock, you could be onto something.

Mester noted that waiting for wages to rise before acting on inflation is a mistake.

In my view, it would not be prudent for policymakers to simply wait for wages to accelerate before assessing the implications of the stance of monetary policy for future price inflation,” Mester said.

She also noted wages should rise "with not necessarily lead prices."

Go get the pop corn and soft drinks ready--just don't breathe a word to Bloomberg--the show's about to start.

t. man hatter

INTERESTING CHART

Here is an interesting chart from http://www.crossingwallstreet.com/
We’re coming up on what has historically been the weakest time of the year for the stock market. I took all 118 years of the Dow and crunched them into one average year (setting 100 for January 1). Here’s what it looks like:

The Dow has historically peaked on September 6, a Saturday this year, and fallen 2.43% by October 29. That’s equal to about one-third of the Dow’s annual capital gain.

I should caution against reading too much into these seasonal effects, and especially on acting on them. Remember that we’re talking about averages that come from 12 decades’ worth of data. In any one year, a drop of 2.43% over eight weeks would barely be noticed. 

The more important lesson is that summer is usually a good time for stocks. Once summer ends, there’s been a natural energy to take profits. That could certainly happen again this year. But that historic effect doesn’t last long, and the market soon rallies again as winter approaches.

The rally usually comes in November and lasts, if it does last, until around May.

AROUND THE WEB

1. CENTRAL BANKS AND STRUCTURAL REFORMS
http://www.blacklistednews.com/Central_Bank_Monetary_Policy_Enables_Us_to_Put_Off_Real_Reforms/37692/0/38/38/Y/M.html

2. EU TROUBLE THREE REASONS TO WORRY
http://money.cnn.com/2014/09/03/news/economy/europe-economy-worries/index.html?iid=HP_River

3. MIXED MARKET TODAY
http://blogs.barrons.com/stockstowatchtoday/2014/09/03/at-the-close-stocks-finish-up-down-and-all-around/?mod=BOL_hp_blog_stw

4. INCLUSIVE CAPITALISM
http://www.fee.org/the_freeman/detail/inclusive-capitalism

5. ECB HANDICAP
http://www.marctomarket.com/2014/09/handicapping-ecb-meeting.htm

6. PROTECTIONISM BY ANY OTHER NAME
http://blogs.platts.com/2014/09/03/jones-act-repeal/#more-18101

7.TOP FUND MANAGER'S PICKS
http://www.cnbc.com/id/101968552

8. NO WAGE GAINS
http://www.thereformedbroker.com/2014/09/03/chart-o-the-day-where-are-the-wage-gains/

9. GOLD SOFTENING
http://www.crossingwallstreet.com/archives/2014/09/the-recent-weakness-in-gold.html

EUROPEAN UNION

We've mentioned this before and we continue to believe it.

With the much-awaited ECB meeting tomorrow, many will be hanging on ECB President Mario Draghi's every word to see if he meant what many think he said last week at Jackson Hole.

It's about to QE now or not to QE. Meanwhile, the debate continues whether QE American style or not will be all what either is cracked up to be. A lot dangles in the balance.

The government of France is in trouble. Reform in Italy has stalled, and the country is slipping back into a recession from which it never really escaped. The mighty German engine looks to have run out of fuel. Unemployment continues to climb. The news coming of the eurozone is unrelentingly bleak.

Not surprisingly, investors are fleeing. The money that flowed into European equities at the start of the year, when there was a widespread view that the continent was finally starting to recover, has fled over the summer.

But, in fact, that is a mistake. The worse the economic data out of Europe gets, the more you should be buying. Why? There are two reasons, one short-term, and one long-term.

If pessimism is your cup of investment tea, search no further. Things look bleak. It's rapidly becoming like the old comparative case in English--bleak, bleaker and bleakest.

When the ECB meets this week, it will have no shortage of gloomy data to chew over. It has already had a couple of weeks to digest the fact the German economy is shrinking again, and that growth in both France and Italy, the next two largest economies in the zone, has stalled. Inflation has fallen again, to just 0.3%, only a whisker away from outright deflation. Bond yields have slumped to the same levels seen in Japan two decades ago, just as it was embarking on two decades of deflation and stagnation. This week, there has been another round of disappointing manufacturing surveys, pointing to a tough autumn ahead. The hopes that dominated the new year of a cyclical rebound have been shattered.

Meanwhile, the political outlook just keeps getting worse. In the German region of Saxony, the anti-euro Alternative for Germany (AfD) party won it first seats in a regional assembly over the weekend. French Prime Minister Manuel Valls faces a battle to push through even the modest reforms he has proposed. And Italy’s young reformist PM, Matteo Renzi, will soon see his popularity slide if he cannot deliver growth.

Not surprisingly, investors have been getting out while they still can. U.S. equity investors pulled $179 million from European stock funds in August, according to Thomson Reuters’ Lipper figures, while increasing their exposure to other markets. It’s not a region anyone wants to invest in anymore.

That's why we like it. With all that capital fleeing, it's another reason why we're getting selectively in.
t. man hatter
http://www.marketwatch.com/story/the-worse-europe-gets-the-more-you-should-invest-there-2014-09-03

WRONG-FOOTED AGAIN?

                   
"Stuck in Lodi again," an old popular tune, could easily be a metaphor for the Federal Reserve and its current wait-and-see policy.

In this case the tune would go "Wrongfooted again."
  
As today's Financial Times notes in "US bond bull run wrongfoots Wall Street," there's little sign a slowing demand for long-dated Treasury bonds.

"The big bond bull run of 2014 has made a mockery of Wall Street that US Treasuries were set for a sell-off.

For all the signs of economic recovery, and despite gains for US stocks, long-term Treasury yields, which move inversely with prices, have delivered double-digit returns this year, outpacing the S&P 500's robust performance." 

All of this has been quite unexpected and in our view is another sign that when the change comes it will likely catch most off guard. And that goes along with our recent post "To Hedge Or No?" But let's add some more to our view.

Also in today's FT "Fed ignores likelihood of weaker GDP growth." 

The US Federal Reserve may have a problem. When it finally does move to increase short-term interest rates, it may prove too late to counter a bout of higher inflation. Why? Because it is becoming increasingly clear there is a limited ceiling on the long-term growth potential in the US economy. US GDP growth is likely to average 2 per cent a year in future, rather than the 3 per cent of the past 50 years. 

There are two main reasons for this, the first being labour market dynamics. The US labour force over the past five years has risen just 0.2 per cent a year, in spite of a population increase of 10.1m. This in turn has caused a sharp decline in the labour force participation rate. 

Yellen herself has noted she believes that the labor market is different this time. And that's what this strategist is saying about the US GDP ceiling. Despite the bubble-like numbers in the bond and equity markets, interest rates and employment numbers are coming off extreme lows. 

Easy money has been squirted to extreme highs. Even that grand central banker Big Ben Benanke, patting himself on the posterior, recently called this Recession greater than the 1930's turn down.

Arrogance knows no bounds. And that my thirsty friends is one of the larger than life dangers of central banker bureaucrats.

Extrapolating the future from past data is a dangerous game despite apparent similarities. So it might take a lot less to cause a lot more trouble ahead than these big city central bankers with their big dot board calculate for. 

To date the bond market's wrong footing Wall Street and the rest of us has been the Fed's best friend. But even best friends can often times turn on you.

We think the Fed already has a problem. They just don't know it.
t. man hatter

QUESTION IS TO HEDGE OR?

t.man hatter
This is in our view another sign of complacency in the energy market. Airlines might not be buying hedges on the dips, but that doesn't mean you as an investor shouldn't be adding select companies to your energy portfolio.

Take what the market gives you. The more pessimistic people become about the lack of economic recovery the more likely they will get surprised. The more these central bankers claim they know what they're doing, the more they're likely to screw things up.

China is now doling out large cash incentives for interracial marriages to help quell unrest among a mainly Muslim ethnic group. And with the Chinese economy moving down toward 7 percent, new stories about India with its new regime picking up the global growth slack are starting to pop up.

The point is basic: There's plenty of room here for error.

An old investing adage is to buy on the dips, a philosophy generally followed by US airlines in the hedging market over the years. This year? Not so much.
Jet fuel prices have declined in price and volatility so far in 2014. So has jet fuel hedging, at least in the US. What is essentially insurance on any airline’s single-largest cost has become seen as less than necessary.
 
The world’s largest airline, newly merged American Airlines, said it had sold off its hedging contracts by the end of the second quarter, an expected move as merger partner US Airways had gone without hedging since 2008.  

Traders and brokers who make money selling the calls, collars and other financial instruments questioned whether other airlines would pick up the slack, especially tempted by a flat-price drop over the summer.
“My sense is less hedging overall,” one jet trader said. “Take AA. They’ve adopted the US Airways model so they are entirely out of it. Nobody wants to catch a falling knife, plus consolidation has created less demand for hedging.”

Platts data showed that 2014 spot market prices in the benchmark Gulf Coast, where half of US jet fuel is produced, averaged $2.88 per gallon as of August 28. 

http://blogs.platts.com/2014/09/01/us-airlines-hedging/