Friday’s Jobs Report

Friday’s jobs report was ugly. Most of the very mild growth came in public education, with just 6,000 jobs in the private sector. Another 406,000 people dropped out of the labor force, keeping the unemployment rate artificially low. The broader U-6 rate is over 11%, which is more real-world.

The recovery in the U.S. labor market appeared to stagnate for a second month, as non-farm payrolls increased by just 49,000 and December’s figure was downwardly revised to show 227,000 job losses, strengthening the case for further stimulus.

This time a month ago we saw 2020 end with discouraging jobs data. Now we see 2021 beginning not much better, but with a couple of bright spots. Peter Boockvar quickly reviews the numbers for us.

January payrolls grew by a less-than-expected 49,000. The two prior months were revised down by a total 159,000.
The public education sector’s hiring kept January’s headline number above zero. Manufacturing and construction both lost jobs.
Average hours worked rose from 34.7 to 35, indicating employers gave existing workers more work instead of hiring new ones.
Average hourly earnings jumped 1.1% in January and 7.5% in the last year, but these are partly a result of the mix as lost jobs tended to be lower-paying.
More than 4 million workers have been seeking jobs for 27 weeks or more.

The jobs picture, like so many others, looks increasingly polarized. Workers in some sectors are busy and prospering while others, like restaurants, continue to suffer. Their fate depends on the virus coming under control, and that looks unlikely before summer (at best).

The Fed – views from Elliott Investment Management’s Paul Singer

In the response to 2008, this ZIRP, zero interest rate policy, this quantitative easing, this emergency policy, which was certainly needed in the immediate aftermath of the crisis. The central banks allowed the crisis to develop by not really understanding the risks. But once the crisis did develop, of course, you needed to radically reduce interest rates and do some asset buying during the crisis period. That was crash playbook and appropriate. But what happened after that, nine years of crisis techniques, long after the crisis was finished, was extremely dangerous.
I think the central banks came to enjoy their role of being Samson holding up the global financial system and economy. And they weren’t punished by consumer price inflation, they didn’t understand that this asset price inflation, which had a secondary or tertiary positive effect on growth and employment. But they didn’t understand that was a form of inflation, that that’s where the free money and the money printing went. And so they didn’t at all take into account that they were exacerbating the inequality that became a populist political theme.
It’s very difficult, given that economists don’t have a good history of predicting inflation, turning points in inflation, the reasons why inflation exists or doesn’t exist, the reasons why these emerging market countries with policies very similar to those that are undertaken now in the developed world, that some of these emerging market countries are generating through excessive spending and money printing, really staggering amounts of inflation.
So, I think when we’re talking about the end game, in terms of central bank policy, I think we’re at the beginning of a path dependent and complicated set of processes in which the first thing that may happen may be some growth in inflation.

Read this part of Paul’s comments very carefully:

I think there’s a really good chance, given the determination to spend trillions and trillions more on COVID relief, and stimulus, whatever you want to call it, to guarantee, quote, unquote, which is ridiculous, these super low interest rates for the next three years, and to keep verbally boxing themselves in. I think there’s a really good chance of a tremendous surprise and a surprise in the relatively near future. What would that surprise be? Some combination of actual consumer price inflation bursting out and keeping on going. That would be a stunning development to central bankers.

Higher rates would be the “canary in the coalmine”.

Who are the Reddit/Robinhood day traders?

When Robinhood came into existence, it wasn’t charging commissions on trades. A lot of people thought that was strange.

Then, Robinhood was opening up millions of new accounts, and competitive pressures drove the other brokerages to drop their commissions as well.

Now, as long as you aren’t a customer of one of the full-service brokerage firms, you can pretty much trade for free in the US thanks to Robinhood.

I fear that we will draw the wrong conclusions from this Robinhood/Gamestop episode. We’re talking about limiting short selling, on account of the fact that 140% of the float in GameStop was sold short.

That doesn’t move the outrage needle for me. The people who participated in that crowded short with large positions were big boys. They can take care of themselves.

Of course, to provide cover for Wall Street, the people owned by the major banks and brokerage firms jumped to the fore to “investigate” the matter.

On Thursday, Treasury Secretary Janet Yellen stated.

“We will discuss whether or not the recent events warrant further action. We need to understand deeply what happened before we go to action but certainly we’re looking carefully at these events.”

As is always the case, when anyone “works with regulators,” it is only to ensure that Wall Street banks have the ongoing ability to “rape and pillage” retail investors with impunity.

How do you know this?

Because Janet Yellen had to get an “ethics waiver” to oversee the regulatory committee after taking more than $7 million from Wall Street firms in “speaking fees” since leaving the Fed. Considering that she didn’t even show up for some of the events, “speaking fees” are essentially a legal “bribe” for making sure “regulatory actions” favor your firm.

It wasn’t the “retail traders” that caused the problems with Gamestop and other companies. The issue came from Wall Street firms, primarily hedge funds, “shorting” these stocks “naked.”

How do you know this was happening? Because Gamestop had over 120% of its shares shorted.

There is nothing wrong with legally “shorting” a stock. Investors buy stocks expecting the price to rise. Shorting a stock is simply a bet the price will decline. Shorting stocks can hedge risk in a primarily long-equity portfolio.

It is currently legal to borrow shares from someone who is long the company and then sell those shares to someone else. When the price declines, the person “short” the shares, repurchases them at a lower price and returns the shares to the lender.

What is illegal is to sell shares short that you have neither borrowed nor made arrangements to buy. Such is being “naked.”

So, when the seller cannot cover or “settle” in this instance, the price of Gamestop shares skyrocket as there were simply no shares to buy.

When the system provides the ability to sell an unlimited number of non-existent shares in a publicly traded company, those firms have the power to destroy and manipulate the share price at will.

It is illegal. It is manipulation.

Wall Street turns a blind eye to their large hedge fund accounts that routinely participate in these illegal transactions because of the large fees they collect from them. These institutions are actively facilitating the destruction of shareholder value in return for short term windfalls in the form of trading fees. Wall Street, not retail investors, are the problem and are complicit in aiding hedge funds to create counterfeit shares.

Given that Wall Street’s regulators are effectively owned, including the Federal Reserve and the Treasury, there is little incentive to “fix” the system. It is much easier to punish a retail investor for playing the same game and calling it a victory to appease the media.

Demographics of Robinhood/Reddit traders:

Robinhood equities and options trading volume:

Who are the largest sellers and buyers of order flow?

US Economy

The ISM Manufacturing PMI index came in a bit below consensus, but factory activity remains solid.
The report bodes well for the nation’s industrial production recovery.
An alternative measure of US manufacturing activity from Markit is at the highest level in years.
Growth in ISM new orders has been strong.
Hiring continues to improve, although some manufacturers complain about labor shortages.
Strong orders and delivery delays have resulted in tight inventories sending prices higher.
The spending gap between residential and nonresidential construction continues to widen.

Small businesses continue to struggle.

According to the AEI Housing Center, home price appreciation (HPA) is approaching 14% (per year).
January automobile sales exceeded forecasts.
Rising output prices in China could also push US inflation higher.

What are the differences between the Gang of 10 and Biden’s stimulus plans?

Dollar Allocations

Impact on incomes:

The ISM services PMI also exceeded expectations, showing robust expansion in business activity.
Refi activity remains elevated, which has been putting additional cash in homeowners’ pockets
Credit card delinquency rates fell last year.
Consumer balance sheets continue to strengthen.
Spending on housing-related items has been particularly strong.
Initial unemployment claims declined again but remain above one million per week.
The official jobless rate is understating the level of unemployment.