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BLS Errors in Unemployment Rate Urge on Bullish Market

The Bull Is Back! Markets Charge As Economy Lags

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This Article was originally published by ZeroHedge.

The Bull Is Back! Markets Charge As Economy Lags Tyler Durden Sun, 06/07/2020 - 10:30

Authored by Lance Roberts via RealInvestmentAdvice.com,

A Note About That Jobs Number

On Friday, the Bureau Of Labor Statistics released the widely expected employment report for May. Despite continued weekly jobless claims over the last month exceeding more than 8-million, the BLS reported an increase of more than 2.5 million jobs in May. The unemployment rate came in at just 13.3% well below the consensus estimates of 17-19%.

Both of these numbers were historical records surpassing any period back to the “Great Depression.” 

Let’s start by taking a look at the raw numbers from the BLS.

From May 2019 to May 2020:

  • The civilian population grew by just 1.186 million. (This is a historically slow growth rate for the population which speaks to the demographic problem.)

  • The labor force shrank by 4.555 million. (We assume these people no longer want to work.)

  • The number of employed individuals fell by 19.602 million. 

  • The number of unemployed persons rose by 15,047 million.

Again, these are numbers never before seen in history.

Importantly, the drop in the unemployment rate is due specifically to the substantial drop in the labor force. Since February, 6.3 million people have decided they no longer wanted to work, according to the BLS. Such is substantially more than would be expected even based on the large increase in unemployment.

Therefore, if we adjust for the labor force, and count the extra 4.9 million people who were “not at work for other reasons,” the “realistic unemployment rate” was 17.1 percent in May.

While that number is down from April, it is still higher than any other unemployment rate in over 70 years. (But the 13.3% number was as well.)

BLS Admits Error And Confirms The Math

From the BLS:

“There were also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff

However, not all such workers were so classified.

If the workers who were recorded as employed but absent from work…had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis).

In other words, the unemployment rate was 16.3% even using their own data, which suggests the number of unemployed is closer to 26 million.

But this isn’t a new problem suggesting unemployment numbers have been in error for quite some time. To wit from the BLS:

“BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue. However, according to the usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.”

The Missing Millions

Once we assume this error in counting as been prevalent, understanding the massive gap between the BLS numbers and reality begins to crystallize.

Since the beginning of the last economic expansion, the working-age population has grown by 25.3 million while employment has fallen by 1.14 million through May. As the BLS confirms above, there are over 26 million who are “missing” due to the manner in which employment is calculated.

What is crucially important to the economy is full-time employment which is what creates enough income to expand economic growth. The number of full-time employees to the working-age population is at 44.81% which is not high enough to support economic growth.

Then, of course, it is also hard to square the BLS claim that a record number (345,000) of small businesses were opened during the month of May when the entire economy was shutdown. The birth/death adjustment is a complete guess by the BLS and heavily flawed. Over the last decade it has added millions of jobs to the employment data even as business creation has fallen.

While the market rallied sharply on Friday due to the “better than expected” number, investors may be getting too far ahead of themselves in the short-term.

The data will be heavily revised over the months ahead, but markets don’t care much about revisions.

What the market does care about, ultimately, is earnings.

Investors Are Too Optimistic

There are several measures of optimism we can look at which have historically corresponded with short-term market peaks and corrections.

Currently, non-commercial speculators are carrying the one of the largest net-short positions on the S&P 500 in recent history. While such positioning doesn’t necessarily mean the market will crash, it has historically aligned with short-term peaks and bear markets.

The total put-call ratio all suggests similar positioning. With investors getting extremely aggressive by buying call options, the ratio is back to more extreme elevations. The last time the put-call ratio was this elevated was in January.

The issue at hand is the markets have priced in a “V-shaped” recovery which is well ahead of what the economic data suggests. Such was seen in Friday’s employment report fiasco.

Technical Review Of The Market

Regardless, the markets are bullish biased and we must be respectful of that reality. As noted in last week’s report:

“No matter how you want to slice the data, the markets are back to more egregious overbought conditions on a short-term basis.”

The break above the 200-dma set the bulls in motion and triggered a parabolic advance in the market over the last week. Given the market is now pushing a 3-standard deviation move to the upside, with indicators very overbought, a short-term corrective action is likely. (Note the market was just 3-standard deviations BELOW the 50-dma in March.)

Also,  as noted previously, with 95% of stocks now trading above the 50-dma, such has historically signaled short-term corrections to resolve the overbought conditions. Currently, while the market has been rising, the number of stocks above their 50-dma has stalled at one of the highest levels in a decade. Watch for a deterioration in the percentage to signal an upcoming correction.

Lastly, all of the overbought/sold indicators have aligned, along with the vast majority of stocks being above the 50-dma. As noted by the red circles below, every measure is in, or exceeding, historical overbought conditions. Such also suggests a correction is likely in the short-term which will provide a better opportunity to increase exposure accordingly.

The Recovery Trade

Lastly, the market has rallied over the past week on “better than expected” economic data which supports hope of a “V-shaped” economic recovery. However, as noted by the Citi Economic Surprise Index, that is likely to change over the next month as data begins to disappoint. Peaks in the surprise index have coincided with short-term corrections, or more, in the market.

With “coronavirus cases” likely to rise sharply following Memorial Day celebrations and recent crowded protests, the risk of disappointment has risen.

This has been an exceptionally rally. All of our equity positions are now extremely stretched and overbought. Conversely, all of our hedges VERY oversold.

Caution is advised.

Updating Risk Ranges

As I wrote previously, the break above the 200-dma had changed the complexion of the market.

“If the markets can break above the 200-dma, and maintain that level, it would suggest the bull market is back in play. Such would change the focus from a retest of previous support to a push back to all-time highs.

While such would be hard to believe, given the economic devastation currently at hand, technically, it would suggest the decline in March was only a ‘correction’ and not the beginning of a ‘bear market.'”

The rally this past week now confirms the selloff in March was a “correction” and not a “bear market.” Such has important considerations in allocation models and portfolio positioning.

In corrections, recoveries back to previous highs are the norm as the bullish trend of the market continues. During bear markets, expect rallies to fail and price trends to change to negative. While it certainly seemed that was the case in March, given the severity of the decline, the rapid recovery has changed the narrative.

However, even as we update the risk/reward trading ranges, the probabilities still remain negative. With the market very overbought short-term (orange indicator in the background), downside risk outweighs the upside return in the short-term.

With the S&P 500 is now only 5% from all-time highs, all measures are now based against that advance. A breakout to all-time highs, should such occur, will reset all parameters. We have assigned probabilities to pullback ranges short-term.

  • -6.6% to the 200-dma vs. +5% to all-time highs. Negative (70% probability)

  • -11.2% to the 50-dma vs. +5% to all-time highs. Negative (20%)

  • -14.4% to previous consolidation lows vs. +5% to all-time highs. Negative (5%)

  • -18.3% to March bounce peak vs. +5% to all-time highs. Negative (5%)

While the negative risk/reward dynamics are evident, the more negative outcomes are becoming less probabilistic. However, a deeper correction becomes possible on a longer-term basis, given the deviation in prices from the underlying fundamentals. 

I understand if this seems confusing, but it is the difference between chasing markets short-term versus longer-term outcomes for portfolios. This analysis is part of our thought process as we continue to weigh “equity risk” within our portfolios.

We Like Bonds

The important point is that we are balancing increases in exposure to defensive positioning. In a “risk-off” rotation money will flow into bonds from equities, which will shield the portfolio from a decline. Given bonds are deeply oversold, versus a grossly overbought market, that rotation is likely coming sooner rather than later.

(As opposed to the S&P 500, bonds are more than 3-standard deviations oversold and on Friday began a reversal rally. We recently added to our positions to take advantage of a risk rotation.)

Obviously, we don’t care for the risk/reward of the market currently. As such, we suspect a better opportunity to increase equity risk will come later this summer.

Winning The War

I want to conclude with this quote from our MacroView this week:

Our goal is to win a war, and we may need to lose a few battles in the interim.

Yes, we want to make money, but it is even more important not to lose it. If the market continues to mount even higher, we will likely lag. The stocks we own will become fully valued, and we’ll sell them. If our cash balances continue to rise, then they will. We are not going to sacrifice our standards and thus let our portfolio be a byproduct of forced or irrational decisions.

We are willing to lose a few battles, but those losses will be necessary to win the war. Timing the market is an impossible endeavor. We don’t know anyone who has done it successfully on a consistent and repeated basis. In the short run, stock market movements are completely random – as random as you’re trying to guess the next card at the blackjack table.” – Vitaliy Katsenelson

I agree, and while such may be the case for the moment, markets like this have a nasty habit of delivering unpleasant surprises. We are in this to win the “war.”

But I will be honest; I don’t like losing battles even for the best of reasons. 

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Spread & Containment

The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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