(The Weekly Digest reproduces the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers.)
A DEEPER LOOK INTO BAD EMPLOYMENT HEADLINE NUMBER AND IMPACT ON OUR INVESTMENTS
April 6, 2012
Today is one of those rare days when the U.S. stock market is closed and monthly employment data is released. Monthly employment data is known as mother of all numbers, this name underscores its importance.
Futures market was open when the data was released. Stock futures fell sharply and bond futures rose as investors focused on the headline number of creation of 120,000 jobs in March. Consensus expectation was 203,000. Whisper numbers were higher than 225,000. Unemployment rate fell to 8.2% from 8.3%.
Negatives on a Deeper Look
On a deeper look, there are a number of negatives in the report.
- The aggregated hours worked is down 0.2%
- The participation rate is down 0.4% year over year.
This means 2.3 million workers are no longer in the labor pool. - Broad weakness in service sector jobs.
- No big pick up in construction jobs against some expectations.
Bearish analysts are falling all over themselves in commenting that the job report is very bad and the U.S. economic recovery is now in doubt. Some are even calling for QE3.
Positives On a Deeper Look
- Manufacturing added 37,000 jobs.
- Feb jobs increase was revised higher to 240,000 from 227,000, but the January jobs number was revised lower by 9,000 to 275,000.
Our Models See Silver Lining
- Warm weather in Nov, Jan and Feb pushed some jobs ahead in those months leading to slower job growth in Mar.
- The the broader U6 underemployment rate fell to 14.5% in March from 14.9% as the number of part-timers for economic reasons plunged by 447,000. It appears there was a shift from part-time into full-time. This is positive for the economy
- There is always volatility in employment numbers. We prefer to look at three-month trend. The three-month trend continues to be positive.
- Our models give very heavy weight to new weekly unemployment claims. Such data continues to be positive.
- The data may be revised upwards. The data is quirky and it is difficult to reconcile several aspects of the data. For example, according to this report, retail lost 35,000 jobs, but the retail sales data released by companies for March is very positive.
- We look at this report in conjunction with tons of other economic data. Other economic data is positive.
Canary in the Coal Mine
Is this weak data the canary in the coal mine? This is the question that will be asked in the coming days. It is always possible but not highly probable. Monthly employment data is a lagging indicator. We have built an enviable performance record by focusing on leading economic indicators and giving lower weight to lagging indicators in our models.
Our Trades
Extra vigilance will be needed for our short trades on Japanese yen and bonds.
Extra vigilance will be needed for our long trades in technology, cyclical stocks and ETFs as well as India, Japan, Turkey and Taiwan related investments.
Our positions short on commodities, retail and oil should benefit from this report.
At this time it is difficult to say how gold and silver will react to this report, since the momo crowd has been badly hurt and is now very emotional. Our expectation is that the momo crowd will use the jobs report to fan the flames of QE3 and attempt to run gold and silver higher. As of this writing, spot gold was higher by about $7. However, volume is anemic due to Good Friday holiday.
We are re-evaluating each one of our positions from over 100 positions in our various services. If an action is needed, you will promptly receive an alert.
New Cycle Plan
It can not be over emphasized that the single most important key to generating wealth over a long period of time is to identify early the end of an old macro economic cycle and the start of a new macro economic cycle. This is also the most difficult task an investor faces.
In Aug 2011, our call for the end of the old cycle has proven spot on. Our identification of the hallmarks of the new cycle in Oct 2011 has also proven extremely accurate.
This employment report calls for reevaluation.
All Hands on Deck
This is a long holiday weekend, but this report has turned the holiday weekend into a crunch time for the team at The Arora Report. It is all hands on deck.
Our computer will be crunching data for the models that may indicate a change in our present investment strategy. We monitor economic data from 23 countries, all major debt instruments from across the globe, all major currencies, all major commodities, 3000 U.S. stocks, 1000 international stocks and all major ETFs. There is a lot of data to crunch and reevaluate.
Sit Back and Relax
Sit back , relax and enjoy the holiday weekend. We are on the job.
We will keep you informed of the good, bad and ugly along with actions to be taken. This is the advantage of being a paying subscriber or a client of The Arora Report, Ltd.
SPAIN IN THE CROSS HAIR
April 5, 2012
After Wednesday’s dismal bond offering vigilantes have Spain in their cross hair. The concerns about Spain are further exasperated by questions about its ability to meet budget targets.
Spain has the potential to become the next Greece on a much bigger scale. If such a scenario comes to pass, expect a 30% to 50% dip in stock markets, soaring gold, soaring yen, and soaring treasuries. At this point, our models assign a low probability to such a scenario due to measures taken by ECB.
British factory output saw biggest monthly fall in almost a year.
Cold weather appears to be the cause of decline in industrial output in Germany.
French government bond auction went well.
In the U.S. the weekly jobless claims fell to 357k, the lowest level since 2008. The U.S. economy keeps on improving. The big test will tomorrow’s job numbers.
Gold futures are at $1625, silver futures are at $31.30, and oil futures are $101.61.
S&P 500 resistance levels are 1400, 1410, and 1415; support levels are 1380, 1368, and 1358.
DJIA futures are down 45 points.
NO QE3: OUR SUBSCRIBERS ARE POSITIONED CORRECTLY
April 4, 2012
At 11:26 a.m. yesterday, we received an email from a well-known market guru who is an expert at technical analysis. The email declared that the pattern in gold was like a coil and ready to start a new rally.
At 2:00 p.m. the Federal Reserve Board and the Federal Open Market Committee (FOMC) released minutes of the Committee meeting held on March 13, 2012. Gold fell about $35. Silver, oil, bonds and stocks all fell.
The market reaction indicates that a large number of market participants were expecting QE3. Their hopes were dashed by hawkish minutes from the Fed.
To anyone who has been paying attention to the economic data as it was being released over the last few months, Fed minutes should have not been a surprise.
Fed basically regurgitated what is already known.
The following excerpt from the FOMC minutes are worth reading:
‘Private nonfarm employment rose at an appreciably faster average pace in January and February than in the fourth quarter of last year, and declines in total government employment slowed in recent months. The unemployment rate decreased to 8.3 percent in January and stayed at that level in February. Both the rate of long-duration unemployment and the share of workers employed part time for economic reasons continued to be high. Initial claims for unemployment insurance trended lower over the intermeeting period and were at a level consistent with further moderate job gains.
Manufacturing production increased considerably in January, and the rate of manufacturing capacity utilization stepped up. Factory output was boosted by a sizable expansion in the production of motor vehicles, but there also were solid and widespread gains in other industries. In February, motor vehicle assemblies remained near the strong pace recorded in January; they were scheduled to edge up, on net, through the second quarter. Broader indicators of manufacturing activity, such as the diffusion indexes of new orders from the national and regional manufacturing surveys, were at levels suggesting moderate increases in factory production in the coming months.’
Based on the large number of emails we receive, some precious metal investors would immediately dismiss the foregoing with the assumption that it does not matter because inflation is heating up. Well, the Fed had a response in its minutes.
‘Overall U.S. consumer prices, as measured by the PCE price index, increased at a modest rate in December and January. Consumer energy prices rose in January after decreasing markedly in December, and survey data indicated that gasoline prices moved up considerably in February and early March. Meanwhile, increases in consumer food prices slowed in recent months. Consumer prices excluding food and energy also rose modestly in December and January. Near-term inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers were unchanged in February, and longer-term inflation expectations in the survey remained in their recent range.’
It is amazing how much investing is done looking only in the rear view mirror. Most such investors are long bonds, long gold and silver, short U.S. dollar and underweight in the stock market. The market reaction to FOMC minutes that did nothing more than regurgitate what was already reflected in the economic data proves the above hypothesis.
In the very short-term, the U.S. stock market is very over bought. Our models show that there is a 60% probability of a correction. Any correction is likely to be shallow. Improving U.S. economy is positive for stocks and slight increase in interest rates should not hamper strength in the stocks after a brief correction.
We have kept our subscribers on the right side of every single market in which we participate by going long the U.S. stock market, going long the U.S. dollar, short selling treasury bonds, taking profits on gold and silver in October of 2011, going short on gold and silver, going short on oil, going short on yen, and going short on commodities.
Now most investors are just beginning to understand that a new investment cycle began in October 2011. Such investors are now beginning to transition their portfolios to where we transitioned our various services in October 2011.
Gold futures are at $1619, silver futures are at $31.69, and oil futures are $102.62.
S&P 500 resistance levels are 1400, 1410, and 1415; support levels are 1380, 1368, and 1358.
DJIA futures are down 118 points.
MOTHER OF ALL NUMBERS ON GOOD FRIDAY WHEN THE MARKET IS CLOSED
April 3, 2012
The U.S. monthly employment data is often called the mother of all numbers because of the major impact it has not only on the U.S. markets, but markets world-wide. The numbers for March will be released on Good Friday when the U.S. stock market is closed. However future markets are open.
Expectations for employment numbers are running high. In view of Friday being a holiday, expect money managers to buy dips the rest of this week.
Gold futures are at $1675, silver futures are at $32.86, and oil futures are $104.77.
S&P 500 resistance levels are 1415, 1424, and 1437; support levels are 1410, 1400, and 1380.
DJIA futures are down 24 points.
CONFLICTING DATA FROM CHINA
April 2, 2012
Over the weekend, China Federation of Logistics and Purchasing released Purchasing Managers Index (PMI) at 53.1 in March up strongly from 51.0 in February.
Previously HSBC PMI came at 48.3 down from 49.6.
The data is conflicting. Shanghai market was closed for a holiday, but Hang Seng Index went down 0.23% in Hong Kong because the market believed stronger PMI data in China means no rate cut.
Today is the first day of the new quarter and lots of new money will pour into the market. Will money managers buy the same stocks that they have been buying over the last quarter with the new money? We will know the answer in a couple of days.
As a reminder, first few days of April are historically positive.
Gold futures are at $1667, silver futures are at $32.35, and oil futures are $102.6.
S&P 500 resistance levels are 1410, 1415, and 1424; support levels are 1400, 1380, and 1368.
DJIA futures are down 16 points.
