Archive for August, 2010

Markets setting up for hopes dashed

Monday, August 9th, 2010

If you haven’t heard by now, last Friday’s jobs report on U.S. Nonfarm Payrolls didn’t go over so well.  Naturally, the President saw hope in a portion of the release, but it took some seriously rose-colored glasses.

Here’s a quick recap:

  • Economists expected a drop of (-)65,000 jobs, because those sharp folks knew that census workers would begin to be furloughed/downsized/fired/canned, but they evidently expected a pick-up in private payrolls to offset that drop.
  • Instead, payrolls fell by (-)131,000.  What’s more, the June figure was revised downward, from an initial release of 125,000 jobs lost to 221,000 jobs lost.
  • The Private Payrolls increase, which seemed to be sparked by an optimistic ADP’s Employment Change report of Wednesday, which only reports on private payrolls, was 71,000 instead of the hoped-for 90,000.
  • The Unemployment Rate stayed at 9.5% instead of increasing to 9.6%.  The unemployment rate always goes up after a recession as the labor pool swells up as more job seekers re-enter the labor force.
  • On the positive side of the ledger, Average Hourly Earnings grew by 0.2%, far better than the drop of (-)0.1% in June, and the President found hope in the increase in Manufacturing Payrolls.  They rose by 36,000, 4x the June number and far more than the hoped for 13,000.

So how does one explain the market’s performance, shown below?  The market dropped shortly after the opening, and the opening nonsense is often reversed, but there was very little positive to be found in this most important of economic reports.  Indeed, at this point in the game, it is the most important report, bar none, whatever that means.

According to a couple of sources, it was rumored that the Federal Open Markets Committee; i.e. the Fed, which is to meet tomorrow, is prepared to announce another round of monetary policy measures meant to stimulate the economy.  So far, traditional monetary policy has amounted to pushing on a string, so the market is hoping for another round of Quantitative Easing–QE to the informed.  For those of you worried about the government printing money that’s what QE is.  In this case, they wouldn’t exactly be printing money, just reinvesting principal-paydown proceeds from Mortgage Backed Securities (MBS) into . . . Treasuries or more MBS.

According to some of those same sources, those hopes are likely to be dashed.  As we like to say–and like most things, it’s not original to us–hope is not an investment strategy.  It is, however, a decent speculation strategy, so long as you can sell the idea (and your securities) to a greater fool.

If the Fed does not announce new measures, the market tanks.


You won’t believe this

Wednesday, August 4th, 2010

Foxconn is a Chinese company that, according to Wikipedia, Among other things, produces the Mac mini, the iPod, the iPad, and the iPhone for Apple Inc.  The company made a big splash back in May when there was a rash of suicides by workers.

Unlike my previous employer, where the motto was, “the beatings will not stop until the morale improves,” Foxconn apparently decided not to fight the underlying causes but instead to install maximum frustration devices; i.e. suicide prevention nets.  That story can be read here, and you can see a picture below of the nets in place.

As you’ll notice if you jump to the story above, this isn’t breaking news, but this week’s issue of The Economist had the following headline:  “The Rising Power of the Chinese Worker.”  They see this–not the suicides, exactly–ending well, to which the subtitle attests:  “In China’s factories, pay and protest are on the rise.  That is good for China, and the world economy.”

In short, instead of being the low-cost producer of all things Walmart, China is–grudgingly, it seems–on the path–or The Economist insists it should be–toward becoming a consumer of the worlds’s goods, not necessarily just a producer.  The magazine, or as the English call it, the newspaper, estimates that if China’s consumption rises by 20% it could lead to increased U.S. exports of $25 billion.  “That could create over 200,000 American jobs.”

As if by decreeing it he somehow hopes to will it into being, the President declared that he will double exports over the next five years.  That would be a massive feat, but this article and, hopefully, this trend might be a key way to do it.   Perhaps instead of trying to bully the Chinese into revaluing the Yuan, which seems more likely to produce intransigence, we ought to make things the country’s workers can’t resist.

In the meantime, the Chinese–or at least the folks in charge at places like Foxconn and Honda–need to address the underlying issues behind the suicides.  Maybe issue is a better word.  Most protesters–including those at a Honda plant–base their complaints on compensation, not working conditions.  Indeed, most solutions are to increase compensation, and that may need to be more than just an ad hoc appeasement tactic, it may be required to induce more workers from inland China to leave the countryside and come into the city.  There is concern that the labor pool is drying up, and the country’s one-child policy is not helping.  The “number of 15-29 year-olds will fall sharply next year,” according to The Economist.