As we noted yesterday,
I am flipping from the usual bet of taking "the Under" on NFP. This month, I
will make the guess that the NFP exceeds the consensus of 200k.
Of course, the monthly initial number is fairly meaningless; What
matters more is the overall trend, how that trend compares to prior
recoveries, and what wage data looks like. The knee jerk trading
response is pretty silly, and can often be "faded" when excessive.
Since the Fed has stated they are now in that "Data Dependent Phase," the NFP numbers take on an even greater significance. A weak number will give hope to the "One & Done" crowd; A too strong number might dash those hopes.
Instead of Fed obsessing, however, I’d like to point out a specific oddity about the recent trading action:
• Gold has risen to 25 year highs;
• Oil has rallied up from high $50s to near $70;
• Interest rates on the 10 year are approaching 5%;
• Equities have rallied to 5 year highs.
A friend has commented that "Equities are the odd man out;" Instead, I’d point out that this foursome doesn’t make a whole lot of sense marching in lockstep; Usually, Oil, Gold and Yields do not rally in concert with equities. So short term, I would expect this group to diverge — either Equities keep rallying and the other 3 back off, or vice versa . . .
>
UPDATE April 7, 2006 9:52am
My friend Brian Reynolds writes:
March NFP came in at 211k vs. the Bloomberg consensus of 190k. After revisions, the number was 13k below expectations, which is about as close as this number comes to consensus.
However, aggregate hours worked were strong, and revised up, so we would say this report is a slight beat, indicative of a strong economy with more tightening to come.
Except that equity markets, when priced in gold, are FALLING. Too much liquidity has been pumped into the system. And now that the hedgies are in the PM market, look out volatilty.
If these are all dollar-denominated, and the money supply keeps increasing (helicopters whizzing out from the printing presses and all), all four can go up at once, right?
If the value of a paper dollar keeps going down, prices will rise, a.k.a. inflation–I just don’t understand the 10 year buyers, myself.
There is a great Seinfeld standup short where he describes really bad traffic. Traffic is so bad, that you can look out your window and clearly see individual peices of gum. If traffic is so bad now, what will it be like in the future? Will it start going backwards? (turns his head, imitates backing-up a car; arm over seat looking behind him, one hand jiggling an imaginary wheel) “whoah, err, the traffic is really bad today!”
The price of donuts, when priced in gold, is going down.
What does that say about the money supply vs. pastries?
I guess we’ll never know since they stopped publishing M3.
While gold may be an investment or a vehicle for speculation, it is no more a currency than diamonds or anything else that is a good store of value. Find me a retail establishment that will hand over product in exchange for my 1/10 oz. of gold and then it makes sense to quote prices in gold.
Until then, one could say that while stocks have been increasing, gold has increased more, and uranium has increased even more than that.
The argument also ignores that the market for small cap equities isn’t going down. It’s risen almost as fast as gold this year.
Either you accept that gold is a store of value or you don’t. You two don’t. That’s okay by me.
The argument isn’t that EVERYTHING is going down in relation to gold, but that equities are IN GENERAL Another exception you could point out is the Nikkei 225. There, I made your point for you. But it doesn’t dent the thesis at all.
Somebody at Bloomberg may be drawing some premature and incorrect conclusions — http://quote.bloomberg.com/apps/news?pid=10000006&sid=ajk32K9ivJsQ&refer=home :
Inverted Yield Curve Sent False Alarm as U.S. Economy Expands
April 7 (Bloomberg) — So much for the inverted yield curve.
For 38 days starting in late December, two-year U.S. Treasury yields rose above those of 10-year notes, a rare phenomenon in the bond market that preceded the last four recessions. No less an expert than Bill Gross, manager of the world’s biggest bond fund, and economists at Merrill Lynch & Co. said the economy was poised to slow.
Bond yields may have sent a false alarm. The government said today that U.S. employers added 211,000 jobs in March, capping the best start for hiring of any year since 2000. Gross domestic product last quarter probably expanded at a 4.7 percent rate, the fastest in more than two years, a Bloomberg News survey shows. The Federal Reserve is talking about the need to keep raising interest rates to make sure the economy doesn’t overheat…
Today, the Labor Department said average hourly earnings, a possible harbinger of faster inflation, rose 3.4 percent in March from a year earlier, compared with 3.5 percent in February, which was the highest since September 2001. The Fed’s preferred measure for inflation was up 1.8 percent in February from a year earlier, the same as in January, the Commerce Department said March 31.
FRB and market worried about wage inflation at 3.5% pa but not to worry about precious and industrial metals up +5% IN A WEEK. it must be nice to be a Fed governor, whiling away the days in a padded room, eating soft food w a spoon
the point is not that gold is a fungible currency (which you argue that it is the only global currency). gold is a reflection of the monetary inflation that is driving higher asset prices. it amounts to the devaluation of the dollar that has occurred since Bush implemented his economic policy. if the government can simply devalue the currency to pump up asset prices and the subsequent perceived “wealth effect” then we don’t operate in a free market. so if we believe that free markets work, then at some point the weakening dollar will drive interest rates higher. this is what i believe will be the biggest surprise this year. if the Fed does stop at 5%, the dollar will fall and the yield curve will steepen. if this happens, commodities will fall and stocks will follow. if the Fed doesn’t stop at 5% and keeps tightening then we can expect the same conclusion, as they will be targetting asset prices. this morning the dollar is up, the price of gold is falling as 10YR and 30YR yields keep ticking higher. if i’m right and this trend continues the stock market will not hold these gains. we will see, that’s why they play the game….
These asset classes, oil, gold, bonds and stocks, all have two things in common: they are all overvalued, and their prices are denominated in dollars (for us Americans).
If you peg gold to either the DJIA or the price of a barrel of oil it is SERIOUSLY undervalued. And aren’t all three telling us what happens when a fiat currency is loose in the land?
Not sure how long I’ll hold these babies, but if we stay up here till the end of the day, I’m taking on some index shorts.
Posted by: Bynocerus | Apr 5, 2006 1:40:55 PM
Wow, what a huge scalp from my shorts on the close yesterday! I’ll be sure not to spend that all in one place. Of coursre, I may not have anything to spend since we’re right @ 11:00. Those buy programs should kick me out of the money any moment now. Who decided 11:00 was the magic hour for the buy programs anyway?
Posted by: Bynocerus | Apr 6, 2006 10:57:27 AM
Nice to see the buy programs didn’t come in and whack me upside the head today. Speaking of which, who in the hell was buying the open this AM? You feel really bad for the DIYers and general public when you see a fade like this, but seriously, WTF were you thinking buying the news @ 9:30?
On to Barry’s post. We’ve got more weirdness today with everything up except interest rates, which means that bonds are down too. I keep thinking that the price of oil is directly tied to the strength of the economy, so I don’t worry too much about gas prices moving in concert with stock prices. However, all the gold bugs think another Great Depression is just around the corner, yet XAU is down nearly 3% on the day. Hmmmm. For me, the price of gold is the real quandry in all of this.
Market was big time overbought today, and it looks like we’re going to see some very heavy volume in the Qs. I think a lot of people are expecting a snap back rally this PM, but I think that will give shorts an added excuse to load back up and close us out on the lows of the day. Meanwhile, the lunch crowd is trying to undo the bearish engulfing bar. Talk about a fool’s errand.
Alright, who has all the buy limit orders in?
Byno-
Good trading. Glad to see someone scalping this pig. This thing eats my lunch every time I try.
You wanna talk about getting your lunch eaten? Let’s take a ride on the way back machine.
I trade on margin, which has done wonders for my portfolio over the years. However, in 2000, the market ate my lunch, dinner, refrigerator, crops and first born in the space of six days. Even though my trading strategy produced a +80% return in 2000 (81.09% exactly), I LOST 37% (exactly) in six days. SIX EFFING DAYS. Now, I had made nearly that much shorting the Naz over a month or so before, but it’s a hell of a rollercoaster going from up 140% to up 88% in a little over a week.
The bad part is that there was nothing that could be done. The market whipsawed the hell out of me, and from backtesting, that was the worse drawdown I would have experienced since the inception of the Naz. But still, it’s no fun city when it’s not monopoly money on the line.
Looks like the post-lunch bunch are trying to give the snapback a push, but I still think there’s to much selling pressure right now. Lunch over. Back to work.
ContraHour comes through again. A little 2-3pm rally, followed by the big selloff led by Bynocerus and his hedge fund.