204,000 Jobs: Sound the Taper March

Nonfarm payrolls indicate an additional 204,000 jobs in October(Alt); some are already saying this data coupled with yesterday’s GDP numbers “significantly increase the chances that the US Federal Reserve slow its asset purchases in December.”  August and September data was also revised up 60,000 jobs to their totals, pushing the monthly average for the last 12 months above 190,000.  The participation rate, however, fell to 62.8% from 63.8% a year earlier; and unemployment actually ticked up to 7.3%.  A closer examination of the report reveals that jobs growth came primarily from retail, leisure, hospitality and manufacturing.  Bloomberg has a great visual presentation of nonfarm payrolls trends over the last 20 years broken down by sector.  The graphs illustrate major shifts in the job market and explain why growth in wages has been stagnant (higher paying jobs have been replaced by lower paying jobs).  Furthermore, as jobs growth continues to come from the lower end of the income bracket, tepid consumer spending will continue to be a drag on the economy.  The Commerce Department reports today that consumer spending rose 0.2% in September, slight slowdown from August (0.3%).  Incomes rose 0.5%.  As incomes outpace spending, the savings rate is also rising: 4.9%.  Moreover, credit-card debt declined for the fourth straight month, possibly suggesting “rising caution among the nation’s consumers.”  Also, while the government shutdown may not have had a significant effect on unemployment (expect big debate), US consumers are feeling less confident about their finances.  Thomson Reuters reports their consumer sentiment index fell to 72.0 in November from 73.2 at end of October.  Finally, here are some reasons why tapering is still a longshot: 1) effects from government shutdown and debt-ceiling brinkmanship may still turn up in the data, 2) change in policy in the middle of changing of the guard is unlikely, 3) do you really think you know just how deep the doves go at the Fed?  And yet, maybe the dissenting hawks at the Fed are finally breaking the chains of “group think?”  This analysis suggests that under former Chairs Paul Volcker and Alan Greenspan, dissent at the Federal Reserve was commonplace.  These days…not so much.  

From My Cold, Dead Hands: French Credit and Social Benefits

Standard & Poor’s agency downgraded France’s credit rating by one notch to “AA” this morning, “dealing a fresh blow to French President Francois Hollande’s Socialist-led government as it struggles to turn the economy around.  Markets mostly shrugged off the downgrade of French credit, some possible explanations of the calm reaction could be: 1) The market had already priced in the downgrade (most likely), 2)This is not as bad, relatively speaking, as the first downgrade a year and a half ago from AAA to AA+, 3)Other “core” Eurozone downgrades may be coming and 4)Bond investors may be shrugging off S&P credit ratings overall.  Furthermore, “the pervasive presence of government in French life, from workplace rules to health and education benefits, is now the subject of a great debate as the nation grapples with whether it can sustain the post-World War II model of social democracy.”  But don’t go touting your capitalist-trickle-down-medicine just yet, “You cannot take away guns from Americans, and in the same way you cannot take away social benefits from French people,” says 25 year old Louis Paris, presumably on his way to a free doctor’s appointment.


USA: 20 Years of Sears: Forlorn Stores, Happy Investors.  Thank Spinoffs.

This is a great article chronicling the conundrum of Sears as a bad business and yet a good investment.  “Counter-intuitively, it turns out the buy-it-and-forget-it investor from 1993 has done just fine.”  Over the past 20 years, Sears as an investment has outperformed the market when you pencil in returns on its “collection of spun-off financial companies and other divisions the company distributed to shareholders.”  Spinoff companies make for an interesting trading strategy as “index funds and other institutions often are automatic sellers of new shares, depressing their value only to have it spring higher as new investors pour in.”

EU: Applying Plumbers’ Common Sense to Fix Europe’s Banks

Meet Charlie Mullins, the outspoken plumber from London, actively attempting to fix the European banking sector.  His plan is simple: reduce bankers’ salaries and therefore force banks to focus on becoming more cost-effective and friendly.  The comparisons between finance and plumbing may not be too far-fetched, actually: “Just like the banking industry now, the plumbing industry had a tarnished reputation and plumbers had a bad name for being unreliable and charging too much.”


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