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An unnatural state of calm in markets as jobs data disappoints

Posted on 08 January 2011 with 8 comments from readers

Stock markets fell and futures indicate a further fall on Monday morning but the general reaction to the latest below expectations jobs data was pretty calm. Too calm really, and perhaps the calm before another storm in financial markets.

Certainly something is brewing here. The long rally since March 2009 has its rationale in a recovery that just is not happening. US home building is running at an annualized 500,000 units compared with 2.2 million pre-crisis, and auto sales are still down 25 per cent.

High unemployment

When you consider that housing and autos are the largest items of consumer expenditure that comprises 70 per cent of US GDP, and that these sectors are still mired deep in depression, is it any wonder that unemployment is 9.4 per cent?

That marked a fall in the unemployment rate but is largely a statistical quirk as many folk just gave up looking for a job and so came off the official list. Down-in-the-street nothing much changed.

The Baltic Dry Index of global trade has fallen back to levels last seen in May 2009, and the falling Chinese stock market also points to a renewed squeeze. Is this the delayed start of the long-awaited global double-dip?

Federal Reserve chairman Ben Bernanke sees a bleak future for job growth and the Fed is not slackening its $600 billion QE2 money printing, a stimulus designed to keep the tiny flame of recovery alive.

But in reality the US economy appears stuck in the same deep hole it fell into in the financial crisis. House price date still looks abysmal, so no sign of a recovery there (click here) and auto sales are still very low (click here).

Bond market tremors

In the meantime, the new threat comes from rising interest rates and a weakening bond market. Indeed, since QE2 started interest rates have been moving up, the reverse of the intended effect (click here), so QE2 is not working. Portuguese bond yields topped the danger level of seven per cent last week.

This leaves financial markets in an unnatural state of calm. There must be huge manipulation in progress to prevent a more violent market reaction. We know that the Fed’s cheap money is being used to prop up the market because there are few other buyers.

What happens when artificial supports are removed from any market or suddenly overwhelmed? That is something any investor ought to reflect upon and take appropriate action while there is still time. Normally around about this phase in the cycle some bad news that comes completely unexpectedly would trigger a big sell-off.

The ArabianMoney newsletter is devoted to finding ways to help its readers survive and thrive in this hostile environment, the thundering herd is about to go over the cliff again (click here to sign-up).

Posted on 08 January 2011 Categories: Banking & Finance, Bond Markets, Global Economics, Hedge Funds, US Dollar, US Stocks

8 Comments posted by readers:

Comment by obewon - 08 January 2011

A very good factual analysis and commentary about what’s really happening, Peter.

Daily Spin by the Government and News Media:
The US news media “talking heads” are taking their cues from the Obama administration by talking up the economy every day of the week; it’s astounding to hear these folks make comments, predictions, or economic assessments that have no real basis in fact. Some examples here:
- “this economy is looking much better as we go into the new year…”
- “the weekly NFP numbers indicate that jobs growth is getting stronger…”
- “the stock market is continuing to remain strong…”

Such hype and spin should be reserved for Hollywood.

Then the “Bernank” Covers His Butt:
And then there’s the “Bernank” speech the other day where he said the US recovery could be 5 years away; obviously, he made that statement in order to cover his butt. Consider the Dual Mandate: The FED has a dual mandate of a) ensuring stable inflation, and b) ensuring maximum employment. Keep in mind that this first “mandate” is an artificial one that should never have been approved by the US Congress, but is necessary to keep the financial community’s Ponzi scheme going. With regard to the second mandate, there has been negative jobs growth during Bernanke’s entire tenure! What a perfect track record.

For an honest assessment of the real employment situation in the US, inquiring readers on this blog may want to go here. Take a close look at the rapidly declining “participation rate”, and the rapidly declining number of IT professionals in the US.
http://globaleconomicanalysis.blogspot.com/2011/01/reader-question-regarding-dropping-out.html

The Key Take-Away Here:
The ArabianMoney.net editor said it best with this phrase: “There must be huge manipulation in progress to prevent a more violent market reaction.”

Most of the American public has a keen sense that something is very wrong, but they have no idea of the massive and extensive manipulations being undertaken every day, by the FED and its agents (JPM, GS, et al). This is the real world that we now live in.

Comment by John Mark - 08 January 2011

I really appreciate this article because the quietness in financial markets has removed the excitement! If the quietness is, in fact, the calm before the double-dip storm, then I can get excited again, particularly as gold and silver are taking a small drop at the moment.

Yes, I admit to this excitement and it does have something to do with wanting to see the “thundering herd go over the cliff once again”. I suppose if I was pc and a nicer person, I would somehow feel miserable for those whose financial meltdown is going to fuel my gold and silver prices.

However, I would really enjoy seeing so many financial experts get their comeuppance. What I appreciate about ArabianMoney and why I look for Peter’s comment in the DT is because AM is not part of that thundering herd.

Or is the whole world aware that one of Israel’s redlines re Iran has been crossed by passing through 31 December?

Even so, this stillness, this quietness, is eerie. What is happening out there? Who is doing what, and when will we hear the strong economic winds howling through the mainstream media again? Soon, but the quietness – it’s ghoulish!

Comment by mark - 09 January 2011

Good stuff

John

I feel the same good news and gold drops and I fear, bad news gold goes up and I lick my lips greedily simplistic I know. Trouble is I really need to double my money. Employment prospects are not good for tired old construction workers with a bad back and no pension.

As for the herd I do have sympathy but I am sick and tired of my people bending over backwards for oppressors. Is there such a thing as society now or is it every man for himself?

Gold might drop again with everything else during the panic sell off we think is to come but I am not too sure this time, there may instead of a flight to liquidity be a flight to safety. If gold drops 30% again I wont sell.

Comment by Frank - 09 January 2011

Mark,

You shouldn’t worry too much about your gold. The recent mini sell-off was engineered by the investment banks who knew that it could be under pressure on the expectations of good NFP numbers. I think they sold the recent peaks aggressively then put the word out (gold futures dropped to around $1352). When the NFP numbers came out they probably reversed their positions quickly and caught the bounce back up (it rose $17 in a matter of minutes).

I believe that stocks are on the brink, but I dare not go short because I know the FED will do everything they can to support prices – it’s part of their plan to maintain positive sentiment for the phoney non-existent “recovery”.

Keep the faith!

Comment by obewon - 09 January 2011

As I read the comments on this blog (ArabianMoney.net), I feel that they’re a partial reflection of the “general global psyche” that is continuously banging against the corruptness of politicians and the fraud that’s inherent in the “Power Elite”. Two good examples here are John Mark’s comments and those from mark. Yes, the “unnatural calm” is there, but it certainly won’t persist for very long.

No Attempts by Governments to End the Fraud and Corruption:
It’s so ironic that the US Dept. of Justice (DOJ) has re-defined their interpretation of “justice”. The vast majority of Americans fully understand the very real “injustices” that have been forced on them by the corrupt US mortgage industry, by Wall Street’s control of global commodities markets (most notably JPM), by the fraudulent monopoly of daily stock markets and OTC markets by Wall St. (most notably GS), etc. In August of 2010, the Obama administration and the DOJ pretended to launch a renewed attack on corruption against the American people when they announced “Operation Broken Trust”, which the Attorney General called “a critical step forward in law enforcement’s work to protect American investors.” Then we learn in December that this “Operation Broken Trust” is nothing but a sham, a poorly manufactured Public Relations stunt by the Obama administration, to deceive the American people into believing that justice was being served on these Wall St. crooks. Back in December, Bloomberg exposed evidence of this PR stunt. Click here:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ahNNWG8hnp40
JP Morgan, Goldman Sachs, et al have hundreds, or perhaps thousands of high level crooks who are still engaging in massive fraud every day, yet none of these folks has ever been prosecuted.

The DOJ’s New Interpretation of “Justice”:
It’s now apparent that the US government’s interpretation of “Justice” is decidedly different than that of the US Constitution or even the public’s interpretation; for example, the DOJ decided to use its considerable muscle to attack the lawful rights of people around the world who have donated to WikiLeaks. Say what? No doubt, these DOJ actions are orchestrated by the Obama administration, who believe that “civil rights” are not really as important as hiding the truth about the US government’s on-going actions. As the ZeroHedge blog recently stated, “One thing is certain: if anyone has ever donated to Wikileaks via Paypal or via Visa, or via other sources, they are now likely a target.” This doesn’t speak well for the “land of the free”, especially when we reflect on the actions of our increasingly intrusive Attorney General.

Hoping the Wall St. “Thundering Herd” Falls off a Cliff:
My sense is that there are many billions who secretly agree with John Mark regarding the corrupt Wall St. “crowd”, and his wish for a small piece of justice. His “Thundering Herd” phrase rings loud and clear.
I have great empathy for the increasing plight of the global masses who struggle every day; sadly, the next few years are not going to be very kind to them, as their plight worsens. In sharp contrast, I have only disgust for the unmitigated greed of the Wall St. crowd, who earn their living through fraud, corruption, and cover-up; their tactics are ruining the lives of countless folks around the world, but this crowd is without feeling or conscience.

Comment by John Mark - 10 January 2011

mark, I wrote you a fullish post but lost it as I was trying to disentangle my mouse cable from all the others behind the computer. Infuriating!

I was surprised to read that you have experienced a 30% drop in gold price at some time. I’ve been monitoring gold and silver prices since 2008 and have not experienced this. I take a daily reading which keeps my pecker up when prices are dropping a little at the present time.

Silver is about £18.6 per ounce today having been up to £20 last Monday, but when I look back just a month ago, it was £18.13 at close of play on 11 December and was £16.66 on 12 November after being £14.5 on 9 October. So that progress encourages me whilst I wait for the next rise upwards which, like AM, I believe is inevitable.

When I first started in bullion in 2008, silver was £5-6 per ounce! Gold was at £14-15 per gram at that time.

So, hang on in which was what I did through 2010 and reaped at 55% gain on my initial investment. I took some of it out to pay off some debts – kind of like income but Gross wouldn’t see it that way.

Comment by John Mark - 10 January 2011

obewon, I took “the thundering herd going over the cliff again” from this article in AM. It seemed to be a superb contrarian image! I was referring not to politicians particularly but to what I understood this article meant, namely all those investors who are pushing up the stock and bond markets at the present time.

I’m more of the school which sees human nature as being corrupt and fraudulent.

I don’t think corruption and fraud are the province of politicians and the power elite as such, because if you put the proletariat in charge as the politicians and power elite, you get some sort of soviet style communism with all the corruption and fraud we know about from there.

BTW what did you think of Gross’ damnation of investing in gold?

Comment by obewon - 11 January 2011

@ John Mark:
Regarding your phrase “the Thundering Herd”: I understood your inference, but I tried to broaden it to include not only those investors who have a “herd mentality”, but also to politicians, who also have a “herd” mentality, because most all of them take actions that are politically expedient, rather than taking actions that are in the best interests of the greater good.

I appreciate your perspectives on human nature and agree that most are basically greedy and corrupt, if given the opportunity. It takes tremendous effort and strength of character to run against this tide.

Bill Gross is Simply “Talking His Book”:
No doubt, Gross is one of the very best, when it comes to investing in the bond market. But it’s rather easy to “read the tea-leaves” here, in regards to his comments. In that respect, Gross reminds me of George Soros, whose investment advice is seldom good, because he, too, is always talking his book.

With bonds approaching a terrible precipice, the last thing his funds would be able to tolerate is for investors to flee the bond market, and place some of that money into the gold market (and yet that is what is going to happen, to some degree). So obviously, he has to denigrate gold as an investment. When you analyze Gross’ comments on gold, with the gold comments/ assessments of precious metals experts like Eric Sprott, or Marc Faber, or Jim Rogers, or Bill Bonner, or John Embry . . . well, there’s simply no comparison.

So I’d completely disregard Gross’ assessments about gold.

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