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Stock Market Rallys on Hot Air

Stock-Markets / Financial Markets 2010 Oct 09, 2010 - 07:08 AM GMT

By: Anthony_Cherniawski


Best Financial Markets Analysis ArticleU.S. Payroll Drop Tops Forecast on Teacher Firings
(Bloomberg)  The U.S. lost more jobs than forecast in September as local governments fired teachers and other workers in response to declining tax revenue.  Payrolls fell by 95,000 workers after a revised 57,000 decrease in August, Labor Department figures in Washington showed today. Private employers added 64,000 jobs, less than forecast. Wages and the workweek stagnated.

BLS Overestimated 366,000 jobs for the Year Ended in March 2010
(ZeroHedge)  The BLS, as part of the NFP report, has issued its preliminary estimate of the benchmark revision, which confirms that the BLS is really just BS. According to the report, for the period ended March 2010, the BLS has overestimated jobs by 366,000 (0.3%), or just over 30K jobs per month. While not as bad as the prior benchmark revision of almost one million for the period ending March 2009, this continue to be a blow to both the credibility and the data tracking capability of the US Bureau of Truth. By industry, the biggest hit was to the trade, transportation and utilities industry (-144K), Manufacturing (-114K) and Leisure and Hospitality (-91K). Luckily, losses in these critical sectors were offset by even more bankers than had been previously expected: Professional and business services ended up being revised higher by 14K.

People Not In Labor Force, And Those Who Want A Job Now  (ZeroHedge)  Probably the most contradictory chart in today's NFP report: the number of people who are not in the labor force climbed to the second higher number ever, at 84,161K, a jump of 175K from the prior month, even as the number of people who declared they want a job now, surged by 230K, from 5,972K to 6,202K in September, also the second highest ever, and the highest year to date.

Can the market rally on hot air?

-- Investment Company Institute's latest weekly flow report confirms what we have been suspecting since August: the 22nd weekly outflow from domestic mutual funds is now in the history books. Three more weeks and we will have had an unprecedented 6 months of consecutive outflows, even as the market continues to levitate.  In addition we find that $20 billion of individual stocks were sold in September as the S&P 500 rallied 9%.  What’s behind the rally?

The Treasury Bond Rally continues.

-- Treasuries rose, pushing two- and five-year yields to record lows as data showing U.S. employers cut more jobs than forecast last month spurred speculation the Federal Reserve will buy more bonds to stimulate the economy. The recent rally in stocks seems to have taken the steam out of the Long Bond.  But note that bonds have started their recovery as stocks lose momentum.

Gold stalled at a new high.  Everyone thinks it can go higher…

--Gold futures rose, rebounding from the biggest drop since July, as the dollar’s slump boosted the appeal of the precious metal as an alternative asset.  “The uptrend in gold continues because the dollar just continues to lose ground,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “There’s more downside in the dollar. The jobs number just reinforces the fact that we’ll see more quantitative easing.”   

Japan is is losing the currency war.

--Japanese stocks fell, sending the Nikkei 225 Stock Average lower for a second day, as carmakers dropped after the yen reached a 15-year high against the dollar, dimming the earnings outlook for exporters             “People are concerned about whether companies will start making downward revisions because of the yen,” said Naoteru Teraoka, general manager at the investment unit of Tokyo-based Chuo Mitsui Asset Management Co., “It’s tough for investors to have an optimistic view of developed markets at the moment.”

China’s markets came from vacation in a holiday mood.

-- China’s stocks rose the most in four months after Moody’s Investors Service put the nation’s debt rating on review for a possible upgrade, retail sales surged and the yuan climbed to its strongest against the dollar since 1993.  The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, surged 3.1 percent to 2,738.74 as of the 3 p.m. close, the most since May 24.

The Dollar Decline continues.

-- The dollar dropped below 82 yen for the first time in 15 years as the U.S. payrolls report showed employers cut more jobs last month than economists forecast, heightening concern the economic recovery is stalling.                       The greenback was headed for a fourth weekly decline against the euro in the longest stretch of losses since December 2008 as investors speculated the Federal Reserve will debase the currency by stepping up purchases of government debt.

Banks Facing a “Hydra” of Foreclosure Probes.

-- Authorities in at least seven states are probing whether lenders used false documents and signatures to justify hundreds of thousands of foreclosures, and the number of these inquiries will grow, according to state officials and legal experts.

“You’re going to see a tremendous amount of activity with all the AGs in the U.S.,” Ohio Attorney General Richard Cordray said in an interview. “We have a high degree of skepticism that the corners that were cut are truly legal.”

Retail Gasoline prices ramped higher this week.

--The Energy Information Agency weekly report observes, “The U.S. average retail price for a gallon of gasoline rose 4 cents from last week to $2.73 per gallon and was $0.26 per gallon higher than last year at this time. Prices were generally up across the country with the largest regional price increase in the Midwest where a gallon of gasoline shot up six cents.”

Natural gas prices decrease on mild weather.

-- The U.S. Energy Information Administration reports, “The decline in prices corresponded with a drop in natural gas demand. According to estimates from BENTEK Energy Services, LLC, overall consumption fell by 2 percent from the previous week. A decline in electric power consumption of 21 percent, likely the result of milder temperatures reducing the need for cooling, was the driving factor behind the overall decrease in consumption.”

Janet Tavakoli On The "Biggest Fraud In The History Of Capital Markets"

(ZeroHedge)  It is time for the SEC to reissue their flash crash report, and to reconsider their Waddell and Reed scapegoating campaign. Why? Because apparently Schapiro's pawns never realized that the market is sufficiently intelligent to do a complete forensic analysis on W&R's trade into the flash crash, and to take the "regulator's" word for less than face value (after the Madoff catastrophe, what other option is there). We now have prima facie evidence that the SEC is lying. We wonder: just how many pieces of silver did it cost the HFT lobby to bribe Schapiro and her Princeton physicist (what is it about this university and the caliber of "talent" it generates?) Gregg Berman to skew the data so much it is beyond laughable. In our ongoing expose of what really happened on May 6, Zero Hedge is happy to have collaborated with both W&R and Nanex to bring our readers the full truth behind the flash crash. Here it is...

Karl Denninger Explains Foreclosure-Gate On The Ratigan Show

(ZeroHedge)  Karl Denninger, who has been tracking the issue of title fraud in the mortgage space for years, was on the Dylan Ratigan show earlier, and not only provided one of the most comprehensive explanations of where we are, how we got here, and where we are going (unfortunately nowhere pleasant) to date, but also was gleefully and sarcastically rhetorical with his closing remarks: "What if we find that of these $6 trillion in securities that are out there, outstanding right now, half or more of them are defective. You put them back on the banks and they all blow up. You know what - we have a resolution authority under Frank-Dodd, how about if we use it?"

Of The 11 Million Mortgage Holders Underwater Backed By $2.9 Trillion In Mortgage Debt.

(Dr.HousingBubble)  Owning with no equity is just renting with no mobility. 11 million mortgage holders underwater backed by $2.9 trillion in mortgage debt. In California, close to 20 percent of mortgage holders underwater by 25 percent or more.

I think the concept of owning a home is undergoing a radical paradigm shift.  Owning conveys a sense that you actually have tangible equity in a property.  This has always been the connotation of ownership in our society.  In the past it did mean something because of decent down payment requirements that built in an equity buffer when people bought.  Even when I attend conferences and events when someone tells me that they purchased a home in the last few years, most of the group automatically assumes that the person somehow has an automatic buffer of equity in the home.  Unless you live under a rock, we all know that over the past decade most of the popular loans required very little to nothing down.  This is a radical shift to the home buying structure.  Yet psychology is a very powerful thing when it comes to home buying and the mythology of the American Dream which is inextricably linked up to owning a home (for better or worse).  Yet is it factual to call it ownership if you have no equity?  What about millions that now face having a mortgage that is underwater? 

Gallup Survey Shows Unemployment Jumps From 9.4% to 10.1%

(Mish)  As economists up their forecasts for tomorrow's jobs report, I am lowering mine.

First, the recent ADP report suggests private nonfarm employment dropped by 39,000 with expectations of a gain. Second, Gallup Finds U.S. Unemployment at 10.1% in September

Unemployment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July. Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday.

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Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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