A Little Perspective

At last, the end of an eventful week is upon us with the release of US unenjoyment figures today.

Yesterday's central bank hoe-down was a bit of a limp fish, with no particularly earth-shattering revelations from the BOE, BOE, or JCT. Yet there was one interesting datapoint that certainly caught the eye, particularly in advance of today's payroll report.

While the initial jobless claims figure was bang in line with expectations, the generally-smoother continuing claims figure registered a considerable surprise, coming in lower than the previous week and undershooting the consensus forecast by a robust 120k. Given that this data is among the most useful in pinpointing economic turning points, this would appear to be more fodder for the green shoots crowd.
And so it might well prove to be, in the end. Then again, perhaps not. After all, it takes more than one week's worth of data to confirm a trend or a turn. And while the chart above appears to suggest that continuing claims are indeed flattening out, with the benefit of a little perspective we can see that this change is essentially undetectable from a longer-term perspective. So while yesterday's figure may prove to be an important turning point in the fullness of time, Macro Man is waiting to reserve judgement....and he certainly isn't makign a judgement on today's figures based on yesterday's data.

One other notable feature yesterday was a melee in the foreign exchange market around 1pm London time yesterday, when the dollar suddenly went bid, particularly against sterling, and rumours started to fly that Gordon Brown was resigning/no he wasn't/yes he was/no he wasn't.

Leaving aside the issue of whether Gordo's continued presence on the public stage is a positive or a negative for the pound, the recently-hibernating bears on sterling are beginning to rouse from the slumber. Surely recent price action is a turning point?

Well, again, maybe it is...but maybe it isn't. It turns out that Rio Tinto has spruned Chinalco's advances with a two-word response (the second word of which is "off") and decided to raise money and go it alone. This capital raising is being done on an FX-hedged basis, which entails the sale of significant amounts of sterling....and guess what? Yesterday's most notable sellers of the pound were the three book-runners!

It's not like we needed a reminder that this market remains rather challenging for traditional macro punters, but yesterday's sterling price action provided one anyways. Hopefully with the benefit of a few months' perspective we can look back at this period, shake our heads, and enjoy a good chuckle.
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H(oratio)
admin
June 5, 2009 at 10:26 AM ×

Chuckling I am not. Some sleep would be good however. The last six pence spike looks like it may be emergency hedging, or just the proverbial blow off top. A trip down past one sixty looks like selling. Euro appears to be at resistance and crude may tell the story. Thanks for the sterling hedge unwind scoop. That's why I pay my membership dues.

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Professional Gringo
admin
June 5, 2009 at 12:27 PM ×

How do you say "crap" in Chinese?

I read yesterday that Prague is taking American porn jobs. The nerve of it all.

All we need to do is plant more federal money trees on the White House lawn and keep the unicorns from eating them. Problem solved.

You people have no understanding of how an economy works.

Gordo? He's about to explain why he prefers sex with subway trannies over the last 4 years which is just too weird for me. Short sterling. Below 1.61 that is.

You should all start drinking earlier in the day. Just crack one open at work, nobody will notice.

When the balloon goes up, we'll meet and defend the Reagan Library in Simi Valley. Great location for defense from zombies.

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Anonymous
admin
June 5, 2009 at 2:48 PM ×

950... count it

mpm

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Anonymous
admin
June 5, 2009 at 2:52 PM ×

bounce off that 200day and run

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wcw
admin
June 5, 2009 at 4:47 PM ×

In re: claims, I prefer initial claims to continuing, despite the noise, for identifying turning points. So does the Philly Fed in promulgating the Aruoba-Diebold-Scotti index. That index, which had (rightly) been marching upwards (up to less-negative numbers, but still up) with each new data point and revision, is as of today's NFP data moved to a distinctly less-positive trajectory for the first time in a while. See their tentacle plot at http://www.philadelphiafed.org/research%2Dand%2Ddata/real%2Dtime%2Dcenter/business%2Dconditions%2Dindex/ads_compare.pdf -- it's better than any homebrew indicator in my quiver.

If 'green shoots' leave the ADS index settling below a -1 instead of moving above, that will be a bad sign. The stimulus money should start to hit soon, though, so I am hopeful that won't happen.

FD: dollar-neutral and close to beta 0 on equities.

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Greg
admin
June 5, 2009 at 6:01 PM ×

I wonder how many finance geeks that live and die by the NFP and continuing claims have ever participated in one of the surveys that makes up that data.

I had the pleasure last summer (NFP survey), and it was an eye opener.

A perfectly pleasant man shows up at your house (not your office) and starts asking you questions that range from "how many people live in this house?" to "how much money did you make last year?"

The government agent immediately acknowledged that people are not forthcoming on either question. Whether its the wealthy or the blue collar guy working off the books -- no one gives an honest answer.

Hours worked? This stat maybe had some meaning back in the day's of Henry Ford's assembly line jobs. If you travel on business and get stuck at the airport, does that count as working? It does for payroll purposes, but if you are trying to gauge economic activity -- not so much.

If you work "full time", that goes down as 40 hours worked. Never mind that most white collar workers and many blue collar workers regularly do 50 hour weeks. The UAW guy getting 30 hours of work gets 'averaged' with the small business owner doing, ahem, "40 hours" -- and somehow the resulting statistic is supposed to have meaning.

If you are on vacation one week of the survey (as I was) -- you are counted as unemployed. After all, you were not working.

And I am not even going to mention that all these payroll numbers get revised by 20% a month or two later

Many people believe in astrology, but that does not make it a science. The heavily revised numbers are perhaps OK for discerning trends several months after the fact.

But the "live" numbers aren't any better than reading tea leaves

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wcw
admin
June 5, 2009 at 7:38 PM ×

That's not the NFP or the claims numbers, that was the Current Population Survey that the Census and the BLS do together that generates the household survey. Household-survey numbers include things like employment and unemployment rates. For all its flaws, survey research is a pretty mature field and the Census is pretty darned good at it.

For what it's worth, the employment-population ratio from that survey is now down to levels last seen in 1984. Pure punk: research.stlouisfed.org/fred2/series/EMRATIO

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Paul W
admin
June 5, 2009 at 9:17 PM ×

Regarding continuing claims, it looks like it is just eligibility that is expiring:

http://fridayinvegas.blogspot.com/2009/06/unemployment-data-exhaustion-rate.html

U6 and hours worked both posted significant declines.

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Anonymous
admin
June 6, 2009 at 3:25 AM ×

Paul W.,

That's what popped into my mind about 15 sec. after I heard the number.

old trader

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Anonymous
admin
June 7, 2009 at 9:22 PM ×

mm
i think a 200movavg breach this strong is setting up for further mkt str.

tbt looks to explode higher.
crude is still strong.

financials have run into a wall.
but we really dont need them to drive the ship.

look at gs, fcx, tie, tbt. once they crossed the 200day, they have been ripping.

if we blow through 95 strike quickly, we will be at 100 very soon.

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