The Truth Comes Out

The first several months of the new year the economic data looked pretty good, fueling this rally in part; however something felt off when these very rosy reports came out with seasonal adjustments that no one could explain as to how they were arrived at. The seasonal adjustments were arbitrary and Trim-Tabs, who keep real time tracking of IRS receipts knew the real employment situation was nothing like the BLS was presenting as the reciepts were going down and the NFP and initial claims were saying that the economy and employment was improving.

I warned about 3 things: China, the re-emergence of the EU as a problem and the end of seasonal adjustments which would start to show a different picture of the economy.

Today we saw another confirmation that the economy is not what we were presented.

The Non Farm Payrolls released this a.m. missed and missed big.

Released On 4/6/2012 8:30:00 AM For Mar, 2012

	Prior	Consensus	Consensus Range	Actual
Nonfarm Payrolls - M/M change	227,000	201,000	180,000  to 239,000	120,000
Unemployment Rate - Level	8.3 %	8.3 %	8.1 % to 8.4 %	8.2 %
Average Hourly Earnings - M/M change	0.1 %	0.2 %	0.1 % to 0.3 %	0.2 %
Av Workweek - All Employees	34.5 hrs	34.5 hrs	34.5 hrs to 34.6 hrs	34.5 hrs
Private Payrolls - M/M change	233,000	224,000	205,000  to 246,000	121,000

The NFP misses by over 80k, 117k from the prior and over 130+k from GS's consensus; YET the unemployment rate drops from 8.3 to 8.2!?!?

Why?

The number of people in the work force! The number of people who have just totally given up on finding a job and therefore are not counted as unemployed, are at an all time high!

From the St. Louis F_E_D...

The current number is 87,897,000 !!!

Look at what ES/3C did overnight and in to the NFP number...

3C was on a negative trajectory all night, but look how negative it got around 4 a.m. right in to the NFP, blame Europe or ? The next question you have to ask yourself is with all of the US economic reports coming out with their sub-indicies showing the NFP today was going to be bad, why would Goldman Sachs (GS) raise their NFP forecast yesterday from 175k to 200k when it was obvious to even little ole' me that the number was likely to miss (and I have posted that at least 4 times)? Their research department is probably a little better funded than mine I would think, they have a lot closer ties with people in the know and from the above chart it looks like people in the know where acting in ES before the NFP print. So what possible reason could GS, who has been shown to cannibalize their own clients, possibly have for lifting their NFP prediction yesterday off an already high number? I'll leave that to you to answer.

So as you can see, ES dropped approximately 20 points on the NFP print alone (which is the biggest 3 day drop or pullback depending in your perspective, in 4 months) and sent stock futures plummeting, something I thought would happen and would fester over the weekend until Monday. This is why I said Wednesday night, "If we get a bounce, I'd be using it to add shorts" and why I put more model portfolio trades out there than usual. ES halted at 9:15, I believe it is done until Sunday night, the futures which printed last at 9:15 a.m., look like this:

Without considering what changes may occur Sunday night and pre-market Monday a.m., the Dow as of now is looking at a -.92% gap down, the SPX a 1.06% gap down, the NDX 100 a -1.10 gap down and the R2k a -1.73% gap down.

Of course you can never rule out the "Never lose hope QE3 crowd" who will look at this as definitive proof we need QE, even though the F_E_D officials and minutes have all poo-poo'ed that notion for the time being.

10 year Treasury Yields have dropped on the NFP print to 5 month lows, presumably meaning that TLT (the flight to safety trade will (if things stay as they are now), gap up to somewhere near 5 month highs. For those who recall, this was something I was looking for, accumulation in Treasuries right before a change in trend in the market which we have been seeing.

At the same time, the rising trend in the Japanese Yen that I have been showing, is now at 1 month highs, which means the carry trade in the Yen, used to finance stock purchases, was in fact being unwound as suspected, which also means the stocks would like have been sold as well, remember what I said about the last two bounces of the last 2 weeks, they did major damage to 3C. $AUD weakness which I have shown has been an excellent leading indicator, but at  huge divergence from the market also shows carry trades being unwound.

So as of now, that's where we stand.

I'll be updating over the weekend. Enjoy your weekend!!!