I hope everyone is expecting huge job reports for October, November and December

Seasonally Adjusted Non-Farm Jobs Change 2013-Present:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports

Source Data:  BLS

Total Nonfarm 2016-10. xlsx

For awhile now I've been showing how wild the monthly BLS seasonally adjusted jobs reports are.  I've said the timing of bad reports has done a great job of holding down interest rates, and the inevitable makeup reports have done an equally good job of pumping up stocks.  The latest cases occurred this summer and fall, with good reports pumping stocks, and then bad reports tabling rate hikes until December after the election.  How convenient!

The chart above shows the official monthly job gain was very low the last two months.  So it is apparent make up reports are on the way just by looking at it.   However, some math and deeper analysis confirms this.

First some basics.  The Griz method/YOY method of seasonal adjustment, moving averages, and moving averages from the seasonally adjusted data set all point to annual job gains pace of 2.4 million or 200k/month.

I decided to look at the BLS seasonally adjusted data set a bit closer to see if there was a way to predict coming reports a little better.  So what I decided to do a 12 month summation of the reported monthly gains.  This really does the same thing as a 12 month moving average, but it provides a table that provided additional insight into how this mathematically works.  What I found is that each month, is that the sum of the most recent 12 month gains lines up relatively closely with they YoY change from the nonadjusted data set.  Makes sense.  However, the summation can vary up to +/-5% from the YoY number.  5% error is about 120k on 2.4 million, large but not so large that it is always obvious without specifically looking.  It could mean BLS reports 190k monthly gains instead of 200k.  What is also glaring is this 5% error is far less than the wild variations that take the reports into the low to mid 100k range and near 300k some months, when it is pretty clear the numbers have really been in the 200k-240k range.

So What is Coming  

Using the table of 12 month summations shown below it becomes somewhat trivial to predict the coming months reports assuming recent hiring trends remain basically intact.  At this point based on weekly jobless claims that seems to be the case.

Table of 12 Month Job Gain Summations using BLS Monthly Reported Seasonally Adjusted Gains (In 1000s of jobs)  

Data Source:  BLS

Total non farm, adj 2016-10.xlsx

Looking at the table we can see the 12 month summation for October 2016 is 2.152 million which includes 0 gains for October which hasn't been reported yet.  So if we assume the real trend is around 2.4 million like it has been for the last 5 months, that means BLS needs to report a 291k gain to get the numbers to line up exactly with reality/the Griz method/make the long term averages right.  If we factor in potential skewing and other random factors from the BLS, the likely range for October is 250k-300k.  Far above expectations with August and September reported around 160k.

Then if we apply a 291k gain for October, the expected reported gain for November should the trend hold is about 287k.  Including 287k for November then predicts a 271k reported gain for December should the trend hold.

My calculations show that currently about 300k jobs are "banked" due to under reporting in early 2016.  Analysis going into 2015 shows when this "banked" number is close to 300k, a huge report is in store.  These huge reports quickly eat into the bank.  A 300k report would reduce the bank by 80k-100k.  History also shows that as the bank comes down the likelihood of a huge report the next month drops.  So it is really hard to know whether the December report will end up being really big, but it is very likely both the October and November reports will be in the 250k-290k range.

My investment plans are to short treasuries with ETFs and with futures.  I also expect that this will trigger a massive stock correction or even crash to end 2016 and/or start 2017 when rate hikes become apparent and actually are implemented no later than December.  A November rate hike is not out of the question, but I don't think the Fed will do anything to spook markets ahead of the election.

BLS Lies to US Again, 204K Jobs Added in August

Seasonally Adjusted Non-Farm Jobs Change 2013-Present:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports

Source Data:  BLS

Total Nonfarm 2016-9. xlsx

Seasonally Adjusted Non-Farm Jobs Change 2013-Present with 2016 Projections:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports and my projections from June 2016 for monthly gains using the Griz Method and my expectations for the BLS reports.

Source Data:  BLS

Total Nonfarm 2016-6. xlsx

I thought there was a good chance the BLS would sandbag the August job gain number to ensure no September rate hike.  September/October is a historically terrible time for the stock market and a September rate hike certainly wouldn't help that situation.  However, I certainly wasn't expecting the number to be an anemic 151k.  But it just goes to show how hard it is to predict the magnitude and timing of a lie.

So here is some simple math to show what the real seasonal adjusted job gain was for August.  You can look at several of my earlier posts to see YoY non adjusted employment totals that show the annual employment pattern has matched for the last several years justifying simple YoY comparison.
([Aug 2106]-[Aug 2015])/12 = Seasonal Adjusted Gain for Aug 2016
Insert data from BLS not seasonally adjusted data set in thousands
(144424-141973) = 2451 thousand or 2.45 million more jobs in Aug 2016 than Aug 2015.   Divide that by 12
2451/12= 204.25 thousand monthly rate of gain

Again we see massive volatility and variability in the BLS seasonally adjusted number which is intended to remove variability.  But if we look at the data created with the Griz/YoY Method the resulting data is a smooth transition with little volatility.  If we compare my predictions from early June vs. the actual not seasonally adjusted jobs total/Griz Method job gains you get the following comparison.

	Griz Projected	Actual	Error %
June	200	207	-3.30%
July	200	202	-1.07%
August	195	204	-4.53%
Total	595	613.25	-2.98%

Notice my bearish/very conservative estimate for jobs gains made in early June have varied only 4.5% at worst from the actual reported total for the month.  And the worst error is in August, if the recent pattern repeats, August was overestimated and will be adjusted downwards in the coming 2 months.  Still the total error over 3 months is less than 3% in magnitude and will likely improve as adjustments come in.  3% error on a 3 month projection which constituted the absolute low bound is pretty good.  If a high, low and average of the range was predicted for each month you can see that the average would have almost no error from the actual reported data.  

So here is my question?   Why does the BLS monthly report swing so wildly?  Very conveniently it seems to have no guaranteed no stock market killing rate hikes until post election in December or possibly just 2 business days ahead of the election in the first week of November not leaving the markets enough time to crash and potentially derail Democrats chances in the election, given they are running on the strength of the economy.  A crashing stock and bond market doesn't exactly instill confidence in voters.

Also note:  An actual 151k monthly job gain rate is pretty ugly.  Indeed early in the year similar reports did a great job of capping stock market gains and pushed bonds up.  However, today this report is pushing up risky stocks and has treasury rates heading higher, signs of a strengthening economy/market, not one of weakness indicated greatly slowing employment gains.

Prediction:

My data shows about 244k jobs are now "banked" since January 2016 that will be used to over report monthly gains in the next few months.  The reality is job gains are about 200k/month so that means for September, October, November and December the average reported monthly gain is likely to be about  261k-265k.  If they decide to actually spread it out into January or even February, the average "reported" monthly gain for the next 9 months will be about 240k.

BAN Copay Coupons for Drugs NOW!!!

Copay coupons like the ones Mylan offers for EpiPens allows drug companies to use consumers as tools to push insurance companies and therefore consumers to overpay for drugs.  The copay coupon means an insured consumer often pays less "out of pocket" for the more expensive drug.

In the case of EpiPen which sell for $600, in some cases more, the consumer with an insurance plan that only requires copays for drugs or a consumer that has already met a deductible pays zero out of pocket if they have a copay coupon dumping a $500 bill on the insurance company.  Instead of purchasing the $144 generic available at Walmart.
Walmart/GoodRx Adrenaclick $144.62
Lifehacker--Adrenaclick
Of course while consumers think they are tricking the insurance company, we are really tricking themselves since the insurance company just passes the extra cost back to us in higher premiums.

When Massachusetts dropped the ban on copay coupons they were warned that it would cost Massachusetts consumers $100s of millions or even billions in higher drug costs and insurance premiums.  By the looks of how fast drug costs and insurance premiums are rising, those estimates may be low.  Of course that only covers one small state.  Imagine how much this costs when the entire country is included since Massachusetts is only 2% of the population.
http://www.prnewswire.com/news-releases/repealing-brand-drug-copay-coupons-ban-increases-costs-by-750-million-for-massachusetts-employers-unions-and-state-employee-health-programs-159043445.html

http://www.usatoday.com/story/news/politics/2016/06/08/drug-co-pay-assistance-programs-facing-increasing-state-federal-scrutiny/85547788/

I intend to create a list of drugs where the copay coupon has created severe artificial imbalances in the free market.  Inflating prices while giving unfairly large market share to the most expensive options.  If anyone knows of examples leave a comment.

OPEC has some Major Problems if they cap production, US and Canadian Producers will eat their lunch

US crude oil is clearly rising again and this doesn't bode well for any move by OPEC, Russia, et.al. to cap or cut production.  It is pretty clear now that the situation for North American producers has drastically changed.  Any price support, especially any surge close to WTI $50 will result in rapid US and Canadian production increases.  It is also pretty clear that while most--including me--expected a major decline in US production towards a level well below 9MM BPD, it is now clear that 9MM BPD is the floor and US production is rising again along with working oil rig counts.  

There is a clear surge in unaccounted for oil dating back to June.  A surge in unaccounted for oil, especially a sustained one is a leading indicator that US production is rising, even though the official production number continued to show decline.  However, the official production number showed a huge 100k BPD increase last week.

US Production and Unaccounted for Oil

Data Source:  EIA

psw01 2016-8-17

Not only is US production rising, but it appears Canadian production is surging as well with US imports from Canada surging over 3.3MM BPD last week.  Comparing to last year, Canadian imports surged well over 3.3MM BPD in late 2015 and early 2016 in the face of  oil in the low $40s and $30s.  I expect more of the same this fall and winter.

Canadian Crude Exports to the US

Data Source:  EIA

psw08 2016-4-27

Those betting on a sustained rally in prices today are in for a surprise as we are heading into fall maintenance refinery maintenance season with a corresponding huge slump in demand just as US and Canadian output is surging.  That can't be good for prices.

Glowing June and July BLS Non-Farm Job Reports are Totally Bogus, More to Come

Seasonally Adjusted Non-Farm Jobs Change 2013-Present:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports

Source Data:  BLS

Total Nonfarm 2016-8. xlsx

Seasonally Adjusted Non-Farm Jobs Change 2013-Present with 2016 Projections:  Comparison between Griz Method/Simple YoY and BLS Monthly Reports and my projections from June 2016 for monthly gains using the Griz Method and my expectations for the BLS reports.

Source Data:  BLS

Total Nonfarm 2016-8. xlsx

Even though I knew this months great jobs report "surprise" was coming, it still amazes me to watch this unfold right in front of my eyes.  In early June I correctly predicted huge "surprises" to come in the monthly jobs reports.  I Hope Everyone is Expecting Huge Gains in the Non-Farms Job Report in July, August and September  just as I did in November, 2015.    Huge October Jobs Report Coming  I also found it interesting that the experts didn't see this coming, although I've seen at least one quoted saying the real job gain number is 150k-200k per month.  Well it looks like the truth hides in plain sight.

I've shown the most recent BLS reported monthly job gains along with the gains calculated with my methods with the chart of what I predicted in June was coming.  It is really scary just how close my projections have been for both the BLS report and my estimates of what the Griz method would show in coming months.  It is clear to see I projected that gains would follow the lower trend line as shown in the lower chart, which has now been confirmed by 2 months of reports as shown in the upper chart.  I expect this will continue to year end.

I also projected that huge reports were in store, although I thought it was possible the really big numbers would be delayed to later in the year.  What is clear is I saw the big numbers coming.

It is also clear US stocks have broken out to the upside since the June report and are getting another bullish push today.  While the very bearish reports early this year helped inflate US treasuries which are getting knocked down since June with only the Brexit scare driving them up.  Treasuries are getting hit again today and I expect they will continue to get driven down as rate hike talk gets serious again driven by month after month of great job reports.

I also find it quite "convenient" that now that Hillary is pushing a story of how great things are, that the jobs numbers suddenly went from miserable to start the year, to totally amazing the last 2 months.  That when my analysis clearly shows job growth rates are in decline and have been for most of a year.  My analysis shows the early part of the year was much stronger than the last few months, yet the BLS seasonal adjustment is showing that the last 2 months have been the strongest of the year, rivaling the fastest growth we have seen in 2 years.

Continuing unemployment claims do NOT support holding off rate hikes

US Continuing Unemployment Claims 2005 to Present and YoY

Data Source:  US Department of Labor

 Unemployment weekly 2015-4-9.xlsx

The most recent BLS jobs report for May 2016 implied that US employment is totally in the tank providing cover for the Fed to continue to hold off on interest rate hikes.  However, continuing unemployment claims along with the BLS own nonadjusted data does not indicate the jobs market is as bad as the May 38k gain implies.

http://griztrading.blogspot.com/2016/06/38k-new-jobs-is-totally-bogus.html

http://griztrading.blogspot.com/2016/06/i-hope-everyone-is-expecting-huge-gains.html

I find it very suspicious that conditions now justify a funds rate below 1% helping to hold the US 10 year treasury below 10% while in the 2007 timeframe the economy was clearly grinding to a halt but the funds rate was in the 3-5% range helping to hold the 10 year treasury in the 5-6% range.  It is pretty clear that low treasury rates and low interest on margin debt are keeping investors in very expensive risky stock assets at this point since treasuries do not offer an attractive return.  

How is it that with continuing claims at a lower absolute level than around 2007 with a larger working aged population that these low rates can be justified?  Moral of this story is they can't.  I expect we'll see a major spike in rates post election.

Summer Demand Has Yet to Dent Gasoline Inventory, Will It?

US Gasoline Inventory, YoY

Data Source:  EIA

psw01 2016-1-13

US gasoline inventories are 10% over the same time last year or about 22.3MM bbl over last years storage level.  It is no wonder gasoline crack spreads are about $10 lower than this time last year.  The fact that inventory levels appear to be flattening and even surged last week is a warning that gasoline demand may not be nearly as high this summer as many expected early on.  It has become my feeling that many stockpiled gasoline at lower prices this late winter and spring which could have lasting affects on early summer demand.  If refiners have been running at higher rates with the expectation of huge demand based on the huge spring demand they could be in real trouble if they don't slow down soon as crack spreads are already poor and could get a lot worse this fall when demand lags if they continue to carry this inventory.  I'm betting they will be running at much lower utilization levels than expected for this time of year putting heavy pressure on crude demand.

http://griztrading.blogspot.com/2016/05/major-us-refinery-slowdown-on-way.html

Rather than seeing a large surge in summer gasoline demand we could actually see much softer demand as we did in 2014, if gasoline was indeed stockpiled this spring as the unexplained exceptionally high gasoline demand suggests.

US Gasoline Supplied, YoY

Data Source:  EIA

psw01 2016-4-27

I'm shorting crude oil with the expectation that the power is in the hands of the refiners with high inventories on both sides of their process and really unlimited supplies yet worldwide.  I find it likely they will slowdown which will support gasoline somewhat, but will crush crude.  They could easily manage to create gasoline draws and crude builds.  The situation with gasoline and distillates implies refiners could slow as much as 10% to draw refined inventories within historical seasonal norms.  That would be 1.5MM bbl day which would create 7MM+ bbl/day excess crude.  So we could be looking at 3.5MM-7MM barrel builds in crude this summer.