US Oil Production Projection, 2018-5-9

Is the BLS Incompetent or a Manipulator?

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

Source Data:  BLS

Total Nonfarm 2018-3. xlsx

I've been monitoring the inaccuracy and volatility in the monthly BLS jobs reports for several years now.  It is truly amazing to see how wild and inaccurate the monthly reporting of jobs gains is.  Hiring is not raging at a 313k/month pace as the most recent report claims.  200k/month is a lot closer to accurate.  About the only way to get a meaningful number from the BLS monthly jobs gain reported, is to average 12 months of data, and then the number tracks pretty close to reality.

The above chart makes it pretty clear that up to about December 2014 the monthly BLS report tended to over report jobs gains.  But since January 2015 it has been under reporting.  That is up to the last 2 months when it appears the BLS is firmly in the over reporting of jobs business again  This can be seen by the blue and orange bars tracking pretty close in most months up to December 2014, with the orange bars periodically spiking over the blue.  But since January 2015 it the orange more typically track well below the blue.  Summing the difference between the orange and blue bars proves this as well.

Notice the massive spike in January 2017 and a corresponding spike in the most recent report, February 2018. Also notice that the official jobs gain numbers came in pathetically low the following 4 months after the blowout January 2017 report.  And somehow this massive spike in employment comes with a drastic slowing in wage growth.  Really?  A massive 50% spike in hiring over where we've been tracking but somehow wages fall?

Let's also look at the latest revisions.  January 2018 was revised up about 39k to 239k from 200k, however the raw data, the non seasonally adjusted data set, actually shows a 1000 decrease for January.  December was also revised up significantly and the raw data shows about a 28k gain for December 2017.   But somehow the official numbers boost January and December by a combined 54k.

I pulled this from a MarketWatch article.   “If you had tried to concoct an event that would be good news for the economy and good for the markets, you would come up with the kind of jobs report that we got today: solid headlight number with only moderate wage growth,” said Kristina Hooper, chief global market strategist at Invesco.

I think "concoct an event" sums it up.  You think this might be designed to prop up stocks and bonds after a nasty February dip and a volatility surge?  I've seen this repeatedly over the last few years, the markets flounder and the BLS comes riding in with the exact report needed for support, whether it be a big number to reverse fears over slower hiring or a weak report to quell fears over the Fed backing out and slowing interest rate hikes.  Now we get a massive gain with slowing wage gains, best of both worlds.

To be fair it looks like there might be an improvement in hiring rate to 195k/month over the last 4 months from about 185k, about a 5% improvement.  But that is nowhere close to what the 313k number implies.

Home Selling Price vs. Household Income

Oil Crash Brewing, Swap Dealers Think So

Is an oil crash brewing?  The swap dealers certainly think so.  They are sitting on 900k, as of 1/16/2018, short contracts in WTI, with a net short of 750k.  Yup, they are betting 750 million barrels that the price is going to drop.  Do you really want to bet against these big bankers?

How to know you are in a market bubble 101

Car Companies
Ford
Revenue:  $160B
Earnings:  $6.24B
PE 7.3
Value:  $45.5B and falling fast

GM
Revenue:  $160B
Earnings:  $8.86B
PE 6.98
Value:  $61.8B and falling fast

Tesla
Revenue: < $12B
Earnings:  lost $300 million
PE:  Not applicable, no profit
Value:  $58.4B and rising

So Tesla is treated like it is already equivalent to Ford or GM.

Netflix

Revenue: <$13B
Earnings:  $500 million
PE:  200
Value:  $117B and rising fast

And why own Ford AND GM combined and make $15B when you can own Netflix instead and make 1/30 as much.  Anyone see a problem with the market rushing to buy Netflix and dumping Ford and GM.

Retailers/Distributors
Walmart
Revenue: $485B
Earnings:  $17B
PE:  28
Value:  $318B and rising
Umm, the largest grocery/low end retail store in the world now has a PE of 28.  20 years to break even.  Yah, that ends well.

Target
Revenue: $70B
Earnings:  $2.5B
PE:  16
Value:  $41.3B and rising
Umm, the largest grocery/low end retail store in the world now has a PE of 28.  20 years to break even.  Yah, that ends well.

Macys
Revenue: $26B
Earnings:  $619 million
PE:  12
Value:  $8.1B and falling

Amazon
Revenue: $100B
Earnings:  <$2B
PE:  342
Value:  $660B and rising fast

So you can buy both Target and Macy's and make $1 billion more than Amazon, but instead everyone wants to buy Amazon for 7X as much.  And why buy Walmart for 2/3 the cost of Amazon and make $17B when you can have Amazon instead and make less the $2B.

Hidden debt bomb in the Federal Budget.

This is what happens if interest rates go back to 2007 levels.  Issued treasuries has tripled in 9 years.

Mnuchin's comment about not caring about the dollar strength and knowing that a weak dollar will likely trigger a surge in inflation and interest rates, triggered me to do a thought experiment on what if US Treasury rates go back to 2007 levels. In 2007 the effective interest rate on the debt was 8.7%. It is interesting to note that interest on the debt in 2007 is about equal to the interest on the debt in 2017, even though Treasuries issued has nearly tripled.

In 2007 $5 trillion in Treasuries were issued, now almost $15 trillion have been issued. If interest rates were to go up to 2007 levels, interest on the debt would be $1.2 trillion from a measly $460 billion now, blowing up federal spending by 25%.

This here is the bubble/boogeyman nobody wants to talk about. It's especially scary since we are on pace to issue about $1 trillion in new debt in 2018, and possibly that much and more every year there after for the foreseeable future.

If you ever want to discuss where the money goes, and where to cut for the biggest affect. These charts will come in handy. I tried to make the actual 2017 pie a little smaller than the what if 2017 chart to emphasize the blow up in total spending.

DOW Jones BUBBLES

Where are the corporate income tax payments?

Corporate income tax payments comparison, Where are the Corporate Income Tax Payments

Monthly Comparison of Corporate Income Taxes Paid  (In $Millions)  Orange highlight indicates monthly payments lower than same period in prior year, green highlight indicates greater payment.

See April 2017 comparison blogpost.

For most of 2017 we were told both from the financial media and corporate quarterly earnings reports that US corporations were having a blowout earnings year.  Earnings were supposedly up well over 10% year over year.  Well if that was the case, Where are the corporate income tax payments to match?  

It's pretty clear now no matter how it's sliced, fiscal YoY or calendar YoY, corporate income tax payments were down which implies earnings were as well.  I actually expect January payments to be down as well, and may even show an overall refund.  Why?  Because with the corporate tax cut, companies will do everything possible to push earnings into 2018 instead of 2017 to take advantage of the lower tax rate.  I suspect a lot of the bonuses paid in December were done in an effort to pull 2018 wage expense into 2017 and a there will be matching delays/lowering of raises for 2018 using the bonus as a justification.

We all better hope that the corporate tax cut works and/or the soft income tax payments were simply due to financial engineering by companies that were betting on the tax cut happening.  If not with this sky high stock market, and central banks unwinding their balance sheets, LOOK OUT because stops could IMPLODE!!!!