Employment is 'Rock Solid'?

AThe clock ticked and ticked and then at 8:30 am on Friday – the gov’t released the all important NFP (Non Farm Payroll) report……expectations were for +200k jobs to be created…in fact they told us that 215k job were created – that’s better than the expectation – and the mkt sold off (initially…). But by mid morning – the sell off had ended and the buyers became a bit more aggressive (see the ISM report)……and by the end of the day – Wall St was throwing a party – the Dow +107 pts, the S&P surged by 13 pts – ending the day at 2072 and Nasdaq charged ahead by 45 pts to end the day at 4914. What had changed?

Everyone was cheering the jobs report – or were they cheering for lower rates for longer? I mean a strong jobs report would argue for higher rates – and higher rates now would cause the mkt to back off (which is what we saw early on...) – but then a funny thing happened on the way to the forum……

Unemployment crept back up to 5% - as more people looked for meaningful work….the spin doctors using this as a positive – saying that the mood has changed – and people who long ago fell off the rolls are now coming back into the work force – or are at least trying (because they are all of sudden encouraged..) And deep within the jobs report – we find the different job categories and how those categories were impacted and what do we see?

Manufacturing LOST 30k jobs last month and the bulk of the new jobs were what? PART TIME RETAIL. Do you see the disconnect? Yes – those part time retail jobs ARE jobs…..but the frustration is that we are once again losing good paying jobs for low paying service sector jobs…..and now you ask why wages have remained stagnant for so long? Part time retail sales jobs pay MINIMUM wages – and nothing more - while high paying jobs that do pay more continue to disappear which then puts downward pressure on wages….. So why would anyone think that there is going to be upward pressure on wages at all? So then the theory goes that rates are not going anywhere - just as Janet discussed and BOOM! The buy algo's kick in and the sellers pull back and the mkt rallies.....

The funny thing is that Stephen Stanley – Chief Economist at Amherst Pierpoint Securities had this to say:

“Any company facing the consumer is probably feeling pretty good about things right now. Despite a choppy economic environment for the past year – employment has been absolutely rock solid”.

Did he say ‘Rock Solid’? May I ask – what world is this guy living in? Did he even read the report? We lose high paying jobs and replace them with low paying jobs…….and he defines that as ‘Rock Solid’? Investors, economists and our very own Janet Yellen – Fed Chair – remain suspect…..in fact many are slashing their estimates for 1qtr growth and for CY (calendar year) 2016.......(see below)…this guy is making it look like a bowl of cherries......saying that part time job creation at minimum wage rates is SOLID JOB GROWTH...

Well - fast forward - an hour and half later - and we got the ISM report....at 10 am the Institute of Supply Management reported that the ISM Manufacturing index showed a gain of 51.8 – vs. the exp of 50.5……so get ready – because here is the ‘kick’… at 8:30 am - The gov’t reports that we are losing manufacturing jobs while at 10 am the ISM reports that we are gaining manufacturing jobs! (Beware the ISM is NOT a gov’t report) And the spin machine is hard at work! How exactly are they going to reconcile these two reports so that they make sense? What is the mkt to believe? How can one report suggest weakness, while the other one suggests strength? In the end the mkt believes that jobs, wages and growth remain suspect and that the FED will hold rates steady - so higher we go....

Next up - ......1st qtr earnings are expected to be -9.3% followed by 2 qtr earnings down 3.6%...... Full year 2016 earnings are now expected to be +2.2% which is an 81% reduction from the July 2015 estimates of +12% for the full year.

Now we know that the analysts always start high and then progressively revise lower - and get to a point that they have lowered the bar so low - it is almost impossible to miss.........but what does this really say about the state of the economy? And if earnings are due to be negative for 2 qtrs...what will they have to be in the second half of the year to end positive? Well estimates call for +3.4% in the 3 qtr and +9.4% in the 4th qtr.....Really? We are going to get this massive recovery during the second half of 2016?

Be sure to get a front row seat during earnings season – when companies report on how they did….listen carefully to the number of companies that have or will announce layoffs – GS, Credit Suisse, JPM, BAC, MS, Blackrock, Boeing, Peabody Energy, US Steel, McKesson have all announced layoffs - never mind the energy companies that have gotten slaughtered...... while Lockheed Martin announced a ‘voluntary layoff program’…and let me remind you – none of these lost jobs is a minimum wage job, none of these jobs is part time and none of these jobs are coming back next qtr or the qtr after that…..Mr. Stanley – would you care to comment?

With earnings only days away now….I suggest that you pay attention to the top line revenues and bottom line profits – if they miss on the top line yet beat on the bottom line – then that just means that they continue to CUT expenses (wink, wink!) to achieve these ‘great’ results….

US futures are up again this morning - currently +5 . The dollar is a bit stronger and oil is retreating....now trading at $36.71/barrel.....which is giving this latest surge some oomph....The mkt does feel like it wants to test the 2100 level.....before it rests.....and with little or no resistance right now - it is entirely possible we do so before the start of earnings season.....

Today 's eco data includes ISM NY, Factory orders - exp of -1.8%, ex trans of -0.5%. Durable goods of -2.8% , ex trans of -1%. ...Not sure - but to me - negative numbers do not suggest strength at all.....Would anyone care to comment?

And yes they do....today we get 3 FED mouthpieces...Boston's Eric Rosengren at 10:15 and Dallas Pres - Kaplan and Minneapolis's Neel Khashari both after the bell.

Now you will recall that Khaskari was Hank Paulson's right hand man during the crisis and the country rewarded him with the Minneapolis FED Pres position last year. He is now singing a very different tune than he did when he was in the treasury office.....so - expect a lot of chatter after his speech as analysts and strategists dissect it. Dallas's Kaplan is also new on the scene...appointed in September - so the community is still trying to figure out which side of the fence he is on..... appears to be more of a Hawk.....So here we go again......Janet says 'no' and the mouthpieces say 'yes'......expect more confusion and volatility as we move into earnings.

 

Chicken in White Sauce

Chicken in White Sauce - contrary to what you may think - is NOT a cream sauce.

For you this you need – Chicken thighs and legs – skin on, 5 large onions, sliced mushrooms, olive oil, s&p and fresh basil, Chicken broth, Fusilli (curly spaghetti) and fresh grated Parmegiana cheese.

In a large pot – add olive oil to cover the bottom of the pot so that you can fry the chicken pieces. Brown the chicken for about 10 mins…now depending on how much you are making – you may have to do repeat this step -as you can fry about 6 pieces as once. Once all nice and browned – about 12 – 15 mins per batch – remove and place on a sep plate.

Next -in the same pot - add the sliced onions and sliced mushrooms – turn the heat down to med and cover the pot. Stir the onions and mushrooms until they are soft – now as this cooks down – both the mushrooms and onions will make water…that’s good – no worries. Season with s&p.

Once all cooked – add one can of chicken broth and then enough water to bring the pot about ¾ full. Turn the heat to high, add back in the chicken pieces and some fresh chopped basil. Once it comes to a boil- turn the heat down to simmer – stir occasionally. As it cooks – the chicken will just fall off the bone – that’s perfect.

Now bring a pot of salted water to a rolling boil – and add in the fusilli, Cook until aldente – maybe 8 – 10 mins and then strain. Add back to the pot and add in 3 ladles of the sauce. Stir to mix. Toss in a handful of cheese and stir again. Serve in warmed bowls – top with a ladle of sauce – with a slotted spoon – now add some of the chicken meat that has fallen off the bone.

Have plenty of extra cheese on the table for your guests.
**Remember - sauces like this are always better the next day**

Buon Appetito.