The truth? Wall Street's estimates of the number of jobs added by the U.S. economy in a given month are a joke.
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“Mr. Macro Market is reading today's Jobs Report as bad for long-term bonds, Gold, etc. It’s bullish for the US Dollar, Higher Beta and Cyclical Stocks, etc.”
–Hedgeye CEO Keith McCullough
The December Jobs Report released today showed the U.S. economy added 158,000 net new jobs. On a year-over-year basis, jobs growth was 1.51%. In other words, the growth rate slowed from 1.58% for the month of November. This is a continuation of the downward trend for jobs growth (which peaked at 2.3% in February 2015).
Still, the number may be reaching an inflection point, in which the growth rate bottoms or even reaccelerates (click here to read more). The labor market is one of the only economic indicators not accelerating.
In other words, if the bottom is coming, that’s a bullish signal for #GrowthAccelerating macro positions.
Plain and simple… buy the U.S. Dollar (UUP). It will trade up too on stronger U.S. growth.
(Note: A stronger dollar also lifts U.S. equities. Check out the 0.78 positive correlation, over the past 90 days of trading, between the dollar and the S&P 500 in the video above. This means they generally trade up (or down) together.)
Just two weeks away .. Donald Trump will be inaugurated and take control of the White House. As an exuberant U.S. stock market continues to power ahead, the question becomes will Trump deliver the promised goods? He has vowed to make a number of significant changes -- from building a wall with Mexico to rolling back Obamacare.
Here's a quick look at key issues investors should keep an eye on.
Maverick Republican Senators John McCain and Lindsey Graham look to continue their foreign policy criticism of whomever the occupant at 1600 Pennsylvania Avenue may be. Both Senators are pushing for full investigations into the Russian hacks. And they will challenge Trump on his negative assessments of the U.S. intelligence community.
Other Senators are not ready to criticize Donald Trump in this realm, exposing a rift between those who aren’t quite ready to stand up to the president-elect.
In what could be the biggest surprise of the early legislative session is the Republicans plan for a 2017 ACA replacement bill. Previously it was expected that the replacement would take two to three years to be unveiled, but the looming threat of +20 million people without health care seems to have lit a fire under the new Congress. HHS Secretary-designate Tom Price and Hill Republicans will have their work cut out for them in the coming months.
#Mexico #Immigration #Wall
After spending sixteen months on the campaign trail insisting that Mexico would pay for a border wall, President-elect Trump acknowledged that the U.S. taxpayer may end up footing the bill after all. Using a bill passed during the Bush Administration, Republicans believe they can attach wall funding to a spending package in April potentially forcing a government shutdown showdown with the Democrats. Don’t worry - Trump took to Twitter insisting that Mexico will foot the bill at the end of the day.
#Cabinet #Trump #WhiteHouse
In five days multiple Senate committees will be all hands on deck on what is slated to be an unprecedented and busy day on Capitol Hill holding hearings for Trump’s cabinet nominees. The not-so-secret goal of holding five of the hearings in one day is to prevent any one pick from dominating the news cycle - some of Trump’s nominations have attracted unwelcome scrutiny and Senate Leadership is hoping to put it all out there on one day making coverage difficult.
The war of words between Senate Majority Leader Mitch McConnell and Minority Leader Chuck Schumer has already begun over the Supreme Court vacancy. After Schumer announced that Democrats will not settle for just any nominee, McConnell claimed that America will not support the blocking of a nominee.
The list of potential Trump nominees makes Senate Democrats cringe potentially forcing McConnell to pull the “nuclear option.”
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
BREAKING: The Bureau of Labor Statistics is 90% sure that the U.S. economy added somewhere between 42,000 and 270,000 jobs in the month of December.
That's right. The BLS, which is charged with calculating montly jobs gains, released today's labor market report showing 156,000 new jobs were added in the month of December. But based on the way this data is collected, the U.S. economy may have added or subtracted an additional 114,000 jobs from that initial jobs estimate.
Interestingly, and more importantly, year-over-year jobs growth continued to slow. To be precise, jobs growth has slowed from 2.3% (year-over-year) in February 2015 to today's rate of 1.51%. The year-over-year growth rate captures the big picture better than blindly staring at these uncertain monthly oscillations. The long-term trend is that jobs growth continues to slow.
Most media outlets suggested that jobs growth has been chugging along. Nevermind that the 156,000 number missed Wall Street consensus' estimate of 180,000. Here's mainstream media reporting on this morning's jobs report:
Now take a look at today's Chart of the Day below. This captures the wide range of possible outcomes for the BLS's calculation of monthly jobs growth. This should throw cold water on anyone trying to come up with a montly estimate. Alas, Wall Street continues to guess. Here's Hedgeye U.S. Macro analyst in today's Early Look note published just before the 8:30 a.m. Jobs Report:
"Below is a friendly updated reminder from the BLS on the standard error in the NFP estimate. To summarize, if NFP prints +114K this morning, the BLS is 90% sure we gained between 0 and 228K jobs."
In other words, Wall Street consensus should know better than to predict 180,000 jobs in December. With a range of plus or minus 114,000 jobs for a given month, economists could just as easily pull their nonfarm payroll estimate out of thin air.
P.S. If you'd like to dig into this a bit further, here's the exact language from the BLS explaining in detail the chart above and how the monthly Jobs number is derived:
"What does this chart tell us? The red dot for total nonfarm employment shows a gain of 161,000 jobs in October, as we reported on November 4. That number is an estimate based on our montly sample survey rather than a complete count of jobs each month. Different samples of employers might give us different estimates of employment change.
We can measure the sampling error, the variation that occurs by chance because we collected the number from a sample of employers instead of all employers. With our measure of sampling error, we can calculate a confidence interval. The blue bar for total nonfarm shows the 90-percent confidence interval ranged from 46,800 to 275,000.
We call this a 90-percent confidence interval because, if we were to choose 100 different samples of employers, the October nonfarm employment change could be between 46,800 and 275,000 in 90 of those samples."
Need to get up to speed on the complex, inner workings of financial markets?
We’ve got the book for you. Check out The Misbehavior of Markets by deceased mathematician and deep-thinker Benoit Mandelbrot.
“Read this one slowly,” says Hedgeye CEO Keith McCullough.
Mandelbrot is the father of fractal geometry (a field of mathematics that attempts to define how complex systems change as they get larger in scale). His theories applied to markets tries to make sense of states of seeming randomness.
If all of this sounds daunting don’t worry, Mandelbrot’s style is accessible and laden with insight. He also dissects what works and doesn’t work in financial markets. And Mandelbrot never shies away from taking to task current Wall Street orthodoxy. Take this excerpt for instance:
“The financial industry has developed other tools. The second-oldest form of analysis, after fundamental, is “technical.” This is a craft of recognizing patterns, real or spurious – of studying reams of price, volume, and indicator charts in search of clues to buy or sell. The language of the chartists is rich: head and shoulders, flags and pennants, triangles (symmetrical, ascending, or descending. The discipline, in disfavor during the 1980s, expanded in the 1990s as thousands of neophytes took to the internet to trade stocks.” -The (Mis)Behavior of Markets (pg 8)
McCullough calls The Misbehavior of Markets the “bible for understanding fractal math and non-linearity” in financial markets. It’s definitely worth checking out.
"Oh have the Brexit Bears been wrong," writes Hedgeye CEO Keith McCullough. The FTSE hit yet another post-Brexit high today after the U.K.'s Services Purchasing Managers' Index (PMI) for December accelerated to 56.2 versus 55.2 in November. We still like the Pound on the long side, especially against the Euro.
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