Friday Morning

Finally the Goldman Sachs conspiracy is exposed!

Not by me, no one paid any attention to me at all when I said they were running up commodity prices into a dangerous bubble that would destabilize the global economy, but by Conde Nast Virtual Portfolio, who have neatly summarized the theory behind Goldman’s recent attempt to take over the financial universe, using their government insiders as hatchet men to hit their competitors or help their own cause.  You may feel free to draw your own conclusions but it’s certainly a fun read!

While the GS execs on the right all have good jobs – the question of the day is: Do 93% of other US workers still have theirs?  The 7% line on unemployment will be the line in the sand that the bulls are very unlikely to cross if they see it this morning and we could quickly get a retest of our levels, which held perfectly yesterday lacking a real catalyst to send us lower.  I’m not sure that any NFP number over 500,000 is going to be enough to let the markets break over the week’s highs as it’s unlikely to be believed following Wednesday’s stunning ADP report, which showed 700,000 jobs lost by their count.

Former Goldman CEO, Hank Paulson’s Treasury is getting scathing criticism from the Congressional oversight panel for their complete and utter failure to do anything at all to help the US homeowners under the TARP program.  "The panel’s initial concerns about the [Troubled Asset Relief Program] have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury," said the draft report, which found that the department has "not yet explained its strategy" for stabilizing the financial markets.

The bipartisan panel, headed by Harvard Law School professor Elizabeth Warren, reserved its most strident criticism for Treasury’s approach to dealing with the foreclosure crisis at the root of the economic turmoil. The draft report noted that Treasury hasn’t used ANY of TARP’s $700 billion to help borrowers refinance or deal with mortgages that are worth more than the market value of the homes they are tied to.  "Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what ‘help’ means," the draft report said.

Goldman’s cross-town rivals at CitiGroup are doing a little something (very little, but something) for homeowners by dropping their opposition to pending Senate legistlation that will let judges set new repayment terms for mortgage holders in bankruptcy court, a move that could help 800,000 homeowners stay in their homes.  I’m still waiting for Congress to enact the program I proposed last April – one that would keep EVERYONE in their home and stimulate the economy for just $13.5Bn a month.  At the time, people said that was an outrageous amount of money to spend to stave off the financial crisis I predicted if action wasn’t taken – it would be funny if not so tragic…

8:30 Update:  Here’s the Non-Farm Payroll Report, -524,000 jobs (BTE) but Unemployment at 7.2%, the worst since January, 1993.  Also, prior months have been revised downward and that makes 2.6M lost jobs this year, the most since the end of WWII shut down the defense factories that were putting housewives on the assembly line so that was off a record employment number.  What we have here is our years of jobless economic growth coming home to roost as our employment dollars were all sent overseas leaving the US less and less capable of of employing people locally.  Nonetheless, the pre-markets are taking it surprisingly well – perhaps because 524,000 sounds so much better than the 700,000 predicted by ADP but THIS IS A RUN RATE OF 6M JOB LOSSES A YEAR FOLKS – I’m not sure if I would be punching the buy button on this one!

What you’re not getting in the headline unemployment is that the average number of hours worked is down to 33.3, possibly an all-time low.  That means that the 92.8% of the people who do have jobs are not working the amount of hours (or, of course, getting paid for it) that they want or need to and that is probably taking more money out of the economy than the 524,000 people who lost their jobs entirely.  A 2.5% decline (1 hour) in the number of hours worked per week by 150M employed people divided by the 33.3 hours a week of the average employed person equals 4.5M additional jobs worth of hourly wages lost – not a figure to be trifled with.  We’re not even getting into job quality issues, something we discussed extensively last year before everyone noticed we were in a crisis..

There is still a war in the Gaza and Russia still has cut off gas to the Ukraine but oil will test $40 again today.  The energy sector still hasn’t really capitulated yet, with the XLE still 25% off the bottom while the Dow is up 12% and the S&P is up 17%.  We do NOT want energy to lead us off the bottom as global consumers, who are working less hours even when they have jobs, cannot afford to divert their limited funds to fuel.  More money to fuel is less money for paying the mortgage, the credit card bills and you can flat out forget discretionary spending.  Dow up and XLE down is a good pairs trade we’ll be looking at in member chat today.

Asia was off mildly this morning and we flipped positive on FXI yesterday, taking a chance on the emerging market with $2Tn in cash saved up to stimulate their economy.  We’re not that loyal to China though as we just closed out an ultra-short on the same index with the FXPs but it’s starting to look like a range we can play in and we’re hedging our longs.  After falling 77% on Wednesday and having the day off in Bombay yesterday, SAY fell another 40% today to close out the week at .49 in India and is a good lesson to yesterday’s knife catchers who thought $1 was a good price!

Europe is mixed ahead of the US open but much improved off a poor open so it looks like our bottom call at 8,650 may pay off today.  Holding our levels will leave us slightly bullish into the weekend despite all the terrible economic news and we can only hope that Obama-mania will not be unfounded and that the new President’s programs will indeed let this be a real Bush bottom.  The stimulus train begins to gather steam next week and we’re going to have to shake off a lot more scary data leading up to a data-less holiday week in which we finally usher in a new administration so hope can spring eternal – or at least for the next 10 days.

Not many bright spots in the Retail Sales Data and not much in earnings either but we did get the RUT, NYSE and Nas leadership we were looking for yesterday and, if we can continue to improve today, the week won’t be all that bad.  Last Friday’s open was 8,800 on the Dow and we didn’t believe a point of the gain on the way up so why should we be surprised to be back there today?