Five Things You Need to Know: Deja Vu, The Greenspan Put, Some People Make More Money Than Others, Three-Day Heat Wave Confirms Global Warming, Can I Borrow a Dollar?
What you need to know (and what it means)!
Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Deja Vu
Talk about Deja vu! This employment report is virtually identical to the one on May 5! So we're just going to run the same thing we ran then below:
1. Employment (yawn)
Sorry but after the new private data that was introduced this past Wednesday by Automatic Data Processing (ADP) and Macroeconomic Advisers, LLC, we just can't seem to muster any enthusiasm for the government's Friday employment data.
- Judging from the stock market futures following the report, we are alone in our lack of enthusiasm.
- Futures spiked higher on news that the economy added fewer jobs than anticipated last month.
- It was the smallest increase in employment since last month.
- Minyanville Professor Scott Reamer noted that "the replacement of existing workers needs a 175K +/- print so this (113k) is clearly under employment in any respect."
- The birth/death model took away 57,000 jobs this time. So the real number is 170,000 rather than 113,000.
- 69% of employment adds this year came from birth/death model.
2. Job Security = Employer Risk Aversion
An article in today's Investor's Business Daily points out that announced layoffs hit a six-year low of 37,178 in July even as today's payroll report showed only 113,000 new jobs.
- In the first three quarters of 2005, the most recent data, employers added 23.62 million jobs while cutting 22.1 million, IBD says.
- Comparing that to 1998, when unemployment was near the present 4.8%, firms added 26.05 million jobs and cut 23.98 million at a time when the economy was about 20% smaller than it is now, the article says.
- "The jobs market is in its own form of stagflation," John Challenger, of the placement firm Challenger, Gray & Christmas, told IBD.
- It goes without mentioning that this kind of "job security" is just another form of risk aversion, so we won't mention it.
- But the good news according to IBD? Business cycles have become far more stable, with long expansions and mild, short-lived recessions.
- Wait a minute! "Business cycles have become far more stable, with long expansions and mild, short-lived recessions." That looks familiar. Isn't that? Didn't what's-his-name say that? What do you call that, that "Business cycles have become far more stable, with long expansions and mild, short-lived recessions" thing? Oh yeah! The Greenspan Put!
- Hey old buddy, good to see you!
The Greenspan Put
3. Some People Make More Money Than Others!
An article in the International Herald Tribune this morning notes that the biggest earnings in the mass manufacturing industry, such as footwear and textiles largely produced in China, are NOT made by the companies that manufacture the cheap goods, but by those who market and sell them. We read this and said to ourselves, "Holy cow!"
- It turns out that the huge containers of shirts, shoes and electronics that contribute to China's $200 billion trade surplus generate twice as much wealth in the U.S. as in China, the IHT reports.
- A decade ago the typical profit margin for Chinese shoe and garment factories was about 10 percent, the newspaper reports. Now that profit is closer to five percent.
- Using the example of a Tianjin shoe factory, the article says that if every salary in the factory were doubled, the final shelf price in a U.S. retail outlet would increase from $49.99 to $51 and change.
- Have you heard of "cheap foreign labor"? This is it.
- The larger mystery is how American consumers can allow such a profit margin on this side of the pond. So much for efficient markets.
4. Three-Day Heat Wave Confirms Global Warming
After carefully studying the data from three consecutive days of very hot weather, Conservative Christian broadcaster Pat Robertson said on Thursday he is now a believer in global warming.
- This week as the heat index, the perceived temperature based on both air temperatures and humidity, reached 115 Fahrenheit in some regions of the U.S. East Coast.
- Robertson told viewers that this is "the most convincing evidence I've seen on global warming in a long time."
- At this point we could go into several bullet points on data analysis and statistics which paint an inconvenient truth about Robertson's conversion, but what's the point? People believe what they believe.
- Instead, use this story as a template for how most people make decisions - investment decisions, trading decisions, political and economic decisions.
- Recency is overweighted. Logic breaks down. Events and sequences take on importance beyond their statistical validity.
- This is why mutual funds, for example, see inflows AFTER a run of success. It is not that people are dumb, it's that they are hardwired to think unsuccessfully about probabilities and decision-making.
5. Both a Borrower AND a Lender Be
Can I borrow a dollar? I certainly can on Prosper.com, the first microlending web site that pairs people who want to borrow money with people who want to lend it.
- How does Prosper.com work? Like this:
- Between February and June, Prosper doled out about 1,500 loans worth roughly $7 million, according to Inc. magazine.
- Now, you might think it risky to lend $5,000 to someone known only to you as DrinkNpal86, but I swear I'll pay you back after the 8th race.
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