Today I thought I might walk you through some of the inane gyrations that investors put themselves through, as they try to discount a few of the sundry and sordid reports that abound in this biz.
Nothing so cruel as a week’s worth of input or such. Just a couple of hours of action on a slow summer morning in August.
And I promise that, at the end, you will learn a single really important fact that most every investor out there somehow missed... a deadly needle in a haystack of meaningless factoids.
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Wednesday, August 5, 12:27 a.m.: The Action Begins
The first report to hit would be the July employment report coming out of ADP, the subcontractor who handles all those annoying HR details like paychecks et al. for a lot of American corporations.
(As I recall, ADP used to make check imprinting machines, waaaay back when paychecks were still valued pieces of paper one took to a real teller at a real bank each week. Now they are all about “cost/benefit modalities” and such jargon.)
In the wee dark hours, the first “previews” began to dribble in. Now keep in mind that this supposedly critical monthly report is composed almost entirely of numbers that have already been made public a week at a time by the Feds. So it ain’t but so hard to work out the gist of what’s coming.
6:07 a.m.: Opinions Are Like… Well, I’m Sure You’ve Heard It Before
That doesn’t keep a bunch of self-important blowhards from giving you “advanced analysis.” So at six this morning, I was already reading “output” from some guy at a Forex desk calling for 340,000 net jobs lost in July.
He figures that this is “a slowing rate of decline,” which would be a “surprise to the upside” as the market is only expecting 325,000 lost jobs net. Which would be bad. But it also represents a slowing of the rate of job loss, which would be good…
After four or five more gyrations like that, I hit delete. What the heck – I’ll have the real number in another few minutes, right?
8:15 a.m.: Finally, a Few Facts?
The real number out of ADP is in. Turns out we lost 371,000 more jobs then we gained in July – a definite “surprise to the downside” if you are prone to trusting the numbers out of Washington. I don’t, so I can’t say I was much taken aback.
By 8:19 a.m., I have a wire service note on my desk noting that U.S. Treasury Bond prices are down and yields are up on the ADP news. The report notes that “their panel of experts were calling for 402,000, so this is actually a surprise to the downside, good for stocks, bad for bonds,” yadda, yadda, yadda.
BUT… they say to look out for the upcoming Institute of Supply Manager’s report on service industries and the Commerce Department’s latest ephemera on factory orders. They could change everything!
Cross-eyed yet? “But wait,” as they say on the old Ronco ads: “There’s more!”
9:00 a.m.: One Plus One Equals Three
By now we know that factory orders were up for the third month in a row. That’s supposed to be good, a sure indicator that the recession is ending. Treasury futures continue to dive and stock futures climb.
Except that we don’t really make a lot of stuff anymore, so no one’s really sure if that should count. And then we get the Service sector report, and it stinks: ISM’s index of activity in the sector edged down from 47.0 in June to 46.4 in July, a 1.28% slide and a downside surprise of 3.33%.
Yeah, that’s right: The sector that provides 75% of our country’s jobs is shrinking. And somehow, this was a surprise. The fact that every jobs report showed net losses somehow never entered into the economists’ tiny little minds.
Sigh.
9:30 a.m.: The Markets Bite – Hook, Line and Sinker
Be that as it may, the market finally opens (Yeah, that’s right: All this drama and not a single share has traded yet. Shoot, I’m only on my second cup of coffee at this point!).
And suddenly we see stocks fall – in less than an hour we see the Dow lose more than $111 – and Treasuries prices completely reverse their tumble as investors “start to wonder as to the economy’s ability to sustain the recent rally.”
One morning. Three reports. Eighty different (mostly contradictory) opinions, none of which truly take into account the big picture.
The One Item That Really Mattered
Did all of the foregoing give you a headache? I completely sympathize. That’s the sort of crap investors have been subject to for years now – an avalanche of vaguely meaningful ephemera that buries the important facts they would prefer you to miss (or at least ignore).
Well, I’ve got good news and bad news for you. The good news is after much digging, I found the one fact anyone looking into stocks and bonds ought to be watching like a hawk.
The bad news?
Well, it came out of the Treasury Department around nine this morning when they thought everyone was watching the clown show over at Commerce: Next week, the U.S. Treasury plans on auctioning a record $75 billion in notes and bonds.
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The Bottomless Pit
Why the record sales of debt? It’s pretty damned simple, really: In June, outlays rose to $309.6 billion, while receipts only hit $215.3 billion. June’s federal budget deficit hit $94.3 billion. The cumulative deficit for the current fiscal year hit a record $1.08 trillion.
Washington’s hunger for capital has never been so voracious. Last year, there were some 36 Treasury auctions. This year we have already seen 72, each one topping the previous one’s record.
And all those folks paying more and more for the “safety” of U.S. Treasury notes? They are being taken for a ride, my friends.
Yours truly,
Adam
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