Shadowy Stats & Relative Weakness

Today equities enjoyed the biggest 1-day rally of the past several months, once again celebrating economic data that even if presumed accurate (a very big "if") should arguably be seen as a negative rather than a positive.

An increase in worker productivity, as celebrated today, simply means that people with jobs are working that much harder, meaning new hires are that much less necessary. Other than for perhaps government employees, the gates to "Fat City" are closed and will remain so for quite some time to come.

Unemployment figures (per the Initial Claims data) were also taken as a positive, mostly by those seeking to pump the markets and those who can't understand the actual data and instead prefer to swallow the headlines. Unemployment "decreased" by virtue of more people going on extended benefits or dropping off the rolls altogether, as those people are not counted at all. Fact is that increasingly more people are unemployed, but the government twists and spins it of course.

However even the official government data shows real unemployment (known as "U6") to be over 17%.

This latter figure is what would have been reported as the unemployment rate decades ago, so bear in mind it is not an apples-to-apples comparison when the current nominal unemployment rate is compared to, for example, the unemployment rate during the Great Depression.

Click here for a simplified explanation from the Education Policy Blog.

John Williams of Shadow Stats provides a more in-depth explanation in this interview :




Truth seekers will keep an eye on that U6 figure when the official unemployment rates are announced, and let's expect the nominal headline number to have increased to around 10% in Friday's pre-market announcement.




Relative Weakness Evident

Despite Thursday's market rally, it continues to look like the churning along a top of some significance with a great number of distribution days in evidence suggesting shares are passing from institutional investors to weaker retail hands. Insider sales keep mounting. This may be just an area of congestion on the way to new highs, but there are significant bearish divergences in some sectors to beware of - and in the case of financials, that's the very sector that led the rally of the past 9 months via too many junk bank stocks to list here. When the leaders fall, the followers are seldom far behind.

We suggest that in the fullness of time this will be seen as an important signal that most are currently missing.

As we noted 3 months ago on August 5th, "general markets may certainly rally higher, but we feel that increasingly even if that is the case some sectors will diverge." More than just banking stocks have bucked the market trend.


We illustrate the point :


Dow Jones Industrial Average is up almost 9%





Financial Sector ETF, XLF, is flat.





Dow Jones U.S. Real Estate Index, IYR, which we are short via the SRS Ultra Short ETF, is flat.






Bank of Montreal, BMO, which we are short, is down roughly 7%.





Bank of America, BAC, in which we have no position, is down roughly 12%.





Citigroup, C, in which we have no position, is flat.





American Italian Pasta, AIPC, which we are short, is down roughly 20%.





Darden Restaurants, DRI, which we are short, is flat.





First Solar, FSLR, which we are short, is down 20%





Mantech, MANT, which we are short, is down 15%.





Verizon, VZ, which we are long, is down roughly 6%






Disgusting

Hit by huge loss, Fannie Mae seeks more federal aid. Mortgage giant expects further losses and continued need for help.





We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the stocks we do, or for mentioning any stocks or companies in this blog. If we hold existing positions we divulge the fact.

This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

To be notified when this blog is updated :
Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.