Friday, February 6, 2015

Did you buy that suit off the rack?

There were 257,000 new jobs in January, and that's pretty good. But the more significant news is that November's number has been revised upward again to 423,000 new jobs. December was revised upward to 329,000. This is 147,000 previously unreported new jobs. You can expect January to be similarly revised when complete data becomes available from employers. That's a cool million new jobs in three months.

The Household Survey showed a 0.1% increase in the unemployment rate because another million people have rejoined the workforce. The news speak expression is "people have more confidence in the economy" or in English, 'people are hearing from those working that the boss is looking for new hires'. The Workforce Participation Rate that Conservatives always cite to 'prove' that Obama isn't creating any actual new jobs ticked down slightly even though Baby Boomers are continuing to retire.

Greece has proposed a perfectly reasonable compromise to lower their debt obligations to foreign bondholders. Germany continues to make not so vague threats that Greece had better not default. The European Central Bank that prints the euros has cut individual Greek Banks off from loans, but not Greece's Central Bank. This is more a message to Germany than Greece. The Greeks know that they'll need to start printing their own money if cut off from euro borrowing. It's up to Germany if they want to risk a flight from the euro by the nations owing Germany's trade surplus as debt.

Remember Collateralized Debt Obligations (CDO) that collapsed the entire banking system, halved real estate prices, crashed the stock market and caused uncertainty about the day to day continuation of civilization? They're backkkk, but are now called 'bespoke tranche opportunities'. In case you're not up on obsolete english words, 'bespoke' is having your suits custom made instead of buying off the rack. Of course there's nothing custom about the new CDOs, dealers just have a rack of them with pretentious names on the labels.

Goldman Sachs is again cranking out these moth eaten rag suits big time. They don't expect to sell all the tranches (a slice of debt rated at a certain risk level) from any particular bundle of debt, the big money is in hedging against them. In other words they're selling bets and bets on bets and on and on. Last time around the stockpile of derivatives or bets reached a thousand trillion dollars before the banks couldn't handle the volume of defaults.  You wouldn't think anybody would be stupid enough to buy them, but people managing other people's money like the returns this nonsense creates on paper. So we'll see how long it takes to collapse this time around.

Twitter @BruceEnberg - all my tweets are bespoke.