Monday November 6, 2006 - 13:18:19 GMT
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Black Swan Capital - www.blackswantrading.com
A real head shaker
â€˘ Key Reports (WSJ):
There are no economic indicators scheduled today.
â€śWhat if everything is an illusion and nothing exists? In that case, I definitely overpaid for my carpet.â€ť
â€śGrowth in European service industries from banking to telecommunications, the biggest part of the economy, unexpectedly slowed in October, a sign the region's expansion has peaked.â€ť
â€śRoyal Bank of Scotland Group Plc said today its services index fell to 56.5 in October, the fourth straight decline, from 56.7 in September. Economists expected an increase to 57, the median of 33 estimates in a Bloomberg News survey showed. A level above 50 indicates growth,â€ť Bloomberg News reported this morning.
Yikes! A sign the regionâ€™s expansion has peaked? Hmmmâ€¦ Isnâ€™t it a bit early to make that call? Europeâ€™s bond market isnâ€™t reacting much to that newsâ€¦
euro bund chart
â€¦nor are the currency traders, as the euro is off just slightly against the dollar this morning. If this does mark the end of the expansion in the Euro-zone, as Bloomberg suggests, why so muted the reaction?
a) Itâ€™s just another report that doesnâ€™t square with reality on the ground
b) Instead of trading, bond and currency traders are too busy getting chiropractic neck and back adjustments caused by shaking their heads violently in disbelief of Fridayâ€™s non-farm payroll revisions
c) All of the above
d) None of the above
Weâ€™re going with b) chiropractic neck and back adjustments
We were watching CNBC for the release of non-farm payroll Friday morning. We donâ€™t usually watch TV, but we do during the reporting of the major economic releases. We thought the hosts on CNBC made a lot of sense, and we agree, with their reaction to Fridayâ€™s weirdly revised payroll data: â€śIs this anyway to run the worldâ€™s most efficient capital markets?â€ť CNBC commentators pondered out loud.
One of the commentators said that if private companies were so careless with their data, the CEO would probably be in jail by nowâ€”Bingo!
So, last week, until Friday, it looked like the scales were falling from our eyesâ€”the US economy was slowing rapidly and it was time to buy bonds and sell the buck. Friday changed the game; or did it?
This is from the Lex columnist for the Financial Times, penned in the weekend edition:
â€śAccording to Fridayâ€™s jobs data, September saw gains of almost three times the rate originally reported. Together with further upward revisions for August, that more than made up for Octoberâ€™s sluggish increases â€“ bound to be revised before too long. Tempting as it is to dismiss such volatile estimates, this time round the payroll figures paint a picture broadly consistent with other trends â€“ and a gloomy one at that.
â€śFor one thing, the fall in the unemployment rate to just 4.4 per cent is a lot less impressive than it seems, given that a so much smaller proportion of Americans is actually participating in the labour force than during the late 1990s. But the payroll figures also suggest that it took a lot more workers to produce disappointingly small output increases. As a result, the slowdown in US productivity growth may be even worse than thought after Thursdayâ€™s release.â€ť
Well, maybe! But that doesnâ€™t seem the reaction so far this morning. Maybe the idea of â€śproductivityâ€ť is a bit esoteric or nebulous for most of us non-economist types to trade on.
Weâ€™re not quite sure where we are. Every time we start to get comfortable, we read conflicting economic analysis that makes sense. We surmise we are in the midst of a US mid-cycle slowdown, at best, or on the way to a major deceleration or recession at worst.
There is one thing we do know for sure, the idea of linking the words â€śeconomicsâ€ť and â€śscienceâ€ť together in any sentence is a real head shaker.
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