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I can't stand it anymore! The happiness, the smugness, the massive misinformation campaign. They look into the camera and they lie to you. After the -0.1% GDP report, I heard some pundit on TV talk out of both sides of his mouth about how the report suggests a 3% GDP growth. Didn't the GDP just contract by -0.1%? What 3%? The media is pulling a big wool blanket over everybody's eyes. The sell side pundits do it because they have some stock to sell you, the economists because they missed this projection so badly and the government because they always want to look good. And somehow the markets joined the media chorus by celebrating the "positive" January jobs report and pushed the Dow above 14,000. Positive jobs report? Seriously?

The Real Jobs Report

The positive number in question is the adjusted non-farm payrolls change of +157,000. I am not going to go into whether 157K is big enough to keep up with population growth once you realize that there are 330K babies born every month. I want to focus on the fact that the adjusted payrolls number is calculated via a complicated formula, is subject to a lot statistical manipulation and should be taken with a big grain of salt; especially in the month of January, traditionally the weakest actual jobs month of the year. John Crudele from the NY Post is an expert on this subject.

Let's zero in on the unadjusted jobs report. This the one report that everybody in the media conveniently ignores, because, well, it actually reports real economic numbers and not some fantasy derived via a complicated mathematical formula that nobody understands.

But here it is. Here is the real jobs report in its naked truth:

Source: macrochart.com

The Employment Level is the total number of jobs in the U.S. held by people 16 years and over. This number, once reported, never changes (because it is not subject to seasonal formulas). The Unadjusted Payrolls is simply the change in the employment level from month to month. Here is the raw data series from the BLS if you want to inspect it:

(click to enlarge)

The economy lost nearly 1.5 million jobs in January, nearly 500K in December, and nearly 500K in November for a total of 2.4 million. 2.4 million people are out of work since October. There were 144 million people employed in October. There are only 141.6 employed now in January. The last time there were that many few employed was March of 2012. Almost a year ago!

Somebody might say, "Well that is just seasonality - Christmas is over, hello!" Yes, I do expect some negative numbers, but not for 3 months in a row and not at the rate of 2.5 million. Let's look at the November, December, and January unadjusted payrolls since 2004 (the worst 3 years are in red):

The 2012 three month total is second worst trailing only 2008, which was in the middle of the financial crisis. Only 2005 posted three straight negative losses. I think some of the pundits are encouraged by the relatively small January drop, but that was preceded by above average drops in November and December.

January Economic Indicators are Worse Than Last Year

Employment is a lagging indicator. It showed you what happened. We know the economy added 1.7 million jobs in 2012. The question is what does 2013 hold for us? Let's look at some of the other economic data that has been released to date for January (some of it leading, most of it coincident indicators):

Every reading is down from a year ago the same time, except for employment, housing (where we know prices are finally recovering because all the foreclosures have been foreclosed on) and autos (because people are tired of driving Hondas from the 90s). Manufacturing is down from where it was in every region of the country, consumer sentiment is down due to the tax hikes and we have government cuts looming on the horizon. Actually, the defense cuts have already started. Ask anybody who lives in Washington, D.C. Every category of the GDP - the C, the I and the G - Consumption, Investment and Government spending is contracting. No wonder Q4 GDP came in negative. Wait until Q1 GDP comes in without a Christmas holiday to support consumer spending. Q1 is traditionally the weakest quarter of the year:

On average, since 2006 the Q1 GDP is 1.4% lower than Q4 GDP of the prior year. If you take out the 2008 misnomer that was coming off a horrific -8.9% reading, the average is -2.4%. So we're probably looking at a -2.5% GDP reading in Q1. How are they going to spin it then? -2% GDP growth is actually 3% GDP growth? I can't wait to hear.

Yes, The Recession Is Here

We're in recession. I don't see how the economy can generate the same or bigger amount of jobs as in 2012. I can't believe that the Dow Jones (DIA) and the S&P 500 (SPY) are nearing an all-time high when the employment level is down by over 5 million jobs from the 147.3 million recorded in July of 2007 and the economy is contracting in the face of tax hikes and sequestration. The markets are becoming completely disconnected from the economic data. In addition, bullish investor sentiment, a high number of overbought stocks and high levels of margin debt indicators are pointing to a technical market top. I am 80% in cash right now and I have 20% in longs. On Monday, I plan to put 10% into a the ProShares Short S&P500 ETF (SH) to hedge the longs, see how it behaves for a couple of weeks and then potentially increase the short position via the 2x leveraged ProShares UltraShort S&P500 ETF (SDS). I've seen this disconnect too many times before to believe that this time will actually be different. It's time to get shorty!

Source: The Recession Is Here Already