Fickle Friday: Jobs Report

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 |  Includes: FCX, QQQ
by: Philip Davis

Gallup

As I begin this, I don’t know what the Jobs will be but I’m betting on disappointment.[See update below.]

I had said to Members yesterday that I liked the Jan QQQQ $56 puts at .77 and the Weekly (next week, not today) QQQQ $56 puts at .53 as good ways to play a jobs miss. My comment in Member Chat was that I felt the ADP figures pushed expectations up significantly higher and now we would be much more likely to disappoint with almost any number short of 250,000 jobs added.

The key is the seasonal adjustments, but there were already some very disturbing jobs numbers in the Gallup Poll, which came out last night and showed unemployment RISING from 9.3 to 9.6% in December and, even worse, the number of Underemployed workers shot up from 18.5 to 19%, just 0.5% lower than we were in January of last year.

Gallup's Job Creation index showed no improvement in December but it is holding +10, which is the best net level we’ve had since October of 2008. So we have ADP going one way, yesterday’s unemployment numbers were flat and Gallup says things are getting worse. 8:30 will be very interesting indeed.

While we wait for the number, let’s take a look at last week’s post to see how things are tracking. Monday morning I mentioned we liked Freeport McMoRan (NYSE:FCX) short at $120 (a trade that was reiterated Tuesday morning) as we felt the run in copper was overdone. It was a rough week but FCX is down at $116 now so we’re on track at the moment of course we took a spread in chat, which was the Feb $119/110 bear put spread at $3.60, selling the Jan $120 calls for $3.60. That spread is now $4.60 and the calls have dropped to $2.30 for a nice net $2.30 gain already.

I said that $90 was already ridiculous for oil and we shouldn’t go any higher. We picked up the USO Feb $40 puts on Tuesday morning in Member Chat at $2.10 and those are now $3.70 so a nice $1.60 gain there, which is about the same as if we had just shorted the stock as it dropped from $39 that morning to $37.68 now. That’s where puts are very useful, you don’t have to commit as much as a short on the stock, you limit your losses and have a much lower margin requirement. When the VIX is low, we don’t mind paying the premiums as much as we usually do.

Also in Tuesday morning’s FREE post (you can get them delivered to you [in progress] at 8:30 am with a Report Subscription) I mentioned the QQQQ Weekly $53 calls at $1.38 that was our upside hedge – those are now $2.93 but we flipped back negative on the Qs, as I mentioned above). I mentioned our FAS and DBC inflation hedges as well as Saks (NYSE:SKS) at $10.92 in a spread and they are already up to $11.47 despite a generally weak set of reports from Retailers yesterday. While I liked my top 1% play on SKS, I was dubious on overall retail numbers, saying:

I still fail to see where the money is coming from. I mentioned to Members yesterday that perhaps the deleveraged consumers are simply re-leveraging for the holidays and we’ll be right back to tightness in January as people are stunned by their MasterCard bills – especially if it’s combined with rising grocery prices and $50 tanks of gas again.

I closed that post calling TBT a buy at $37.50 and they really took off on Wednesday, hitting $39.30 yesterday and settling at $39, which has been the top of our range but, as I said Tuesday, this time we’re looking for $40.

Wednesday I explained why I don’t like GM (NYSE:GM) but we’re scared to short it this early in the cycle. We talked about China, inflation and trickle-down economics and I suggested a complex trade selling Apple (NASDAQ:AAPL) 2013 $175 puts for $8 and buying 2 SPY 2012 $125./135 bull call spreads for $4.80 which was a net cost of $1.60 on the 2 $10 spreads. AAPL and SPY had a nice couple of days already and the $175 puts dropped to $7 and the 2 SPY $125/135 spreads are now $5.10 each ($10.20), which is a nice net $3.20, up 100% in just 2 days. See, these are nice trades to help you keep ahead of inflation!

Yesterday I picked Corning (NYSE:GLW) at $18.98 and Cisco (NASDAQ:CSCO) at $20.77 as two examples of stocks we do like to buy (as opposed to the junk Cramer tries to push on you), and if you look at the way GLW took off from the open, you’ll see why we don’t make a lot of public picks. This is not Mad Money – I don’t want people stampeding in and out of stocks when I mention them! While GLW held their gains, CSCO did not, which is to be expected when you stampede into a widely-held stock and run it up – try not to do that, please. I reminded readers of the same FAS and DBC plays we discussed Tuesday and what a difference just 2 days makes on those as we’re already cashing them out! Don’t worry, as I always say to Members – I’m sure we’ll find something to trade next week….

8:30 Update: OK, that was a great time-killer. Jobs were, as I expected, disappointing with just 103,000 jobs created in December, 57,000 less than the official estimate and way worse than the jacked-up whisper numbers from the ADP report. Ironically, now the number is so bad it’s "good" as the dollar is pulling back on expectations that this green-lights The Bernank to drop even more money on the IBanks. 20,000 government jobs were lost on the State and Local level and that’s a trend we’ll be seeing all year as Municipal budgets get downsized.

The MSM is spinning off the headline 9.4% unemployment number as millions of workers have been "adjusted" off the workforce. How much BS is this? Are you sure you want to know? Looking at Table B – In Dec 2009, there was a "Civilian noninstitutional population" of 236,924,000. Of these non-prisoners (and being in our educational system apparently counts the same as being in prison), 153,172,000 were considered the "Civilian Labor Force" while the other 83,752,000 adult citizens apparently just don’t want jobs. Of the people who do want jobs, 15,212,00 were considered to be unemployed and 15.2/153.2 = 9.9% Unemployed last December.

In December 2010, we added almost 2M new citizens so the "Civilian noninstitutional population" grew to 238,889,000. Amazingly, ONLY 520,000 of these 2M new "Civilians" apparently wanted to work and the "Civilian Labor Force" only grew to 153,690,000. That little bit of very fuzzy math allows the government to subtract the 139,206,000 people who have jobs (part-time, minimum wage counts!) and come up with "just" 14,485,000 Unemployed workers. Isn’t math fun??? That brings the total number of Unemployed people down to just 9.4% vs the 11.4% figure we should have had if the Government had actually admitted that the 1,445,000 people they dropped from the statistics existed.

Are you shocked? Outraged? Nah… As Orwell said in 1984:

Day by day and almost minute by minute the past was brought up to date. In this way every prediction made by the Party could be shown by documentary evidence to have been correct; nor was any item of news, or any expression of opinion, which conflicted with the needs of the moment, ever allowed to remain on record. All history was a palimpsest, scraped clean and reinscribed exactly as often as was necessary.

We can look forward to even more BS as Bernanke testifies before Congress this morning. Expect him to say he expects to keep handing out money for most of the coming decade, which XLF should like ($16.40) but we’re not the only ones who can read an unemployment report and sift out the BS so expect a sell-off into the close.

Have a nice weekend, proles!

- Phil