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Stephen Aniston
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Mr. Aniston utilizes a discretionary market timing strategy based on trend following, reversion to mean, technical and volatility analysis and macroeconomic research.
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  • 4 Million Jobs - The Untold Story Of The Obama Reelection

    Boy, did Jack Welch get it wrong. Straight from the Bureau of Labor Statistics without adjustments:

    4 MILLION JOBS!

    This how many people found jobs in 2012 from January to October. There are 314 million people in the US:

    53 million are retirees

    63 million are children

    140 million are employed

    That leaves about 58 million who are capable of work but are not working. 4 million represents an approximately 7% decrease in the population of unemployed Americans. This is a large decrease. The 4 million number is also roughly in line with the 5.5 million margin of victory by Obama in the 2012 Presidential Election. I am not saying that all of those that found jobs in 2012 voted for Obama, but the dramatic improvement in the jobs picture (4 million is more than the entire population of Connecticut) punctured a big hole right in the middle of the main Republican campaign argument - that the economy is in the doldrums and that the recovery is jobless. People felt intuitively that the Republicans were scaremongering and misrepresenting the true state of the economy and I guess they turned a blind eye to their message.

    But wait, how did I get 4 million jobs? The monthly Nonfarm payrolls from January to October don't add up to 4 million. Look at the chart below:

    If you total all these numbers, you get only 1.45 million. Well short of 4 million. If only 1.45 million found jobs, may be the Republicans were making the correct argument all along, right? Wrong!

    The monthly Nonfarm payrolls are a seasonally adjusted number where the Bureau of Labor Statistics uses a complicated formula to smooth out the seasonality of the actual job numbers. And the seasonality tends to be pretty extreme. December routinely sees layoffs in the millions because as the shopping season comes to an end, retailers, warehouse companies, shipping companies, etc layoff en masse the temporary help they hired in September and October. Conversely, hiring in September and October is usually very strong and could reach the millions as well. As a result, the actual unadjusted payrolls swing wildly from month to month and that renders them unfit for publication. They never get reported in the press.

    As an investor, however, I like to look at the Unadjusted Payrolls and the total Employment Level because they give me a better clue into the true state of the economy especially when taken over a period of 6 months or more. Look at this:

    Wow, take that Jack! The BLS can't adjust these numbers. There is no formula applied to them. They are what they are. And the numbers don't lie. The US went from 140 million total employed to 144 million. There is a clear and strong positive trend of job creation. So the Republicans didn't look at the unadjusted employment levels, didn't listen to Nate Silver's poll analysis and lost miserably. That's what happens when your agenda is formed by people like Jack Welch who don't know which number is noise and which one is a signal.

    The Trouble Ahead

    The previous chart looks fantastic and very bullish, usual summer snooze notwithstanding, until you get to that last bar there. The November number. We are in contraction mode?!? The economy lost jobs and not an insignificant amount. Let's look at that same statistic through a different prism - the month-to-month difference between the Employment Level numbers - the Unadjusted Payrolls:

    The economy lost 490K jobs in November!?! I don't expect November to post a big number in either direction - in November there is little seasonal hiring or firing. This is right in the middle of the shopping season and generally the November number should hover somewhere around zero. Last year, in 2011, we were at +83K. But apparently, this year businesses are now worried about the Fiscal Cliff and are getting ahead of the game and proactively firing people? Or they stocked up too much, are not seeing the retail demand and are letting go of people to right-size to demand? The latter one is actually the more troubling scenario. Is that a precursor of things to come?

    I went digging a little deeper into the Bureau of Labor Statistics data this weekend and also pulled some Dow Jones Industrial Average (NYSEARCA:DIA) closing prices. Here is what I found:

    This is the 3rd largest loss of jobs in November in the last 10 years. The other 2 times that were bigger - 2008 and 2002 were both followed by pretty sharp drops in the market in the first 3 months of the following year. The actual draw downs are actually worse than depicted in the table above. In 2009 the maximum drawdown between January and March was 25% and in 2003 it was 12%.

    For the 5 years when November experienced Unadjusted Payrolls loss, the average performance of the market in Q1 is -2.8% with a standard deviation of 8.6%. So in 2013 we are looking at a high likelihood of returns in the -11.4% to 5.8% range. Given that the market is near a 5 year high, I think there is a higher likelihood that we get a market drop than a roar-ripping rally. Also current investor sentiment seems to be bullish because the most recent memory investors have of this time period is 2010 and 2011, when the market posted returns of 6% and 7% respectively. A third big gain in a row in Q1 would be a statistical anomally so I recommend selling into the Christmas Rally and if January starts off with a decline in the first week, then outright short the DIA.

    When Santa is gone once and for all, Bears may come to Broad and Wall!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Dec 13 4:09 PM | Link | 1 Comment
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