That was an ugly jobs report. I anticipated bad news, but I thought the employment hit would really start in earnest in next month’s report, as there is some lag in employment numbers but seeing this level of degradation in the employment picture shows us that “the bad” is coming sooner. Not only was this month’s number bad but downward revisions in previous month’s numbers as well.

This scenario was outlined in Et tu, September?

• -Construction jobs – they are going to be accelerating into an abyss. Granted, some portion is illegal workers who were never on payrolls (official ones, that is) in the first place. But this is a trailing indicator. Who needs more homes when inventory is >9 months, on the way to ? 12?
• -Mortgage jobs – huge cutbacks already announced and will be filtering through the future unemployment reports
• -Financial jobs – we should start seeing lay off notices soon enough (next week?) I already read that across the pond there are cuts in credit departments already hitting. If we go back to pre 2004 levels of ‘credit’ (revert to the mean?) what does that mean?

We were told this issue was contained… right? No spillover? Yeh, right. Even government jobs saw a reduction (that one even surprised me)

Well now the last pillar to the strong economy (employment) is starting to see the fallout; and without confidence you really can see some bad things happening. Those who worry about their jobs, or see peers lose them –> that’s the quickest way to lose confidence.

All those hoping for weak numbers so Big Ben can save the economy with a 25 basis points cut, you get your wish. It was silly to think that this will someone ’save’ us before this data comes out, and now looks even more silly. Now the conversation will turn to 50 basis points cuts and that sort of talk. The bottom line is, the cuts will only ameliorate the situation – a downturn is a downturn; this is more systematic of an issue – overinflated spending due to overinflated assets. Now when we revert to the ‘mean’, it will look like a downturn vs where we came from. Even though we should of never been at levels we were previously since those spending levels and asset levels were ‘goosed’ by cheap tricks.

The equity market seems to not be pricing any of this. Lower confidence, less jobs = less spending. Less spending = less profits for companies levered to the US economy. It’s a chain reaction. As my earlier piece stated, earnings are going to need to come down. I see September a month full of earnings warnings, and October a month full of guidance reductions. Anyone who does not have a large hand in either secular growth markets and/or levered strongly to foreign economies has an issue – their future earnings are overstated. By the way Bear Stearns (BSC) and Lehman Brothers (LEH) are set to announce in the next 10 days. Should be some eye opening experiences.

If the market rallies or falls today is not really the issue – we have bigger fish to fry. The equity market has seemed to be ‘wrong’ for much of the past few weeks, so a continued flight to the “Fed will make everything” story, if it occurs in next few weeks, is still misguided… at least from this perch.

Last 5 posts by Trader Mark

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