Friday Already? Non-Farm Payroll Disaster Knocks the Markets Lower

I love the shorter work-week.  

This is a great time to point out to your boss that you got just as much done this week as you do in a 5-day week so let's start a campaign to shorten the workweeks.  We certainly need shorter workweeks as we're no longer creating jobs (just 38,0000) in May - even though unemployment is LOWER, at 4.7% because people are quitting the workforce.

So say goodbye to 2,100 on the S&P and this is a good time to say "I told you so" as my headlines for the morning posts in this short week have been:

As I mentioned on Wednesday morning, we are already in a bearish stance in our portfolios and very much in CASH!!! and we are short the /ES Futures at 2,100 as well as long the S&P ultra-short ETF (SDS) which closed yesterday at $17.91.  It didn't have to be the NFP Report but SOMETHING was going to take the markets down as the rally was totally fake - on ridiculously low volume since last week.  The low-volume window-dressing began at 2,050 on the S&P, so that's our short-term target (-2.5%) and we'll see what kind of support we have down there.  

Meanwhile, the Futures are far worse than they look (down 0.25% at the moment) because the Dollar plunged 1% on the release of the Payroll Report (less workers need less Dollars to pay them) and we're back down at 94.50 but we should bounce around there and that bounce will make it worse for the indexes as the Dollar recovers.  It will also jam down commodities and less workers need less oil so Oil Futures (/CL) short at $49 are going to be a fun play this morning.  So much for the Fed tightening in June - no way that will happen now (not that it was going to).  

The worst thing about this situation, with low unemployment and low job creation - is that it's a clear indication of a stagnating (at best) economy.  We are not creating new jobs but, for those companies that do need skilled workers - there's not many people left to choose from.  This is the time a country might want to open their boarders and attract people who want to immigate to the US to rebuild our consumer base and infuse us with new talent - rather than building a giant wall to keep things declining within.  

As an investor, you need to be concerned because the smaller workforce will be demanding higher wages (VZ workers just got their 10% raises after a prolonged strike that knocked 34,000 jobs off the total employment figure - and will rebound sharply next month) while the lack of growth means those companies will not have more money to pay them with so - margins will be squeezed in Q2.  The decline already started in April as that's been revised down from 171,000 to 130,000 as well, which is funny as we rallied from 2,050 to 2,085 on that news last month - and it turned out to be FAKE!!!  

Speaking of fake - it's Friday so we can expect "THEM" to be able to hold up the markets on low-volume but this creates great uncertainty into next week and OPEC already failed to do anything to curtail the global glut in oil.  This article has cool maps showing where all the supertankers are parked around the World, storing stealth supplies of oil, and this image is a close-up of Singapore, where the Chinese refineries simply can't store anymore oil and demand isn't making room fast enough so we have more and more congestion as tankers are added to the floating storage almost daily.  

This is why OPEC is powerless - if prices go up, there are weeks of supply already sitting on the water that will be called to port - so there will be LESS demand for OPEC's oil and they'll take a 15 to 30-day hit that their Governments simply can't afford.  So they keep pumping and pumping and hoping for demand to rebound but unless those 162,000 people that dropped out of the work-force all bought Hummers and are driving cross-country - we can expect oil to revisit $45 this month but THEN we'll be bullish into the July holiday.  

Have a great weekend, 

- Phil