Good morning. Officially the February jobs number declined by 63,000. But the expansion of government jobs conceals the real damage our economy has suffered. Net out the government jobs and you have private sector employment contracting by around 101,000 jobs. Making matters even worse, average hourly wages have gone up 5 cents, fueling fears of price inflation. (The 5 cent number is actually quite typical for February and only looks high because employment fell so drastically.)

The Federal reserve announced that it would expand the Term Auction Facility, promising to keep running the auctions for six months. This is disappointing a lot of people who bought into the rumor of an emergency rate cut. And it may imply that the Fed, which took the action after it had already seen the horrible jobs numbers, feels that its hands are tied on interest rates by the threat of inflation.

Oh, and in other news Carlyle’s troubled fund was levered up 32 times, and its lenders are liquidating some of its securities. Ambac sold its shares last night at a 9% discount to the closing price.

The government is shutting down its online clearing house of U.S. economic data. EconomicIndicators.gov is maintained by the Economics and Statistics Administration of the Department of Commerce. It brings together data from various government agencies in one convenient place. Readers can see GDP and import-export figures, which are collected by the Bureau of Economic Analysis, and numbers for retail sales and durable goods shipments, collected by the Census Bureau.

Or, rather, they could. It seems that the government is shutting the site down “due to budgetary constraints.” This is being described by many as move to make it more difficult for the public to see just how bad the economy has become. “The Bush administration’s latest move is to simply hide the data,” Think Progress writes.

Barry Ritholtz says it reminds him of the government’s refusal to publish figures for M3, a measure of the money supply. Many suspect that this has allowed the government to inflate the money supply without informing the public. “This new development implies (by parallel comparison to M3) that the economy is actually far, far worse than previously believed,” Ritholtz writes.

Bush Administration Hides More Data, Shuts Down Website Tracking U.S. Economic Indicators [Think Progress]
WTF? Feds Shutting Down Economic Data Site [The Big Picture]

We’ve been wondering how long it would take for someone to link the surprising results of the Westminster Kennel Club Dog Show to the stock markets. MainStreet.com—the Parade Magazine of money sites—takes a stab but just comes up with an article about health insurance for dogs. Next!

Fortunately MarketBeat’s David Gaffen has discovered something far more interesting: The Westminster Kennel Club Dog Show Indicator.

Last night, at the 132nd annual dog show, Uno, a 15-inch beagle, took home the blue ribbon, the first time that breed has won the competition.

The beagle belongs to the hound group, which has only mustered three previous winners since the show’s inception. In two of three years, the Dow performed quite well, with one negative performance.

The average return in those years is 7.4%, as the average gained 20.3% in 1983, the last time a hound was victorious (an Afghan hound). In 1964, when the whippet claimed the top prize, the Dow gained 14.6%. Only in 1957, when another Afghan took home the ribbon, was the Dow weak, losing 12.8%.

For some reason, however, we like the Sports Illustrated indicator from yesterday far better.

Release the Hounds! [Market Beat]

The markets have been off to a rocky start this year but maybe the bulls can breath a sigh of relief now that the Sports Illustrated Swimsuit issue is on the newsstands with Marisa Miller on the cover. The folks over at Bespoke Investment have run the numbers and created a Sports Illustrated Swimsuit Issue Indicator. As it turns out, having an American on the cover is a bullish indicator.

“Over the last 30 years, an American has appeared on the cover of the annual Sports Illustrated Swimsuit Issue in 15 different years,” the Bespoken write. “The average performance of the S&P 500 during those 15 years is a gain of 13.9% with 13 positive years (87%). Of the fifteen years where no American appeared on the cover, the S&P 500 has averaged a gain of only 7.2% with 11 positive years (73%).”

The shorts should hope for Spanish speaking cover models. Issues featuring models from Argentina, Mexico and Spain all saw losses for the S&P 500 that year.

(Oh, and click image for a bigger version of the cover.)

2008 Sports Illustrated Swimsuit Issue: It’s Research! [Think Big via Eddy]

The latest consumer confidence numbers are raising fears that the unwashed masses of the what this once American republic—convinced, perhaps, that Heath Ledger’s death portends bad signs for our economic health—might not spend their allegedly economically stimulating government checks quickly enough or in the right ways. They may, it is feared, decide to save for a rainy day or reduce their own leverage for fears that an economic downturn would reduce their earnings. Quite clearly this would undermine the government’s plans.

Here are the facts: lately, American spending has not grown as fast as our spending power. Indeed, the evidence indicates that it is being converted to saving power, which means that the benefits of the stimulus package to the consumer sector of the economy—which, somehow, means the people who take money from the consumer in exchange for stuff—may be delayed. But this is only because our great and bright have not thought this problem through. The solution was under our Christmas trees this winter, and we only need eyes to see it.

We’re talking, of course, about gift cards. Instead of sending redistribution rebate checks to the people, the government should consider sending gift cards with short expiration dates. Ninety days might do the trick. (Money unspent could be applied to, well, most likely a new round of discount cards but it’s better not to reveal that ahead of time.) It would also save precious time that might otherwise be wasted depositing checks in the bank, where they might be tempted to deposit them in a savings account rather than a checking account.

Perhaps we underestimate our government. It could be that this is exactly what government plans to do anyway. Reducing interest rates should have the marginal effect of reducing savings rates, and increasing inflation will be a multiplier on this effect. At this point, the dollar itself should probably be looked at as a gift card that ought to be spent immediately to avoid its expiration date.

New dip in US consumer confidence [BBC]

Oil costs like a billion dollars a barrel now. And, according to a Bloomberg survey, 2/3 of the American public think we’re headed for a recession.

Of course, the “American public” is kind of dumb. As Barry Ritholtz says, they’ve predicted 9 out of the last four recessions. But just because you’re stupid doesn’t mean you’re wrong!

Americans Turn Negative on Economy, Expect Recession, Poll Says [Bloomberg]
2/3rds Americans Say Recession is Likely [The Big Picture]

A couple of times we’ve mentioned that many financial markets have been behaving as if August never happened. Well, in many ways it didn’t. The Fed reversed the August 7th decision on interest rates. The quant funds reversed polarity and returned to warp speed. The huge hedge fund redemptions weren’t. And now that negative jobs number has been taken back. Turns out we gained 89,000 instead of losing 4,000.

Well, you know what else isn’t happening? The October rate cut. The oddsmakers in the sport of Fedlinlogy—the folks who trade Fed fund futures—are now betting against a rate cut at the end of this month.

But don’t worry. The folks who think the Fed always needs to cut rates will find a way to ignore the new jobs numbers. They were government jobs, you see. Teachers and such. And those don’t count. These are also the folks who tell you there’s no inflation. Ever.

Update: In the comments section, a hard working reader thinks we’re reading the rate cut signals wrong! Make up your own mind.

We’ve seen some pretty crazed advertisements in phone booths. One was for a consultant who would help you learn to operate your Apple computer. Since Apple’s interface is about as user-intuitive as it gets—it just works—if you can’t operate it on your own, you probably can’t use the phone to call the consultant either.

Financial Armageddon columnist Michael Panzner, though, came across an even more memorable phone booth ad. Click here for a larger version. And click here for his reaction.

A Bell Rings in the Streets of New York [Financial Armageddon]

The Conference Board, with 90 years of trusted insights into generic nomenclature, released its monthly report today.

The U.S. leading index climbed in July, which suggests that economy is going to grow, but at a snail’s crawl. This is good news because crawling is better than stagnation or retreat, and you need to crawl before you learn to walk, and how many roads must an economy walk down, before you call the economy a bull? We’ll see if the August report stays in tune with suggesting slow economic growth.

The positive contributors to the leading index’s climb were trends in consumer expectations, vendor performance and initial claims for unemployment insurance which offset the negative contributions made by trends in housing permits, manufacturers’ new orders for non-defense capital goods and interest rate spreads.

Global Business Cycle Indicators [The Conference Board]

Much like the record bearishness of equity research analysts, the fact that investment newsletter editors are considerably more bearish than they have been in the last couple of years may be a sure sign that the market still has legs. Evidence, from the New York Times:

The Hulbert Financial Digest, which has been tracking the investment newsletter industry since 1980, has found that the stock market performs far better, on average, after periods when newsletters are very bearish than when they are quite bullish.

The theory is that market tops exist when the predominant sentiment amongst investors is bullish, due to the nature of investors to pass on current trends as “predictions.” Since the bears are circling, the top may be far off. Today, the average short term investor newsletter newsletter recommends equity exposure of just 30%, down from recommendations of 71% 8 months ago.

There have been fewer bear sightings in circles of economists, where the general outlook is upbeat. The few polar bears that are in the mix are adamant that the economy is due for a tumble, however. The Wall Street Journal highlights one of its most historically accurate economic forecasters (also one of the most historically inaccurate in off-years), James Smith of Parsec Financial Advisors. Smith contradicts the consensus inflation adjusted GDP growth estimate of 3% in Q2 of this year and between 2% - 3% for the remainder of the year, thinking that GDP growth will shrink to almost 0% before rebounding in Q4 to 5%.

Are the GDP growth predictions of economists in the ballpark when compared to actual GDP growth? The Wall Street Journal looks at economist consensus forecasts of annualized GDP growth and shows that economists were off most in the late bubble and after the crash (1998-2002). The chart also demonstrates that the consensus forecast is pretty much always between 2% - 4%, which makes sense, since a consensus estimate will temper the extreme optimists and pessimists. Basically economists are spitting out something close to the historical average GDP growth in aggregate, which isn’t necessarily a good predictor of anything, especially in the last 10 years.

The Crowd Is Restless, but Maybe That’s a Good Sign [New York Times]
In a Sea of Optimism, Why Some Forecasters Warn of Recession [Wall Street Journal]

Gary North, in the middle of a long column warning that the inverted yield curve is telling us a recession is on the way, touches on the Amaranth meltdown and the illusions of trading geniuses.

There is a temptation that faces investors who happen to buy into a market just before a major rise. They think, “I’m a genius. I can beat the market.”

The most recent example of this mentality is the 32-year-old hot-shot who made two billion dollars for hedge fund clients in the highly leveraged natural gas futures market. Then, in just two weeks, he lost six and a half billion dollars with his technique. Amaranth Partners, a hedge fund, suffered the consequences.

On October 1, Amaranth suspended redemptions by its clients. They are now locked in. Their capital is no longer accessible to them. Redemption is by grace – the grace of the directors. The directors giveth, and the directors taketh away.

The clients thought, “I’m a genius. I got into Amaranth Partners.” They are all ex-geniuses this month.

Genius is a rising market.

But go read the whole thing.

When the Yield Curve Flips… . [LewRockwell.com]

We’ve said it before and we don’t mind repeating ourselves. Barry Ritholtz takes down financial writers like it’s his job. This time he’s taking on an article from Sunday’s New York Times in which Ed Yardeni tells us to ignore the reported numbers on jobs growth because, well, uhm, because so many economists thought the numbers would be higher. And all those economists can’t be wrong, can they?

The Cognitive Bias of Ed Yardeni [The Big Picture]

The average retail price of a gram of cocaine in the US jumped 19% in 2005, rising to $103.7 from 87.3 the year before, according to a story which a source claims ran on Bloomberg yesterday.* Prices were far cheaper in most of Europe (except the Scandinavian countries), which makes us wonder whether the price jump has been caused by recent weakness of the dollar compared to the Euro. (Let’s call this the “Larry Kudlow Theory of Blast Prices.”) Another possibility is that increased US anti-terror measures are taking a toll on cross-border cocaine dealing (the “Dick Cheney Theory.”) Or maybe you folks are just powedering your noses too much and the increased consumption has sent prices skyrocketing (the “Al Gore Theory.”)

The cheapest place to score? Belgium. Not coincidentally the headquarters of the European Union.

[*Note: we didn’t actually see the story, so we can’t link to it or even say for sure that it ever really ran.]

Update from reader “m”: check out www.unodc.org for the data.
or google “UN World Drug Report”. The data complied here is quite interesting, they should include it in commodities trading markets!

Are we headed into stagflation? While most of the business media seem skeptical to apathetic about the question, the term is certainly haunting the minds of people using Google search.

Take a look at the Google Trends charts for stagflation after the jump.

The Big Picture blogger Barry Ritholtz has been engaging Cody Willard on todays unexpected low employment numbers. Willard says that Ritholtz’s argument that the last couple of years have been a jobless recovery is wrong. But those are the details. It’s Rithholtz’s response that caught our attention.

Hey Cody, please cite me some data revealing this to be an above-average private sector jobs creation recovery. Hell, I’ll take average.

You won’t, because you cannot.

Cody is engaging in several analytical foibles, but the best way to describe it is “ignore reality.”

As we say around DealBreaker HQ: “Kapow!”

NFP stinks — and Some People Still Don’t Get It [The Big Picture]

Last week General Motors, in an effort to staunch its financial bleeding, offered buyout packages to over 100,000 of its hourly workers. Today’s Times brings the revelation that, under GM’s Jobs Bank, many of these men are quite often paid full salary and benefits to sit around watching television, chatting, and playing dominoes.

This is indeed good work if you can get it, and as such, most workers don’t have to think very hard about declining any offers to cash-out.

“Why would I walk out the door with $2,000 less per month and have to go find a job when I can sit in the bank, get my 30 years and retire?” asked Mr. Pruitt, who at 53 has 27 years’ seniority and qualifies for a buyout that would pay him roughly half his hourly wage for three years if he leaves the company now. “It’s really to my advantage to ride the bank out as long as it goes.”

Ride that bank!

G.M.’s Jobs Bank Looms as Major Obstacle on Road to Survival [NYT]

“Spirit, take me back! take me back to 1982, when being a millionaire actually meant something…”

New Rise in Number of Millionaire Families [NYT]

New Home Sales Plummet in February [AP]

Chinese peasants were up in arms, billions of them, in fact, when earlier this month a nefarious noodle cartel hiked the price of their staple food by four cents, a material increase for these people, who live on about sixty dollars a month.

Today’s New York Times reports that things are now getting worse for the peasants still: in an effort to control runaway consumption of raw materials, the government will impose a 5% tax on wooden chopsticks.

It is important to watch China’s interior, rural population for a number of reasons.

First, they are nearly all masters of various martial artforms, and known to carry numchucks and bowstaffs beneath their robes for the purpose of launching into beautifully choreographed group combat, often for no clear reason.

Further, there is the fact that many of them also possess magical powers, and can run atop trees or up walls when properly incented, or directed by Ang Lee.

It is also true that they can all do calculus, quickly and accurately, inside of their heads.

But perhaps more important than any of these things, the peasants remain the great variable in China’s boundless expansion, and the extent to which the Chinese Government manages to bring them along into this new prosperity will to a great extent determine how far the prosperity goes.

Had but a few million of these numchuck wielding, gravity-defying, math-wizards been on hand at Tienanmen Square, things might have gone very differently indeed…

China Raises Taxes to Curb Use of Energy and Timber [NYT]

Delphi, General Motors and the United Auto Workers have reached a deal to offer early retirement packages to 113,000 hourly laborers.

Workers taking packages will receive anywhere from $35,000 to $140,000, depending upon their years on the line.

The first ten thousand workers to accept this package will also receive a lifetime supply of Wonder Bread and free admission to this summer’s Ringling Brothers & Barnum and Bailey Circus of Amazing Animals and Fabulous Family Fun.

Delphi, GM, UAW Reach Agreement to Offer Buyouts to 113,000 Hourly Workers [Yahoo]