Mish's Global Economic Trend Analysis

Crude Heads for Biggest Weekly Drop Ever; Silver Biggest Weekly Drop Since 1980
Kidnapping, Torture, and Reflections on Alleged "American Values"
BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful
Oil Consumption Demand Destruction vs. Speculative Futures Positions

Crude Heads for Biggest Weekly Drop Ever; Silver Biggest Weekly Drop Since 1980

Posted: 06 May 2011 01:51 PM PDT

A number of commodities remain under pressure with corn, crude, and silver lower. Gold bucked the trend, up $10, as oil and silver suffered record drops.

Reuters reports Oil heads for biggest weekly loss on record

Oil erased early gains and turned negative in late afternoon trade as the dollar rose, extending Thursday's shock-inducing collapse, when Brent fell as much as $12, a record, in a furious, high-volume session that saw waves of selling as key technical levels were broken.

Selling pressure on oil and other commodities came on several fronts this week, with investors weighing factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on the economies of consumer nations to monetary policy in major economies.

Brent crude fell $1.37 to $109.43 a barrel by 2:56 p.m. EDT in heavy trade, with volumes twice the 30-day moving average. The contract was down $16.25 a barrel for the week, on track for its largest weekly decline ever.

U.S. crude futures settled down $2.62 at $97.18 a barrel, after trading at $102.38 following the release of supportive U.S. jobs data. U.S. crude ended down $16.75 for the week, the biggest weekly drop since the contract began trading in 1983.

West Texas Intermediate Daily Chart

click on any chart for sharper image

West Texas Intermediate Weekly Chart

Brent Daily Chart

Brent Weekly Chart

Margin Hikes on Crude Denied

Today there were rumors of margin hikes on crude futures but those rumors have been denied. We'll see.

Technically both Brent and West Texas crude have solid bands of support $70-$82. Fundamentally, there is every reason to believe prices will see that level again.

For a discussion, please see Oil Consumption Demand Destruction vs. Speculative Futures Positions.

Those talking $200 crude can go back into hibernation for a while.

Silver has biggest weekly drop since 1980

MarketWatch reports Silver has biggest weekly drop since 1980

The thinly traded front-month silver contract had its worst week since late March, 1980. Silver for May delivery /quotes/comstock/21e!f1:si\k11 SIK11 -3.22% dropped 27% in the five-day period, its largest percent drop since that date. The most-active July contract /quotes/comstock/21e!f1:si\n11 SIN11 -2.55% also dropped 27% on the week. Repeat margin increases spurred a stampede out of the metal. July silver fell 2.6% to settle at $35.29 per ounce on Friday. The May contract ended at $35.28 an ounce. The week's losses have shaved silver yearly gains to 14%.

Silver Daily Chart

Silver Weekly Chart

Folly of Buy-the-Dip Mentality on Parabolic Spikes

Once again we have seen the folly buy-the-dip of corrections off parabolic spikes.

Technically there is a small bit of support for silver at the $30 level on the daily chart. From a weekly perspective silver looks vulnerable to give back the entire parabolic rise from the low $20's.

History suggests the entire move up in parabolic spikes will retrace. Then again, with currency debasement by all central banks it is hard to know just what to expect.

Finally, I would like to point out this is a seasonally unfavorable period for precious metals. Historically speaking August to January is a good time to own precious metals with other times more spotty. Another round of QE can easily change this in a flash.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Kidnapping, Torture, and Reflections on Alleged "American Values"

Posted: 06 May 2011 10:57 AM PDT

I do not agree with using torture, nor do I believe the end justifies the means. The problem with both is that others can act the same way.

If the US can torture to extract vital information, then why can't Iran and every other country on the planet?

It is pure hypocrisy to think that the US has a monopoly on "justified torture". Indeed, there is no such thing as "justified torture".

This has been my position forever. I bring it up because of a post Barry Ritholtz made yesterday stipulating "Torture didn't provide useful, meaningful, trustworthy information"

"Torture [at the Guantanamo Bay detention camp] didn't provide useful, meaningful, trustworthy information. Everyone [at the CIA] was deeply concerned and most felt it was un-American and did not work." - Glenn L. Carle, a retired C.I.A. officer who oversaw the interrogation of a high-level detainee in 2002

"The bottom line is this: If we had some kind of smoking-gun intelligence from waterboarding in 2003, we would have taken out Osama bin Laden in 2003. It took years of collection and analysis from many different sources to develop the case that enabled us to identify this compound, and reach a judgment that Bin Laden was likely to be living there." - Tommy Vietor, spokesman for the National Security Council.

Khalid Shaikh Mohammed was waterboarded 183 times — repeatedly misled interrogators about the courier's identity. ...

Barry Ritholtz went on to say "Thinking that torture is wrong is not a liberal or conservative value — it is an American value."

I sure wish Barry was correct. Sadly he is not, at least right now. Both president Bush and president Obama have condoned torture.

Moreover, President Obama had a campaign pledge to shut Guantanamo Bay. Sadly, I report Guantanamo Bay is still in operation. On March 8, 2011, the Irish Times noted Guantánamo trials freeze lifted

Hina Shamsi, director of the American Civil Liberties Union's National Security Project, said the best way to get out of "the Guantanamo morass" would be to use the US courts.

"Instead, the Obama administration has chosen to institutionalise unlawful, indefinite detentions and to revive illegitimate military commissions, which will do nothing to remove the stain on America's reputation that Guantánamo represents," she told Reuters.

There are still 172 detainees at Guantánamo. About three dozen were set for prosecution in either US criminal courts or military commissions. There were 242 detainees when Mr Obama took office. Many have been held there for more than nine years.

"The president's ongoing commitment to close the prison at Guantánamo Bay holds," a senior administration official said.

How many lies can we take from Obama before we simply call him a bald-faced liar.

Kidnap and Torture of Wrong Man

Please consider US 'Warned' Germany Over Bungled El-Masri Kidnapping

With over a quarter of a million WikiLeaks documents coming to light today a number of previously stalled stories are being given new life, including the bungled kidnapping of German citizen Khalid El-Masri and his subsequent abuse in US custody.

Masri was kidnapped in early 2004 by CIA officials and sent to Baghdad and later Afghanistan, where he was repeatedly abused before officials finally discovered that they meant to kidnap Khalid al-Masri, an entirely different person with a similarly spelled name.

A 2007 State Department document revealed the US "warned" the German government against making any moves to secure the arrests of the CIA agents responsible for the kidnapping, saying any such move would have "repercussions" to the relationship between the two nations.

Despite the warnings the German government did issue Interpol arrest warrants for CIA officials involved in the kidnapping, though they dropped them a few months later. El-Masri attempted to sue the CIA over his torture in a US court but the case was thrown on "national security" grounds.

The El-Masri Cable

Harper's Magazine reports on The El-Masri Cable

Over the Christmas-New Year's holiday in 2003, Khaled El-Masri traveled by bus to Skopje, Macedonia. There he was apprehended by border guards who noted the similarity of his name to that of Khalid al-Masri, an Al Qaeda agent linked to the Hamburg cell where the 9/11 attacks were plotted. Despite El-Masri's protests that he was not al-Masri, he was beaten, stripped naked, shot full of drugs, given an enema and a diaper, and flown first to Baghdad and then to the notorious "salt pit," the CIA's secret interrogation facility in Afghanistan. At the salt pit, he was repeatedly beaten, drugged, and subjected to a strange food regime that he supposed was part of an experiment that his captors were performing on him. Throughout this time, El-Masri insisted that he had been falsely imprisoned, and the CIA slowly established that he was who he claimed to be. Over many further weeks of bickering over what to do, a number of CIA figures apparently argued that, though innocent, the best course was to continue to hold him incommunicado because he "knew too much." Dana Priest furnished the core of this account in an excellent 2005 Washington Post story. Other aspects have been slowly confirmed by German criminal investigators. By studying El-Masri's hair and skin samples, for instance, they were able to confirm allegations that he was drugged and subjected to a bizarre starvation regimen. Throughout this process, El-Masri's account of what transpired, part of which he wrote up as an op-ed in the Los Angeles Times, has consistently been vindicated.

What kind of pathetic judge tosses out kidnapping and torture crimes for the sake of "national security"?

These are things we know about. We also know about torture in Iraq which the president campaigned to disclose, then changed his mind.

Of course Vice President Cheney has long condoned torture and did not even have the decency to apologize for the kidnapping and torture of the wrong man. Instead, the CIA held an innocent man because he "knew too much".

Cheney is a pathetic human being for openly condoning torture, but at least he was honest. President Obama is a liar and a hypocrite when it comes to torture.

Thus, as much as I would like to agree with Ritholtz, I can't. However, I can easily modify his statement to make it correct: "Thinking that torture is wrong is not a liberal or conservative value - it is simply a value."

It is high time the US disavow torture and charge those doing it with crimes. Just don't expect that anytime soon given that kidnapping, torture, and holding people for 9 years without trial are actions openly condoned by Republican and Democrats presidents alike. That is the sad state of affairs of alleged "American Values".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful

Posted: 06 May 2011 08:15 AM PDT

Thoughts on the Jobs Report Thoughts on the Jobs Report

On the surface, this was the third consecutive solid jobs report, not as measured by the typical recovery, but the best back-to-back reports we have seen for years. The Payroll Survey Establishment Data showed employment up by 244,000.

At that pace of hiring, the unemployment number would ordinarily drop, but not fast.

Instead, the unemployment rate ticked up. The reason is beneath the surface, employment fell by 190,000 according to the Household Survey.

According to the Household Survey, the number of unemployed rose by 205,000. Another 131,000 dropped out of the labor force or the unemployment rate would have been even higher.

Which survey to believe?

It is hard to say on one month's data. However, during a recovery the household survey is supposed to lead. Moreover, the household survey is more consistent with three recent reports.

Weekly Unemployment Claims Soar to 474,000; Bogus Excuses Offered

Oil Consumption Demand Destruction vs. Speculative Futures Positions

Non-Manufacturing ISM Plunges Below Prediction of All 73 Economists, New Orders Collapse, Prices Firm; Did Rosenberg Capitulate at the Top?

Unless the Household Survey is an outlier, the implications are not good

Last month I said "It is very questionable if this pace of jobs keeps up."

Well, it kept up if the Payroll Survey is correct, it sure didn't if the Household Survey is to be believed.

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

Digging deeper into the Household Survey, we see some more interesting data. In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000.

In January alone, a whopping 319,000 people dropped out of the workforce. In February another 87,000 people dropped out of the labor force. In March 11,000 people dropped out of the labor force. In April, 131,000 dropped out of the labor force. The 4-month total for 2011 is 548,000 people dropped out of the labor force.

Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, an additional 548,000 people dropped out of the labor force in the first four months of the year.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

As I said, the report looks good on the surface, it does not look good if you poke around in the details.

April 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) April 2011 Employment Report.

Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several service providing industries, manufacturing, and mining.

Unemployment Rate - Seasonally Adjusted

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted

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Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted

Notice that employment is lower than it was 10 years ago.

Nonfarm Employment - Payroll Survey - This Month - Seasonally Adjusted

Employment in the private sector rose by 268,000 in April. Since reaching a low point in employment in February 2010, the private sector has added 2.1 million jobs—an average of 149,000 per month.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Index of Aggregate Weekly Hours

In April, the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours. The average workweek for production and nonsupervisoryemployees on private nonfarm payrolls was also unchanged at 33.6 hours.

The index of aggregate weekly hours for all employees rose by 0.3 percent over the month. Since reaching a low point in October 2009, the index has increased by 3.3 percent.

Average Hourly Earnings vs. CPI

Average hourly earnings of all employees in the private sector increased by 3 cents in April to $22.95. Hourly earnings are up 1.9 percent over the year.

Between March 2010 and March 2011, the consumer price index for all urban consumers (CPI-U) increased by 2.7 percent.

Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The big news in the BLS Birth/Death Model is the BLS has moved to quarterly rather than annual adjustments.

Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

It is possible that the BLS model is now back in sync with the real world. Moreover, quarterly rather than annual adjustments can only help the process.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth-Death Number Revisions

Inquiring minds note enormous backward revisions in Birth-Death reporting.

Birth Death Model (as reported in January)

Birth Death Model Revisions 2010 (as reported February)

Is this new model going to reflect reality going forward?

That's hard to say, but things were so screwed up before that it is unlikely to be any worse. One encouraging sign is several negative numbers in the recent chart. January would have been negative too, had they shown it. Historically there were only 2 negative number every year, January and July. That anomaly broke November of 2010.

Birth Death Model April 2011

Do NOT subtract 175,000 from the headline number. That is statistically invalid.

Household Data

In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status

click on chart for sharper image

There are now 8,600,000 workers whose hours may rise before those companies start hiring more workers.

Note the number rose by 167,000 in the last month

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

click on chart for sharper image

Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 9.0%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

While the "official" unemployment rate is an unacceptable 9.0%, U-6 is much higher at 15.9%.

Things are much worse than the reported numbers would have you believe, and this month's report was exceptionally weak beneath the surface.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Oil Consumption Demand Destruction vs. Speculative Futures Positions

Posted: 06 May 2011 12:23 AM PDT

Commodities got smacked hard across the board on Thursday with silver and crude leading the way. Silver is now down close to 30% from the peak, and crude is down close to 13% from the peak four days ago. The rest of this post deals specifically with crude.

West Texas Intermediate Daily Chart

click on chart for sharper image

Discounting the civil war in Libya and Mideast disruption concerns in general, there is no fundamental reason for crude to be above $100.

Oil Consumption Demand Destruction

My friend Tim Wallace follows petroleum distillates usage closely. He is concerned over what demand destruction says about the economy. Tim writes ...

Hello Mish

Attached please find some charts on petroleum distillates demand. These are based off peak demand, which for the USA was Feb '07 to Jan '08. Those are the highest months of demand in our history. Demand has never approached those numbers again.

As you can see on the first chart, titled "Year-Over-Year vs. Peak", the months of January through May are measured against the peak years for 2008 to 2011. Note that except for April, this year is by far the biggest drop off peak in this depression. This May has begun with a significant drop off last year after a big rise off 2009.

Last May more than likely reflects the rebound on "shovel ready" paving projects that ate up a lot of distillates products. This May has begun with the first week showing scary down numbers! Needless to say we need to look again at the rest of the month, but this is the worst week of the year to date.

The second chart shows each month by year off the peak period. May is off to a rocky start. It will be very interesting to see how this May ends up.

The third chart shows how the historic petroleum distillates demand has trended since the early '90's. I learned back in the '70's in my days at Exxon that any demand growth of less than 0.8% showed a weak economy, anything less than 0.5% was recessionary as you can see in the recession of 2001/2002 on the chart.

Look at the numbers now and tell me where we are headed.

Tim

Oil Consumption Year-Over-Year vs. Peak

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Oil Consumption Drop From Peak Usage

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Oil Consumption Historical Growth vs. Peak

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2010 Rebound in Oil Usage Collapses

For all the brouhaha over the "recovery" one cannot see it in oil usage. However, you can see it at the pump!

You can also see it in oil futures speculation.

Oil Futures Speculation

Here is a chart of oil futures Commitment of Traders courtesy of SentimenTrader.

click on chart for sharper image

Annotations in blue on the chart are mine. Jason Goepfert at SentimenTrader was kind enough to allow me to post the chart.

Volume Spike on Mideast Disruption

Note that futures volume went through the roof earlier this year as shown by the blue oval.

For those not familiar with futures, for every long there is a short. Big Speculators (typically hedge funds, pension plans, etc), are long record numbers of futures.

The commercial traders have taken the other side of the bet. Rules of the game are simple: someone has to take the other side of the trade because for every long there is a short.

The commercial traders may be producers willing to sell into the spike or they may be market makers.

Expect Trade to Unwind

One certainly cannot use this information as a timing device, but it is interesting to see everyone plow into this "sure thing" trade right as demand has collapsed.

Unwinding this trade can easily collapse the price of oil and send the US dollar higher, and I think it will.

For more on the US dollar and currencies in general, please see Trichet Backs off Rate Hikes; US Dollar Up Sharply; Currency Fundamentals

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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