Classic Mark Up Brings Pain To Main Street Only.

The broader stock averages flew yesterday as almost every sector was up over 2%. It was a classic mark up of stocks before a significant economic report out this morning. That report is the October Non-Farm Payroll. More on this in a moment.

Why so much strength? Well for instance initial claims for state unemployment benefits dropped to 512,000 in the week ended Oct. 31, the lowest level since early January. Markets had expected a decline to only 523,000, from the 530,000 reported in the prior week. This was seen as a positive. Another report that was well received by the rich and affluent was U.S. Business Productivity, which grew at its fastest clip in six years in the third quarter. The Labor Department said that productivity surged at a 9.5% annual rate, the quickest pace since the third quarter of 2003, as companies squeezed more output from a smaller pool of labor to hold the line on costs. The blind experts had expected productivity to rise at a 6.4% rate. It grew at a 6.9% pace in the April-June period,when the economy was still contracting. Unit labor costs, a measure of the cost of labor for any given
amount of production, fell 5.2% last quarter after declining 6.1% the previous period. Analysts had forecast a drop of only 4%. So what we have is higher productivity and lower unit labor costs, a perfect cocktail for the corporate profit machine.

US Productivity



All of this created a buying/short covering frenzy ahead of Non-Farm Payrolls out this morning. So would the good times last? Well, coming in this morning, the futures were up some 3 points ahead of the 8:30am report. The report came out and guess what? It was bad! The futures tanked some 11 points almost immediately. Payrolls came in at -190K down in October vs. -219K down in September. The consensus was a loss of -175K. Meaning, since the start of the recession in December 2007, the number of unemployed has increased by 8.2MM and the unemployment rate has grown by 5.3% points. What was truly soul crushing for Main Street was that the U.S. unemployment rose by more than expected in October to hit its highest level in more than 26 years. That rate calculated using a survey of households as opposed to
companies, rose by 0.4% point to 10.2%, the Labor Department said Friday. Economists had forecast an increase to 9.9% only. The Broader U-6 measure of unemployment or
"underutilization" rises to 17.5% in Oct from 17%. The work week was flat at 33 hours. Again, the markup that began yesterday which momentarily was stopped after this report, will begin again when the market opens up. I guarantee it! Where ever we finish the day is entirely up in the air. We can finish up 100 or down 200. Who knows. But the pressure we see in stock index futures at the moment will alleviate. We are at a perverse moment in time where less catastrophically bad news is actually good news.

The perverted sense that less lower payroll losses is actually good will rally equities today, because somehow the masses have been brainwashed by the media into thinking that employment is a lagging indicator. It has to get better. It may or may not be still, but sooner or later something has got to give. We can't continuously print higher and higher job losses regardless if they are decelerating or not. Many conventional economic indicators have turned, but the most important is stuck in quick sand. We are at a point where stock averages keep printing higher prices waiting for payrolls to turn. One side of the equation is waiting.