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February 7 - Biggest Day of My Trading Career

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February 06, 2014 – Comments (8) | RELATED TICKERS: AAPL , GE , TBT

I have traded through the market crash of October 1987, February 2009 and several other very interesting days.  But I think tomorrow may well be the biggest day of my trading career.  It will be a one-of-a-kind event, that could never have happened in the past and may never happen in the future.

What is it?  The BLS reports Unemployment Statistics tomorrow for January.  When they do, the markets should react sharply.  Interest Rates should skyrocket, Treasuries should crash, and I have no idea what equities will do.  But I believe the Unemployment Rate reported tomorrow will be the lowest since early 2008 (before the crisis) and will reflect "Full Employment".  This should stoke fears of inflation and should prompt the Fed to consider accelerating the Tapering, which Philadelphia Fed President Charles Plosser has already called for .  The reason for the drop, and why it is a one-of-a-kind event, is that the Extended Unemployment (up to 99 weeks), which went on for YEARS, ended at the end of December.  This extended and protracted expense has never happened before in US History (even during some pretty difficult recessions in the 70's), so we can not easily predict what the markets will do when it ends.

Personally, I will be taking additional short positions in Treasuries (Long TBT) and a Long position in some key equities, but I really don't know how equities will react.  If you care to respond to this, imagine what a 4.8% Unemployment Rate Announcement would do to Equities and suggest any trades.  I don't know that we'll see 4.8% tomorrow, but we'll see it soon - likely in the first half of 2014.

 Enjoy the Friday!!!  Should be very interesting!! 

8 Comments – Post Your Own

#1) On February 06, 2014 at 12:18 PM, dragonLZ (99.42) wrote:

Whatever happens (however the markets react), I wish you the best of luck. I hope you'll make a killing tomorrow.

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#2) On February 06, 2014 at 1:22 PM, JohnCLeven (81.60) wrote:

Interesting thought. I know nothing about this topic, so I was hoping you could answer this question for me. Please bear with me.

You're saying unempolyment will drop from 6.7% (December 2013 report) to roughly 4.8%. That is roughly a 28% reduction in the unemployment rate.

I checked on the number of people that were kicked off the Extended Unemployment program, and it appears to be roughly 1.3 million, based on the 4-5 article I found. However, those 1.3 million only account for about 12.5% of the 10.4 million unemployed, per the Dec 2013 report.

Again, I know nothing on this topic, so I was hoping you could educate me as to how eliminating a program that will remove roughly only 12.5% of the number of enemployed people will result in a roughly 28% reduction in unemployment? (I'm not debating you, just seeking an explanation)

For that number to make sense, (assuming my numbers are correct) proportionately, I think there are only two ways that can happen.

Explanation #1) we would need to see a pretty drastic increase in the number of people "being counted" from like 155.2M (155.2M *.067 unemployment rate = roughly 10.4M unemployed) to about 189.6M. To solve that I just backed out the 1.3 million removed from the Extended Unemployment, leaving 9.1 million still unemployed, and divided by your expected unemployment rate of .048, to yield an snswer of 89.6M people counted in the unemployment rate.

That's about a 22% grwoth in the number of "coutned people."

or

#2) We see roughly an 18% decrease in unemployment among those who were NOT on the expiring extended unemplopyment plan, if we use the over simplified assumption that the number of coutned people stays at about 155.2M (155.2*.048 = 7.45 million unemployed, which is about an 18.1% decrease in the number of previously unemployed who were NOT on the expiring Extended Unemployment plan which was 9.1 million)

or

3) My numbers are wrong and/or i'm missing something.

 

So what is it?

Please educate me.

Thank you,

-john 

BLS data http://www.bls.gov/news.release/empsit.nr0.htmExtended Unemployment article http://news.yahoo.com/1-3-million-losing-unemployment-benefits-saturday-172757185.html 

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#3) On February 06, 2014 at 1:39 PM, ozzie (99.95) wrote:

Check out the numbers here . . . http://bls.gov/web/empsit/cpseea35.htm

Total Unemployed > 26 weeks = 3.753 Million out of 9.984 Million.

If we simply assume ALL of those drop off the rolls (which doesn't make sense), we're left with an Unemployment Rate of 4.18%.  If we assume that this number goes back to the 2005-2007 average of about 1.323 Million (a reduction of 2.43 Million), we are left with an unemployment rate of 5.06% Unemployment, all else being equal.  My guesstimate of 4.8% assumes all else is NOT equal, and that *some* of the under 26-weeks crowd will also drop off the rolls.  I hope this helps.

This link may illustrate better.  

 

 

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#4) On February 06, 2014 at 1:39 PM, ozzie (99.95) wrote:

Check out the numbers here . . . http://bls.gov/web/empsit/cpseea35.htm

Total Unemployed > 26 weeks = 3.753 Million out of 9.984 Million.

If we simply assume ALL of those drop off the rolls (which doesn't make sense), we're left with an Unemployment Rate of 4.18%.  If we assume that this number goes back to the 2005-2007 average of about 1.323 Million (a reduction of 2.43 Million), we are left with an unemployment rate of 5.06% Unemployment, all else being equal.  My guesstimate of 4.8% assumes all else is NOT equal, and that *some* of the under 26-weeks crowd will also drop off the rolls.  I hope this helps.

This link may illustrate better.  

 

 

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#5) On February 07, 2014 at 9:56 AM, ozzie (99.95) wrote:

Wow - well, not what I predicted at all.  6.6% is an improvement, but doesn't at all reflect what I anticipated.  Just shows my ignorance (again).  I pretty-much broke even on my equity bet and closed out a TBT bet that was a little up in the morning (down now, though), but as far as exciting trading days go . . . not even in my top 1000.  :-)

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#6) On February 07, 2014 at 10:10 AM, JohnCLeven (81.60) wrote:

Thanks for the feedback!

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#7) On February 08, 2014 at 8:11 PM, anchak (99.85) wrote:

Ozzie...based on what I read - I think the effect will start showing Feb onwards.....

Unfortunately ---that's how things seem to turn out - most of the time.

Good analysis though - not very common in CAPS these days.

 

 

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#8) On February 10, 2014 at 1:21 PM, ozzie (99.95) wrote:

This helps explain the delay in the reduction of the LongTerm Unemployment . . . 

http://bostonherald.com/news_opinion/us_politics/2014/02/unemployment_bill_stalled_anew_in_senate

 I didn't know this was still being debated, but I guess as late as last Thursday, the Democrats in the Senate are still thinking they are close to getting a 3-month extension passed for Long-Term Unemployment.  That explains why some haven't rushed out to get a job yet.

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