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Weak Auction; Parsing the Data: Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about the Treasuries' poor actions and the job market.

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Weak Auction

Originally published on Thursday, Dec. 12 at 1:20 p.m. EDT.
  • What and when the Fed may or may not do has obviously resulted in poor action in U.S. Treasuries.

Following the soft 10-year note auction yesterday, the 30-year bond auction today was as well but a bit less so. The yield of 3.90% was above the when-issued of 3.89%-3.895%, and the bid-to-cover of 2.35 was below the previous 12-month average of 2.46. The slight positive stat was that direct and indirect bidders took a total of 58.5% of the auction, slightly above the one-year average of 54.2%.

Bottom line: Near the highest yield since August 2011 today's 30-year paper wasn't enough to bring in robust demand, seemingly not so from insurance companies and pension funds that usually traffic in maturities this far out.
[Read: <a target="blank" data-add-tracking="true" href=""><em>What You Miss When You Don't Work on Christmas</em></a>]

What and when the Fed may or may not do has obviously resulted in poor action in U.S. Treasuries since the kneejerk bounce after the no-taper in September, and this is continuing as longer-term rates are normalizing on their own. This is healthy in the long term, as the market takes a greater role in pricing the cost of money, but possibly very disruptive throughout the process -- just as any addict deals with the pains of withdrawal.



Parsing the Data
Originally published on Tuesday, Dec. 10 at 11:50 a.m. EDT.
  • The economic data this morning was market-friendly.

The job openings/labor turnover survey (JOLTS) of the government showed job openings in October of 3.925 million vs. expectations of 3.898 million and 3.883 million in August. This is the best since mid-2008 and consistent with the better labor data reported in the recent government payroll report and this morning's survey of small businesses. The job openings rate -- job openings as a percentage of total employment plus job openings -- was steady in November at 2.8%. Hirings in October dropped slightly, as did the hiring rate, but this likely reflected the impact of the government closing.

The better labor market data is important because as mortgage rates should move higher so should home prices. To offset these impacts on housing affordability and keep the benefit to consumer spending from better home prices, employment/income growth must accelerate.
[Read: <a target="blank" data-add-tracking="true" href=""><em>Beyond Earnings; the Greatest Loves: Jim Cramer's Best Blogs</em></a>]

Wholesale inventories lifted a large 1.4% month over month in October vs. expectations of 0.3% in September. Wholesale sales increased by 1%. Inventory build has been substantial in the last few months, but the inventory-to-sales ratio has only lifted slightly. Third-quarter real GDP growth has a very heavy component of inventory building, so fourth-quarter real GDP growth should be 2% or a bit less vs. third-quarter growth of 3.6%. Fourth quarter should be a quarter when a big third-quarter inventory build is digested.

More important with respect to inventories, there is no excess inventory overhang that would signal a cutback in production/manufacturing sector employment. It is almost always the case that excess inventory precedes a recession -- no such excess exits currently.



Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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