The Jobs Numbers: Time to Go Short

The jobs numbers came out a few minutes ago and even with minimal parsing it is time to go short - or at least get ready to go short. Why? Job losses of 85,000 surprised many people - and were actually much greater as the BLS uses a statistical trick - an accepted one - to add more than 100,000 jobs to the number - as it has since February. The BLS says the birth of new companies creates jobs it misses, bankruptcies kill jobs it misses, and the difference is a net positive, on average in 2009, of over 100,000 per month. In the Great Recession? I don't think so.

At the most macro of levels, the importance of employment, or unemployment, is national income - the amount of money, in aggregate, people have to spend in an economy driven by consumer spending. Ten percent plus unemployment and continuing job losses restrict national income. An average work week that is shrinking or stagnant restricts national income. Stagnant hourly average wages restrict national income. Everyone sees this in part. But the hidden number today was the household survey report which showed a loss of 616,000 people from the work force. This keeps the unemployment rate down - or keeps it steady - but means there are 616,000 fewer people even looking for work which means they are not looking to generate income. Another and a very big hit to national income.

So everything adds up to a hit to national income - which hits consumer spending. And growth - or shrinkage - in the economy. And corporate profits can outpace growth for only so long. So in Q2 or the second half of the year the lack of consumer spending will finally overtake bullish optimism. And that means the time to go short - or at least get ready to go short - is now, if not the indices, selected names.
Start with adult toys - no jokes please. Brunswick (BC), builder of boats. Harley Davidson (HOG), the builder of unnecessary motorcycles with a broken balance sheet. Hovnanian (HOV) another broken balance sheet, a builder of high end homes no one is buying. Blue Nile (NILE), purveyor of diamonds, a great company facing a stagnant or declining market with a P/E north of 60.

Then look at overpriced companies who will blow up the first time they miss an estimate. Blue Nile again; Open Table (OPEN), a front end to a shrinking number of restaurant reservations; Wynn (WYNN), owner of the best casinos in the world with the best CEO in the world but selling at multiples that are unsustainable; and the list goes on.

I maintain, for my subscribers at ChangeWave Shorts, a watch list of potential train wrecks. Do the same for yourself and get ready. The double dip is coming.