A Warning From History - According to Warren Buffett

Upon the recommendation of Warren Buffett to his friends this book, previously out of print (now available on Amazon) has become a cult among financiers, businessmen and investors alike. It describes how political weakness in post World War 1 Germany led to a massive failure in economic management that resulted in the economy spiralling out of control. Adam Ferguson, 78 the author of this book says today "if you are trying to decide whether to go for quantitative easing or high unemployment, in the end you'll have both".  The reason why this book has become a such a huge hit is because it describes in detail the devastation that is brought about as a result of hyperinflation and the effects it has on ordinary people. Ferguson goes on to say "if you destroy the value of money, you destroy the cornerstone of society.

A Week of Negetive Economic Data Points to a Weak Payrolls Number

During the past week the US has released one piece after another of negative economic data that points to the likelihood of a weaker than expected Non-Farm Payrolls number that is release tomorrow at 08.30 New York time or 13.30pm GMT.

Monday: Personal Spending up 0.4% compared to an expected 0.5% (previously 0.5%)

Tuesday: Consumer Confidence plunges to 52.9 versus analysts estimate of 62 (previous month 62.7)

Wednesday: ADP Employment Change was 13,000 versus an expected 61,000 (previously 57,000)

Thursday: Continuing Claims rose by 472,000 versus 451,000 that was expected (previously 457,300)
                 
ISM (Institute for Supply Management) Index declined to 56.2 versus 59.0 (previously 59.7)
                 
Pending Home Sales took a nose dive, plunging to -30% compared to a decline of -10.5% that was expected (previous month +6%)

Source: http://finviz.com/calendar.ashx

Additionally during trading hours in New York on Thursday the US Dollar saw broad based declines against its major competitors the Yen, Pound Sterling & the Euro. This could be seen as investors pricing in a very negative jobs number since the Dollar is traditionally seen a safe haven play. However with weakness in US manufacturing as in ISM data indicates and a rapidly deteriorating US housing market the dollar is now been sold in part because of the underlying fundamentals of the US economy. If we do see a worse than expected jobs figure tomorrow it could set the tone for a heavy day of selling as investor already jittery after a flurry of bad economic data this week will ratchet up the rhetoric of a 'potential' double-dip recession. This was given more credence when economist at JPMorgan Michael Feroli cut his growth forecast for the third quarter to 3% from 4%.

The latest estimate for the Non-Farm Payroll figure tomorrow is a decline of 100,000 with the unemployment rate ticking up slightly by 0.1% to 9.8%.  Crucially this months figures will not include census workers, which accounted for 411,000 of the 431,000 in the previous months report.