Non-Farm Friday

No posts the last two days. I’m feeling better now.

CNBC has the “SP500 is X points From Record Close sign front and centre. Futures are up on the non-farm payroll numbers.

U.S. Payrolls Expand in September After August Gain (Update3): “U.S. employment accelerated in September and revised figures for August showed an unexpected gain, easing concern the economy is headed toward recession.

Payrolls grew by 110,000 after an 89,000 increase in August, the Labor Department said today in Washington. Revisions added 118,000 workers to payroll figures previously reported for July and August.

More jobs and rising wages will help consumers weather falling home values, sustaining the spending that accounts for more than two-thirds of the economy. The report reinforces speculation that Federal Reserve policy makers won't need to lower interest rates again later this month.”

Most of the jobs were the result of government hiring. The ‘real’ economy continues to struggle.

“Most of the August revision came in government payrolls, which expanded by 57,000 during the month, reflecting hiring of teachers for the new school year. Previously, the Labor Department had reported a decline in government payrolls in August.”

While not a disaster, job growth is definitely slowing. Wage gains were surprisingly strong, and this does raise inflation concerns.

“Wages gained 4.1 percent in September from a year earlier, the biggest increase since February. Workers' average hourly earnings rose 7 cents, or 0.4 percent, after a 0.3 percent increase the previous month.”

Barclays Drops ABN Bid, Clearing Way for Royal Bank (Update2): “Barclays Plc abandoned a six-month battle to buy ABN Amro Holding NV after investors failed to back its bid, clearing the way for Royal Bank of Scotland Group Plc and two partners to complete the biggest banking takeover.

Investors tendered about 4.4 million shares to Barclays's 62.8 billion-euro ($89 billion) offer, the London-based bank said in a statement today, amounting to about 0.2 percent of ABN Amro's stock. Barclays was competing against a 71.8 billion-euro offer from Royal Bank, Banco Santander SA and Fortis.”

Barclays is admitting defeat, but getting away cheaply by avoiding both the costs and risks of executing this merger. Barclays will now have to look elsewhere for non-organic growth.

KKR, TPG Banks May Start Selling TXU Loan Next Week, People Say: “Bankers for Kohlberg Kravis Roberts & Co. and TPG Inc. may start selling loans to finance the $32 billion purchase of Texas utility TXU Corp. next week, people with direct knowledge of the deal said.

Citigroup Inc. and JPMorgan Chase & Co. will seek buyers for at least $5 billion of loans, according to three people, who asked not to be named because the terms haven't been set.

Banks are offering discounts of as much as 4 percent to sell some of the $300 billion of leveraged buyout financing they promised before losses on subprime mortgages shut down the market for high-yield, high-risk debt in July. Lenders syndicated $9.4 billion for New York-based KKR's purchase of First Data Corp. last week.”

If and how these TXU loans are sold will be an important indicator of the health of the debt market. Slowly the appetite for this kind of risk appears to be returning…

JPMorgan, Bank of America May Write Down Buyout Loans (Update1): “JPMorgan Chase & Co. and Bank of America Corp., the biggest arrangers of U.S. leveraged loans, may have combined markdowns of $3 billion in the third quarter, according to analysts at Sanford C. Bernstein & Co.

JPMorgan may have to write down holdings by about $2 billion, and Bank of America's markdown may be about $1 billion, Bernstein analysts Howard Mason and Michael Howard wrote in a note to investors today.

Rising subprime mortgage defaults in the U.S. have rocked credit markets in the past three months, leaving banks with losses on home loans and a backlog of about $370 billion in loans to fund buyouts. New York-based JPMorgan and Charlotte, North Carolina- based Bank of America between them shared 30 percent of the U.S. finance market this year, according to data compiled by Bloomberg.

Third-quarter earnings “for large banks will be dominated by the writedowns in leveraged lending and the loan warehouses,” the Bernstein analysts wrote.”

Assuming credit markets mend and that the housing situation doesn’t worsen, then the banks can work through this mess…

Bear Stearns to `Weather Storm,' Won't Need Infusion (Update6): “Bear Stearns Cos., the securities firm hit hardest by the collapse of the subprime mortgage market, said it will “weather the storm” and isn't looking for a cash infusion from an outside investor.

“Things are getting better” since the Federal Reserve lowered its benchmark interest rate on Sept. 18, Bear Stearns President Alan Schwartz said in a presentation to investors today. “Liquidity has improved,” said Schwartz, who was promoted in August when the company's stock fell to the lowest in two years.

Bear Stearns will make managing risks a priority over growth and is avoiding “big directional” bets after reporting its largest quarterly earnings decline in a decade, Schwartz said. The firm helped trigger declines in the credit markets when two of its hedge funds lost $1.6 billion of clients' money.”

Bear Stearns may survive, but will be ‘avoiding big direction bets’. If other major players act in similar fashion and become more conservative for the next while, then expect the significant underperformance of riskier assets as exposure is reduced and positions therefore undwound.

Ford, Chrysler Balk at GM Funding Level, People Say (Update1): “Ford Motor Co. and Chrysler LLC are balking at contributions as large as General Motors Corp.'s to create a union-run retiree health fund, five people with knowledge of the contract negotiations said.

The two U.S. automakers would benefit less from such a trust and are reluctant to match proportionately GM's $29.9 billion pledge to offload about $50 billion in retiree health-care costs, said the people. The companies also believe they can't afford job guarantees made by GM to the United Auto Workers, said the people, who asked not to be identified because the talks are private.”

The deal GM struck is an expensive one that requires massive cash outlays up front. Ford and Chrysler are a little hesitant and may try to squeeze out one or two more concession from the UAW.

Spain August Industrial Production Slows on Higher Credit Costs: “Industrial production in Spain slowed unexpectedly in August as rising credit costs curbed demand for Spanish goods.

Production at factories, farms and mines, which accounts for one-seventh of the economy, rose 0.6 percent from a year- earlier after adjusting for the number of days worked, following a 1.3 percent increase in July, the Madrid-based National Statistics Institute said today. Economists expected an increase of 2 percent, according to the median of six forecasts in a Bloomberg News survey.”

Slight hints of economic weakness are everywhere, but the Bulls are still firmly in control.