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Data and More Data; Risk vs. Reward: Best of Kass

Doug 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 nonfarm payrolls, manufacturing data and reward vs. risk.

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Nonfarm Payrolls
Originally published on Friday, Aug. 2 at 9:05 a.m. EDT.

By any measure (numbers, average work week and average hourly earnings), the jobs number sucked, to use a word I learned at Wharton.

Payrolls rose 162,000 in July, of which 161,000 came from the private sector. This is below expectations of 185,000 and 195,000, respectively. The two previous months were revised down by a combined 26,000.

The unemployment rate did fall to 7.4% from 7.6%, as the household survey added 227,000 jobs just as the labor force declined by 37,000. The U6 all in rate, though, fell to 14% after jumping to 14.3% in June. The participation rate fell to 63.4% from 63.5%, just off its multidecade low.

Average hourly earnings disappointed, falling 0.1% month over month vs. the estimate of a gain of 0.2%, and the year-over-year increase was just 1.9%. The month-over-month change was the first decline since October. Average weekly hours were poor, too, and ticked down to 34.4 from 34.5, the lowest since January.

Again, most of the jobs created were part-time as the increase was 174,000 vs. a 92,000 increase for full-time at the household level.

ISM Manufacturing
Originally published on Thursday, Aug. 1 at 10:30 a.m. EDT.

The ISM manufacturing index for July was 55.4, well above expectations of 52, up from 50.9 in June and the best figure since June 2011. New orders jumped to 58.3 from 51.9, but backlogs fell 1.5 points to 45, the lowest since November. Production, following previous order rates, spiked to 65 from 53.4. Importantly and in contrast to what ADP said, the Employment component rose to 54.4 from 48.7, the best since June 2012. Export orders, after rising 3.5 points in June, fell 1 point. Inventories at the manufacturing level were lean, falling 3.5 points, to 47. Customer Inventories rose by 2.5 points but remained below 50. Prices paid moderated 3.5 points, to 49.0, the lowest in a year notwithstanding the energy price jump.

Of the 18 industries surveyed, 13 saw growth, four contraction with one seeing no change. The ISM summed up the report by saying, "Comments from the panel generally indicate stable demand and slowly improving business conditions."

Bottom line: Maybe that second-half recovery is going to happen, but coming after a 1.3% pace in the first half, it is an easy bar to beat. Interest rates are jumping again in response to the number, and the pressure will again intensify on the FOMC if today's ISM and claims data is followed by a good payroll report tomorrow. For the economy, the test will be whether it can handle higher rates, and the same needs to be said for stocks at these levels.

What Ever Happened to Reward vs. Risk?
Originally published on Wednesday, July 31 at 1:22 p.m. EDT.

As I mentioned yesterday, the cheerleaders rise in force and volume with higher stock prices, especially in the business media.

This observation applies to the S&P 500 Index, Facebook , Google , Herbalife and many others that have levitated to higher ground recently.

As a friend on the floor once said to me, I would rather "yell and roar ... and sell some more."

Let's not forget Warren Buffett's great quote, "Price is what you pay, value is what you get."

The smartest man I know in the hedge fund business is selling down his longs now -- after playing the bull market all the way up.

At the time of original publication, Kass had no positions in the stocks mentioned.

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