Posts Tagged ‘Unemployment’
Posted by Larry Doyle on June 26th, 2009 8:30 AM |
What kid doesn’t get frustrated with his father who dictates a line of reasoning with the tried and true, “because I said so.”
In similar fashion, the public at large should be equally frustrated with economists, market analysts, and the media who continually promote ‘unemployment’ as a lagging indicator. The simple fact is in the Brave New World of the Uncle Sam economy, I believe we should question the definitions and impacts of all our economic inputs. Today, let’s dive into the all important unemployment statistics.
Recall that under the most adverse scenario of the Bank Stress Tests, the unemployment rate was assumed to top out at 10.3%. Well, do not be surprised if we reach that rate by Labor Day with a strong chance we see 11% by year end. Last week, Obama himself acceded to likely double digit unemployment. Warren Buffett predicted as much in an interview aired yesterday.
The financial industry and government officials play down these statistics by stating that unemployment lags the economy. I beg to differ!! The Wall Street Journal provides strong evidence why unemployment is the preeminent leading economic indicator in writing, Unemployment Vexes Foreclosure Plan:
Rising unemployment is complicating the Obama administration’s effort to reduce foreclosures and stabilize the housing market.
The first wave of mortgage delinquencies was sparked by borrowers who took out subprime mortgages and other risky loans that became unaffordable, causing them to fall behind on their monthly payments. But the current wave is increasingly driven by unemployment or underemployment, economists and housing counselors say.
The Obama foreclosure-prevention plan was “built around the subprime crisis model, not the unemployment crisis model,” said Michael van Zalingen, director of homeownership services for the nonprofit Neighborhood Housing Services of Chicago.
The Obama program provides financial incentives to mortgage-servicing companies and investors to reduce mortgage-related payments to 31% of monthly income.
But many borrowers don’t have sufficient income to qualify for a loan modification under the plan. Mr. van Zalingen said roughly 45% of the more than 900 borrowers who sought help at two recent counseling events would fall into that category even if their interest rate were dropped to 2% and their loan term were extended to 40 years.
I wrote “The Most Critical Economic Statistic” a month ago to highlight the importance of mortgage delinquencies. There is a very strong correlation between unemployment, delinquencies, foreclosures, and subsequent defaults on credit cards and other personal debts.
The Obama administration and all of Washington are increasingly concerned–with good reason–about the impact of increasing unemployment and underemployment, which currently sits at 16.4% and may very well get to 20%!!
What might Washington do? When in doubt, throw more money at it. The WSJ highlights how and where that money may be delivered: (more…)
Tags: Bank Stress Tests and unemployment, borrowers not qualifying for loan modification, data on mortgage delinquencies, forbearance plan for mortgages, housing, how is underemployment measured, how will Obama stem foreclosures, how would forbearance plan work, impact of higher unemployment on economy, incentives for mortgage servicers, increasing mortgage delinquencies, is unemployment a lagging indicator, is unemployment a leading indicator, loan modification programs, Michael van Zalingen, rising mortgage delinquencies, rising unemployment and rising foreclosures, Seth Wheeler, should government pay mortgages, socialized housing program, The Most Critical Economic Statistic, Unemployment, unemployment impact on economy, unemployment rate in Bank Stress tests, unemployment underemployment and rising foreclosures, Unemployment Vexes Foreclosure Plan, Wall Streeet calls unemployment lagging indicator, what is a lagging indicator, what is underemployment, will higher unemployment slow economy
Posted in foreclosures, General, Unemployment | No Comments »
Posted by Larry Doyle on June 22nd, 2009 11:23 AM |
Are creating jobs the same as saving them?
Please listen closely to the Obama administration on the topic of jobs. Why? Very subtly, Obama and team are defining their employment efforts not only as ‘creating jobs’ but as ‘saving and creating jobs.’ While one may deem this broader definition as a worthy and admirable approach, it is pure politics.
Please tell me what prior administration would have addressed employment in this manner? I mean, taking a counter approach, who would accept a politician as credible if they pronounced, “well, we are looking to create millions in new jobs but we are really not concerned with saving jobs.” The American public is being fed pure political pandering and the media will not call Obama on it.
Why has Obama “lowered the bar” on the jobs front? In typical management fashion, Obama is playing the “undersell to overdeliver” game. Why does he feel compelled to “play this game?” Pure politics on one hand, but Obama appreciates real economic peril on the other. What does that peril encompass? The fact that the Brave New World of the Uncle Sam Economy is not going to have meaningful job creation anytime soon.
We see evidence of that this morning. The Wall Street Journal puts forth, Cuts Are Here to Stay, Companies Say:
Many companies that have cut jobs, pay and benefits during the recession may not be quick to restore them.
The Washington Post similarly addresses this topic in writing, Recovery’s Missing Ingredient: New Jobs:
The likelihood of severe unemployment extending into the 2010 midterm elections and beyond poses a significant political hurdle to President Obama and congressional Democrats, who are already under fire for what critics label profligate spending. Continuing high unemployment rates would undercut the fundamental argument behind much of that spending: the promise that it will create new jobs and improve the prospects of working Americans, which Obama has called the ultimate measure of a healthy economy.
Without real stability and improvement on the employment front, our economy will not see meaningful improvement in retail sales and inventory buildup.
Do not be surprised to see renewed talk out of Washington of the need for another Stimulus Package despite the fact that the first one has currently had little to no impact.
Obama and the Democrats are running into a wall of public fatigue in regard to the exploding fiscal deficit. Public opinion polls show the deficit is viewed as much more pressing than Obama’s health-care reform.
Has Barack bitten off more than he can chew? While the media does not keep him honest, the public at large is not totally clueless.
A penny saved may in fact be a penny earned, but in regard to jobs that principle does nothing for our nation’s unemployed.
LD
Tags: creating jobs, deficit more important than health care reform, economic peril without jobs, economy declining, employment retail sales inventory buildup, health care reform less important than deficit, Job Cuts Are Here to Stay, jobs outlook, markets decline along with employment, media on creating and saving jobs, need for new Stimulus Package, no jobs no retail sales, no stability on employment, Obam on employment, Obama creating and saving jobs, Obama focuses on saving jobs, Obama lowers the jobs bar, Obama plays jobs game, Obama redefines employment success, outlook on jobs, penny saved is a penny earned, public fatigue on deficit, recover's Missing Ingredient New Jobs, retail sales won't improve given lack of job growth, saving jobs, saving jobs vs creating them, Unemployment, what about employment, when will employment improve, when will employment situation improve, when will jobs situation improve, will unemployment get worse, will unemployment increase more, will we need new Stimulus Bill
Posted in Employment, General | No Comments »
Posted by Larry Doyle on June 17th, 2009 7:07 AM |
How often during the campaign did we hear President Obama highlight that taxes would only increase for those earning incomes within the top 5%? You didn’t actually believe him, did you?
Yesterday, Obama played pure politics in backtracking from that “promise.” In an interview with Bloomberg, Obama Sees 10% Unemployment Rate, Chides Wall Street Critics:
He left open the possibility he would have to raise taxes on most Americans to decrease the deficit if growth were too weak. He also indicated he might tax the most-expensive employer-provided benefits to help pay for his health-care revamp. Both would reverse pledges he made during the campaign.
“If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes,” Obama said. “If we’ve got anemic growth, if we don’t have a strategy for recovery without bubbles, which is essentially what we’ve had over the last couple of recovery cycles, then we’re going to continue to have problems.”
What are Obama’s projections for unemployment and GDP?
Unemployment: 8.1% average in 2009, 7.9% average in 2010
GDP: -1.2% in 2009, 3.2% in 2010, 4% in 2011, 4.6% in 2012
No respected economist or analyst believes these numbers are credible. If anything, projections are only getting worse on both fronts. Obama, in a face saving move yesterday, admitted we will see 10% unemployment this year.
In regard to GDP, perhaps Obama should speak with Mohamed El-Erian at Pimco about the “New Normal” growth rate of 1% to 2% in the Brave New World of the Uncle Sam Economy.
What does it all mean?
The Taxman Cometh!!
LD
Tags: "new normal" economy, are taxes going up?, economic recovery and taxes, GDP, growth rate and taxes, Obama recovery and taxes, Obama tax proposals, Obama taxes, Obama's campaign tax pledge, Obama's GDP projections, Obama's promise on taxes, Obama's tax plans, Obama's unemployment projections, taxes, taxes under Obama, Uncle Sam economy, Unemployment, unemployment taxes GDP, what about Obama's tax plans, will Obama raise my taxes?, will Obama raise taxes, will Obama reverse campaign pledge, will Obama tax health benefits
Posted in General | 3 Comments »
Posted by Larry Doyle on June 5th, 2009 12:41 PM |
Navigating the markets on the day in which the employment report is released is always fascinating. Why? Typically the release of new and meaningful information generates very heavy volume; as such, the market moves can be measured with greater weight. Let’s take our equipment and head out along the trail . . .
Equities: major market equity averages opened very firm after the positive tone embedded in the non-farm payroll component of this morning’s report.
As the day has moved along, though, these indices have all faded. The DJIA is up approximately .4% as of this writing. The S&P 500 and tech heavy Nasdaq are unchanged relative to Thursday’s closing levels.
Particular industry groups that have had outsized moves are mortgage finance (-2.2%) and industrials (+.93%). What’s going on here? The mortgage finance companies are negatively impacted by higher interest rates (more on that in a moment). The industrials are likely benefitting from the perception that the economy may be slowly turning the corner.
Bonds: this is where the real action is occuring!! Various sectors of the bond market are down anywhere from .25% to 1%. It appears the only bond sector improving on the day is the high yield space (+1-1.5%) as it is benefitting from the perception of lessened credit risk.
The biggest loser on the day is the front end of the U.S. Treasury market which has backed up an EYE-POPPING 25 basis points. The intermediate to long end of the Treasury yield curve has backed off by 5 to 15 basis points.
Bonds are faced with 3 major hurdles:
1. massive supply: as global governments, corporations, municipalities, and individuals all look for credit.
2. inflation : as much as analysts will point to the lack of any wage pressures, the fact is that the U.S. has so much liquidity in the system that any hint of an economic spark will be akin to dropping a match on dry hay. The Fed can only dampen the “hay field” by withdrawing liquidity from the economy. How? Increase the Fed Funds rate or sell Treasury or mortgage assets currently on its books. What would that mean? Push interest rates even higher, especially on the front end of the yield curve. What would that do? Slow the economy.
3. the Fed: Big Ben, (Turbo-Tim as well) and team may find themselves between the proverbial rock (a fragile economy) and a hard place (fears of increasing inflation) sooner than they think.
Currencies: the greenback is doing better on the day. This seems counterintuitive to an economy regaining its footing with investors taking on a greater risk appetite. What’s happening? In my opinion, the greenback is anticipating that Bernanke and the Fed may have to “think” about increasing the Fed Funds rate.
Commodities: slightly weaker on the day.
Other news of note . . . Bloomberg releases a story highlighting the charade being played by banks in “generating” earnings. The fact is banks have benefitted tremendously by “accounting” maneuvers and as such are “masking” sizable losses. Regular readers of Sense on Cents have witnessed my addressing these issues. That said, I recommend: Bank Profits From Accounting Rules Mask Looming Loan Losses.
In summary, we are clearly entering the next stage of the Brave New World of the Uncle Sam Economy. The key attribute of this phase will be higher interest rates.
LD
Tags: accounting games mask bank losses, bank accounting games, Bank earnings mask loan losses, bond activity after employment, bond activity after unemployment, currency activity after employment, currency activity after unemployment, equity activity after employment, equity activity after unemployment, market activity after employment, market activity after unemployment, Sense on Cents, Unemployment
Posted in Economy, General, markets | 5 Comments »
Posted by Larry Doyle on June 3rd, 2009 10:30 AM |
Scott Black of Delphi Asset Management is one of the most highly regarded value investors in the market today. He was just interviewed on Bloomberg News and made the following assessments:
1. the economy can not substantially recover with a high and increasing unemployment rate.
2. there is a current disconnect between equity market performance and economic data.
3. stocks are NOT “once in a lifetime” bargains at current levels.
4. investors are “grasping at straws” chasing the market higher.
5. future earnings for the S&P 500 are $43 on a top down basis and $54 from a bottom up standpoint. At yesterday’s closing level of 945 on the S&P, those earnings equate to price multiples of 22 and 17.5 respectively. Is that rich, cheap, or fair? Rich.
6. Over and above the fact that the market looks rich at current valuations, the S&P 500 has an 11-12% weighting in financials. Black maintains that we can not properly evaluate the earnings of financial firms under the relaxed mark-to-market accounting. (Please see my earlier post, Wall Street-Washington: “Pay to Play”)
LD
Tags: relaxation of mark to market, Scott Black addresses rising unemployment, Scott Black believes equities are not bargains, Scott Black believes investors are grasping at straws, Scott Black of Delphi Asset Management, Scott Black on disconnect between equity market and economic data, Scott Black on the economy and markets, Scott Black talks about earnings of S&P 500, Scott Black talks about relaxation of mark to market accounting, Unemployment
Posted in Economy, General, markets | No Comments »
Posted by Larry Doyle on May 28th, 2009 1:02 PM |
Many people may think Washington Mutual is just another large financial conglomerate that has since gone into thrift heaven via its takeover by JP Morgan. While WaMu is now part of the JPM franchise, it continues to send very real signs which provide great insight as we navigate the economic landscape.
Thank you to our friends at 12th Street Capital for highlighting a release put forth yesterday by Jamie Dimon, chairman and CEO of JP Morgan. As the Financial Times reports, JP Morgan Warns on Credit Card Woes:
Jamie Dimon, JPMorgan Chase chief executive, warned on Wednesday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end.
In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans.
At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 to 24 per cent by the end of 2009, depending on economic conditions.
The initial question begs as to how and why the credit performance of WaMu’s cardholders could be that much worse than the industry as a whole. For those unfamiliar with Washington Mutual, the institution made a failed attempt to penetrate the Wall Street fortress via leveraging its credit origination platform. WaMu was one of the most aggressive lenders across the spectrum of products. As I wrote back on November 12th in The Wall Street Model Is Broken….and Won’t Soon Be Fixed:
At the turn of the century, the Wall Street model was a pure “originate to distribute” model with little to no residual risk on behalf of the originators or underwriters. When there is no residual risk, those who “WIN” are the players that can purely process the most volume. Well, how does one get volume? Lower the credit standards, put fewer restrictions on borrowers, little to no covenants (NINA Loans: no income, no asset check).
Washington Mutual was the poster child for aggressive, if not irresponsible, lending. When their distribution capabilities ceased, the institution was left “holding the bag.” That bag was filled with credit cards now projected by the TOP banker on the street to default at twice the norm. What more can we learn in this process? Let’s dig deeper. (more…)
Tags: 12th Street Capital, CEO of JPM, credit card defaults, credit card losses, credit card losses tracking unemployment, expected losses on credit cards, FDIC, green shoots, Jamie Dimon, Jamie Dimon speaks about credit cards, JP Morgan, JP Morgan's purchase of Washington Mutualrgan, originate to distribute model, Unemployment, WaMu, WaMu's lending platform, Washington Mutual, Washington Mutual credit cards, Washington Mutual's lending practices
Posted in General, Jamie Dimon, JP Morgan, Washington Mutual | 4 Comments »
Posted by Larry Doyle on May 27th, 2009 3:25 PM |
Are we there yet? What parent does not hear those words ringing in their ears? Well, in regard to our economic trail, let’s revisit an insightful piece of economic analysis put forth by Professor Kenneth Rogoff of Harvard and Professor Carmen Reinhart of the University of Maryland.
I initially reviewed Rogoff’s and Reinhart’s treatise in my January piece, “Time, Why You Punish Me?” Let’s revisit and review if we’re there yet, and if not just how much further we may have to drive. I wrote at the time:
In the midst of ongoing reading and research, I was fortunate to come across a presentation prepared by Professor Kenneth Rogoff of Harvard University and Carmen Reinhart of the University of Maryland, entitled “Aftermath of Economic Crises”
This work reviews a total of 18 banking crises which led to economic recessions since WW II. They put particular emphasis on 5 of these crises: Spain in 1977, Norway 1987, Finland 1991, Sweden 1991, Japan 1992. Each of the crises they studied share three characteristics:
1. Asset Market Collapse
Housing price declines averaged 35% over a 6 year timeframe. Equity price collapses averaged 55% over three and a half years.
Our housing markets are widely divergent with the major metropolitan cities within CA, AZ, NV, FL, and MI down anywhere from 25-35% over the last 12 months and down approximately 10-15% the year before that. Other markets have held up much better and are down approximately 10-15% in the last year. The national average declined 19% in the last year.
Our equity markets are currently 40% off the highs having declined slightly north of 50% at the March lows. (more…)
Tags: Aftermath of Economic Crises, asset market collapse, Carmen Reinhart, declines in the equity market, government debt explodes, housing markets, Kenneth Rogoff, prior banking crises, Reinhart of Maryland, Rogoff of Harvard, tax revenues plummet, Unemployment
Posted in Economy, General | 2 Comments »
Posted by Larry Doyle on May 23rd, 2009 8:50 AM |
The developments in our global economy are so large in scale that it is of paramount importance to develop a macro view. David Swensen, Yale’s head of investments and widely regarded as the top portfolio manager within college and university endowments worldwide, says as much in an interview reported by Bloomberg:
“The crisis forces you to think top-down in ways that would, I think, be unproductive in normal circumstances, or absolutely necessary in the midst of a crisis,” Swensen said. “You have to think about the functioning of the credit system. You have to think about the potential impact of monetary policy on markets over the next five or 10 or 15 years.”
I concur. In that spirit, let’s look back at my outlook from last October so that we can more clearly look forward as we navigate the economic landscape.
Excerpts, with current commentary, from The Economy – What Lies Ahead (originally published October 14, 2008):
1. Global Increase in Long Term Interest Rates – the massive amount of debt that will need to be issued will cause rates worldwide to rise even in the face of a likely significant economic slowdown.
I still maintain this premise. The move down in the economy last Fall led to an initial move lower in rates on government bonds. Our central bank and other central banks have subsequently supported the economy via quantitative easing (central bank purchasing of government and mortgage-related assets). That said, we are now entering the stage where the global demand for credit is swamping investors’ and central banks’ ability to provide it and rates are moving higher. I believe this move to higher rates, especially in the government and mortgage sectors, will continue. Rates for municipal and corporate bonds should also be forced higher although not as much.
2. Financial asset deflation while hard goods and asset inflation. Why??
I can already hear the printing presses at work churning out currencies worldwide. The rise in interest rates will depress bond values. With slower worldwide economic growth and increasing unemployment, GDP prospects are not pretty for the foreseeable future. I think there is a very strong chance that we will see “stagflation.”
While financial assets have limited upside growth potential and significant downside even from here, hard commodities and assets will likely increase in value, or perhaps I should write will hold their value as financial currencies and financial assets lose value.
I continue to believe we will experience stagflation. Comments by Bill Gross of Pimco highlighting the potential likelihood of the United States losing its implied AAA credit rating adds fuel to this fire.
Individuals, corporations, and governments still need to delever (pay down debts) and will be forced to sell assets in the process. As such, while I think selected sectors of the equity market may hold up, I remain concerned about the overall market. I think the U.S. dollar and other currencies of overlevered (big fiscal deficits) nations will suffer. These developments are inflationary. To defend one’s portfolio from inflation, gaining exposure to TIPS (Treasury Inflation Protected Securities) is prudent. Mr Swensen addresses this point in the aforementioned interview.
3. Where do you put your money??
Take what the market is giving you, and right now they are giving you security and guarantees in deposits in large money center banks . . . this also provides flexibility to provide liquidity for those in desperate need and you will see more and more of that occur both at a personal level and a corporate level . . . BE PATIENT . . . buy QUALITY . . . this market is very quickly separating the wheat from the chaff . . . well managed institutions will gain market share and it will be reflected in the value of their stocks and bonds . . . one has to fully understand an entity’s ability to generate cash flow to meet their debt service and to grow their enterprise.
While rates on CDs and other short term deposits have come down, I still believe it is prudent to remain defensively positioned at this juncture. As the liquidity needs increase – and they are – opportunities will develop in a wide array of markets. While it may be prudent to buy short term bonds of highly rated companies, I still think people should keep plenty of dry powder. Within equities, companies with pricing power (ability to increase prices in an inflationary environment) will outperform.
4. Other Highlights . . .
If the government accedes to the pressure being applied to suspend the mark to market accounting principle, I would expect that move would only prolong the underperformance of the economy . . . I view a suspension of the mark to market as the equivalent of an agreement to officially allow one to “cook their books.”
I very much believe this and maintain this viewpoint.
SELL RALLIES . . . while financial institutions have been feeling the pain of overleverage for the last 12 to 18 months, that pain is just now coming to bear on the consumer . . . given that the consumer represents app 70% of our GDP, the expected precipitous drop in consumption across a wide array of products and industries will be very painful . . . you will see a litany of corporations announcing layoffs on a regular basis . . . Pepsi did just that this morning.
I also maintain this premise. I believe we will experience double digit unemployment this year given the problems in the automotive (production, parts, and dealers), and municipal sectors (forced cuts as tax revenues plummet. California is the poster child!!). Retail sales will remain low keeping domestic production and imports also depressed.
Please share your thoughts and opinions. Each and everyday is a microcosm, but we need to maintain the macro view as we navigate the economic landscape!!
LD
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Posted in Economy, General | 5 Comments »
Posted by Larry Doyle on May 8th, 2009 7:17 AM |
Before this morning’s numbers were released, I published:
The widely anticipated May Unemployment Report covering the month of April is due out this morning at 8:30am (EST). Will this report show signs of improving trends in the pace of layoffs? Aside from the actual report, we need to pay strict attention to the revisions for prior months to assess the overall health of “our patient.” In regard to revisions and the actual report, a month ago I had written in my post April Unemployment Report:
Analysts hit the numbers, as they came in as expected. Wow! Are the analysts that good or are these numbers being “managed” or “massaged” so as not to overly upset the markets? Well, we did have a significant revision to January’s report. Let’s dig deeper!!
Call me paranoid, but when a January Non-Farm Payroll number is revised from a loss of 655k jobs to 741k and no revision is provided for February, I immediately ask why.
Previous month’s data and expectations for the May report are as follows:
**Note: I have now included the actual unemployment statistics (which were released at 8:30AM), along with my post-report commentary:
Unemployment Rate
March: 8.1%
April: 8.5%
Expectation for May: 8.9% (recall how this rate was the base case used for Bank Stress Tests…and here we are hitting it in May!!)
Actual for May: 8.9%
Post-report comment: as expected . . . however, the Underemployment Rate is now 15.8%. This rate consists of those unemployed and looking for work, unemployed and have given up looking, and part-time workers who would prefer full-time. To that end, I wonder how many temporary workers in the Census Bureau would prefer full-time work.
Non-Farm Payroll (click here for definition of this term)
March: loss of 651k
April : loss of 663k
Expectation for May: loss of 600k
Actual May report: loss of 539k
Revisions: February and March combined lost another 66k jobs
Post-report comment: on the face, the report appears better than expected but given the additional job losses in the revised numbers for February (an additional 18k jobs) and March (an additional 48k jobs) we are still in the 600k average job loss for the month. Private sector lost 611k jobs while government added 72k jobs with a lot of those people being temporary workers employed by the Census Bureau. The fact that temporary government workers are factored into overall employment, in my opinion, is stretching the integrity of the report. Health care added 17k jobs, manufacturing lost 149k jobs, construction lost 110k jobs, financial services lost 40k jobs.
As I referenced above, I will be looking for a February revision as well.
Average Hourly Earnings
March: +.2
April : +.2
Expectation for May: +.2
Actual May report: +.1
Post-report comment: businesses are doing everything to manage costs. This number is lower than expected and will not help consumer spending and retail sales going forward. With no wage pressures, this component of inflation will remain in check
Average Hourly Workweek
March : 33.3 hours
April: 33.2 hours
Expectation for May: 33.2 hours
Actual May report: 33.2 hours
Post-report comment: as expected…
Please check back shortly after 8:30am to review the numbers and market reaction!! In pre-market trading, stock futures indicate the market would open higher by approximately 1%. The 10yr U.S. Treasury is quoted at 3.35%.
Post-report comment: the bond market has rallied marginally as the overall report continues to show weakness throughout the private sector. The equity market is a touch lower. Analysts are spinning the report as a slowing in the pace of declines. Does this report portend an improved tone in spending, economic activity, and lessened defaults and foreclosures? Not in a hurry.
If you like what you read and see here, please put Sense on Cents in your favorites, and visit and comment often!! Thanks!!
LD
Tags: employment report for May, how much did unemployment increase in May, jobs report in May, market reaction to unemployment report, May employment report, May jobs report, May Unemployment Report, nfp report, non-farm payroll, non-farm payroll report for May, report on jobs, Unemployment, unemployment in May, unemployment report for May
Posted in General | 3 Comments »
Posted by Larry Doyle on April 21st, 2009 7:05 AM |
Markets correct by price (both up and down) and time (extended). Despite the 3+% price declines in equity markets yesterday, the markets are up approximately 20% since the market lows seen on March 6th. Some analysts believe this upward move signals an improvement in the economy largely due to the fiscal and monetary stimulus provided by Uncle Sam. I am not in that camp.
A few emerging economies, specifically China, have improved. Can the rest of the world, including the U.S., expect those economies to be the engine for a global turnaround at this juncture? I do not think so. I still see the following issues on our domestic horizon:
1. continued deterioration in loan performance on bank books
2. a banking system woefully capital deficient
3. an automotive industry which must downsize
4. municipalities which are faced with the predicamant of capital shortfalls and underfunded pensions
5. commercial real estate just starting to experience real defaults
6. a housing market with increased foreclosures pressuring prices
7. an unemployment rate clearly headed toward double digits
Earnings reports for the first quarter have been mixed. I view the recently reported bank earnings as largely “managed” via accounting gimmicks. Meredith Whitney believes the earnings for major money center banks will turn negative in the 2nd quarter. The regional banks, without the benefit of large capital market activities but facing credit writedowns, report earnings today. Key Corp just reported a loss of $1.09 eps (earnings per share) versus an estimate of -.21. I suspect we will see losses from other regional banks of a similar magnitude. (more…)
Tags: accounting gimmicks, automotive industry, bank earnings, capital in banking system, commercial real estate defaults, commercial real estate performance, consumer spending, credit, deterioration in loan performance, economic performance, economic recession, Economy, equity market, fiscal deficit, growth of money supply, leading economic indicators, managed earnings, Meredith Whitney, municipal finance, regional bank earnings, underfunded pensions, Unemployment, yield curve
Posted in General | No Comments »
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Sense on Cents On Economy and Markets: Lets Look Back to Look Forward
Posted by Larry Doyle on May 23rd, 2009 8:50 AM |
The developments in our global economy are so large in scale that it is of paramount importance to develop a macro view. David Swensen, Yale’s head of investments and widely regarded as the top portfolio manager within college and university endowments worldwide, says as much in an interview reported by Bloomberg:
I concur. In that spirit, let’s look back at my outlook from last October so that we can more clearly look forward as we navigate the economic landscape.
Excerpts, with current commentary, from The Economy – What Lies Ahead (originally published October 14, 2008):
I still maintain this premise. The move down in the economy last Fall led to an initial move lower in rates on government bonds. Our central bank and other central banks have subsequently supported the economy via quantitative easing (central bank purchasing of government and mortgage-related assets). That said, we are now entering the stage where the global demand for credit is swamping investors’ and central banks’ ability to provide it and rates are moving higher. I believe this move to higher rates, especially in the government and mortgage sectors, will continue. Rates for municipal and corporate bonds should also be forced higher although not as much.
I continue to believe we will experience stagflation. Comments by Bill Gross of Pimco highlighting the potential likelihood of the United States losing its implied AAA credit rating adds fuel to this fire.
Individuals, corporations, and governments still need to delever (pay down debts) and will be forced to sell assets in the process. As such, while I think selected sectors of the equity market may hold up, I remain concerned about the overall market. I think the U.S. dollar and other currencies of overlevered (big fiscal deficits) nations will suffer. These developments are inflationary. To defend one’s portfolio from inflation, gaining exposure to TIPS (Treasury Inflation Protected Securities) is prudent. Mr Swensen addresses this point in the aforementioned interview.
While rates on CDs and other short term deposits have come down, I still believe it is prudent to remain defensively positioned at this juncture. As the liquidity needs increase – and they are – opportunities will develop in a wide array of markets. While it may be prudent to buy short term bonds of highly rated companies, I still think people should keep plenty of dry powder. Within equities, companies with pricing power (ability to increase prices in an inflationary environment) will outperform.
I very much believe this and maintain this viewpoint.
I also maintain this premise. I believe we will experience double digit unemployment this year given the problems in the automotive (production, parts, and dealers), and municipal sectors (forced cuts as tax revenues plummet. California is the poster child!!). Retail sales will remain low keeping domestic production and imports also depressed.
Please share your thoughts and opinions. Each and everyday is a microcosm, but we need to maintain the macro view as we navigate the economic landscape!!
LD
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