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HomeUnemployment Report: December 4, 2009
Posted by Larry Doyle on December 4th, 2009 8:57 AM |
The widely anticipated December Unemployment Report covering the month of November was just released. Let’s dive right in and take a look at the numbers . . .
I. UNEMPLOYMENT RATE
August: 9.4%
September: 9.7%
October: 9.8%
November: 10.2%
– December Consensus Expectation: 10.2%
– December Actual: 10.0% !!
>> LD’s comments: Discouraged workers did increase and exit the labor pool. That fact supported this improvement. Initial reaction to the report remains one of disbelief and skepticism. The underemployment rate (U-6 rate) improved to an overall level of 17.2%.
II. NON-FARM PAYROLL (click here for definition of this term)
July: loss of 463k
August: loss of 304k
September: loss of 154k
October: loss of 219k
November: loss of 190k
– December Consensus Expectation: loss of 100k to 125k
– December Actual: loss of 11k!!
>> LD’s comments: positive revisions to the previous two months of 159k. A major surprise. Along with the positive revisions, do not be surprised to see many analysts tout this as the turn in the economy and the fact that government programs are working. We will need more than one month’s report to confirm that. (more…)
Time to Reinstitute Glass-Steagall
Posted by Larry Doyle on December 3rd, 2009 3:16 PM |
A car needs gas to run. An engine needs steam. A factory needs power. The fact is without a steady source of energy nothing can operate. Welcome to the Uncle Sam economy circa 2009.
You may be thinking, wait a second LD . . . the Federal Reserve is flushing the system with liquidity. Money is easy and it is propping the markets. While availability of credit may be tight, the demand for credit is also weak. So what am I talking about?
Thanks to RM for providing the FDIC Third Quarter 2009 Banking Profile (a link to the full document is provided at the end of this commentary). For those who care to rip apart the inner workings of our banking system, this report is the owner’s manual. The report highlights the following:
> Industry Posts Net Profit of $2.8 Billion
> Increased Revenues, Lower Securities Losses Offset Higher Loan-Loss Provisions
> Net Interest Margins Improve at Most Institutions
> Troubled Loans Continue to Rise, But Rate of Growth Slows
> Loan balances Decline by 2.8% in the Quarter
Based on this overview, it would appear that the banking industry is slowly recovering. In aggregate, perhaps that may be the case. But what doesn’t this report tell us? (more…)
The Market’s Greatest Risk
Posted by Larry Doyle on December 3rd, 2009 12:26 PM |
What is the greatest risk in the market currently? Is it the fact that the American consumer remains strapped? Unemployment showing no signs of improvement? Is it the continuation of problems within housing? While all of these issues are significant, I would maintain they are not anywhere close to being the greatest risk in the market. Why? Let’s navigate.
Each of the previously raised points is an economic factor, but the market is trading to a much greater extent based on technicals and excessive liquidity provided by the Fed than any individual or group of fundamental economic statistics.
Thus, let’s return to my original question. What is the greatest risk in the market currently? If the market is being supported by easy money provided by the Fed and that easy money is pressuring the dollar ever lower, then the greatest risk is that the dollar stops its decline. What might precipitate the dollar to increase in value? Coordinated intervention by international trade partners who are disadvantaged by a weak dollar. Could this happen? Without a doubt. In fact, our friends in Japan just started intervening in the currency markets to weaken the yen against the dollar.
The Wall Street Journal highlights this development in the brief video clip, Calls Increase for Japanese Intervention More Acute:
The yen has moved up to a current valuation of 88.14 versus the U.S. dollar from a month end level of 86.38 just this past Monday.
While I have no doubt that our political leaders in Washington are not unhappy with the weakening of our greenback, our international trade partners, such as Japan, are less thrilled. To the extent that these partners fashioned a coordinated response to strengthen the dollar and weaken their own currencies in an attempt to support their own exports, that coordinated effort is ‘the market’s greatest risk.’
LD
I’ll Gladly Pay You Tuesday…
Posted by Larry Doyle on December 3rd, 2009 9:26 AM |
Postponing losses in hopes that one can trade out of them is a game very rarely won. In similar fashion, not acknowledging losses in hopes that the situation improves and the loss is mitigated is also a recipe for disaster. All one needs to do is look eastward to Japan to realize that. Ultimately, a loss not only must be realized, but paid. “I’ll gladly pay you Tuesday for a hamburger today …” may be cute in cartoons, but in the real world that approach never works. That said, this ‘delay to pay’ is the exact approach being utilized by Uncle Sam and, in large measure, by private industry.
Bloomberg’s Jonathan Weil once again distinguishes himself and provides great insight on this dynamic in writing, Fudging Losses is Easy When the FDIC Does It Too:
No wonder so many banks are delaying their losses. The Federal Deposit Insurance Corp. keeps showing them how, by doing the same thing with its own.
Last week the FDIC, led by Chairman Sheila Bair since 2006, said its insurance fund’s liabilities exceeded assets by $8.2 billion as of Sept. 30. That marked the first time since 1992 that the industry-financed fund had shown a deficit. There’s plenty of reason to believe its financial health is much worse.
How much worse? (more…)
Federal Reserve Says “One More Drink”
Posted by Larry Doyle on December 2nd, 2009 2:31 PM |
Illustration by Zhou Tao
I have to admit, I chuckled upon reading the news today that the Federal Reserve is debating whether and how it may fight the prospects of asset bubbles developing. The Wall Street Journal addresses this story in writing,
Fed Debates New Role: Bubble Fighter:
Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing.
Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they’ve followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms “perhaps the most difficult problem for monetary policy this decade.”
With Asian property prices soaring and gold prices busting records almost daily, the debate comes at a critical time. Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power.
At the same time, pending legislation in the House could leave Mr. Bernanke running a less independent institution. The House Financial Services Committee has passed a measure that would subject the Fed’s interest-rate decisions to scrutiny by the Government Accountability Office, an investigative arm of Congress. Mr. Bernanke and others at the Fed fear that with Congress looking over their shoulders, any decision they make about interest rates would be subjected to the winds of politics — making it harder to control inflation or financial bubbles.
My immediate thought upon reading this article is to think of the bartender who is happy to push one more drink upon an overlubricated patron. Or perhaps a junkie who is willing to sell a down and out addict one more fix in order to ease the pain. (more…)
FHA: Go Broke First, Tighten Standards Later
Posted by Larry Doyle on December 2nd, 2009 11:09 AM |
When will those charged with spending taxpayer money treat associated responsibilities with the seriousness they deserve? Indiscriminately and wastefully allocating taxpayer funds is not merely a question of competence but, in my opinion, a question of patriotism.
The Obama administration’s support of our nation’s housing market has been overwhelming. Taxpayer funds have been directed towards Freddie, Fannie, the FHA (Federal Housing Administration), and a wide number of banks. Although government spending and waste go hand in hand, the American taxpayer deserves so much better.
With the recent news that the FHA insurance fund is depleted, now the FHA decides to tighten standards. Spend money first, ask questions later? Where and when will this madness end? A recent release from the Federal Register/Department of Housing and Urban Development highlights new initiatives by Housing and Urban Development (HUD) which oversees the FHA. The FHA Summary reads as follows: (more…)
FINRA Defense: Exhaustion and Immunity
Posted by Larry Doyle on December 2nd, 2009 9:24 AM |
Let’s revisit the case of Standard Investment Chartered v. FINRA. While I have written extensively on a host of issues related to FINRA, I believe the issues embedded in this specific case drive to the very core of our financial regulatory system. For those unaware of this case, a recent memorandum (link provided at end of this commentary) filed on behalf of the plaintiff highlights:
At the core of the case is the FINRA Defendants’ issuance of a proxy statement on December 14, 2006 (the “Proxy Statement”), which contained out-and-out material falsehoods and omitted essential facts bearing on the Transaction and on a proposed “Special Member Payment” that was to be made upon its completion. The most important false representation was that federal tax authorities limited a payment to NASD Members to $35,000. Second Amended Complaint (“SAC” or the “Complaint”) ¶ 13. The FINRA Defendants magnified the falsehood that the Internal Revenue Service (“IRS”) limited NASD Member payments to $35,000 in many different forms, over and over, as if saying it enough times and wishing it to be true would somehow make it come true.
A claim of out-and-out material falsehoods against defendants, including then FINRA head and current SEC chief Mary Schapiro, is where the rubber meets the road. How have the defendants responded? Are they willing to embrace the virtues of transparency and integrity so badly needed to restore investor confidence? No, I don’t think so.
The defendants have filed a motion to dismiss this complaint. On what grounds do the defendants make their motion? The memorandum highlights: (more…)
Bob Rodriguez: The Best Fund Manager of Our Time
Posted by Larry Doyle on December 1st, 2009 11:53 AM |
Listening to and learning from the best makes life worth living. The wisdom proffered by giants within their fields is the equivalent of a fabulous dining experience. Well, on that note, get ready to sip of the finest wine and savor the best steak that the financial industry has to offer. What chef is preparing our meal? The best in the business, an Economic All-Star here at Sense on Cents, none other than First Pacific Advisors’ Bob Rodriguez.
Our dining experience with Mr. Rodriguez last June 1st was nothing short of spectacular as he regaled us with his treatise, Reflections and Outrage. Bring your appetite again as Rodriguez was recently interviewed by Consuelo Mack.
Why do I think so highly of Bob Rodriguez? His life story resonates with me. I relish his emphasis on integrity, discipline, balance, history, prudent risk, and differentiating oneself.
This clip runs for 25 minutes. If we embrace the wisdom offered by Bob Rodriguez, the lessons can last a lifetime.
High five to MC for sharing this clip. Please share your thoughts on Mr. Rodriguez’s perspectives. If you like what you taste, in the season of giving, please share it with friends and colleagues. They’ll thank you.
LD
November 2009 Market Review
Posted by Larry Doyle on December 1st, 2009 6:48 AM |
The magnitude of market returns across virtually every segment (equities, bonds, currencies, and commodities) leaves me with one overriding belief: DON’T TRY THIS AT HOME.
To the extent that you have funds invested across asset classes, once again smile at the returns but do not think for a second that they are a precursor to a robust rebound in the economy. In fact, all you need to do is see what is happening in Washington this very week to get a pulse on the two most economic forces in our nation.
Today, the Obama administration released a revamped effort to support our housing market which continues its descent. I highlighted this initiative in my post yesterday, “Obama’s Socialized Housing Policy: If at First You Don’t Succeed….Try, Try Again.”
Later this week, Obama is hosting a Jobs Summit given the fact that the unemployment situation shows no signs of improving anytime soon. I highlighted this dynamic in my piece, “Jobs is Job # 1.”
What is going on in the markets? The same story. Excess liquidity provided by Ben Bernanke and Tim Geithner is bubbling over into virtually every asset class. While many money managers, foreign central bankers, and even some at the Fed have raised the question of asset bubbles, these situations can persist as long as the source of fuel, that is the Fed’s easy money, continues to flow.
Can you call a top to something that is already out of control? It would be purely guesswork. All this said, don’t get complacent and think for a second that the economy is not fragile and filled with risks.
LD
