Sunday, June 7, 2009

Here are several economic-financial related charts and other data presentations. The first shows the current unemployment rate as compared to the (recently-derived) "baseline" case and "more adverse" (low probability event, allegedly, according to the Fed) for the national unemployment rate.

Here's another example of forecasters getting it very wrong, and recently, from the Philadelphia Fed:
First Quarter 2009 Survey of Professional Forecasters
Release Date: February 13, 2009
(click on the hyperlink, then click on "First Quarter 2009):
An upward revision to the forecast for the unemployment rate accompanies the outlook for economic growth. The forecasters predict that unemployment will rise from 7.8 percent this quarter to 8.9 percent in the fourth quarter of 2009. Previously, unemployment was forecast to rise from 7.0 percent to 7.7 percent over the same period. Unemployment is expected to average 8.4 percent this year and 8.8 percent in 2010. On the jobs front, the forecasters project job losses in the current quarter at a rate of 548,400 per month. They also see a reduction in jobs of 311,200 per month in the second quarter and 202,100 in the third quarter of 2009.

Both of the above were found at Mish's post from today.

Let us examine the facts. Also thanks to CR, consider Regulators Eye Pay Czar:

A Bankrate Inc. survey also released today showed 70% of survey respondents said they felt secure in their jobs despite the rising joblessness. Of those remaining at their jobs, 54% responded they’d received some sort of pay reduction: pay cut, reduced hours, reduced work days, suspended raises, bonuses or 401K match, or a combination of these.

So, the unemployment rate and pace of job losses are well above those projected just four months ago. Deflation in job benefits is proceeding. There is no inflation except in commodities, which are speculative.
Those seers such as Nouriel Roubini and Mish who stated in Q1 2009 that the economy would underperform the consensus forecast have been proven correct. The public is now probably more optimistic than the facts support. Others such as Robert Prechter and Paul Lamont who two or more years ago foresaw the recent, ongoing severe "debt deflation" and then a stock market pop upward beginning a few months ago are fearing a major new stock market downturn, perhaps after more optimism pushes stock prices up higher.

Amongst stocks, there are some that do not reflect the horrible bear market. Here are two charts that reflect successful businesses.
That the price of a security has fallen does not tell you that it has fallen too far. On the other hand, a security that has resisted the fall of most others tells you a lot. If its price has risen consistently over the years and has other fundamental characteristics that you like, it is not determinative as to whether one wants to own that security whether the prices of other securities are attractive.
Right now, the stocks of large consolidators such as Teva (generic pharmaceuticals) and deep discounters such as Ross Stores (clothing), the long term price charts of which are shown above, reflect businesses that are thriving and can continue to grow long-term in any economic environment (excluding complete and utter devastation). They pay dividends equal to money in the bank and have low double-digit price-earnings ratios. While their stock prices will certainly fall if the stock market makes new lows, over a full economic cycle, they are likely to be profitable investments and provide a different sort of hedge from inflation than gold.
Finally, regarding gold, I have previously commented on it as unexciting from a chart pattern. If an increasing percentage of the public remains sold on a Goldilocks scenario and continues to pay rising prices for risky assets, then the price of the perceived safe haven of gold is likely to suffer.
Short term, gold is unexciting at best.
Meanwhile, sentiment remains horrible or even beyond horrible for intermediate to long-term U. S. Treasury bonds. Yet a Goldilocks scenario for stocks has to imply diminishing counter-cyclical deficit spending and acceptable inflation, and thus cannot mean a durable bear market for Treasuries soon.
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