The Depression Continues

ADP's hiring numbers are out. February was revised down by 4000 jobs to -24,000. March was listed as -23,000. Census hiring was irrelevant as the Gov't does not outsource its bookkeeping/payroll to ADP! And ADP says the storms in Feb. did not affect its numbers.

Gallup.com shows that hiring/not hiring shrank to -1 as of today, a number it first hit Nov. 2008. It also showed that elective spending was down to $61/day, a number first hit in Feb. 2009. Even at much better #s such as +10 (% seeing hiring - % seeing negative hiring), unemployment was increasing in 2008.

In the real world, there has been no economic recovery. There has simply been looting of the public's money to pay off Big Finance's bondholders and enrich its stockholders, along with various other shenanigans such as stealing through ZIRP from savers. Though the Govt might counter that absent FDIC, savers in many banks wouldn't have received 100 cents on the dollar from their savings. Given that in the Great D, almost all the money center banks were money good and only a very small % of all bank savings were lost to bank failures, the current crash has been far worse than that of the early 1930s. Nothing like modern life support methods. It used to be that a massive heart attack could not be survived. Dr. Ben: committed malpractice but the patient is sort of alive, suspended like Hamlet between heaven and earth.

Remember that the non-farm payrolls # in 2 days will be revised. It cannot be profitably traded off of unless one is a true pro.

Stock prices cannot go down: bad data means easy money forever; good data means that Larry Kudlow and other permabulls such as Brian Wesbury are right that America has one damn great economy.

At some point presumably ECRI and Conf Board will be correct. There will be hiring. But at about 200,000 jobs added monthly for 12 months needed to bring the unemployment rate down a mere 1%, even a nice job gain number needs to be greeted with restraint. Plus, normalization of Fed policy may accompanying greater economic activity and therefore may be further associated with another conundrum on interest rates and sluggish stock price reaction.

Copyright (C) Long Lake LLC 2010

Where To Now?

Approximately now, the Fed has definitively embarked upon the next tightening cycle. Looked at from a long term nominal or inflation-adjusted perspective, the U. S. economy has not performed well for some time. Measures of consumption, such as cars sold, do not reflect wealth accumulation. Thus when the economy was so weak that to sustain the appearance of strength coming out of the 2001 recession, houses were routinely sold for almost nothing down and with ridiculously low lending standards, and autos were almost always bought on credit, the signs of economic malaise were clear.

The "escape" from the abyss in fall 2008 was unsurprising. Be not impressed by the "heroism" or "brilliance" of the economic doctors in that time. All they did was socialize the losses onto you and me and reward the insiders. Plus they printed money. In other words, they took the Japan solution to a banking crisis rather than the 1990s Swedish solution.

There is no telling if consumer prices are going to go into a period of stability or even decline a la Japan. What makes more sense is that the U. S. is a decade out of phase from Japan. Increasingly we are already seeing that the funding of new Federal debt is domestic rather than foreign. If that continues, America will be following the Japan scenario in that regard as well.

The headlines are going in the MS tout resumption of job growth in March. Whether all of that is from Census hiring we won't even be sure of till revisions occur. What is certain is that small business is not hiring, though it has largely stopped firing. With housing activity not on a clear upward path if not on a downward path, despite all the support, we are left with the prospect of a post-credit crunch economy.

This in turn is one in which frugality continues, and Gallup continues to show consumers just not spending on elective things and workers just not seeing any net hiring at their firms.

The biggest mistake investors can make is to key their stock and bond valuations off of unnatural zero interest rate policies. This failed them in the last cycle and will fail them again. Last time around, Fed funds only got to 5.25%, at most equal to inflation if not below it-- and things collapsed. This is a sign of severe instability, in that the economy could not even survive imposition of a positive real rate of interest on Fed funds. So far, it looks like a replay of that. The Fed is behind the curve on inflation again and will keep that stance longer than inflation hawks want, until real progress is made on the employment front, and there is a huge hiring boom to go for the rate of unemployment to drop. That rate, of course, lags hiring as people re-enter the labor force after giving up and thus not being counted as unemployed for a period of time.

Given a weaker foundation this time and the certainty-- not the unfounded worry-- of financial instability in various spots across the globe -- investors are well advised not to take the Soma of comfort in low interest rates and keep much invested in assets which they would sell at a lower price were another bear market to start tomorrow from such matters as a bursting bubble in China or a bank failure or sovereign default in Europe, or a major rise in Treasury borrowing rates in America.

The feeling here is that the political zeal in the Obama administration suggests that the gold and bond markets will need to react, and more robust political opposition in Congress needs to materialize, before fiscal prudence becomes government policy.

This argues for gold as a core permanent (for now) holding of all investors. If the economy starts shooting up, as may happen one of these quarters based on ECRI and the Conference Board numbers, then silver and platinum may go to new highs for the cycle (new all-time highs for platinum) and outperform gold. If we have economic slowness (no double dip required) first even though the Fed is still "loose", just less loose than recently, though, then gold is the only precious metal than can continue up in price due to its status as an alternative, globally accepted store of value.

In two hundred years, which is more likely to remain a store of value: the Federal Reserve Note, or gold?

Copyright (C) Long Lake LLC 2010

Today's Jobs Report: Brief Comments and a Link

Click HERE for a link to the source report for today's jobs reports.

There's nothing like reading it yourself rather than someone's interpretation.

Much of it can be understood by lay people.

At first glance, I don't see anything earth shattering. The reported decline in the unemployment rate to 9.7% is, on its face, good news, but no other study I'm aware of suggests that significant hiring has occurred. Certainly the "establishment" survey, ADP's survey, various surveys of small businesses, etc. does not suggest that job growth has yet returned.

But it may be starting. If so, expect real-world inflation to exceed bank interest rates and thus for money to seek higher returns, such as in speculative areas.

Copyright (C) Long Lake LLC 2010

Paul Krugman and Tired Old Thinking

In today's NYT column March of the Peacocks, Paul Krugman lays out the progressive/liberal view that government is the ultimate actor in the economy:

The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.

This view is open to dispute. The 1929 downturn became a "great" depression during the unprecedented activism of President Hoover, and involved post-WW I debt repayments imposed on Germany as a unique complicating factor. In another sense, the Great D involved a series of events that comprised a perfect storm.
Think of it as a Hurricane Katrina which before the levees gave way, first made a direct hit on New Orleans and devastated it; and then the levees broke. A truly "perfect" storm.

And re the Great D, also remember that candidate FDR harshly criticized Hoover's Federal deficits, and pledged to bring the budget back into balance.

There is no replaying history. No one can disprove the concept that had FDR kept his pledge, the economy would not have recovered just as it recovered from the severe depression of 1920-21 or the Panic of 1873.

All we know is that in the 1930s, the government had a balance sheet that was a fortress founded both on gold and on untapped taxing and borrowing power.

This situation is quite different today, thanks to generations of Krugman-praised policies. The consolidated balance sheet of the Federal Government shows, let us say, $60 T of debt against $2 T of income. That's a 30 to one leverage ratio, and only includes the present value of Social Security and Medicare obligations. It excludes other obligations such as the financial backstops for FDIC and the like, and other implicit obligations.

Why a solution that was tried in the 1930s is the same solution that should be tried after decades of increasing debt and chronic price inflation is unclear. Something about Einstein's definition of insanity being doing the same thing and expecting a different result.

Moving to the recent past, there is no evidence that the disorderly bankruptcy of Lehman Brothers was going to lead to anything worse than we got.

Going farther, remember that one year ago, Mr. Obama's advisers were forecasting 8.5% peak unemployment in the absence of a massive deficit-spending "stimulus" bill.

Were these top-tier economists off by, say, an additional 15-20% unemployment points (these numbers are all U-3 for consistency)?

Could it be that all the activist government--cap and trade and then healthcare reform, for example--inhibited animal spirits amongst small business owners?

Yours truly has an only-partially tongue-in-cheek solution. Let us say that there is, net, 20% unemployment/underemployment (U-6 and then some). The average American with a job works 2000 hours per year. All one has to do is shorten the work week to 4 days, and poof, everyone has a job.

This solution is as obvious as simply taxing fossil fuel use directly rather than going to the sham of cap and trade.

In other words, go more European in work effort. Now, this can be spun in various ways: shorter work days, earlier retirement, etc.

In fact, the more leisure time people have, the more time they can spend consuming (not that consumption is the goal of life in richer countries). For sure, less work means more play.

Now, this is partly satirical, but only partly. America produces about 3000 calories of food a day for a population that needs, on average, only 2000. Our current solution is to stuff people with this overproduction, and the result is an obesity epidemic.

Less food production (less GDP) would be a good thing for our health, economy and environment. One can go down the list. Driving to work 4 days a week would save lots of gas, wear and tear on autos and roadways, and thus have positive aspects. In fact, working 4 ten-hour days a week would create savings over 5 eight-hour days.

In the real world where resources are finite, we need to think creatively and humanistically about practical approaches, not reflexively take Dr. Krugman's approach and turn to Leviathan for fixes.

Dr. Krugman is oriented toward government. In Europe, he would likely be a member of a Social Democrat-type party. Fine, legitimate point of view. But the key is to avoid imbalances such as massive deficits other than in wartime. A Great Recession caused by hot money, mortgage fraud and imprudent borrowing/lending simply does not get "solved" by repaving roads.

Two macro economic solutions are: Win a world war and thus dominate the global economy (the way out of the Great D); or deleverage at all levels (the post-WW II solution until leverage got excessive in the past decade).

Since a world war is not desired, the solution is to simplify our accounts, and as the world turns, commit ourselves to replacing debt with equity.

I would suggest starting with Citigroup.

The disagreement between Dr. Krugman and President Obama is one between similar thinkers. Both advocate government increasing its leverage to a greater extent than the rest of the economy is simultaneous decreasing its own.

There is no current cleared, trodden path away from this roadway, and until there is, I believe that the fundamental case for gold is strong and that new gold buyers can and will easily be found.

Remember: 30 to 1 leverage is a conservative measure of current Federal leverage. Sounds like Bear and Lehman to me. Paul Krugman thinks that raising this to 31 to 1 is the solution for 2010. Barack Obama perhaps prefers 30.8 to 1. I favor bringing it down an order of magnitude to, say, 3 to 1, and then going below that, and rethinking all current economic dogma built on the alleged virtues of an ever-expanding gross domestic product.

Copyright (C) Long Lake LLC 2010

Mainstream Thinking as Contrary Indicators: Unemployment and Gold

In its current above-the fold online article Poll Reveals Depth and Trauma of Joblessness in U.S., the New York Times may be ringing a bell for the (sort of) end of the jobless recovery and the (sort of) beginning of the "jobful" recovery. To date, there has been much more diminution of firings/lay-offs than there has been new hiring. Basic economic knowledge says that can only take business so far (and it takes it not very far). A year ago, the MSM was full of pictures of people in bread lines from the 1930s. Now, two years after the Great Recession began with a whimper, it is a bit late for the Times to run this sort of story and have anyone think that it has any predictive value (not that there is anything wrong with the content of the story). Let the hiring begin!

The yang to the above yin is that I believe that small business is going to "under-hire" in this expansion because of such factors as healthcare reform mandates, assuming that a bill passes, along with significant state and Federal marginal income tax increases. Having been a small business owner at one point, happily with substantial ability to earn more or less income by working harder or less hard, I can verify that the current level and trend of marginal tax rates had a real effect on my work effort, expansion plans, etc. Thus I suspect there will be a bit of a Potemkin quality to the Dow and S&P 500 indices, wherein the companies comprising those indices will tend to have better business results than average for the economy.

I personally exited the stock market at Dow 13,000, 28 months ago. I resumed stock investing in a modest way this summer at Dow 8500 or so. But my heart was with gold, as regular readers know. Strong companies that have not been directly involved with credit creation look to be sensible investments on a multi-year basis, though in the context of what I believe to be an overvalued stock market on an asset and dividend-paying basis. (Reported earnings don't matter all that much, FYI, when assessing fair value to a minority investor in a publicly-owned company.)

That brings us to gold. Randall Forsyth has a poorly-argued screed against gold in Barron's online today titled Nostalgia for the Gold Standard is Misplaced. He gets it wrong early on by saying:

The fundamental force behind the surge in gold is, of course, the economic crisis from which we may (or may not) be emerging.

Not so. Gold started rising after 9/11 and briefly quadrupled from its 2001 low in early 2008. It then stagnated/digested its gains until as late as 2 months ago, when it broke out not due to the crisis but due to the zero interest rate recovery. Too much credit chasing too few real goods and services. In other words, financial speculation is back, as the Fed and the Feds have more or less successfully reflated without an intervening general deflation of the overall price level.

Forsyth concludes:

Impassioned adherents of the gold standard gloss over the inability to counter deflation. Modern democracies simply will not tolerate the Dickensian unemployment and suffering brought on by debt deflations, however, which is why the Federal Reserve was created during the Progressive Era that also had previously brought anti-trust laws and the beginnings of other government regulation of business.

What we gold investors say is that there is nothing inherent in modern democracy that requires excessive credit creation in the first place. Without that debt creation, there cannot be a debt deflation; and let us consider all the price inflation that has occurred since indexing of tax rates for inflation brought the Federal government larger and larger deficits (inter alia) in the early Reagan years and coincided with more and more debt/income in the private sector. In other words, modern policy is to print money. Helicopter Ben, remember? Keynesians still believe in the price illusion, strange though it is for this blog's sophisticated readers to believe. Give a worker a raise of 5% and have him/her pay 5-7% more for what he/she buys is supposed to make the worker happier than providing no raise and having what he/she buys drop 2% in price. Supposedly this deflation must be "fought" by printing money. But deflation in price is good for consumers. When the MSM brings out debt deflations as a straw man, hold onto your wallets. Inflation is in the works.

There are many, many good points to be made against investing in gold. As someone who came into his first investable money in 1979, I stayed away from gold until 2001. My focus was on growth and disinflation; stocks only till 1997-8, then stocks and bonds.

Putting the Times unemployment article together with the Barron's anti-gold article as representative of an important segment of Establishment New York thinking, here's one scenario to consider:

The economy picks up speed just as it did in 1975-6. Federal and Fed policy are pro-cyclical, as they were then. The Fed does its usual thing and does not raise rates until the unemployment rate has declined a good bit. Price increases pick up steam, and the same inflationary psychology not only of the Carter years but of 1936 return. P/E ratios for stocks fall; long-term interest rates do not fall; and investors go with the inflationary hedges based on "fundamentals" and strong, self-fulfilling chart patterns.

A final bit of history. Gold went from $35/ounce to over $700/ounce in ten years, from 1969-79. It then lost almost all its value vis-a-vis cash or long-term T-bonds in the intervening 20+ years. Timing is everything with this asset.

The NASDAQ index (IXIC) went up about 15 times from its October 1990 recession low to its March 2000 high.

If gold were to have a lesser, ten-fold move from its 2001 low to an upcoming high, that would take it to about $2500. This amount happens to roughly equal its inflation-adjusted high of 1980. But in a broader sense, since gold appears to be in some rough equilibrium with other financial assets, over many years, I suspect that it will rise roughly in line with the general price level (or fall less than any unexpected general decline in the price level).

In a world where "cash is trash" in that we know that even forgetting about taxes on interest, government policy is for inflation rates to exceed bank rates on cash, one can hold gold and forgo essentially no interest income, and one knows that Establishment thinking notwithstanding, gold is likely to be a monetary metal longer than Barron's is likely to have any influence.

So for me, having adequate gold reserves, some physical but mostly in ETFs (GTU preferably), provides speculative upside with a long-term buy-and-hold comfort level that I currently lack for the general stock market, cash, Treasuries, and real estate.

Copyright (C) Long Lake LLC 2009

Employment Galluping Nowhere Good Yet

In 2003, every month CNBC commentators would anxiously await the monthly unemployment numbers, as the jobless recovery moved along. The anxiety was focused primarily on the "establishment" numbers, a survey of numerous generally large to midsize employers (establishments, in other words), which performed as usual in an economic expansion and lagged the clearer jobs growth seen in the telephonically-performed survey of households.

This cycle, matters are different, assuming that an economic expansion has indeed begun. Over 1.1 million jobs are estimated to have been lost in September and October alone, more than double the 2-month total establishment job losses.

People watch initial unemployment insurance claims, which are dropping slowly and are clearly valuable, but those claims do not apply for people who were not covered by unemployment insurance to begin with. Such people include the young, housewives looking for a job either to supplement a husband's income or because of job loss by said husband, older people who suddenly don't have the assets or interest income they counted on, and those in the country illegally or otherwise working for cash.

There is a simple, free way to keep a finger on the employment pulse.

Gallup publishes the results of almost real-time polling data for free at http://www.gallup.com/Home.aspx.
(Registration may be required.) It's software does not let me link to a graph, however, so I shall describe the survey, which polls people daily. They report whether to their knowledge their employer is increasing, decreasing or not changing the workforce number. On March 9-11 (three-day rolling average), those numbers were, in %:

Hiring 39
Letting go 17
No change 38.
http://www.gallup.com/poll/110134/Gallup-Daily-US-Job-Market.aspx

Other dates throughout late winter and spring showed similar numbers. Yet the recession was already on.
It wasn't till almost a year ago that the percent "letting go" equaled the percent hiring.

Today, the rolling average reported by Gallup was 24% letting go, 22% hiring. The unemployment rate was rising rapidly last summer with much better numbers.

Bottom line: the household survey is likely correct. Larger companies, with more staying power, are keeping their profits up and are gradually moving toward a hiring mode. Smaller companies are struggling more.
They are looking at higher governmental fees and taxes and some are not hiring because of the health reform effort in Congress.

This is not a time to invest in any companies than those of very high quality; and of course regular readers know that I believe that we are probably not finished with the secular bear market that began either in 1997-8 or, more conventionally, in 2000.

Copyright (C) Long Lake LLC 2009

Employment and the Markets

Calculated Risk addresses a Floyd Norris note on the dismal unemployment report Friday in
Employment and the Seasonal Adjustment. Mr. Norris asks, Did Unemployment Really Rise?

CR defends the seasonal adjustment that Mr. Norris implicitly questions. The statistics they are discussing involve the so-called establishment survey of numerous established businesses.

What neither person really addresses is that the rise in the unemployment rate is due to the household survey, which is derived by a separate method, namely calling almost 60,000 households around mid-month and simply inquiring about the level of (un)employment. That number was terrible, annualizing at over 6 million jobs lost.

There is no doubt that employment levels sank the past two months NBER may deem the recession/depression over this past spring or summer; or it may not. But employment levels have been dropping. 100% for sure. Are they going to rise? Likely, if for no other reason than steady population growth. But the recent (current) downturn is by far the worst for jobs since the 1930s.

Stock market bulls cite low levels of public participation as a bullish indicator. (TrimTabs cites this as a bearish indicator: go figure!)

Perhaps this time it's a little different than before. Everyone knows someone who is unemployed, underemployed, has taken a pay cut or foregone a raise, or whose business is down if not out, etc. Then a semi-sophisticated investor looks at a NASDAQ with about a zero dividend yield and an S&P 500 index with a 2% dividend yield and turns around and buys a muni bond or bond fund, or corporate bond fund, perhaps one with leverage, as the public already has 3X as much money in stocks as in bonds (per David Rosenberg's statistics) and will accept 5% taxable or less tax-free rather than riding around in stocks and some day sucking air after accumulating almost no dividends along the way. And for people who don't want/need dividends, gold and other commodities are far sexier and provide diversification for most people.

While there is definitely a logic to the madness, it remains discordant for the G20 to announce that the economy is so fragile that stimulus must be continued and then for the stock market to celebrate. That's like a round of hurrahs after the doctor comes out of the intensive care unit and tells the family that the patient is still not well enough to go to floor care.

The truth is probably that if the government had done its job the past decade, none of the insanity would have been allowed to have happened. Now, even serious investors have no possible way to assess whether financial institutions are well capitalized or not based on today's asset values. It's not fair and is corrosive to the very concept of free markets. One need not be a gloom and doomer to be cautious about having any involvement--either long or short--with a market in which these large complex financial institutions are do important. I can make a case for a much higher or much lower stock market in the next two years, or an unchanged one. While that's always "sort of" been the case, the opacity and complexity of the financials -- a deliberate situation -- has not existed before to the current degree.

The world is unpredictable enough without having to deal with potentially rigged markets with the most important information known only to insiders.

Copyright (C) Long Lake LLC 2009

Stocks Remain Overvalued Along with Most Other Financial Assets

Please click on this graph for more detail. It shows to related measures of long-term stock market value as of 9/17/09 based on estimated replacement cost of the assets of companies comprising "the market".

Stock market veterans will automatically correlate this with the Dow or S&P 500.

The eye notes that at the so-called secular bottom of the market averages this winter, valuation was only average. The eye also cannot fail to note that descents from high valuations and rises from undervaluations have been long-term events, though of course with choppiness.

This ratio does not predict any short-term stock price movements.

However, my favorite unloved metric is dividend yield of the average stock--which is said to be below 2% for the S&P 500 average stock (?market cap weighted) vs. that of the 5-10 year Treasury note.

Stocks currently provide inadequate current income and are overvalued. That suggests that risk is high. This is so in my view especially with the attempt of stocks today to rally despite another dismal unemployment report out of BLS.

Unfortunately, gold and silver are momentum plays now; bond yields are "low" (whatever that really means); cash is trash; and Big Finance rules the roost for the nonce along with Big Government. Business is playing defense.

So should most investors.

Copyright (C) Long Lake LLC 2009

Bonds Versus Silver

Please see the chart of the ETF 'TLT', a proxy for the long T-bond, versus the ETF 'SLV', which tracks the price of silver. SLV began trading early in 2006. Bonds were in a bear market into Q3 the next year, and have been in a bear market the past 9 months; commodities were in a long-run bull market well into 2008 and again for almost a year.

Surprise! Bonds outperformed SLV simply on price. Add in a starting yield on TLT of (say) 4.5%, multiply by 3.5 years, and voila, you have massive bond outperformance of the bond over the commodity. This of course was achieved as well with less volatility.

It is GLD that clobbered the long bond, I would say because gold is a true monetary metal, whereas silver is at best a quasi-monetary metal.

Technically, SLV is about 30% above its 200-day moving average. It went higher than that in 2008, but this is a warning sign. TLT is "trying" to break through its downsloping 150-day moving average on the "strength" of a rising 50-day ma.

Fundamentally, employment continues to lag production; to the extent that transfer payments have been supporting the unemployed, so will a turn in the employment cycle not induce as much additional spending as would have occurred absent these transfer payments.

As the data show a clearly strengthening economy, with David Rosenberg admitting he has been too bearish on the economy this year, the yield gap between the 2-year and the 10-year Treasury issues has been narrowing. This is a negative for economic growth. The markets giveth, and one day they will taketh away.

Copyright (C) Long Lake LLC 2009

Can Losing Jobs Be a "Good Thing"?

As Labor Day approaches and the media try to spin or ignore the fact that of the two surveys on employment reported yesterday by the BLS, the "establishment" survey that gave the better results was still 400,000 jobs short of what is necessary merely to maintain the unemployment rate stable. With that in mind, and the S&P 500 index up 50% in 6 months as millions of jobs have been lost and as GDP is lower now than 6 months ago, consider the following headline:

U.S. Recovery Leaving Workers Jobless May Spur Company Profits.

Orwell's 1984 put it well:

"From where Winston stood it was just possible to read, picked out on its white face in elegant lettering, the three slogans of the Party:

WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH."

The title also recalls Dr. Pangloss of "Candide" that "all is for the best" and that we live in the "best of all possible worlds".

After all, if the S&P can get to 1000 with 10% unemployment with surging profits (allegedly), then why not project S&P 1100 with 11% unemployment and a record S&P 1600 with 16% unemployment? Why should anyone ever answer a phone anymore in corporate America, anyway? Voice systems will do. We can have a virtuous cycle of unending prosperity as unemployment rises. Fewer commuters mean less demand for gasoline, less wear and tear on the roads, less time lost in traffic, etc. There will more time to shop, and the government can print as much money as needed to allow these non-workers to keep the engines of profitability working. Plus as people sit around with little to do, they can spend more time eating, thus enriching drug manufacturers, manufacturers of prosthetic hips, and the medical establishment.

Meanwhile . . . as Woody Allen said to Christopher Walken's semi-psychotic character in "Annie Hall": back on Planet Earth . . .

The news out of Gallup matches that out of Discover Financial (see EBR's People More Hopeful But Can't Spend the Hope) from August. Click HERE for Gallup's latest 3-day moving average poll of people as to whether their employer is hiring, firing or standing pat. Click HERE for what they are spending (3-day and 14-day moving average data; the 3-day data is skewed by extra spending on weekends). EBR to Earth: there has been no real recovery in the real world of real people. These results are back to levels of S&P 700, not 1000.

In other words, this has been a faith-based stock rally. The economy is sick. The bearish economists got the economy right. The P/E ratio ("profit-to-earnings" per the President!) from Fed money-printing and Governmental gimmicks such as cash-clunkers or $43,000 per first-time home buyer is minimal.

It's time for a change. The change that is needed as Labor Day approaches is the creation of jobs that fulfill a legitimate economic function. The resurgence of profits at Big Finance is the wrong trend. Better that Vegas boom again. At least Vegas didn't put the world into the "Great Recession" the way the Big Finance gamblers did.

One thing that can be stated with certainty is that an 8% "health insurance" tax on all labor will inhibit both hiring and creation of small businesses.

EBR believes that the President needs to settle for bipartisan health insurance reform, hope to do well in the midterm elections, and then, with the economy presumably stronger in 2 years, "do healthcare" in a more sweeping fashion.

Copyright (C) Long Lake LLC 2009

New Hires and the Stock Market

From the Bureau of Labor Statistics, a chart showing new hires as a percentage of the employed population (from the Job Openings and Labor Turnover Survey).

(Click on chart for more detail.)

There is a correlation with the stock market up-move in early 2002 and then the final bottom for that cycle in early 2003. Again, the chart correlates well with the market top in late 2007. The fall from March 2009 in this ratio does not correlate with the strong stock market move up since March.

Will this relationship reassert itself, either by vigorous new hiring in excess of the stock market moving higher, or by the stock market moving down to catch up with the continuing deterioration in new hires, or by some of each?

For what little it's worth, I'm still hearing of layoffs for efficiency reasons, except for health care.

Copyright (C) Long Lake LLC 2009

Rosie Cautions on the Rosy Scenario

David Rosenberg today on the economic "banana" and this past Friday's non-farm payrolls data:

From our lens, it is still too early to declare that the recession ended based on the data that matter most; and it is not clear to us that the 3Q snapback in growth is going to have legs either. There is a lot of noise right now over the fact that the unemployment rate fell to 9.4% from 9.5% in the first decline since April 2008, but if truth be told, the only reason for the decline was because of the 422,000 slide in the labour force — the second falloff in a row. Without that bizarre development (if things are really that good, people would be coming back into the fold to look for work) the jobless rate would have ticked up to 9.6%.

This goes along with other data that while perhaps the downturn is ending or has ended, times are not good.
Except for a brief period around the time of the combination of the S&L mess and the spike in oil prices in 1990 when Iraq invaded Kuwait, there was steady job growth from 1993-2000. Look what the equity markets did. In other words, the strength and durability of any economic expansion absent government make-work programs such as repaving roads has yet to be determined. The economy can go anywhere; up and then down, up forever, down forever . . . investors need to be careful about projecting a cyclical rebound indefinitely forward.

Copyright (C) Long Lake LLC 2009

Spanish Can't Find the Green Shoots

In Consumer credit down a massive 33% in Spain, Credit Writedowns appears to be breaking news here:

Credit in Spain is contracting at an unprecedented rate, down 33% in the first quarter as Spain faces a housing bust and near 20% unemployment.

Click on the link for the brief post, most of which is Dr. Harrison's translation from the Spanish. He concludes:

Clearly, these are disastrous numbers. This is one reason that ratings agencies have been downgrading Spanish banks. I expect more bank failures or bailouts in Spain in the coming months.

Copyright (C) Long Lake LLC 2009