What a Recession Looks Like

The normally dry Labor Department is adding increasing amounts of color to its payroll reports. Today's begins:

Nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1 to 6.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. October's drop in payroll employment followed declines of 127,000 in August and 284,000 in September, as revised. Employment has fallen by 1.2 million in the first 10 months of 2008; over half of the decrease has occurred in the past 3 months.

There's no good news here. October was gruesome, and so was September -- much more so than originally reported a month ago. But to really see what a recession looks like, turn to Jake at Econompic Data, who puts it all in pictures, like this one:

The unemployment rate among adult men is now 50% higher than it was a year ago -- and, as Paul Krugman says, "it's now a certainty that unemployment has a lot further to rise". But given how weird the markets have been of late, there's one silver lining: The report is so relentlessly depressing and worse-than-expected that the stock market has to rise today, right?

Comments

[aarc:]

The govt has to make drastic action to save America from it's own.

The stock market, if left to its own, is going to cannibalize it own siblings with the young and the unborn left unprotected when fear and panic sets in and self preservation becomes the norm.

Technically speaking; the Dow Jones is headed towards 5000 by Q2 to Q3 2009 with 7300-7500 expected drop within the next few weeks before the next attempted rally. The expected rally is going to fail by Q2 to Q3 2009 and the inevitable plunge to 5000.

This is based on Elliott Wave analysis of the 100 year Dow Jones chart. Probability is simply too high of a 5000 plunge that there are no existing govt program fast enough and strong enough to be able to reverse the trend. Likewise, govt seems to be more interested in buying time without first addressing the investor uncertainties.

Time is the worst enemy in a plunging market.

A break below 2002 low of Dow Jones 7,200 is going to inflict a severe psychological blow not only to the US but all over the world. A global chain reaction of fear and panic cannot be discounted and 5000 may not even be able to hold and 1000 or lower level will be the next target.

That is more than 40 years of labor down the drain. Just imagine the reaction across American when their 401k becomes 40k or less. Company bankrupcies could be in the tens of thousands.

The stock market is the root of all evil in this current crises. It has grown so big and so pervasive that everybody in the western world is affected financially directly or indirectly.

However, there is no immediate alternative or solution except for the govt to provide leadership and equity assistance in order to prevent a catastropic failure of the stock market the likes of which has never happened before.

Govt has to guarantee stock market purchases by investors (specially those with 401k investments) in the immediate future against company bankrupcies since bankcrupcies have the vicious domino effect everybody is afraid of. Govt has to install mechanism to prevent massive rally and to dampen volatility such as guaranteeing only allowable daily price rises.

A guarantee for at least 3 years will be prudent in order to sort out the current financial credit crises, the CDOs and CDSs deleveraging, and the housing crises all of which needs a lot of time to unravel/unwind.

That will provide enough stability in the global markets and world leaders will be able to formulate more effective programs for their respective economies that are not slaves to stock market psychology.

Investors, likewise, need more time to do research and make plans for the future without being hampered or even crippled by massive market volatility.

It is not too late; the psychological and structural damage to world economies are still in the early stages due to the suddenness of the stock market plunge. However, the plunge has been so vicious everybody is trying to get out of the stock markets on the next available opportunity.

Remove uncertainty is first and foremost. A quick and effective reversal is needed. More time spent dilidalying will only foster more fear, panic and disolusionment among market participants.

2008 Nov 07 11:35 AM

[Rakeitin:]

Why not take advantage of this expected downturn with inverse ETF's such as DOG, and DXD? The best thing an investor could do is make money in the downturn. Do you'll have even more when it turns around.

2008 Nov 07 03:16 PM

[Smarty_Pants:]

"Govt has to install mechanism to prevent massive rally and to dampen volatility such as guaranteeing only allowable daily price rises."

Baaaad idea.

If you really want investors to panic, put daily price limits into effect. Nothing worse than wanting to sell shares only to see the market open at limit ask with no bids and not being able to sell anything day after day.

Daily limits will only serve to increase volatility in the short run. I think you will find that the S&P 500 futures volatility was larger with daily price limits than it was after they went to the circuit breaker rules, but I have no numbers to quote in support of that suspicion.

2008 Nov 07 04:04 PM

[Lilliana:]

Remove or reduce the CAPITAL GAINS TAX ,to control and boost the market ...is a far better and more sensible method of influencing Wall Street and the economy, than shoveling money at a useless bailout .....and will cost a lot less.
When is the Government going to get the message..?

2008 Nov 08 10:40 AM