Line U-6: A Sell Signal for Bulls and Bears 23 comments
-
Font Size:
-
Print
- TweetThis
Embedded in the Labor Department’s November “Employment Situation” report is Table A-12. Line U-6 of Table A-12 is, by itself, as strong a signal as you need to sell the major indices (DIA, QQQQ, SPY) today.
Line U-6 tells us that if you count all the people who have given up looking for a job, all part-time workers who desperately need full-time jobs and all the people who are “marginally attached”, to the official jobless rate of 6.7%, the last true measurement of unemployment was 12.5%. It is this specific measurement, in the December jobs report due this Friday, and in the jobs reports to follow in forthcoming months, which will determine the fate of the equity markets in 2009.
If you view that measurement in the light of the household wealth statistics in the last “Flow of Funds Accounts” released by the Federal Reserve on December 11, 2008, you begin to get another leading insight into where the economy is headed. A staggering $7.08 trillion of household wealth has disappeared in the year ending September 30, 2008. At least another $2.5 trillion of household wealth is estimated to have been eliminated in the last quarter.
If your optimism for stocks is grounded in the evolving Obama Economic Recovery Plan, here are a few more facts which deserve urgent consideration. By extremely generous estimates, the building of roads, railways, schools, hospitals, civic systems and green projects will create three million jobs over the next two or three years. But, layoffs in 2009 alone could breach the 2.5-million mark, roughly equal to the total number of “new entrants” adding to the workforce during the same period. The tally in line U-6 could easily move towards 17.5% (from 12.5%) by late 2009, by which time the household wealth erosion could easily hit $15 trillion over an 18-20-month period.
Quite obviously, it is difficult to ascertain at what point the investing community at large will decide that any sustained rally flies in the face of reality. But hard data continues to justify a significant (20%-plus) downward adjustment in the equity indices within the very foreseeable future. Simply add the unemployment measurement and the household wealth deterioration to the most recent statistics on manufacturing, consumer spending and home prices to establish the factual foundations of a near-depression environment. And, if more evidentiary support is needed, start looking at the ongoing demand contraction in the emerging markets.
It is also important to reiterate, once again, that the bailouts and rescues are not actually governed by any revised or updated corporate model applicable to what will inevitably prove to be the most challenging business environment since the Second World War. So those buying into financials and automakers today are doing so without the benefit of any reasonable earnings or profitability perspective. On the contrary, equity bulls are buying into the argument that, if you keep postponing the impact of potentially devastating systemic risks long enough, those risks will vanish on their own accord, with the passage of time.
Which brings us to two critical questions. Can systemic risks be deferred long enough to allow the $8 trillion (and growing) bailout exercise to remove those risks altogether? And, is the structure of the bailout exercise capable of decisively influencing an economic turnaround in the first place?
This writer’s ideological view is that the only way to eliminate the systemic risks within the domestic and global economy is to undertake a broad anddeliberate de-leveraging, accompanied by a comprehensive restatement of asset valuations within corporate business models. Without that, these haphazard, trial-and-error bailout schemes currently in play can only reinforce a heavily short bias.
Disclosure: Author holds short positions in QQQQ, SPY
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 23 comments:
The new regime hates to waste an "emergency"; it is an opportunity to impose major changes. The end of capitalism is much nearer than most Americans know.
Thought you might be interested in this:
Sprott have called this meltdown with aplomb.
Here is their 2009 outlook:
SURVIVING THE DEPRSSION
If Q4 2007 was the start of the recession, then Q4 of 2008 is the start of the Depression. It’s only getting worse. We’re not aware of a single bright spot in the economic data that would even remotely hint at things getting better anytime soon. We are in the midst of an unprecedented global economic contraction, with no prospect for one region to ‘save’ the others. This depression is global, pervasive, and deep. Some may point to plunging interest rates, already at zero in the US, as a ‘data point’ indicative that things are about to turn around soon. We believe the opposite to be the case. Zero percent interest rates are an ominous symptom, not the cure. In a recession, zero interest rates are highly stimulative. In a depression, they are not. Monetary policy has been little more than a sugar-coated placebo. Credit is neither cheap nor plentiful. Just ask the Bank of Montreal, one of the big banks in the highly admired Canadian banking system, that recently did a bond issue (not stock, not preferred, but straight-up plain-vanilla bond) at a 10% interest rate. Central bank interest rate policies have become irrelevant. Once again, this is highly indicative that we are in a depression. Corporate spreads have gone through the roof. Not just for junk bonds, but all bonds , even AA rated.
Any belief that this will be a short and shallow recession, or even a relatively long and deep recession (but still a recession), is, in our opinion, woefully misguided wishful thinking. This is a depression – one that has only just begun. One that the vast majority of us (the sole exception being those over 80 years of age) have never experienced in our lifetimes.
Link to full article:
www.sprott.com/pdf/mar...
Can you add a little more background to show the spread relationship between these two numbers in previous employment situation reports? To point it out one time without any context can be misleading.
On Jan 06 09:57 AM Debt Junkie Scum wrote:
> As a bear I enjoy your columns - Happy New Year.
>
> Thought you might be interested in this:
>
> Sprott have called this meltdown with aplomb.
>
> Here is their 2009 outlook:
>
> SURVIVING THE DEPRSSION
>
> If Q4 2007 was the start of the recession, then Q4 of 2008 is the
> start of the Depression. It’s only getting worse. We’re not aware
> of a single bright spot in the economic data that would even remotely
> hint at things getting better anytime soon. We are in the midst of
> an unprecedented global economic contraction, with no prospect for
> one region to ‘save’ the others. This depression is global, pervasive,
> and deep. Some may point to plunging interest rates, already at zero
> in the US, as a ‘data point’ indicative that things are about to
> turn around soon. We believe the opposite to be the case. Zero percent
> interest rates are an ominous symptom, not the cure. In a recession,
> zero interest rates are highly stimulative. In a depression, they
> are not. Monetary policy has been little more than a sugar-coated
> placebo. Credit is neither cheap nor plentiful. Just ask the Bank
> of Montreal, one of the big banks in the highly admired Canadian
> banking system, that recently did a bond issue (not stock, not preferred,
> but straight-up plain-vanilla bond) at a 10% interest rate. Central
> bank interest rate policies have become irrelevant. Once again, this
> is highly indicative that we are in a depression. Corporate spreads
> have gone through the roof. Not just for junk bonds, but all bonds
> , even AA rated.
>
>
> Any belief that this will be a short and shallow recession, or even
> a relatively long and deep recession (but still a recession), is,
> in our opinion, woefully misguided wishful thinking. This is a depression
> – one that has only just begun. One that the vast majority of us
> (the sole exception being those over 80 years of age) have never
> experienced in our lifetimes.
>
> Link to full article:
>
> www.sprott.com/pdf/mar...
>
On Jan 06 11:15 AM gatekeeper wrote:
> So the "marginally attached" number is 12.5% for this report vs.
> the official 6.7% rate.
>
> Can you add a little more background to show the spread relationship
> between these two numbers in previous employment situation reports?
> To point it out one time without any context can be misleading.
For starters, the easiest way to short the market are with "Inverse ETFs", they can be called Bear ETFs or Short ETFs as well. Also, many of these come'leveraged': returning 200% performace of its underlying index (there are even Triple leveraged ETFs out there).
SA has a list of Inverse Market Cap ETFs here:
seekingalpha.com/artic...
and a list of Inverse Sector ETFs here:
seekingalpha.com/artic...
My own 2 cents: the Financial sector and Commercial Real-Estate sector are still quite vulnerable, their inverse ETFs, SKF and SRS, respectively, are at good risk:reward prices currently (~$100 and $50).
Hope this helps a little,
-Dave
en.wikipedia.org/wiki/...
On Jan 06 02:27 PM BigJake wrote:
> This may be a investor newbie question, but how does one "short"
> the market? I own stocks and mutual funds. How is it possible to
> profit from the market going down? If someone has a link to point
> me to so I can self educate I'd really appreciate it.
The current pop is caused by too many people sniffing glue - it's wacky
On Jan 06 09:54 AM Zooey wrote:
> Your observation on the labor report can be substantiated in several
> ways, but what you and the rest of us hesitate to admit is that the
> Congress does not care for a lasting recovery in a capitalist system,
> but rather lasting political control over the economy and society.
> This builds utter dependence on the political class.
>
> The new regime hates to waste an "emergency"; it is an opportunity
> to impose major changes. The end of capitalism is much nearer than
> most Americans know.
If the "U6" unemployment numbers are at 12.5% for November, I can easily see that climbing to well over 17.5% by end of 2Q09 and quite possibly over 20% by EOY09. One measure of Depression is unemployment at 25% or greater. By that measure alone, this is going to happen.. only question is when do we get there.
On Jan 07 12:21 AM Homer II wrote:
> Spot on, Rakesh.
>
> If the "U6" unemployment numbers are at 12.5% for November, I can
> easily see that climbing to well over 17.5% by end of 2Q09 and quite
> possibly over 20% by EOY09. One measure of Depression is unemployment
> at 25% or greater. By that measure alone, this is going to happen..
> only question is when do we get there.
non real americans? imigrants? You give rednecks a bad name. Go put the wheels on your house and move to Iraq.
On Jan 06 11:57 PM Broken wrote:
> Yep, the obaminoids are fascist Marxists, for sure. There is no other
> explanation for what he we know he is going to do. He will tax the
> wealthy and give it all to the imigrants and the non real Americans!
>
>
>
> On Jan 06 09:54 AM Zooey wrote:
Thanks for the fun in all this gloom and doom *Wiping tears from laughing so much*
non real american ROOOOOOOOOOOOOFL