Market Recovery: Massive Negative Multiplier Has Been Unleashed

The stock market is rallying through bad news in typical bottoming fashion but these are off-the-chart times and one wonders if the market could be underestimating just how bad things can get. That thought comes to mind after reading a Jan. 7 news release from TrimTabs Investment Research (which uses income-tax withholdings from payrolls to estimate changes in U.S. employment — often in advance of government data). The release begins with:

“TrimTabs Investment Research said today that it estimated the U.S. economy lost 683,000 jobs in December, the biggest monthly job loss in its records since 1970 ….

‘The economy shed 2.3 million jobs in 2008, the biggest annual job loss since 1980,’ said Charles Biderman, CEO of TrimTabs. ‘The economy could lose one to two million more jobs in the next several months because all the major indicators we track show the economy is deteriorating further.’ ”

TrimTabs said the recent decline in withholding taxes was due to layoffs, reduced holiday hiring, lower bonuses, wage furloughs, forced holidays, and temporary plant closings. “Withholdings are plummeting, online job postings are in a free fall, and unemployment claims are steadily rising,” said Mr. Biderman. “Investors loading up on stocks in the belief that the economy will rebound quickly are going to wish they had kept their powder dry.”

True, a massive policy response is on the way. But, typically, there are lags before policy measures have an impact. And this time around, as TrimTabs and other data sources suggest, a massive negative multiplier has been unleashed, the likes of which has rarely – if ever — been seen since the 1930s. The dynamic of layoffs fueling layoffs — of contraction feeding on itself in general — has reached epic proportions; there would seem to be a risk that it may take longer than expected to reverse.

Comments

[bricki:]

I love these Dr. Doom articles. Good contrarian that I am.

Jan 08 09:52 AM

[Moon Kil Woong:]

The market has factored in a lot of bad news. I am in general agreement that the employment losses will be hard and are much more lingering than a credit crunch. And I am doubtful the government can afford to turn it on a dime.

Contrarians should beware. Until we start talking about depression I think we won't be at the bottom of the negativity. Maybe that will be in dour 2010. In general, the first 2 years of a new president are bad because all the hard things that need to be done tend to be done then in order to prime the pump for a healthy economy going into the next election.

If I was Obama I'd institute all the transparency and regulation rules that will make the Citibanks, AIGs, Fannie Mae's, and Bernie Madoffs howl. Hopefully a couple of these zombie Corps will actually go bankrupt and their executives and board of directors join the unemployment lines. They sure deserve it.

The problem is the culture of complete unaccountability and corruption breeding uncertainty and fear more than anything else. Stimulus can't solve this issue. Only firm action beginning with transparency laws will help. The economy will suffer for a while but then the market will be able to breath a long sigh of relief.

Jan 08 11:43 AM

[peterthepai...:]

fat lady still waitin ta sing...

toxic assets still hidden...

unemployment still risin...

real estate still fallin...

fear is the key...greedy dudes!

Jan 08 12:29 PM