Further Job Cuts Could Trigger New Stock Lows

Regarding the markets, I strive to be neither a Cassandra nor Cheerleader, but instead try to call it like I see it and tell it like it is.

Tuesday, I ran across an insightful post in the Wall Street Journal’s Real Time Economics section, derived from an attorney with extensive experience in handling company layoffs who works at a firm that commands about 50% market share in this niche area of labor law. I thought readers might find it useful…

Layoff Lawyer Sees Ominous Signs

"Economists have many ways of gauging the temperature of the economy. Now, a lawyer has one, and it’s not encouraging.

Garry Mathiason is 37-year veteran of Littler Mendelson, a leading employment-law specialist with 800 attorneys and 30,000 clients. Mr. Mathiason estimates that the firm is consulted on roughly half the layoffs in the U.S.

When Littler’s layoff-related business surged last fall, Mr. Mathiason conducted an informal survey of his colleagues and found the firm was handling around a million prospective job cuts. That suggested two million for the nation as a whole, though Mr. Mathiason knew some of the prospective layoffs might not materialize during the quarter. When the government released its official numbers in January, U.S. employers had eliminated 1.5 million jobs in the fourth quarter – close to what Mr. Mathiason had expected…."

Source: Wall Street Journal (click here to read entire article and its related comments)

In summary, the point of sharing this article is not to shed light on what is obvious to everyone (i.e. the continuing economic weakness), but to help quantify how much worse things may get before improving. If one reads the rest of the above article, they will discover that Mr. Mathiasaon estimates another potential 3m layoffs between January and March 2009. This type of news, along with the lack of a viable stimulus plan, could be just the sort of event that triggers a violation of the November 2008 lows for major equity indices.

If the above scenario plays out, there are many ways to profit from it. KISS (Keep it simple stupid) tells me to keep my radar locked on the the following ETFs: SH; DOG; PSQ; and/or RWM. At this juncture, the market is oversold and shorting it is ill-advised unless a confirmation is given by a violation of the November lows. A string of shockingly negative employment related indicator surprises could act as the battering ram that finally breaks through support and a proactive strategy for the Market Direction does no harm. (Note that for those who may misinterpret intentions of this article, it is an investment hypothesis predicated upon the occurrence of projected events and the market’s reaction to these events and therefore should not be construed as an outright call to short the market.)

Disclosure: None