Friday's Relief Rally 27 comments
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8.1% spells relief? What were you thinking when you saw that the unemployment rate jumped a half of a percentage point in February, surpassing economists’ expectations by two-tenths of a point? Did you wipe your brow and say “whew?” Of course not. So then you must be wondering why the stock market actually rose modestly on Friday. It’s called a relief rally, and it’s spelled: “we already sold everything all week long, and so when the world didn’t end, there was nothing else left to sell on Friday.” Voila... rally, kind of, sort of.
I mean it was a pretty pathetic rally, but it was better than chalking up another decline on a week that netted a loss of 6.2% on the Dow. The Industrials Index fell incredibly deep below 7000, to close out the week at 6,626.94.
The Employment Situation Report produced a net loss of 651,000 nonfarm payrolls (read jobs) in February. That’s a high number of newly unemployed folks, and it includes a birth/death rate adjustment that the government makes on its estimates of population change and job creation. The pure number of folks who joined the unemployment line in February increased by 851,000, to 12.5 million people, and if you include the 787,000 troubled souls who started working part-time jobs because they have no other choice, the number gets even larger. These “involuntary part-time workers” total 8.6 million now, and including those individuals in the jobless measurement takes the less than full employment rate to 13.7%.
That’s not good news, but the ADP Private Employment Report that preceded the government data by two days had already shown private nonfarm payroll losses at a whopping 697,000. Thus, it cleared an expectations path for the federal data to walk through on Friday. It’s not like it was necessary though, given the dramatic weekly pace of new jobless claims throughout February. We had our share of fair warning.
Stocks started worrying about the jobs data on Monday, and actually recovered some ground on Wednesday when it was rumored China’s Premier might increase his nation’s stimulus efforts. Then on Thursday, Prime Minister Wen Jiabao promptly sucked the wind out of those sails when he made no mention of such an increase. On Thursday, Weekly Initial Jobless Claims were reported at 639,000, and the market got right back to worrying.
The last few horrid weeks have officially indoctrinated President Obama as a bear market president since stocks have fallen 20% under his watch already. However, the President said he did not focus on day-to-day stock fluctuations, since that would be a flawed tool to set long-term planning by, according to the Prez. Okay, Bad News (that’s my new pet name for the President since he keeps reminding the nation of his inheritance of a catastrophic situation that will take so much sacrifice to recover from). Obama needs to learn one thing, a good coach never tells his players they’re not going to win this game because they’re not good enough. That’s the one sure way of guaranteeing a loss.
So what’s in store for this week then? Well, the new spending bill is clogged up in Congress, as divided Democrats need some Republican votes to get it through. Those votes will not come without $8 billion in earmarks, and those earmarks conflict with Obama’s stark campaign words against such evil. It seems to me that we have an opportunity for a valuation driven rally at these levels. Still, whether a bear market rally ensues or stocks slide further this week may hinge greatly on whether the bill passes into law or not.
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This article has 27 comments:
Besides who ever said the economy was a game? Get real!
After a big down week,who wants to be short with a shoot-from-the-hip administration,mark to market,GM rescue,and who knows what announcement,on Sunday or before the market opens Monday...
First of all. the fight over the budget earmarks is political. Enough "safe" (from their own party) Senate Republicans will sign on this week to pass it. Over 40% of those "earmarks" were put in by the Republicans with the House and Senate Republican Leadership (especially Mitch McConnell) getting some of the biggest ones.
Secondly, this is a holdover from the last administration. I think we would all agree that Obama has a pretty full plate, right now, and he chose not to fight this one in the interest of bipartisanship. Whether, this was a good idea, politically, I will leave to someone who gives a rats ass, but I do want him focused on getting us out of this mess.
Third, I disagree with the characterization "bad news". Anybody who has faced a turnaround situation (I have) knows the key is to TELL THE TRUTH BASED ON THE DATA. People are not stupid, and they do not need happy talk when they know things are bad. They don't need pessimism, either --- they need the truth.
And, in case you haven't noticed, things are bad right now.
As for Obama, I have a number of comments. First, he needs to get the bank balance sheets fixed, NOW. This should be his highest priority, and Geithner has gone missing as far as I can tell.
However, Obama has been in office for SEVEN WEEKS, and all the comments I see here and elsewhere that the Stimulus and his other changes won't work are far too premature, in my opinion.
Goldman Sachs' top economist, Jan Hatzius (sp?), who has called the GDP and Unemployment rate better than any of the economists, according to Bloomberg, expects that the Stimulus WILL work, but we will need more.
He is expecting a "humped" GDP this year. He says the stimulus is very front loaded and will have a big effect in Q2 and Q3, but then it trails off, and the economy is still not generating enough jobs --- and Congress will pass another.
What I see in Obama is something I liked enough that I voted for him. My decision turned in September when McCain made his grandstand showing, and Obama kept his focus. Worse, for McCain, was he seemed to be advised by a circular firing squad with two DRAMATICALLY opposed ideologues, Phil Graham and Jack Kemp, BOTH speaking for him --- can you imagine where we would be today?
Obama is as close as I have seen to a politician who decides based on the facts. This is clearly how he ran his campaign, and he seems to be doing the same, now.
Sure, he has to placate bleeding heart liberals, just like McCain would have been opposing research on stem cells to placate his base, and I wish that he was a little less focused on draining swamp and more focused on fighting the alligators.
But, as Warren Buffet said, if I wanted perfection, I would have had to run myself.
Great perspective Captain... agree wholeheartedly.
On Mar 08 09:07 AM CaptainJJack wrote:
> While I agree that you cannot take much away from last Friday's short
> covering rally at the end of the day (who in their right mind would
> want to stay short over a weekend these days?), I do not put much
> stock on the idea the this week's budget bill will control.
>
> First of all. the fight over the budget earmarks is political. Enough
> "safe" (from their own party) Senate Republicans will sign on this
> week to pass it. Over 40% of those "earmarks" were put in by the
> Republicans with the House and Senate Republican Leadership (especially
> Mitch McConnell) getting some of the biggest ones.
>
> Secondly, this is a holdover from the last administration. I think
> we would all agree that Obama has a pretty full plate, right now,
> and he chose not to fight this one in the interest of bipartisanship.
> Whether, this was a good idea, politically, I will leave to someone
> who gives a rats ass, but I do want him focused on getting us out
> of this mess.
>
> Third, I disagree with the characterization "bad news". Anybody who
> has faced a turnaround situation (I have) knows the key is to TELL
> THE TRUTH BASED ON THE DATA. People are not stupid, and they do not
> need happy talk when they know things are bad. They don't need pessimism,
> either --- they need the truth.
>
> And, in case you haven't noticed, things are bad right now.
>
> As for Obama, I have a number of comments. First, he needs to get
> the bank balance sheets fixed, NOW. This should be his highest priority,
> and Geithner has gone missing as far as I can tell.
>
> However, Obama has been in office for SEVEN WEEKS, and all the comments
> I see here and elsewhere that the Stimulus and his other changes
> won't work are far too premature, in my opinion.
>
> Goldman Sachs' top economist, Jan Hatzius (sp?), who has called the
> GDP and Unemployment rate better than any of the economists, according
> to Bloomberg, expects that the Stimulus WILL work, but we will need
> more.
>
> He is expecting a "humped" GDP this year. He says the stimulus is
> very front loaded and will have a big effect in Q2 and Q3, but then
> it trails off, and the economy is still not generating enough jobs
> --- and Congress will pass another.
>
> What I see in Obama is something I liked enough that I voted for
> him. My decision turned in September when McCain made his grandstand
> showing, and Obama kept his focus. Worse, for McCain, was he seemed
> to be advised by a circular firing squad with two DRAMATICALLY opposed
> ideologues, Phil Graham and Jack Kemp, BOTH speaking for him ---
> can you imagine where we would be today?
>
> Obama is as close as I have seen to a politician who decides based
> on the facts. This is clearly how he ran his campaign, and he seems
> to be doing the same, now.
>
> Sure, he has to placate bleeding heart liberals, just like McCain
> would have been opposing research on stem cells to placate his base,
> and I wish that he was a little less focused on draining swamp and
> more focused on fighting the alligators.
>
> But, as Warren Buffet said, if I wanted perfection, I would have
> had to run myself.
>
Now THAT's funny. And Pathetic.
On Mar 08 09:55 AM cash wrote:
> Obama is no friend of the markets. He is a socialist idealogue with
> an agenda. Mistaken of course, he believes that stock market is something
> for the wealthy. Given his hubris, it will take larger losses in
> the stock market, and a public uproar for him to start seeing his
> folly. That will be 4000 or so in the DOW. Too late to save many
> investors who hoped for a change. Change has come, but just not what
> they had in mind. Funny isn't it.
As for Geitner, he answers to the Fed, the Fed is run by banks, look it up. Anything coming from the treasury will only help the banks.
The market will continue it's spiral to 4000.
The Fed answers to the banks that make it up, not the government.
With the Fractional reserve you wll always have boom and bust cycles. This was made worse by the banks gambling away mortgages that people couldn't afford.
In hindsight it is easy to see Greenspan should have not said he saw no reason to regulate OTC deratives and he should have tightened credit, but what the hell, banks were on tear and there were millions in bonuses to be made.
On Mar 08 10:30 AM wpdragon wrote:
> Funny? No. But your comments are pathetic, I'll grant you that. I
> find it pathetic that the RNC has all you small minded rank and filers
> trashing everything Obama tries to do to bail out this terrible situation
> that your party created, then ignored, now seems in total denial
> about. Pathetic that the RNC doesn't even represent the rank and
> file republicans, and never has, but rather the very narrow and very
> very selfish richest of the rich members of the party. Actually,
> not members, but OWNERS of the party. You're just chumps who go around
> shouting names, using the key attack words of socialist, lib, dem,
> commie, maybe toss in a little muslim bashing once in a while, always
> engaging in class warfare, doing the bidding of a bunch of slime
> who don't even know (or care) that you exist.
>
> Now THAT's funny. And Pathetic.
>
> On Mar 08 09:55 AM cash wrote:
The Prez is saying we are down by x and need to turn up the game. He is not saying we are going to lose. Also I am not saying you are a moron!
In my opinion (due to substanstiated research) these derivative bets are bought on an enormous amount of leverage.
For example, any wealthy individual can go to a broker these days and put down $1 million, and then leverage this amount 3 times. The resulting $4 million ($1 million equity, $3 million debt) can be invested in a fund of funds that will in turn leverage this $4 million another 3 or 4 times and invest them in a hedge fund; then the hedge fund will take these funds and leverage them another 3 or 4 times and buy derivatives like subprime CDOs, which are often themselves leveraged 9 or 10 times!
At the end of this long credit chain, the initial $1 million of equity can become a $100 million investment, out of which $99 million is debt (leverage) and only $1 million is equity. So we get an overall leverage ratio of 100 to 1. This is where I differ from your 40-60% mark to value. As this is also why the Fed appears to do nothing. There is nothing really they can do, except manage panic.
It was this kind of new Super-Leverage which helped create the largest asset and credit bubbles in the history of humanity, including a global real estate bubble, a mortgage bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge fund bubble and the mother of all economic bubbles: the global derivatives bubble.
It’s how global stock markets grew from $25 trillion to $50 trillion in just 5 years, and how the global derivatives market leapt from $100 trillion to almost $600 trillion. In economic terms, these bubbles grew in the blink of an eye.
And now they’ve all begun to bust at the same time—plunging us into the deepest de-leveraging since the Great Depression.
“…total global losses from the coming financial meltdown could easily reach $25,000 billion to $30,000 billion.”
Financial Times, June 25, 2008
You see, when you have this kind of monstrous amount of leverage built into the system, a mere 1% fall in the price of the final investment (the CDO) can wipe out the initial equity, and create a chain of margin calls.
The next shoe to drop is the CDS's. These have no capital at all attached to them. Just an insurance policy of sorts on the CDO's. Wasn't regulated so it did not require it. These CDO's all have a CDS attached to them every time it changed hands from buyer to buyer. This is why AIG failed.
The governments are powerless to do anything, that will solve this problen it is simply to massive.
Once the CDS marker starts to implode, there will be a run on the banks…and a run on stocks. And expect the coming CDS—driven global stock market crash to dwarf the last crash, which saw $10 trillion wiped off global exchanges in a matter of weeks, as investors priced in a global recession. This time they’ll be pricing in a severe recession and maybe a depression. Expect a further $20 trillion to get wiped off. And because of the lack of transparency in the CDS market, everyone will hoard cash, making the credit crunch even worse…leading to a complete systemic financial collapse. The curtain will have finally fallen on the Wall Street era.
Silver will exceed its high of the 80's/ Gold will double and the Japanese Yen are the hedges to this. If you look at the charts everyime the Dow is down over history the Yen is up.
Good Luck and God Bless.
inducted, not indoctrinated
("The last few horrid weeks have officially indoctrinated President Obama as a bear market president...")
Obama does not have to sign this budget and shouldn't. If he does sign it it is his! He could ask for the Line Item Veto, as other presidents have. His party controls both Houses so he maybe could get it.
Instead of increasing it by 8%, making it his, Obama should try Administrating instead of making TV appearances and clean up THIS budget. Once he signs it it is his with his name on it. This is what the Democrats wanted and why they held it over from last years.
Some folks should learn the facts and/or get them right.
Whether Obama, the Democrats or his Socialistic followers want it or not, this is Obama.s budget regardless of what his media lap dogs say. The Democrats in Congress wanted it that way and now they have it but want to blame it on anyone, especially Bush because they are irresponsible with the taxpayers money and would be in jail if government was run like a business.
The effect of the stimulus DOES wear off, but the problem is not the one you describe.
The problem is the entire basis of the economy has shifted dramatically. Savings rates are skyrocketing, and consumers are paying down debt rather than borrowing.
This is why the Stimulus will have to be increased. Obama's projections implicitly have consumption rates increasing, like they had in previous recessions, and Hatzius, the Goldman economist says that this time it is very different.
The key issue is deleveraging, and every time an economy goes through this, it is very painful ESPECIALLY for investors. The entire underlying structure is changing very fast, making winners out of previous losers (e.g. Treasury bonds), and losers out of previous winners (e.g. stocks of leveraged companies like commercial banks, finance companies, investment banks and REITS).
That is also why tax cuts will not be very effective. People will save a large part of the individual cuts, and Corporations are far more worried about their deferred tax asset than they are new tax deductions. With the losses they've incurred, they are worried they may not be able to find enough taxable income to carry back.
What we know for sure is that government spending WILL increase GDP (consider WWII, the biggest government program relative to GDP), and we know for sure that the tax cuts of 2001 did not:
During the last 8 years median income dropped (look it up -- Survey of Current Business, I believe), and when you factor out Home Equity "withdrawals", so did GDP.
On Mar 08 10:47 AM xb74 wrote:
> The stimulus is front loaded then disapears with the burden shifted
> to the states. Long term ideas like alternative energy will be forced
> into play with cap and trade. C&T will devestate whole states'
> economies, MI,PA and most states between. A problem that a few windmills
> will not fix. This clearly shows Obama's adjenda drives his decisions
> more than the plight of the great unwashed. The flaw in C&T is
> the costs get transfered down to the people in utility bills and
> job losses.
> As for Geitner, he answers to the Fed, the Fed is run by banks, look
> it up. Anything coming from the treasury will only help the banks.
>
> The market will continue it's spiral to 4000.
'there were millions in bonuses to be made'
you got that right. everybody in the food chain was after the big fat fees.
> jack
write only when you have something to say...All the other times dont bother wasting your time, our time, and the Internet bandwidth. That applies to 98.5% of the cases on SeekingAlpha.
"
The governments are powerless to do anything, that will solve this problen it is simply to massive.
Once the CDS marker starts to implode, there will be a run on the banks…and a run on stocks. And expect the coming CDS—driven global stock market crash to dwarf the last crash, which saw $10 trillion wiped off global exchanges in a matter of weeks, as investors priced in a global recession. This time they’ll be pricing in a severe recession and maybe a depression. Expect a further $20 trillion to get wiped off. And because of the lack of transparency in the CDS market, everyone will hoard cash, making the credit crunch even worse…leading to a complete systemic financial collapse. The curtain will have finally fallen on the Wall Street era.
"
Interesting perspective. Looks like the 500 year run of capitalism will end with a "bang"... Or maybe the people will put it out of its "misery" before it takes us all down a "black hole".
>Jack
I agree with that whole heartedly, the jobs left the country. One might say our standard of living is too high. Volker said that very thing in a NY Times Oct. 17 1979 article. But don't worry, the Fed is working on this issue.
When Obama made that speech the other day in front of 25 or so new police officers paid for with stimulus money he failed to mention the state was going to have to pick up that tab next year. The same issue caused carping among governors who saw the stimulus as eventually the stinulus for increased taxes.
The tax cut for the people who make less than 250k is reported to be $13 a week. Hardly enough to make a difference by any measure.
So what's the answer? Create more jobs, I use the word create intentionally. Another round of Stimulus will make jobs for another year. The private sector is best suited for creating real jobs, make it worthwhile to move factories back or at least keep what we have left.
Obama wants to move ahead with new sources of energy, great idea but to jump in with cap and trade will make this process extreemly painful for the consumer.
Thanks for letting me vent. :-)
What evil earmarks are you referring? The 400 billion worth the Democrats in Congress assembled that are already part of the bill, or some 8 billion worth that you believe will be needed to get one Republican vote?
lets not forget the 60 trillion of committed and uncommitted (medicare & social security) national deficit that cannot even pretend to be repaid. PRESIDENT OBAMA IS IN DREAMLAND! The treasury secretary will have no choice but to declare "force majeur" at some point in the near future(they have a protocal for this" since the Asia crises in the 90's) that could happen as simple as China and other countries not buying US treasuries, or China dumping the 2 trillion they do have on the market.
President Obama's buget by 2013 just has the budget deficit at 50% of what it is today! The national debt will kill the currency eventually. Not once in history has any empire been able to spend their way out of this issue.
On Mar 08 03:27 PM User 270430 wrote:
> conceptwizard :
>
> "
> The governments are powerless to do anything, that will solve this
> problen it is simply to massive.
> Once the CDS marker starts to implode, there will be a run on the
> banks…and a run on stocks. And expect the coming CDS—driven global
> stock market crash to dwarf the last crash, which saw $10 trillion
> wiped off global exchanges in a matter of weeks, as investors priced
> in a global recession. This time they’ll be pricing in a severe recession
> and maybe a depression. Expect a further $20 trillion to get wiped
> off. And because of the lack of transparency in the CDS market, everyone
> will hoard cash, making the credit crunch even worse…leading to a
> complete systemic financial collapse. The curtain will have finally
> fallen on the Wall Street era.
> "
>
> Interesting perspective. Looks like the 500 year run of capitalism
> will end with a "bang"... Or maybe the people will put it out of
> its "misery" before it takes us all down a "black hole".
>
>
First of all, the "government work" is actually done by private firms, and it will be sustained for a long time. The idea is to substitute government spending for the much reduced individual spending until the new savings rate/consumption levels are maintained.
Right now, we are in a free fall because people are not spending, partly out of fear, but mostly in repairing their balance sheets. This is a GOOD thing, and happens a lot in economies, but it rarely corrects so much and so fast it is today.
Josef Shumpeter (sp?) coined the term "creative destruction", I believe, in describing the need for having capital flow from ineffective uses to effective ones. The capital allocation done in our free markets is by far the biggest competitive advantage the US has.
But, we have to balance this with other needs. For example it is CLEAR that the auto industry has been an inefficient capital user and there is excess capacity.
But the total free market solution appears to be getting rid of ALL of our domestic car industries, and have only foreign nameplates made in America. I know one of the big three CEOs personally, and I can tell you that he fears the entire domestic auto industry would die very quickly if two of the big three would fail.
Do we really want ALL of it to go? Many people say the reason we won WWII was are ability to out produce Germany and Japan --- the same capacity we want to now completely destroy.
As my friend points out, if a country has the capacity to make cars, it has the capacity to make just about anything needed for a war effort---do we really want to outsource this --- EVEN if it meant not making the "right" free market decision: letting the car companies go bankrupt.
I HATE the economic situation we are in, right now, and I am mad as hell that we got into it.
But, we have to stay focused on getting out, and we need less stridency and ideology.
I do not like this deficit spending, and I would oppose it if I was not convinced that if we did not spend now, the GDP would sink even further, and we would end up with FAR higher deficits as we then try to dig out of an even bigger hole.
In fact, if Bush had not let the economy fall off a cliff, I do not think we would be spending us much as we are now --- let alone what I think we will end up actually spending.
On Mar 08 03:45 PM xb74 wrote:
> During the last 8 years median income dropped (look it up -- Survey
> of Current Business, I believe), and when you factor out Home Equity
> "withdrawals", so did GDP.
Since he's starting off with the tear down, any up tick, any positive news well be AWESOME news.
That is how you Turnaround a Company, a football team, or otherwise messed up organization.
There were no message boards in the last several recessions, so this din of bashing from us 'common folk' wouldn't have made it to such a public forum.
Now after the economy goes back up or at least STOPS going down, Obama will be able to lead the team back onto the field.
Then it will be happy happy joy joy again and he'll get the credit for having told us the truth.
The markets are no friend of the people, they've stolen everything.