Market Signals That the Economy Is Not Collapsing

Weekly unemployment claims have not increased on balance for the past 12 weeks. It's looking more and more like the economy has hit bottom. The ISM manufacturing index to be released tomorrow could be very interesting, particularly if it shows continued improvement. I see the ongoing rise in equity prices and new highs in Treasury yields as a sign that the market is beginning to accept that we've seen the low point in this recession.

I'm not surprised at all to see Treasury bond yields rise in line with rising equity prices. They are both telling the same story: the economy is not collapsing; the economy is probably bottoming and may even be turning up somewhat; and deflation risk has all but disappeared.

Neither market yet signals a recovery or rising inflation. Neither market is saying anything yet about the huge fiscal drag that Obama's policies represent (i.e., greater government intervention in the economy, increased regulatory burdens, increased tax burdens). And as I've said before, higher Treasury yields are far from being a threat to the economy; the yields on corporate bonds are still declining even as Treasury yields rise. The spread between the two leaves lots of room for these trends to continue.

Comments

[Larry House]

Sentiment has improved, but the real test will be to what degree will consumers return. We are at a pivotal generational point as Boomers are entering retirement--about 70 million of us. What will actually happen can only be guessed at right now, but there is a good chance their spending habits will be changing. That can have a huge impact on economic activity. Hopefully our economy is not near collapse, but it is not near a robust rebound either.

2009 Apr 30 02:57 PM

[TimH]

Didn't you say unemployment is just a lagging factor and doesn't matter at all? Stop slapping yourself, cretin.


On Apr 30 02:42 PM Cetin Hakimoglu wrote:

> Great article, yet again. Agree 100%.

2009 Apr 30 03:00 PM

[doubleguns]

Treasury yields going up could be because the bond prices are collapsing from everyone running out of the bond market in fear of the dollar collapse. We dont know!! Yet!! Why are they leaving the bond market.

I would be very carefull at this point in this market.

I would ABSOLUTLY not listen to C(r)etin.

2009 Apr 30 03:32 PM

[j_remington]

Bulls have claimed unemployment does not affect markets negatively. Yet they consistently use improvements in unemployment as a positive. Hypocrites!

2009 Apr 30 04:06 PM

[Steve in Greensboro]

Thanks, CBP, for another helpful and accurate article.

But this reminds me a little of the "bring out your dead" scene from "Monty Python and the Holy Grail". Another week of another 600k new unemployment claims, probably means another week of net 400k lost jobs. Mr. Economy is yelling "I'm not dead yet!", but he certainly is not looking too chipper.

The economy continues to deteriorate, but the deterioration is not accelerating.

2009 Apr 30 04:12 PM

[altaman]

To paraphrase Bill Clinton - "It depends what your definition of collapse is." If collapse means almost no economic activity, Treasury debt repudiation and anarchy in the streets then no there is no collapse. If collapse means huge government bailouts, exploding government debt, degrading financial standards, shrinking tax revenues, exploding unemployment, unprecedented reductions in exports and imports, waves of foreclosures, shinking real estates values, growing default rates, etc. then yes we do have a collapse.

2009 Apr 30 05:37 PM

[yellowhoard]

You're being too pessimistic altaman.

You're not giving the government credit for targeting one third of the population as potential terrorists.

Golly. Things are gonna be swell when we all think the same way.

2009 Apr 30 05:57 PM

[The Geoffster]

Cetin's clone sees it his way...
www.marketoracle.co.uk...

2009 Apr 30 07:36 PM

[dieuwer]

I think the economy has not yet hit bottom. I think it will towards the end of this year. To be precise: on December 5th.

2009 Apr 30 08:00 PM

[Mr. Ed, Jr.]

Some people never get it. In the real world, things don't go straight up or straight down. There are upticks, rallies, sideways moves and volatility. Just look at any chart. Why, you could even look at one of the charts above.

Could we please have a moratorium on these predictions of a "bottom" ? Maybe a "bottom" on "bottom calls".

2009 Apr 30 08:35 PM

[InvestBaboo]

Facts:

#1 92% of people are still employed. Even if unemployment rises to 11% there will be 89% people employed.

#2 The 89-92% of employed people today have become super-cautious about spending money because of the fear, gloom, doom, death and dyspepsia. However, as recent data indicates they are coming slowly out of their shells. The markets have accepted a greatly discounted spend rate but the real spend rate is significantly north of this rate. The real rate will be unleased as soon as the fear and gloom start to dissipate. How will this happen? Housing prices need to bottom which they will in the next couple of months. Companies need to hire which they will start as soon as they need to start replenishing their drastically reduced inventories which is a cycle that will start soon.

#3 You fight the Fed you lose. Anyone that thinks trillions of dollars unleashed into the economy won't matter is a fool. As misguided and wasteful as Obama's stimulus plan may be -- it will release a torrent of money into the economy. Never before in history has there ever been such a massive unleashing of money into the economy and all the pundits and gurus who are looking in the rearview mirror for previous bear market patterns to prognosticate how the current scenario will unfold will get their behinds burnt to a crisp.

2009 Apr 30 09:23 PM

[Speedspirit]

Author didnt finish his Title

Market Signals That The economy Is Not Collapsing YET.

2009 Apr 30 09:33 PM

[logicalman]

cetin, i think the bears are slowly beginning to see what you have seen for some time now, and i have agreed all along...we're not going to the moon anytime soon, but the tide has definitely turned..you and i, and others i am sure, caught the wave at the beginning of its crest....i hope that others will realize this soon and get on board for a perhaps a slow,but certain rise for the forseeable future!!!


On Apr 30 02:42 PM Cetin Hakimoglu wrote:

> Great article, yet again. Agree 100%.

2009 Apr 30 09:58 PM

[logicalman]

perhaps they are leaving the bond market to go to the stock mkt........could it be that they understand that a change is taking place...don't fight the trend..or sentiment!!!


On Apr 30 03:32 PM doubleguns wrote:

> Treasury yields going up could be because the bond prices are collapsing
> from everyone running out of the bond market in fear of the dollar
> collapse. We dont know!! Yet!! Why are they leaving the bond market.
>
>
> I would be very carefull at this point in this market.
>
> I would ABSOLUTLY not listen to C(r)etin.

2009 Apr 30 10:04 PM

[givargi]

Let me just point out one thing. Let's consider future doctors... Why? Because there are lots of doctors in America, and they are a significant portion of the upper middle class...
Well, at least that's how things were. But consider this, the MDs graduating today (I know lots of them, and they annoy the hell out of me) have very real and very large debt to pay off, hence, they will never be the spenders that their predecessors were.
And the same argument can be applied to all professionals, even those that never made much money, we are all burdened by significant educational debt.
HOW WILL THE ECONOMY BOOM AGAIN???

2009 Apr 30 11:19 PM

[cameroni]

"Market signals the economy is not collapsing".

The word collapse is really loaded. It suggests anarchy itself is at our doorstep. In that sense I agree with you that, no, we are not collapsing.

We are however, despite the stock markets recent 6 week rise, in a situation where the economy continues it's downward trajectory. Only a true optimist or a person who is utterly blind to the staggering statistics delivered daily and weekly would be convinced that the economy is not experiencing a period of severe contraction and failure as wee know it.

We may not be collapsing and indeed we place a great deal of faith in our lawmakers to contain this market disaster, but we are experiencing an economic contraction and that WILL be felt by all markets in the near term.

Your current bullishness could really cost you if you have invested with the optimism with which you wrote. But I am guessing you have hedged your bets and put stop losses in place strategically. Your oddly timed message of optimism is puzzling because even bulls are acknowledging markets are overbought and we are preparing for a down-cycle....

Are you just pumping the troops to shore up your own positions?

Cam

2009 Apr 30 11:53 PM

[Missing_Link]

> [Cetin Hakimoglu]
> Dow 8,500 soon and 10,500 end of year. Buy orders will flood
> the system in the hours leading up to the unemployment report
> & no sell on the news.

YOU ARE NOT NOSTRADAMUS.

Stop pretending to be.

2009 May 01 12:01 AM

[TheSnail]

Yo, all you people like Cetin, please look at things from all angles:

For example, S&P has increased its May 2008 assumption for losses on commercial real estate loans from 0.5% to 4.0% Wednesday, under a base scenario, and from 4.0% to 7.0% in a stressed-case scenario.

The highest loss rate assumption is 13.0% for credit card loans under a stressed-case scenario, up from 10.0%.

2009 May 01 12:21 AM

[givargi]

You need three things for capital creation :1) cheap labor, 2) cheap resources, 3) consumer market.
NO NEW CONSUMER MARKETS (consumer markets were long saturated thanks to offshoring of jobs for lower pay, that's why they needed debt to keep the economy growing).
NO NEW CHEAP LABOR (labor in Asia is as cheap as it gets, when we reduce labor costs here, those new laborers will make real poor consumers, so it won't help).
NO NEW CHEAP RESOURCES (we are running out of all kinds of stuff in cheap form, especially oil).

"Goldilocks economy" is dead and will never be back.

2009 May 01 12:36 AM

[PastTense]

"And the same argument can be applied to all professionals, even those that never made much money, we are all burdened by significant educational debt.
HOW WILL THE ECONOMY BOOM AGAIN??? "

There is a broad consensus among Democrats, Republicans and the Fed: inflate the debt away!

2009 May 01 12:37 AM