Mark Bern

While Pundits Play Gotcha, Unemployment Situation Improves

While it is undeniably good news that the unemployment picture seems to be improving, this is only half of the picture. The other half would be the employment picture. Put the two together and you get a better view of the overall economy.

If we look at total number of people working in the U.S. the picture isn't so bright. The trend is still heading down. Also, the size of the workforce continues to contract. Since the U.S. population grows by about 3 million each year (through birth and imigration) the workforce, or number of people available and willing to work grows by about 2 million each year. My concern is that the people who cannot find jobs and eventually give up looking are being considered to no longer be part of the U.S. workforce. This reduces the denominator in the calculation for finding the unemployment percent. But it also reduces the numerator by the same amount, which tends to contribute to a lower percentage outcome.

The understatement of the total number of unemployed is troubling to me. There seems to be two components that are ignored. The first, mentioned above, are those who have looked for a job for more than a year, run out of benefits, and given up. If there were jobs available, these people (and they are people, not just numbers) would seek employment and willingly work. Conveniently, the government does not include them as part of the employment pool because they have given up, therefore they are officially not unemployed. The second group are young people who have never enjoyed the benefit of full-time employment. As they attempt to enter the workforce they can find no jobs (remember, there are nearly 2 million such people each year and we are now at two full years in this recession), so most of them remain without jobs. But, since they have never been included in the workforce before (not having worked), they do not qualify for unemployment benefits nor do they qualify for unemployed status.

My point is that the better gauge of the economic picture is not the government reported unemployment numbers, but rather the total number of employed, as reported also by the government, and the total workforce number. When these two number begin to rise consistently for three or more months, then I'll be happy to say the worst is over. Until then, fewer people with jobs, more people giving up and no longer being counted, and a job market that cannot absorb new, young workers entering the workforce for the first time does not, IMHO, paint a very optimistic picture.

Having said all that, I still believe in the American economic system, its resilliecy, and it ability to heal itself over time. The American economy will eventually begin to grow in a sustainable manner and our way of life will be restored (albeit with a higher tax bill in the future). Growth may be slower and recovery may not be as quick or as robust as we would like, but things will get better in spite of whether our government leaders make huge mistakes or temporarily take us in the wrong direction. The system (you and I) will make corrections and move forward toward higher ground. It always does.

Douche Bag Of The Year Award

I nominate Ben Bernanke for keeping the printing presses rolling, for deflating the dollar, loaning his bankster buddies bundles of bucks (try saying that three times really fast) with which to prop up the stock market and pay themselves huge bonuses, for being complicit in the scheme of slipping his bankster buddies even more cash through the bail out of AIG (wasn't that slick!), for buying up a $Trillion or more of bad mortgages and propping up Fannie and Freddie and then holding all those government owned houses off the market to give us a false sense of resurgence, and for being, generally, such an idiotic "twit" who calls himself an "economist" (no one has told him the two words are synonyms).

I Took My SDS up to a 60% Position Tonight After the Close

What might be the impetus that would start the downhill slide? Well, one possibility could be retail sales during the holiday season. The will be at least two opportunities: early results from Black Friday (full results may not make headlines if they are much worse than the early findings; as MSM won't want to change course) and November retail sales reports. If they both are reported "better than expected" (regardless of whether expectations called for flat sales, small decrease, or small increase) we can expect the market to be happy again. We may not know the truth about Christmas (my parents went to their respective graves with that secret) until the 10K filings are available. By that time, year end will have passed and who will care? The Administration will have found some other distraction of great import to keep such depressing data from getting much press.

Douche Bag Of The Year Award

I can't help but think that President Obama should be on this list. He has pushed through two of the largest and deepest goody bags of legislation in our history. With the remnant of the TARP funds and the mostly unspent stimulus money, he has provisioned himself with more potential vote-getting potential than any other president ever. He can hand out $100 million state aid to any Senator or Representative who sits on the fence for as many bills as he wants to get passed. How do you think Health Care is getting its support? At $100 million per vote and with hundreds of billions to spend, he can get any agenda through Congress.

And you thought the stimulus bill was to create jobs!

Douche Bag Of The Year Award

How did Ben Bernanke not get on the short list? If not for his printing press, Mr. Buffet would surely run out of toilet paper.

Could Sovereign Debt be the New Subprime?

John - Good find of an article with a very good point. I have been planning the use of TBT (ultra short bond ETF), not only as a hedge against inflation, but as a hedge against the solvency of our government. I'm not building a position as yet because I expect that there will be yet another leg down, creating another rush to "safety." That would force rates lower and bond prices higher, at which time I will gleefully start buying TBT for coming realization that sovereign debt, especially that of the U.S., is not the safe haven it once was.

I may be wrong and we may not see a crash in quality for US Treasuries. But even so, when the market gets going it usually goes too far and then reverts to the mean. Perhaps all I will be able to do is take advantage of the overbought position and the ensuing reversion process. But, hey; a profit is a profit wherever one finds it.

All that is to say that I think the author is barking up the right tree.

The Truth Behind China's Currency Peg

Once again, commendation go out to Mr Schiff for another informative and provocative article. While there is surely a debate raging within the comments as to would come out the greater winner as a result of a depegging of the Rinminbi to the Dollar, there is very little opinion on another important factor, IMHO.

It is implied that the Chinese have no plans of depegging and that they would be content to continue the relationship forever as long as the US gets its currency woes in order. On that point, I disagree. I suspect that the Chinese are not as stupid as many assume.

Since we can't really rely on the information coming out of China, how do we know that they are continuing to hoard US$ investments? Who is to say that they are not converting the Treasury instruments elsewhere on the market in exchange for other, commodity-based assets? With all the investment they continue to make in their infrastructure, who knows how much of that has been paid for with US dollars? Perhaps they could be exchanging US$ denoted investments for assets in other countries, for raw materials, for securities denoted in other currencies. How do we know for sure?

I can't help but think that China already has a plan (however distant) to use the US market only as long as it fits into achieving their overriding goals. They don't want a military war, that is, unless they are certain they can win. But an economic war may be what they are already waging. And, if so, I can't help but believe that they intend to win.

Earnings Rebound

So, with earnings now all the way up to 15% of where they were when the DJIA was at 14,000, we finally have justification for the index to be over 10,000? I wasn't a math major, but I can't justify paying 74% of the price I paid back in 2007 for something that is really worth 15% of what it was. The stock price we pay is based upon expected earnings. No?

I realize that the word "expected" means we are looking out at least a year from the present. But the at the current level of stock prices, the market (meaning investors) are expecting the line from the bottom to Q1 2010 to be extended uninterrupted until it hits somewhere around $68 for the S&P500. After that, it would still need to continue upward, albeit at a lesser angle, rising consistently over time (small hiccups allowed after 2013).

Somehow, I don't see that as a realistic expectation with unemployment still rising, CRE continuing to slide, and the likelihood of a lackluster holiday season for retailers (just to name a few of our problems), not to mention the surreal explosion of the federal government deficit and expanding shortfalls for the states.

But, hey! The MSM spin should be very entertaining.

The Rise and Fall of Empires

John,

Thanks for the link. I probably would have missed it. I have read about the technology, the creator, and his vision to use it for educational purposed. I was fascinated at the time of reading and am happy to see a result of his work in action. It really puts things into perspective visually over time. It doesn't replace the actual teaching of events but it can really help people (especially kids) understand interactions of nations, relative in size and importance, over the course of history. All they need to do is add some narration that is fun, too, and the kids would get a grasp of things quickly, IMHO.

10 Reasons to Believe That We're in a Depression

The only upside I can possibly see to hyperinflation is a new TV show: "Who Wants to be a Trillionaire?"

Going Delinquent

The move to short selling is gaining strength. If a person is having trouble paying their mortgage, there is an alternative to foreclosure. But they need to find a real estate agent that has the backing of investors who will approach the mortgage holder for them. But, having your house bought directly from the bank at a discount and saving your credit rating is a much preferable alternative to foreclosure and a seven-year stain on your credit.

The bank get nearly as much as they would after having gone to the expense of foreclosure procedures and having withstood as much as an 18 months hiatus from receiving payments. So the bank wins because they get their money today rather than later and get it without all the expensive legal costs (lawyers hate this).

The investors can buy the property for a fraction of what it is worth, do minor repairs, and sell if for a mark up of 50% or more over their investment and still be well below the rest of the market. They also keep some of the bank foreclosures off the market which may help to keep the average price from dropping more (since foreclosed properties have been selling for as much as a 50% discount to the rest of the market in many areas).

The current owner saves their credit. So, they can still function within society in a normal fashion. That should make them happier than they were when they were facing the threat of being thrown out of their house by the courts.

The new buyer is happy because they purchased a house below the average market price in the area.

And, of course, the real estate agent should be happy because they earned a commission that they may not have had a chance at under other circumstances.

Not that this is a big help to the residential real estate market, but it seems like another practical way to work through some of the glut that will eventually hit the market without destroying the immediate purchasing power of another batch of consumers. I am not arguing that those particular consumers deserve such positive treatment, just that it is available.

Quick Chat #20 11/19/09

AlterNrg looks interesting. Thanks Maya & Triple.

Is Monday the New Rally Day?

Looking at the chart it would appear that we could drop to the 1065 area over the next 6-8 trading sessions. That could mean Monday is open to go either way this week, but we could see a reversal a week from Monday or later in the week following Thanksgiving.

My thought is that if the support around 1030 were to be broken, since this market seems to be driven by momentum and technicals, we could see the traders panic selling.

On the other hand, we will have to watch what good news comes out this weekend to prop things up. But, the market does appear about due for a short breather similar to what was experienced in the last couple of dips.

Commercial Real Estate Cliff-Diving Continues

I'm just waiting for the environmentalists to step in and demand that the government buy the silverdome and turn it into an aviary.

25 Reasons We Will Not Have a Depression

Yes. There are some areas of hope, if....

But that's the problem. The if. If the government gets its act together, things might get better. I hope they do, but confidence is somewhat shaken.

On the other hand, I suppose that sound politics would require the Administration to hold back so this long so that the majority of spending would hit in 2010. That would be prudent for a self serving leadership wanting to have an improving economy during the election season. After all, we can't start to early, keeping people from losing their jobs, if it might not help them get re-elected. We citizens need to get our priorities straight.

"Our debt-to-GDP ratio is not at all bad, contrary to popular belief"

For the moment, you are right. The last I heard from government is that the 2010 budget deficit is going to be $2 Trillion. Will that make any difference? And it appears that the 2011 deficit will likely exceed $1 Trillion. Will we still be okay then?

Look. I want the economy to recovery just as much as the next guy. And I have no idea if we are heading for another depression. I hope not. I can't imagine wanting a depression. But my opinion (and it is only an opinion) is that things look like they could either get worse or stay relatively bad for quite some time unless our leadership changes directions soon.