Even though major stock market averages were up for the week, Thursday’s and Friday’s disappointing economic data left its very long sobering shadow haunting investors this weekend. Under the economy’s hood, the employment picture is deteriorating. Private sector jobs growth, including temp jobs which normally increase during the early recovery stage before employers hire new workers, was lower in July at + 71,000 than June’s + 83,000. Private sector jobs gain in June was revised down from 83,000 to 31,000. Total jobs lost in June went up from 125,000 to 221,000. The unemployment rate remained at 9.5%, as 315,000 dejected workers existed the workforce.
Consumer credit continued contracting, by $1.3 billion, but better than expected. Revolving credit is down 10.5% YOY versus -1.4% for non-revolving credit and a -4.5% overall. Goldman Sachs forecast unemployment staying at levels of 10% in 2011. That gives companies cover if they want to continue laying off employees even when profits are growing. Funny, once upon a time companies laid off workers only when business units was losing money or when companies were sold or merged. Gold vaulted back above $1,200.00 per oz.
A Two-Year treasury note will pay you a grand total of 0.50% a year to borrow your money and to help fund your efforts to stimulate the economy.
BP plugged the Macondo well with cement and ended the gulf of Mexico oil disaster. Five million barrels of crude poured into the gulf between April 20th and August 3rd is now missing. If anyone has information on its whereabouts please email me. I’m curious; the authorities are not. Thank you. In a related story, President Obama is serving gulf seafood at his 49th birthday bash. Fill in your own comment(s) _____ here.
The Feds meet this week to determine if and how to rescue the economy from the impending double-dip recession by war gaming Quantitative Easing II. The November elections are only weeks away. Democrats are terrified to do anything bold while Republicans are hoping that they try. Wyoming’s Governor is threatening to sell off a portion of Grand Teton National Park for revenue. Cash is no longer a king in exile.
The world is very different now than when I started Monsoon in June of 2007. George Bush was President, Afghanistan was the good war, the sub-prime loan crisis was tiny and manageable. Home values stopped increasing each month, although, millions of families were still living inside their residences. There are no financial market “black swans” only blind ornithologists. Savers who bought 5-year Certificate of Deposits at 5.5% to 6.00% were considered dumb. Investors who ignored modern portfolio theory to build high quality fixed income portfolios with durations of greater than 20 years were considered really dumb, when everyone knew, over time, all stocks went up in value.
The economy is about to take another painful step into unchartered waters. The evidence is everywhere if you choose to look. From 2007 to 2009, over $12 trillion dollars in wealth was destroyed. The precursor to 2008 was years in the making. About half of that value has returned but it is more problematic that the wealth its replacing. My task is fully preparing my clients for that moment when markets breakdown again. Disclosure: none