Friday, October 30, 2009

Another Note On Unemployment Statistics

On October 6 I wrote about my thoughts regarding Unemployment Statistics.

I recently ran across the following from John Mauldin, found in his October 23 "Thoughts From The Frontline" newsletter:

"With 9.8% unemployment, 7% underemployed (temporary), and another 3-4% off the radar screen because they are so discouraged they are not even looking for jobs, and thus are not counted as unemployed (who made up these rules?) ..."


There are numerous aspects of the Unemployment situation that I find highly noteworthy. If one assumes that the "true" Unemployment Rate is 20%, as per above, that in itself is outsized from a historical perspective. One would have to look back to the worst period(s) of The Great Depression to see such (stated) Unemployment Rates.

Also, for all of the hardship this unemployment situation is causing, it doesn't seem to be causing undue concern or focus. Perhaps the vast majority has adopted the traditional view, one that economists routinely site, that Unemployment is a lagging indicator and thus the problem will improve as the purported economic recovery progresses.

Another facet of note is that the stock market valuation seems incredibly high when compared to the Unemployment Rate. While this dichotomy may last temporarily, I would expect a definite "resolution" to close the gap.

SPX at 1057.71 as this post is written

Thursday, October 29, 2009

Another Story Concerning Homelessness

Here is a story from yesterday's Chicago Tribune titled, "Homelessness rises, redefining living conditions for schoolchildren.",0,7967162.story

As I have previously written:

"As I discussed in my September 3 post, I think it is important to have stories and statistics concerning poverty and misfortune published on a more frequent basis. While they are certainly disheartening, it is far better to have awareness of the trends and circumstances regarding poverty and related issues than to be ignorant of them, and pretend they don't exist."

SPX at 1053.87 as this post is written

Wednesday, October 28, 2009

The McClellan Oscillator's Performance

There are several interesting facets of the markets right now. I will soon comment on some of them.

From a stock market perspective, the performance of the McClellan Oscillator is one such facet. Here is commentary from yesterday's that I found very interesting:

"Remarkably, the Oscillator hit a deeply oversold reading yesterday, nearly 2 standard deviations below its 70-year average. At a current level of -73, the Oscillator is giving off one of its most oversold readings since the March bottom...even though the S&P was within 1% of a new 52-week high at one point during the session.

Since 1940, this has never happened before. The S&P was never within 1% of a new yearly high on the same day the Oscillator dipped to -70 or below."

SPX at 1056.91 as this post is written

Tuesday, October 27, 2009

Aruoba-Diebold-Scotti Business Conditions (ADS) Index

The below link discusses a new economic forecast index called the Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is a chart of the index that can be found on the Philadelphia Fed website at this link:

From the above Philadelphia Fed link:

"The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data. Both the ADS index and this web page are updated as data on the index's underlying components are released.

The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0.

The vertical lines on the figure provide information as to which indicators are available for which dates. For dates to the left of the left line, the ADS index is based on observed data for all six underlying indicators. For dates between the left and right lines, the ADS index is based on at least two monthly indicators (typically employment and industrial production) and initial jobless claims. For dates to the right of the right line, the ADS
index is based on initial jobless claims and possibly one monthly indicator."


At this point, I don't have a lot to say about this index. I do find the latest downturn from about mid-August to be notable.

Also, it would be interesting to see how this index compares historically to the S&P500 as well as the other index and forecasts I have previously discussed on this site such as the ECRI WLI, Fortune Big Picture Index, and Dow Jones ESI.

SPX at 1062.47 as this post is written

Monday, October 26, 2009

Christina Romer's October 22, 2009 Testimony

Here is testimony by Christina Romer before the Joint Economic Committee on October 22, 2009:

Readers of this blog will know that I don't agree with many of the statements and forecasts found in this testimony. However, I am calling attention to it because it has several notable passages, as well as forecasts.

Although we have heard similar statements from other economists, here is one such notable passage found beginning on the bottom of page 10:

"Leaving aside timing issues, the unemployment rate typically falls when GDP growth exceeds its normal rate of roughly two and a half percent per year and rises when GDP growth falls short of this pace. With predicted growth right around two and a half percent for most of the next year and a half, movements in the unemployment rate either up or down are likely to be small. As a result, unemployment is likely to remain at its severely elevated level."

SPX at 1079.60 as this post is written

Friday, October 23, 2009

Warren Buffett - Recent Interview

Here are a couple of links to a recent Warren Buffett interview. I have not been able to pinpoint a date, but apparently the interview was from a month or so ago:

The video link:

The transcript link:

The first part of the interview deals with his views on the economy. Although I don't necessarily agree with his views, I did find the interview to be interesting on various fronts.

SPX at 1087.14 as this post is written

Thursday, October 22, 2009

3Q Double-Digit Percentage Revenue Declines

As I have discussed previously, double-digit percentage declines in corporate revenues is a serious issue.

Many well-respected, broadly-based companies have posted double-digit percentage revenue declines for 3Q. This is highly significant in that we are purportedly in an economic recovery; as well, 3Q 2008 should provide a (relatively) easy comparable period as the economy was struggling.

SPX at 1078.7 as this post is written

Wednesday, October 21, 2009

Moral Hazard Speech

Here is a link to an October 20 speech given by Mervyn King. The speech speaks of the concept of Moral Hazard:

Although there are various notable passages, I found this line perhaps most interesting:

"The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history."

I have commented on Moral Hazard previously on this blog. As I have noted, there has been very little (especially relative to the size of the issue) commentary or attention given to the issue. I believe the Moral Hazard issue is of the greatest importance.

Moral hazard should have been addressed via credible policy many years ago. I am certain that by neglecting this issue we will see immense damage.

SPX at 1098.22 as this post is written

Monday, October 19, 2009

The "Crowded Trade" Concept

Here is a story from Friday on that caught my interest:

It is titled "Stocks, Gold Are Crowded Trades: Hugh Hendry"

I found it interesting for two main reasons. First, it discusses the concept of the "Crowded Trade." This is a phrase that isn't often heard these days. Nonetheless, I think the concept is important to consider, especially in today's investment environment.

Second, I found this interesting:

"The remarkable thing about the stock market is 'the absence of volume associated with it'," Hendry said.

Compared with previous rebounds in stocks from previous recessions, volume in this recovery from the March lows is 60 percent lower, according to Hendry."

SPX at 1089.31 as this post is written

Friday, October 16, 2009

Tax Increases And Our Economic Situation

Lately there has been quite a bit of activity in either increasing or proposing increasing taxes (also increases in fees, fines, etc). This activity is occurring at all levels, i.e. local, state, and national.

These tax increases are very noteworthy given our current period of economic weakness. I will be addressing various aspects of this in the future.

For now, I would like to highlight the dynamic between taxes and the national debt, which is especially important. I discuss this in the "America's Trojan Horse" for those who haven't read it.

SPX at 1086.22 as this post is written

Thursday, October 15, 2009

Unemployment And Stimulus

Here is a Wall Street Journal editorial from Monday:

I found it interesting for two reasons. First, it has a chart that shows the actual Unemployment Rate vs. that forecast in "The Job Impact of the American Recovery and Reinvestment Plan." Currently the Unemployment Rate is approximately 2% above the rate forecasted with the stimulus.

Second, the editorial mentions the idea of an employment tax credit, i.e. granting a tax credit to employers who hire. This is yet another stimulus idea, and as such is subject to the same risks and unintended consequences that I have previously written of. Apparently one idea is to grant a $3000 tax credit for each new hire in 2010.

I don't believe an employment tax credit will solve, or present a significant solution to, our national unemployment problem. As I wrote in the "Why Aren't Companies Hiring?" blog series the Unemployment problem is not simple in nature.

SPX at 1092.02 as this post is written

Wednesday, October 14, 2009

A Quizzical Quote From Barney Frank

Here is a story from The New York Times of October 8 that discusses the situation at the FHA:

What I found particularly interesting in this story was a quote from Barney Frank, the chairman of the House Financial Services Committee:

"I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

My comment on the above quote:


SPX at 1085.74 as this post is written

Tuesday, October 13, 2009

NABE Economic Forecast Survey

Here is another economic forecast survey, this time from NABE:

From the article: "The survey of 44 professional forecasters released by the National Association of Business Economists (NABE) found that 80 percent of the respondents believed the economy was growing again after four straight quarters of declines."

The survey's results for 2010 GDP and Unemployment appear similar to those from The Wall Street Journal's survey I posted yesterday.

This article also mentions housing: "About two-thirds of respondents believed house prices would reach a bottom this year and the survey found that high house prices would not pose a threat to the sector's recovery."

SPX at 1076.19 as this post is written

Monday, October 12, 2009

The Latest WSJ Forecasting Survey

I would like to highlight a couple of facets of the latest Wall Street Journal Forecasting Survey:

As stated, "The Wall Street Journal surveys a group of 52 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: ."

I found two aspects particularly interesting. First, with regard to unemployment, "On average the economists -- not all of whom answered every question -- expect the unemployment rate to peak at 10.2% in February."

Second, for all of 2010, the average forecast is for 2.8% GDP growth. This forecast of 2.8% growth has not changed significantly since May's first response.

SPX at 1078.17 as this post is written

Friday, October 9, 2009

Updates On Economic Indicators

I would like to do a quick update of some indicators that are supposed to predict economic activity. These indicators have been discussed in previous blog posts:

The ECRI WLI (Weekly Leading Index) was at 127.1 in the week to September 25. Here is Press Release:

Fortune's Big Picture Index is at 14.25 as of October 2. This is at a level that is very near to the low of the data series; furthermore, as one can see, its gauge depicting "recession v. recovery" seems to strongly indicate "recession."

Lastly, the Dow Jones ESI (Economic Sentiment Indicator) is shown to be 34.1, according to the September 30 Press Release here:

I find all three of these indicators to be very interesting, and will continue to post them on occasion.

SPX at 1065.48 as this post is written

Thursday, October 8, 2009

"Cash For Clunkers" Revisited

Here is an October 5 Wall Street Journal editorial reviewing the "Cash For Clunkers" stimulus plan:

Also, to provide perspective, a chart of Vehicle Sales from the CalculatedRisk blog (10/1 post) at this link:

As one can see, the "Cash for Clunkers" seems to have been successful in temporarily causing a surge in auto sales for July and August.

One could casually observe that the program was successful, in that it caused a short-term sales spike and the purported associated economic and environmental benefits.

However, this observation would be flawed, as many other factors are present as well. I mentioned some of them during my August 4 post.

SPX at 1057.58 as this post is written

Wednesday, October 7, 2009

"Stimulus Spending Doesn't Work" Op-Ed

Here is an October 1 op-ed in The Wall Street Journal titled "Stimulus Spending Doesn't Work" :

Although I don't concur with some of the statements in this Op-Ed, I do believe that its overall message and conclusions are important.

SPX at 1054.72 as this post is written

Tuesday, October 6, 2009

A Note About Unemployment Statistics

From time to time, I will write posts that contain the Unemployment Rate or various other job loss measures. I show these statistics as they are widely used and quoted by others.

From my perspective, however, the methodology used to measure the various job loss and unemployment statistics does not provide an accurate depiction. There are a variety of reasons for this that become evident if one carefully analyzes the unemployment calculations.

I feel that if one were to accurately gauge the Unemployment Rate, the rate would be at least 20%, which is roughly double the official Unemployment Rate of 9.8%. This 20% figure is above the U6 measure of 17% that many have adopted as an accurate benchmark.

What is bothersome is that even the official unemployment statistics that I show in the blog posts display a very worrisome situation.

SPX at 1054.65 as this post is written

Monday, October 5, 2009

Another Chart Reflecting Job Losses

I would like to present an interesting chart on job losses. My last chart concerning job losses was posted on September 10. The commentary I presented there is still highly applicable to the latest unemployment numbers.

This chart is from from October 2. I like this chart as it presents a depiction of the relative severity of our current period of economic weakness vs. that of prior periods from both a "duration" and "extent" perspective:

click on chart to expand

There should be no doubt that this unemployment situation is severe, especially in light of the fact that other employment/income options like starting one's own business in this economic climate would be (very) difficult.

For those who haven't yet read it, I wrote a blog series titled "Why Aren't Companies Hiring?"

SPX at 1031.47 as this post is written

Friday, October 2, 2009


On Tuesday The Wall Street Journal published an editorial on the FHA (Federal Housing Administration). I found it to be a good overview of the situation there. The editorial can be found at this link:

I find this FHA situation highly disconcerting, especially in light of how similar situations have played out, and are playing out, elsewhere. This situation is, of course, exacerbated by ongoing weakness in the residential real estate market, which I have commented on extensively. (those blog posts can be found under the "Real Estate" category listed on the right-hand side of the page)

SPX at 1029.21 as this post is written

Thursday, October 1, 2009

"Garbage" Securities

Just a quick note. I think it is important to remember that there is a tremendous amount of what I refer to as "garbage" securities currently in existence. It is easy to forget this fact given that we don't hear much about them anymore. This is due to many reasons, including: various credit spreads have been narrowing; their true value has been obscurred due to the removal of "mark to market" accounting; and various asset "guarantees" have, at least for now, greatly muted their impact.

However, "garbage" is "garbage" so to speak, and it is important to remember that they are either fundamentally worthless or very close to worthless.

SPX at 1048.68 as this post is written