This chart plots the 6-mo. annualized change in the 4-week moving average of weekly unemployment claims. The Labor Board notes that the numbers have been distorted because automaker shutdowns occurred earlier than normal. Seasonal factors expected layoffs to occur now that in fact happened several weeks or months ago; to that extent seasonally adjusted claims today are lower than they otherwise would have been. But if that's true, then claims were distorted on the high side for the past several weeks and months, right? And even those upwardly-distorted claims numbers showed significant slowing from earlier in the year.
Despite the problem of earlier-than-usual automaker shutdowns, it should be clear that the pace of unemployment claims has moderated significantly. We have almost certainly seen the worst of this recession, and most likely the end.
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ReplyDeletePerception is reality. Technically, we may be out of a recession but the hangover is going to be long and hard. Here are some anecdotal tidbits that apply only to my immediate sphere.
ReplyDeleteMy father is a Geologist for the state of CA and has seen his hours/pay cut 20% or so. Lucky he is close to retirement.
My brother was laid off from a mid tier CPA firm’s bankruptcy division. Their audit, tax et al business is abysmal.
My cousin’s 30 year old construction company in Oregon filed for bankruptcy just recently. Lucky he is now working for his competitor but obviously no such luck for his former employees.
A friend’s 10 year old Technology Development firm continues to lay off people and can barely afford to pay the Principals. This year may break them.
Another friend’s commercial print business has been shedding staff for over a year despite their push to move clients into digital.
My wife’s sister works for the UC system in CA, they believe furlough days lie ahead.
I was lucky to land a job in Nov of last year at a top tier financial firm but that was after failures to launch two startups.
It is ugly out there and the mood will dictate the pace/ breadth of the recovery. My guess is that we are as close to another down leg as we are to moving the economy in the right direction. Companies only know how to do one thing, so it is no surprise we see a bounce off the bottom, but that does not change the future headwinds that are blowing mightily against them. While this is a good thing, we do not need 300 versions of every consumer product, the transition will be painful. I am in the camp that we are in a new reality that will last for a decade or two, just like the great moderation created a sense of invincibility for the past several while yields headed in one direction, down.
I believe we are in a new normal; I am calibrating my expectations, investments, and expenditures accordingly.
Scott,
ReplyDeleteLet's make a deal....when companies start hiring again and wage cuts stabilize, I will become a BIGGER bull than you!
In the mean time, few companies are hiring and tens of millions face massive wage cuts against a historically high level of debt.
Maybe it's time for Alstry to start trying to start looking at the other side of the coin....but based on current behavior by the Obama administration and The Fed, I think we may be calling each other comrade in the not too distant future.
A brief look back at the men in charge and how their experiences may have shaped their current decision making.
ReplyDeletehttp://www.american.com/archive/2009/july/when-they-were-young
I believe we are pushing the cr*p down hill and that eventually the credit system will implode.
Obviously the Fed hopes that banks et al can earn their way out of debt but when the entire system is on the juice, that seems highly unlikely to me.
Isolated incidents like Mexico, Asia, Russia, LTCM, dot-bomb etc are manageable but this time around, the entire system froze up and for good reason. Everyone was sitting on or connected to a bunch of worthless assets bid up in the frenzy the globe over and that one day, those losses will rear their ugly head. Nothing has changed much in my book. The losses are still there, just on someone’s else book.
I think you're unduly pessimistic. There have been widespread and genuine improvements. Swap spreads and agency spreads are essentially back to normal. Credit spreads have tightened considerably. Volatility is way down. These things reflect genuine healing in the financial markets. Lots of losses have been taken already, if not almost all the losses. Severely depressed markets for ABX and CMBX are rebounding. Banks are making profits again. You can't ignore all those green shoots.
ReplyDeleteThose are facts based in reality Scott, not regression based metrics or fancy charts. Risk metrics "should" be significantly lower because Governments have distorted the measurement of that very calculation.
ReplyDeleteThink about it, the US Government has thrown everything at this crisis and 1) the toxic asset situation has not materially changed and 2) the unemployment rate will approach 11% and remain elevated for years. Those are not signs of normality in the system. How you can say the banks have taken the losses befuddles me. They changed the rules so they did not have to realize them but that does not make them go away. CIT is case in point. Wake up.
And doesn't it frighten you to see the big banks getting bigger while the small banks start to disappear? If anything, the risk in the market is becoming more concentrated in fewer hands.
I still maintain that most of the losses have been taken. Some of those losses have resulted in the collapse of some major companies, wiping out hundreds of billions of equity capital. Other losses have been taken to the bottom line, resulting in huge reported losses from companies all over the globe. Those losses are of similar order of magnitude to the losses you would expect given the stock and composition of mortgages out there.
ReplyDeleteIndeed, I think the big story going forward will be that many companies are going to be recapturing a good deal of what they have written down. "Impaired" securities are not taking all the losses that were implied when the securities were first impaired and the losses taken.
"Indeed, I think the big story going forward will be that many companies are going to be recapturing a good deal of what they have written down."
ReplyDeleteHahaha! I completely agree. We've watched the overshot on the upside a few years ago with the housing bubble. A few months ago we saw the overshot on the downside. Everything played out in slow motion right before our eyes! Classic!
Kudlow had a good article today about the stock surge, and the earnings paradox.
ReplyDeletehttp://www.cnbc.com/id/31944230
"I call this the profits paradox. Bad economic news can be good profits news, at least for awhile, as businesses take corrective measures. And from this business discipline comes a big surge in productivity, which ultimately drives us into recovery."
As you were saying Scott http://ftalphaville.ft.com/blog/2009/07/17/62641/citi-subprime-snapshot/
ReplyDeleteThanks
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