Monthly Archives: October 2009

Another Note On Unemployment Statistics

On October 6 I wrote about my thoughts regarding Unemployment Statistics.  That link can be found here:

https://www.economicgreenfield.com/2009/10/06/a-note-about-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?) …”

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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

Another Story Concerning Homelessness

Here is a story from yesterday’s Chicago Tribune titled, “Homelessness rises, redefining living conditions for schoolchildren.”

http://www.chicagotribune.com/news/education/chi-homeless-studentsoct28,0,7967162.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

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 http://www.sentimentrader.com/ 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

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:  

http://knowledgetoday.wharton.upenn.edu/2009/10/the-economy-right-now.html

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

http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/

ADS_2yrs_10-17-07-10-17-09

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.”

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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

Christina Romer’s October 22, 2009 Testimony

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

http://jec.senate.gov/index.cfm?FuseAction=Hearings.HearingsCalendar&ContentRecord_id=6dd4483c-5056-8059-7664-1856ea0ee4e6

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

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:

http://pymnts.com/warren-buffett-on-what-s-next-in-the-payments-industry-2

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

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

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:

http://www.bankofengland.co.uk/publications/speeches/2009/speech406.pdf

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 

The “Crowded Trade” Concept

Here is a story from Friday on CNBC.com 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

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” article that can be found here, for those who haven’t read it:

https://www.economicgreenfield.com/americas-trojan-horse/

 

SPX at 1086.22 as this post is written