Tuesday, December 9, 2008

Even the Perma Bears Are Bullish, But What About Unemployment

Kass, Ritholtz, Fleckenstein-all bullish. What's a guy who thinks there is more pain to come supposed to do? Pretty soon I'll be the only guy at the gin mill except for my good buddies Jim Beam and Johnny Walker. Please note that I was very long through lunch today and did very well thanks to AMZN and DRYS, but capped the day off with shorts in KFT, CPB and some select longs in SKF.

I still think the real harbinger of doom will be unemployment and I don't understand why it doesn't get more attention. We all know the consumer is 70% of the economy, yet last weeks number seems to have been viewed as one time anomaly and not the beginning of a series of numbers that could be much worse. Maybe I'm just thick.

John Crudele opines that

Last week Federal Reserve Chairman Ben Bernanke, a scholar of the 1930s Big-D, scoffed when a reporter asked him during a news conference if we're headed for horrible economic times.

The Fed head pointed out that the unemployment rate reached 25 percent during the Great Depression and the job market only revived because we had to spend a lot of money to fight the Germans.

Here's what the Obama White House should - but won't want to - know.

Right now, the unemployment rate would be more than twice as bad if you go back to the way this figure used to be calculated.

In 1994 the Clinton White House decided that the unemployment rate needed to be modernized.

So anyone who had been out of work for at least a year was no longer counted as unemployed - they were just too lazy and discouraged to find work.

Those clever Clintons also changed the way the questions were asked, so that more people would drop out of the unemployment statistics.

John Williams, an economist who tracks this stuff on his Web site ShadowStats.com, says today's unemployment rate would be 16.5 percent if we went back to the old way of measuring it.

As it stands, the government announced last Friday that the jobless number climbed 0.2 percentage points to 6.7 percent in November, when an astounding 533,000 positions were eliminated.

And the Labor Department also corrected the previous two months - now admitting that nearly 200,000 additional jobs disappeared right before the election.

The broader unemployment number that the Department does produce - called the U-6 - rose to 12.5 percent in November from the previous month's 11.8 percent.

This figure includes people who want to work full time but can only find part-time gigs.

There's a certain irony in the fact that Obama, the first Democrat to win the White House in eight years, is going to be deceived by employment numbers that were first fudged by the last person in his party.

Here are a few things Obama should know and maybe contemplate for a while.

The new president thinks rebuilding the nation's infra- structure is the kind of stimulus the economy needs to start cranking again.

But will any of the workers fired last week by, say publisher Houghton Mifflin, DuPont, Viacom, AT&T, Avis and dozens of other white-collar heavy companies, really want to pour cement, dig ditches and engage in the brutal tasks that repairing roads and bridges will create?

When Roosevelt created jobs with infrastructure stimulus in the '30s, America was a blue-collar society that employed mostly men.

We, white-collar prima donnas, aren't going to benefit from this program, no matter how many billions the government spends.

But a lot of illegal workers willing to work hard should do quite well. We'll be getting thank yous soon from the Mexican government, which could benefit more from this than Nafta.

- And the American job situation is worse than anyone can imagine.

Last Friday's disastrous labor numbers included 30,000 jobs that the government thinks were created by companies too small to count.

This is called the Birth/Death calculation. But don't count on these positions really existing.

This is a Labor Department trick: Count the numbers in the current month and subtract them later when the shock won't be so great.

January is the only month when this birth/death model deducts jobs from the monthly count. So the job figure coming out Feb. 6 - just weeks into the new administration - could be mind bogglingly bad.

In the weeks and months ahead we will see where this all lands, hopefully not on a mine. I think the FDX news/warning was a very loud signal as to where things are going. The bulls are arguing the worst is behind us, I say now is the time to be even more careful.


Danny said...

It's always awesome reading an article that espouses my view in a more detailed and superior way than I had or could of conceived it.

I think FDX was a huge tell about what's in store for those who think it's priced in. Not to mention we are still under 920, and 900.

Thanks for your contributions Upside.

upsidetrader said...

thanks danny, i'm sure you could do as well if not better--the fdx was scary, no one really talked about it but its sad commentary going forward i think-thanks for dropping by

Luis Fer said...

it's astonishing the way government can manipulate data... and people not noticing... or wanting to.
it's not as if the calculation was changed in the seventies but just a decade ago...nobody notices it or takes it in account?

well, nice post.

Chris said...

If this bear is over, it will be one of the shortest of it's severity on record. About a year now... I thought this was a major economic crisis?

Jared said...

How about being involved in building wind mills? Don't you really want to be 300 feet off the ground on a tiny platform? No thanks....I'm sure you'll find only a few to do that too.

Agree with your thoughts and I don't know what the government keeps thinking that giving the corporations money when the consumer is the one who is ultimately strapped. Know 3 people since Friday who have been laid off, first time ever, this is going to get quite a bit worse!

Also, just sent you an email with a couple of questions I have...thanks!

Ryan said...

Great post. Thanks.

Care to comment on how many of the new individual brokerage accounts might be from out-of-work professionals seeking reputable gambling/a way to try to make money during hard times?


kkmoney said...

nice post

upsidetrader said...

good point,i'm sure its meaningful

Scott said...

This is a tremendous, prescient post! It takes my thoughts and presents them with much more insight. Thank you.

I do have a comment/question (and hope you can respond). I am a layman (not in the financial service business). However, I do read a great deal of economic publications. One of the ways that this crash has been described as is that it happened in "slow motion". It did not happen in a day or a week. It unfolded over more time. I don't know if you agree. But, I have wondered if all the fed has done is "slow" a much deeper descent than we have already experienced. The fed cannot help us avoid a '29 like scenario - it can only prolong the amount of time in which it takes to get there. Does this idea make any sense to you? From my perch, it seems that we would need ALL of the monetary mechanisms to work (worldwide!) in unison and proactively to avoid calamity. That is clearly not happening. To date, actions have been adhoc, piecemeal, and, reactive.

Again, thanks for your great posts.

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I am a former hedge fund manager, broker and capital markets dude who now trades for his own account. I love what I do. I will try to post some stocks and an occasional chart that looks attractive for entry.I will also try to point out the idiocy of conventional wisdom and the lack of value added by the mainstream financial media. These postings should not be viewed as recommendations.