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Friday, November 6, 2009

Morning Market Report

The monthly Bureau of Labor and Statistics number is hot off the presses. The economy shed 190,000 jobs. That's slightly worse than the consensus which was at 175,000 (h/t to a commenter) The number everyone will be talking about will be the unemployment rate which jumped to 10.2%. September's numbers got revised to 219,000 from 263000 and August got revised to 154,000 from 201,000. The three month average is a loss of 175,000. The work week was unchanged at 33.1 hours a week. That's near it's all time low, since that has been tracked. Hourly earnings were up by .3%. Job losses were across the board except health care and education.

The markets have responded as expected. There's plenty of volatility. The Dow futures were up 20 points prior to the release of the number. It's bouncing but it's currently looking to open between 30-60 points down. The NADAQ and the S&P500 are both showing similar movements. Keep in mind that the Dow had a monster day and closed just above 10,000 yesterday. It will definitely open below there. Where it goes from there is anyone's guess. Meanwhile, oil is plummetting on the news. It's currently at at $78.59,down $1.03 a barrel.

Treasuries will be ones to watch. They are rallying for now on the news. Back during the recession of 2001-2003, treasuries would rally for the better part of a week following a bad report. The ten year U.S. Treasury bond is now at 3.47%. That's better by about 5 basis points. After gaining more than 20 basis points (or more than two tenth of a percent), we'll see if this report means momentum down. The yield spread between the two and ten year has tightened just slightly. It's now at 2.63%. That's still plenty wide however and so, it still points to massive inflation coming.

Meanwhile, things were all positive in the Far East. The Hang Seng in China was up 1.63%, the NIKKEI in Japan was up .74%, and the Straits Time Index in Singapore was up 1.1%. In Europe, it was the reverse. The FTSE in London was down .77%, the DAX in Germany was down 1.09% and the Spanish index was down .46%.

Meanwhile, the Dollar is better against the Euro by .34%, down .57% against the Japanese Yen, and up by .33% against the British Pound.

Also, AIG came with earnings and they were positive for the first time in years. Don't expect them to pay the tax payers back anytime soon, however. AIG made a profit of $455 million. They owe near $100 billion.

The trajectory of jobs is absolutely getting better. The economy was losing 700000 jobs in February and it's now losing under 200,000 jobs. Of course, we'd be in a depression now if the economy was still losing 700,000. At this trajectory, we still have plenty of pain to go. Keep in mind that the economy needs to add about 150,000 jobs monthly to keep up with the pace of the increasing work force. So, even now, the economy is losing about 325,000 jobs per month over what it needs to maintain. So, it would need to not only be above 150,000 but well above. The unemployment rate should reach 11% before topping out and may reach even higher. When people say things are getting better, in fact they mean things are getting less bad.

The economy will likely lose 4 million jobs plus for the year and about that much since the passing of the stimulus package. The economy will likely lose at least 4.5 million jobs under the Obama presidency before it gains any jobs. As such, unless there's a very robust recovery, the economy will continue to have pain. Finally, the consensus is that the Federal Reserve won't change the Fed Funds Rate until at least this coming spring. That will mean that the rate will be near zero for near two years. That is an enormous amount of time to have the right at this extraordinarily low level. This loose money policy has consequences. Meanwhile, there is a drumbeat to do everything to get more loans to small businesses. That's all the ingredients to create a small business loan bubble in the next five years.

1 comment:

Anonymous said...

In a sign that the US Dollar might be on its last legs, Treasuries are being replaced by Gold as the new flight-to-safety trade. The yield on the 10 year note started to bounce a little while the price of gold rose sharply.