The Human capacity for self-delusion never ceases to amaze. If you ever hear me spouting the same sort of $%#* I heard on CNBC at 8:31am, grab me by the lapels, throw a glass of water in my face, slap me HARD across the face, and yell "WAKE UP MAN, YOU’RE DELIRIOUS!"
How this month’s NFP was labelled "perfect" is simply beyond my ken. The only rational explanations I can think of are an unwitting influx of Psylociben or perhaps blunt head trauma. Steve Liesman was the notable exception, as he came away rather unimpressed with the data.
Let me say the nicest things I can say about NFP first: it was consistent with consensus expectations of Wall Street economists. The prior two months were revised higher, and the the unemployment rate fell slightly. Business and professional services companies’ payrolls rose 26,000. Commercial construction added 17,000 (4,000 from residential!), making up for some of the losses in Home Sector (including residential building, real estate agents, mortgage brokers, contractors, etc.).
Beyond that, the details of the report are just fugly (citations in parens):
– The mix of job growth remains skewed toward low-paying industries;
– Weakness is most evident in the retail component — which has stopped growing;
– Almost one-half of the rise occurred in the health and social assistance category — generally low-paying jobs;
– Other sectors have not picked up the slack
(Joshua Shapiro, MFR);– The pace of job creation has slowed dramatically.
2004: 175,000/mo
2005: 165,000/mo
2006: 140,000/mo
Past five months: 119,000/mo
(Steven A. Wood, Insight Economics)– Manufacturing has lost more than three million jobs since 2000; Conditions remain poor;
– Prior recoveries at this point had created two million manufacturing jobs;
– Unemployment fell to 4.7 from 4.8% due to a large number of adults leaving the labor force (NiLF);
– The two-tiered labor market continues: The top quartile has it good; but for everyone else, the future is worrisome;
– For many workers, real incomes lag inflation;
(Peter Morici, Univ. of Maryland)– Total labor input is growing very sluggishly in Q3, foreshadowing the continued softness in economic growth.
(Steven A. Wood, Insight Economics)– The average work week is dropping (by 0.1 hours to 33.8 hours), even as productivity slows.
>
Want to have a clue as to how absurd things have gotten in the NFP land? Consider the recent discussions amongst the Dismal set as to how many jobs are needed just to keep up with population growth. Justin Lahart has the skinny in today’s Ahead of the Tape column:
"But there is a growing debate among economists about just how many
jobs the economy needs to produce. The old rule of thumb used to be
that the economy needed to produce as many as 180,000 jobs per month to
keep up with new entrants into the labor force. But the labor force
isn’t growing as fast as it used to — more people have gone back to
school, retired early, or just quit looking. As a result, economists at
the Kansas City Fed have argued only 120,000 jobs a month are needed to
create jobs for would-be workers. In a speech last week, Chicago Fed
President Michael Moskow put the number at 100,000."
Think about what that suggests as a population growth rate In a nation with 300 million people. Not only have the NiLFs — Labor Force dropouts — made the unemployment rate look better than it is, the same drop outs have convinced Fed Governors that less new hires are neccessary for "mere zero growth."
In other words, since the data isn’t there to support proof that we are merely treading water at best, then let’s change the basic requisites. I call that Moving the Goalposts.
This country is in for a very rude awakening.
<rant mode off>
>
Sources:
Nonfarm Payrolls Grow by 128,000;
Unemployment Rate Drops to 4.7%
CAMPION WALSH
WSJ, September 1, 2006 9:31 a.m.
http://online.wsj.com/article/SB115706304364251038.html
Data Deluge
JUSTIN LAHART
AHEAD OF THE TAPE
WSJ, September 1, 2006; Page C1
http://online.wsj.com/article/SB115706978395751251.html
Steady, Modest Job-Growth Pace Points to Fed Pause This Month
Compiled by Tim Hanrahan
WSJ, September 1, 2006 10:34 a.m.
http://tinyurl.com/pj7jl
One thing that seemed rather odd was that jobs in residential construction and real estate supposedly increased slightly. Why are there more people employed building houses when new home construction is down 20%? Or selling them when sells are down 10%
Whatever the reason for it, the job loss from the housing slowdown is all yet to come (or be apparent.)
The WSJ had another article on banks exposure to real estate today. I bought more WM puts. ;-)
Moving the goalposts is also consistent with the little “debate” (what debate?) that is going on regarding what level of inflation should be targeted. One Fed Governor (Moskow?) called the debate “healthy” last month. Then Bloomberg picked up on it a couple days ago saying the Fed seemed to be leaning toward allowing a higher level in the name of growth. Previously Bernanke had set the bar at 2% annual rate. So is it going to be 2.5% now? 3%? Who knows?
hello from germany
this report is a total joke.
nearly 95% of all jobs were from the “birth/death” model and they added 14.000 construction workers in this cycle?
in the last year near the peak they added 16.000 via the “bdm”. this is to me proof that this thing deserves the label “enron” acounting.
http://immobilienblasen.blogspot.com/2006/09/us-arbeitsmarktstatistik-enron-lebt.html
I think someone else pointed this out about jobs in construction and housing — if you have projects / land in the pipeline, and you think the market is rolling over, the smart thing to do is to jam everything out more quickly before prices start to drop. (This of course accelerates that effect.) Hence the growing new homes inventories and sales even as existing home sales drop. The number of houses coming down the pipeline may be down overall, but there’s more pressure to get them out into the market quickly.
All of that accelerated construction effort will lend to some extra hiring, at least for a while.
I agree in full with the home team [i.e BR]– but yet the markets climb…
So in the immortal words of someone, either ‘no one knows nuttin’ when it comes to the market, or the market is so inefficient, smarty pants like us can make a killing. Hmmm.
I guess that means your starting to build a big short position BR??
Rumors of my death have been greatly exaggerated.
Regards,
Goldilocks
Hi Barry, We are in an election year. The spin and minuplation of the financial facts is amazing. I agree we are in for a rude awakening. Unfortunately it will not significantaly affect the very wealthy or the politicians.
Typically, BLS doesn’t screw around with the numbers. And in an election year, the Fed usually goes on Pause for the 2 or 3 meetings before — although this is a mid-term election, so we can argue they are less self-restrained than during a Presidential election year.
As to Fed Governor speechifying, well, all bets are off as to what comes out of that . . .
Oh man. Just wait until the housing bubble bursts. Not only will there be no more refinancing for a quick infusion of cash, trillions in value will disappear. Add that to the deficit, and the coming recession will be NASTY.
“But the labor force isn’t growing as fast as it used to — more people have gone back to school, retired early, or just quit looking.”
Brilliant. Like, “We’ve noticed a drop in patients who need long term care. A lot of them have just died because we stopped feeding them.”
Barry: Is there any real way to measure the number of people not counted because they have stopped looking, become discouraged, their benefits have expired, or they have taken lower paying jobs?
I first heard of this talk about NiLFs in the recession of 1991-1994, but isn’t it just guesswork?
Royce: Actually, the subtext is, our healthcare has improved so much (over its already high standards) that many patients were able to leave the ICUs.
Please, keep rant mode on! Someone needs to slap some sense into these people.
I’m sick to death of the legions of number spinners telling us the conditions we are seeing are not happening.
You keep posting negative news and yet the market keeps going higher. Someone is wrong. I follow your advice but I’m not getting any richer for it. Are you starting to doubt your year end target? DOW 8000? How in the heck can that happen now?
~~~~
BR:
Hey Steve (or Sam or SWood),
If you are following my advice, then you are long from June 13 (Markets Sketching Out a Tradable Low) or from early August (the Pregnant Pause).
Those are both trading calls, however, and they do not impact my longer term views …
Besides, if I didn’t publish a reality check here, where would you get it from? WallStreet? The Government? The Fed? The MSM?
Dont make me laugh . . .
Larry: At least those not looking, or not taking (nominally) available jobs should be covered in the U-6 rate in section A-12 of the household survey.
Underemployment is harder to measure, don’t most of us want to make more?
I don’t know what benefits have to do with it. The only thing I can imagine is that when benefits run out, that takes a big chunk out of the motivation to pretend looking for jobs that are not there (for you at least).
These numbers keep coming in “benign.” And the angst of the bear seems to be growing.
When will data come out that actually shows a break in the economy, ya gotta wonder? We’ve been seeing cracks for some time. Then “benign” data. Then more cracks. Then more “benign” data.
I see so many open commercial construction also where I live, and I have to wonder where all these businesses are going to receive their revenue when the end consumer is so tapped out…or not?
i just find this hard to believe that in a clear downturn
they are assuming that nearly the same as last year.
nobody knows the formula of this math. you can easy manipulate. tranparancy is needed.
this time 95% of all jobs come from this “birth death model/bdm”. the share is increasing month to month. the whole yera over 70% of all jobds were createt via the “bdm”.
the strange thing is that nobody cares. the $ is up, the stock market is up. evrything is fine. until it isn´t.
i´ve to admit that our statistiks in germany are also very questionable. but the dimension of the us numbers is much much bigger.
http://www.immobilienblasen.blogspot.com/
cm- disagree. What’s healthy about a labor market when wages are stagnant and people are dropping out? Rising wages, expanding benefits, expanding payrolls- these are a sign of booms.
The year end target was DOW 6800 not 8000. 6800 is not going to happen. I believe Barry has said the down draft could push out into 2007. 6800 is not going to happen then either.
6800 is a pretty large and bold prediction. Not sure if Barry really believed it or not, perhaps he did. But a prediction like that does get you some press. A prediction of 9500 which might have been more reasonable would result in a yawn so might as well make the prediction a whopper.
I am not accusing Barry of lying but what is that saying about lies. If you are going to tell a lie, might as well make it a big one. The bigger the lie and the more you defend it the more likely people will believe it.
Perhaps that is true of predictions as well. Predicting a 20% dip is not going to get viewed as anything other than someone who is in the bear camp along with the other 30% or whatever the number might be at the time. But predicting a nearly 40-45% drop, now thats something to talk about.
And talk about it we did. I am expecting a pull back in the markets, but 6800 ….. Grabing Barry by the lapels, throwing glass of water in face …. SMACK to the face. “”WAKE UP MAN, YOU’RE DELIRIOUS!”
~~~
BR:
QW, now that’s closer to criticism I can respect.
At this point, I’d be surprised if we saw 6,800 in 2006. I’d also be surprised if we don’t see a major correction anytime before yeasr’s end.
My attitude towards forecasts are they are folly: I do them because everyone aks you and thats the game in the press. All forecasts are stale within 24 hours; Keynes said it best: New information came out and I changed my mind. Ned Davis uses the quote: “Do you want to be right, or do you want to make money?” and I agree.
I do, however, try to measure risk relative to reward. That detemines my posture and equity exposure. At this point, I see the risks as high and the reward as moderate. That doesn’t make we want to go 100% long, but it doesn’t make me want to short — at least not yet. (This position is subject to change w/i 24 hours)
As I said earlier, it all will be papered over as much as possible until after the election. Do you think it a coincidence that gas is dropping 10%+ even though oil prices are still in the $70 barrel range? Do you think it a coincidence that the market is going up although a recession is clearly coming? Look at the recent census data, real income down an average of 6% the last 5 years. How does anyone expect the economy to be expanding?
Just in case anybody’s interested in backing up the rant with some #’s the first time new jobs was seriously less than appealing was in Q300 when only 84.3K new jobs were created on a monthly average. If we want to assume that the figure of merit (the old benchmark) is 150K jobs/month required for steady-state breakeven then we had a net deficit of about 66K jobs/month or 197K for the quarter.
If you run that logic forward, which is in effect saying two really important things – which have been and are implicit in many of Barry’s arguments: a healthy economy creates at least 150K jobs/month and second, a growing economy creates much more than that – around 250K/month. Furthermore a recovering economy will go thru a period of 18months or more when it’s creating 300-350K jobs/month.
Hopefully that’s not too painful too follow-thru on the screens but following the logic the cumulative jobs deficit reached a nadir of 7.97 MILLION jobs in Q104. It is still about 7.47 million at the end of Q2 this year. In other words we’ve been loosing ground and never made up for lost jobs. Bear in mind that’s out of an employed population of 135-136 million.
There in a nutshell is the driving engine and explanation for why people don’t feel good about the economy (or Administration), why GDP is slowing and why business spending won’t pick up the slack as the Housing ATM and construction fall off. Organic, self-sustaining economic growth happens when businesses invest in future demand and accelerate the economy thru employment growth in a virtuous cycle.
We’ve disguised the lack of organic growth with a high fever via Housing and low rates. You need to watch employment very carefully and anytime it’s below 150K then trouble is building up.
I have asked this before, but I will ask it again. Can anyone on this board point to ANY good news in the economy or is everything horrible?
Last time I posted this, I didn’t get a single positive response which tells me there may be some “herd” thinking going on here (which is never a good sign).
Neal,
The gas futures market is down 55 cents in the last month. Do you believe the government controls the gas futures markets? How do they get all those speculators to sell the markets down to prices that are lower than an “open” market would dictate.
Refining capacity coming back online in the gulf, Hurricane seasons turning out to be a yawner so far. BP incident in Alaska not being as bad as originally thought. Expectations had been setting up for a near worst case scenario in gas futures and when things got better the prices came off.
You need to learn a bit about markets before you make such unfounded claims.
>>>I have asked this before, but I will ask it again. Can anyone on this board point to ANY good news in the economy or is everything horrible?
Last time I posted this, I didn’t get a single positive response which tells me there may be some “herd” thinking going on here (which is never a good sign).<<< Personal spending, commercial construction, gas prices...those are good news, no?
I guess falling oil is giving the bulls legs to keep pushing up… but the storm clouds are on the horizon, and at somepoint someone’s going to yell stampede and it’s going to be a reversal the other way in a thunderous herd…
Actually, QW the “BP incident” IS as bad as originally thought, despite the pooh poohing you may hear in the popular press. (I have plenty of contacts who work on the Slope, about half my neighbors actually)
Funny thing about manufacturing jobs is that ridiculous re-definition of what constitutes a manufacturing job. Remember about 3 years ago when they decided that a fast food worker is actually a manufacturing job because they “assemble” food items. That’s funny, but it’s not a joke. So add one more distortion to the employment picture. Gotta run, I’m going to go manufacture a pot of coffee…maybe if the economy tanks I can take those honed manufacturing skills and work at Starbux manufacturing venti half-caf, no foam, skinny lattes.
A broken clock is correct twice a day.
A rant, Barry? Oh my goodness. You even sound a tad bit populist. Ahem. Well then, you must have “an agenda”, which automatically discredits anything else you have to say, even if it’s backed up by facts.
Not my rules. I just live by them.
You’re “on notice”. Or something.
JDamon the good economic news is that you can save a bunch of money on your car insurance by switching to GEICO.
Slap Me
Oh oh. Luckily, I wasnt watching CNBC when the non-farm payrolls came out this morning. I was out for my morning walk, figuring the market would find some way to turn any number into good news – thats just the way its been lately…
JDamon – okay, off the top of my head, here goes:
1. USD has held up remarkably well despite the ever increasing current account deficit.
2. Long US interest rates have declined in the face of a tightening bias worldwide.
3. US credit spreads are quite low.
4. Saudi Arabia is apparently stable despite recent regional instability.
5. Non-residential construction appears to be picking up at least some of the slack developing in residential.
6. Corportate profits are still growing.
7. Revenue measures (same store sales, revenue per available room, etc.) have held up well.
8. Energy prices, though higher, appear not to have sparked a serious inflationary spiral.
9. Serious problems at FNM etc. appear to have been brought under control without systemic problems.
10. Increased tax revenues have brought the federal gov. deficit down some.
>>>the good economic news is that you can save a bunch of money on your car insurance by switching to GEICO.<<< Now THAT"S comedy gold!
Looks like they took the highest number possible. Definite revisement down, even though this number is very average.
Maybe the biggest thing nobody is talking about his the major downward fall of construction spending in July per report. Huge. Construction workers are working less and getting paid less. The stepdown begins, the next is the ax. August was probably worse. I expect when the slow season comes this fall, the layoffs will begin in earnest from that sector.
Roubini’s economic growth of between 1-2% for q3 looks on track.
To all, the scary thing about all these latest stats is that we still haven’t left the world of stagflation. My wife is still complaining about the rise in prices of the basic essentials for living, not the discretionary stuff. Yes, in the new world order, lower interest rates are more powerful than the loss of good paying jobs and even negative real wages, but if the Fed is ready to lower rates soon, I think we are in trouble.
Goldilocks Data from the Ministry of Truth:
http://tinyurl.com/pqxsc
Uh, is that shroom site legal? Because I may have found a way to supplement my income, which has been rather disappointing the last couple years.
Well, you know the rally is on its last legs when everyone is now starting to chastise Barry and his 6800 prediction.
I’m waiting for indicators to get overbought, then a big breakout on hugely already overbought & bullish sentiment. Then a stall. Then a fall back below the breakout level. Then churn. Then a break begins for the major leg down. One can dream I guess…
Oh yeah, the Kennedy/Clinton model had unemployment at 5.4%, up from 5.3% last month.
The Bush revisement the best political move inawhile IMO.
at least Barry can take a shot when they’re thrown at him ……….
lot more than many posters can say
6800 is not a bad call. I generally don’t like calls 12 months out, but I have made them. My number was 8900 by YE. I try to work 90 day stretches. That’s me; your results will vary. The prediction is only part of it. The hedge is almost as important. The short funds, the ones making a killing, have made most of their money on their inflationary hedges in oil, gold, and commodities.
I’m sure Barry isn’t doing too bad for himself. It would be nice if Barry did one of those “See How Great I Am!” posts that seem to be present elsewhere.
Alaskan Pete :
The BP incident was originally reported to cause a shutdown of the pipeline for the rest of 2006. Last I heard they were still able to run at 50% capacity on the pipeline.
Whether or not the line is in as bad or worse shape that originally thought is not the point. The point is the supply of oil is at 50% when it was originally thought to be at 0%. Thats called an upside surprise, for the markets regardless of how bad the pipeline situation is.
Once again, markets are only concerned with the ability to maintain supply. The shape of the pipeline is irrelevant unless it means the supply will be adversely affected. Currently the market doesn’t believe that regardless of what your friends say.
Oh an as a follow up to neal who said is shocking that gas is off 10%+ while oil is still at 70 dollars. It escaped my radar earlier but he is really bad at math too. Oil peaked at 78 bucks a barrel when gas peaked. So now with oil at 70 thats an 11% decline. And so gas being off 10%+ when oil is off 11% ….. Shocking manipulation, clearly.
Steve, accept responsibility for your own actions.
You aren’t playing with Barry’s money.
You gotta be making over 5.30% in cash FDIC guaranteed, no risk.
Add trading on volatility and you can make some decent $ without going long.
“I think someone else pointed this out about jobs in construction and housing — if you have projects / land in the pipeline, and you think the market is rolling over, the smart thing to do is to jam everything out more quickly before prices start to drop.”
But that doesn’t seem to be the case. Housing starts are down 20%. If projects were being pushed out, starts would go UP.
Starts are new “future” projects. Remember, starts were VERY strong the beginning of 06 and those projects are being completed and probably RUSHED to be completed with less work in the future because of declining starts and cancelations.
The problem is, the crowd wants to get Bush for his sins and wish the US economy would roll over now to begin the attack, instead of letting it take its natural decline which it is doing, into recession. Patience people, you will get everything you want.
Cherry
who’s the crowd ? and the contrarians ? w/ Bush
Rant on. Someone has to say it.
I feel your frustration.
The criticism of BR’s 6800 call are a bit premature we still have the weakest seasonal months ahead of us. Sept – Oct. Recently BR made the call that the Dow might rally to 11700. And BR’s call back in May still holds until proven otherwise :
http://bigpicture.typepad.com/comments/2006/05/bounce_test_bou.html
It looks like whoever placed that massive sell order on May 11 at SPX 1315 will get another chance to sell some more at the same price going into the weakest month of the year.
In an August 30 article in the New York Times, David Leonhardt states:
At the Economic Cycle Research Institute, the forecasters have noticed that the last six months bear a striking resemblance to two different kinds of periods: the run-up to a gentle slowdown, like those of the mid-1980’s and mid-90’s, and the run-up to recession. In both situations, consumer expectations fall while interest rates and inventories rise, which has already begun to happen. But the two paths — slowdown and recession — historically diverge sometime after the six-month mark. Starting Friday, with the August employment report, we will begin to get a sense of which road we’re going to take.
http://www.nytimes.com/2006/08/30/business/30leonhardt.html?_r=1&oref=slogin
My question is, what does the August employment report say about the path we are about to go down?
OK, I’ll eat crow. I just looked at the new home sales stats, in it they have homes sold under construction and homes for sale under construction. So I’m guessing adding the two gives some approximation of whats under construction.
For July ’05 the total was: 320,000
For July ’06 the total was: 352,000
So 10% more homes were being constructed.
For this July, only 29,000 of the houses under construction had been sold during the month. That’s less than 10%. I thought the builders were saying they don’t break ground until they have a sale?
A while back, I asked about the geographic distribution of option arms. Well, here it is:
http://www.businessweek.com/common_ssi/map_of_misery.htm
(Note California in red, with the highest percentages of option arms in the country.)
Deep Fried Day
Who said I was going to do this every week? It’s hard to assimilate so many links! That said, here are a few random bits of news for your viewing (dis)pleasure.
The Good:
From FreethePlant.com comes a story titled, Top 10 Pot Studies Government W…
I see Dr. Roubini picked up this blog entry. And for the record, I thought Barry’s DOW prediction wasn’t by the end of the year, but a target.
and with about 1 million a year new unskilled immigrants between legal and illegal, almost all of of working age. Just that requires 100,000-120,000 new jobs every year.
But I suspect that the administration message is that citizens have made so much money in the past 5-6 years with real estate and stock appreciation that they are retiring early and are gone fishing, so all the work is being done by cheap immigrants:
Barry and the others: why aren’t you retired yet? :-).
BTW, the administration and their supporters are in part right: there are a lot of their friends and donors that have been helped to make so much money that they no longer really need to work.
Exactly what is happening right now. In Bangalore and Shangai :-).
Convention suggests that before using an acronym you spell out what you are talking about.
Well, sure it is possible, but there are two big difficulties:
* Almost any good news are about the short term.
* The theme of this blog is «Macro perspectives».
In the here-and-now and in the immediate future things are peachy, at least for some: high income asset owners are doing quite well.
It is in perspective that one sees a pattern, because of the imbalances that have been building up.
People over 45 have never been a larger percentage of the work force as they are now:
http://www.foxbasealpha.com/adamblog/2006/09/changes-in-labor-force.html
If the builders have the site and the staffing, they’re going to build. It’s not like the construction materials will get any cheaper.
It costs a heckuva lot less to build a house than the sales price, so they can still take a big profit even if they have to cut prices. The market shift right now is people buying newer, larger homes, with lots and lots of extras thrown in, instead of pre-existing. So inventories are up, and will keep growing, but sales are not completely gone.
When the market truly tanks and people stop buying we really get crunched.
“And for the record, I thought Barry’s DOW prediction wasn’t by the end of the year, but a target. ” – Josh
No it was by year end. See here:
http://www.thestreet.com/markets/marketfeatures/10260096_2.html
As I said I believe he has since stated that it may take longer and push out into 2007. I am not sure about that but I thought I recalled a post stating something to that affect.
Either way 6800 is not coming baring some huge disasters such as a nuclear terrorist attack or something on par with that type of a disaster. The Market may have downward pressure but its not going down to 6800 in 2006 or 2007 or 2008.
There just isn’t enough there to create the selling pressure.
Thanks for clearing that up qw.
This line of yours is on the mark:
“I am not accusing Barry of lying but what is that saying about lies. If you are going to tell a lie, might as well make it a big one. The bigger the lie and the more you defend it the more likely people will believe it.
Perhaps that is true of predictions as well. Predicting a 20% dip is not going to get viewed as anything other than someone who is in the bear camp along with the other 30% or whatever the number might be at the time. But predicting a nearly 40-45% drop, now thats something to talk about. ”
I am on an aggressive Spam/Troll Patrol today. The links from some of the A list blogs (Atrios) have attracted too many trolls, ads for p0rn, and the occasional irrelevancy.
If you find you cannot comment, and you believe it has occured in error, please email me.
If you come here occasionally to disrupt the conversation, then don’t bother.
I do expect people to disagree with me, and there are quite a few regulars here who very eloquently challenge my premises and arguments. Their intelligent dicourse is always welcome.
It would probably make sense to wait until year’s end before calling Mr. Ritholz a fool. Corrections of such magnitude are not unknown. No, I don’t expect this magnitude of correction, because I think a decline in the dollar will serve the same purpose: to reduce the value of assets pumped up by deficit spending at artificially low interest rates.
Besides, it doesn’t much matter. What matters is his suggested allocation of equities, about 15%. A CD at 5% won’t make one much money, especially if the dollar declines, but CDs locked in at 5% have done well against most US market indexes over much of the Bush era (yes, it depends on the starting and ending points one chooses).
The big question is why anyone should expect the US market to rise. As baby boomers retire, there’s negative pressure on stock prices. As developing nations develop, the US market is less attractive as a destination for exports. American incomes, except at the very top, aren’t rising, and the current account is balanced only by asset purchases by foreigners.
At the point that investors decide that we are in the 1970s again, what reason would there be to stay invested in the US market?
Meanwhile, back in the real world, Intel appears ready to lay off 10-20,000 employees (20% of their workforce?). Now as far as their share price goes, I realize that Wall Street tends to view human sacrifice in a positive light. But again, in the real world, it doesn’t seem like a good omen.
I saw a headline that due to Ford’s production slowdown of trucks, Dana is laying off or planning on laying off in their truck body division.
The dominos are falling…
Just got the JC Penney fall style catalog.
Long skirts. Boots. Full coverage.
Traditionally, this means – recession…..
And I have to admit, these clothes are gorgeous. Best designs I’ve seen in a long time.
Recessions are not entirely a bad thing – it makes people create quality.
On the way back from lunch today, NPR was interviewing an economist that said, “The economy is now cooling down to a *sustainable* level” (my emphasis).
Yippee!
good research Donna
Barry,
In your comment to me you said:
“I’d also be surprised if we don’t see a major correction anytime before yeasr’s end.”
And you also said:
“At this point, I see the risks as high and the reward as moderate. That doesn’t make we want to go 100% long, but it doesn’t make me want to short — at least not yet. ”
Sorry for being so obtuse here but I am trying to understand exactly what your current sentiment is. Would you be saying you think a major correction of some kind is likely by year end but that there is potential to ramp here as well? I was just having a little difficulty getting through the “Green speak” :)and understanding exactly what all those statement put together meant.
Also you might want to include the following discloser that I think you forgot to include on your original prediction as per your 2005 article on predictions :)
…..
I wish an SEC-mandated disclosure accompanied all pundit forecasts: “The undersigned states that he has no idea what’s going to happen in the future, and hereby declares that this prediction is merely a wildly unsupported speculation.”
As we march towards a worldwide “harmonic” convergence of wages, isn’t it “normal” for the US and ultimately other developed countries to lose more quality, errr I mean high paying jobs and for interest rates to go down consequently to keep the financial bubble intact and inflating? And if any major creditor country that is running a huge trade surplus decides suddenly to stop funding the bubble, won’t they have to lower interest rates dramatically in their own backyard which would stabilize the dollar and further inflate the worldwide financial bubble? And isn’t the secular movement of interest rates down the lifeblood of all asset classes, but especially the stock market? How else can you explain what happened today?
I don’t think that I’ve seen it mentioned here or elsewhere with respect to housing and construction in general, but construction loan commitments aren’t open-ended. In the case of residential real estate, a builder may line up financing to construct homes in a particular subdivision, but there is always going to be a $ cap as well as a term during which the commitment stays in force if other conditions are met. In commercial construction, the deal is usually pretty much the same but not broken up into a series of loans as with a subdivision, and it isn’t rare for a project to get far enough behind that it becomes necessary to find bridge financing to cover the gap between the point at which the construction loan comes due and when the project is actually completed so that permanent financing can be put in place or it can be sold.
I mention this as one explanation for why builders would proceed with new construction and/or add workers even in the face of a stagnant market. If there is already purchase money tied up in land or in options that are due to expire, you will not make any money until something is built and you can sell it even if prices are dropping. If a commercial project is half finished, then the same holds true plus you face a looming date when the construction loan will need to be attended to.
I’ve been away from construction stuff for 15 yrs now, but that’s the way it used to work and I would be surprised if it was much different now. The one true certainty was/is that a construction lender is a different beast from a permanent lender and generally has the borrower wrapped up with a bow that can be untied from out of the blue and at any rate has a hard date at which point the loan is due in full regardless of what else is going on. No easy payment plans with those guys, it’s balloon or bankruptcy.
I enjoy reading Barry’s commentary and generally agree with it, but don’t consider myself or most of the other posters here to be blind supplicants. I don’t know what the basis for his 6800 call was, but my own view is that the downside extreme is more like 8850 and that would take some work.
I say that because regardless of the macro fundamentals, we live in an age of Corporate Oligarchial Socialism in which the government views its primary domestic task to be the provision of a safety net to protect a relative handful of people who see risk-free profits as an entitlement.
So we won’t see the 6800 because the govt will intervene and either pump things up or the markets will simply shut down for a while. If you don’t think it could happen, my recollection is that when WWI started in 1914, the NYSE simply closed for around 4 months rather than let prices fall even tho we didn’t have a dog in that fight at the moment. At the time, there was no SEC, but the Fed had just come into being and you can bet that it prompted that move.
So I think that if market forces actually do come into play and attempt to correct the deformities that are what Barry usually writes about, you would find that there is a bright line somewhere on the chart which would trigger a naked intervention to save the hustlers from themselves. Which is another way of saying that none of this has anything to do with capitalism and a lot to do with maintaining a neo-feudal system.
Mr. Bond Market (BM) comes to the room of the fitful man that’s tossing and turning and murmering in an unrestful sleep:
BM: “WAKE UP MAN, YOU’RE DELIRIOUS!”
BR: “But thuh… but thuh… oh!, the h-u-m-a-n-i-t-y of it all!… the i-n-f-l-a-t-i-o-n!… it’s too much!… I… I… ”
BM: “Wake up… wake up I say!” [slaps sounding!]
BR: [coming around] “But, oh, Mr. Bond Market, what… what are you doing here?… you’re not supposed to be here…. well, you’re….”
BM: “Now, now… there’s a good boy…. you’re just having a bad dream… you’ve been workin’ too hard against me… tryin’ to fit it all together when it doesn’t fit, like trying to put a square peg in a round hole.”
BR: “What?… what are you talking about?… What do you mean?… No… no… it’s probably only a little indigestion… possibly just a tiny morsel of undigested beef.”
BM: “No, it’s not beef, and I’m not Marley… You’re railing all day long about i-n-f-l-a-t-i-o-n, my son, all the live-long day… it’s all you do… all you think about… all you pontificate on…”
BR: “But, it’s REEALLL!, so what’s wrong with what I’m doing?”
BM: “It’s why you’re not sleeping… why you’re having the nightmares… it’s the contradiction of it all, and I’ll tell you why.”
BR: “Then tell me, spirit… what is the contradiction you speak about?”
BM: “Deflation…. profound, world-wide d-e-f-l-a-t-i-o-n, and you’re singing all the reasons for it. In fact, that’s about all you sing lately, but you don’t hear the tune yourself.”
BR: “I don’t understand… what do you mean ‘ I’m singing the reasons?’ ”
BM: “Why, this very topic… this fuglyism you’re preaching, and several other topics recently… all about the jobs, and the income disparity… and the ratchet-down in wages and benefits… and the retirees, and… and… well, don’t you see it, son?… All the things you’re preaching are d-e-f-l-a-t-i-o-n-a-r-y… they’re not inflationary.”
RM: “But the gas… and the dentist… and sodas and insurance and… and well… what about those things and all the others?”
BM: “All things take time, my son…. just watch me and I’ll show you the way…. just watch me…” [soothing sentiments into a fade away]
RM: “I will… I’ll watch… I promise I’ll waaatttcchhhhh….” [whispery-drifting back to sleep – camera to black]
…addendum to the “Mister Bond Market” vignette:
BR: “But, Mr. Bond Market, why did you change my name to ‘RM’ in the last 2 items of dialog?”
BM: “Because I’m a dumb ass, my son… but mostly because I can’t edit after an entry.”
Royce: I meant left the ICU on a stretcher. The idea was to “rephrase” your metaphor. Looks like it “worked”. :-)
QUOTE: “more people have gone back to school, retired early, or just quit looking. As a result, economists at the Kansas City Fed have argued only 120,000 jobs a month are needed to create jobs for would-be workers.”
If folks just quit looking because they cannot find a job, then obviously we don’t need as many jobs as we did when they were looking. Of course! And if we can just continue to loose more and more jobs, then we’ll also need fewer and fewer of them. Brilliant!
Only a government moron economist could chatter this kind of blatant sophistry and keep his job.
Bud
could you find a link for that please ?