Cumberland Advisors Market Commentary indicates that there have been 8.4 million American jobs lost due to the recession, and that it may take upwards of four years to recover those jobs. That would be a recovery of about 175,000 jobs per month, every month.
Saturday, April 3. 2010
Market Notes - 2010/04/02
The Federal Open Market Committee (FOMC) says that unemployment is going to stay at 9.5 to 9.7 percent for 2010. It may decrease by the end of 2011 to 8 percent and to around 7 percent at the end of 2012. This would tend to indicate that the majority of job recovery will not happen till 2013 at least.
Cumberland suggests that the Fed will be balancing job creation with inflation:
... there is a tradeoff between employment and prices, with inflation increasing when unemployment reaches a critical low rate. The Fed's job is to strike a balance so that sustainable economic growth that maintains full employment doesn't trigger an outbreak in inflation.
The Fed strikes this balance through something called the Phillips Curve Framework:
... as unemployment declines, labor markets become tight, employers bid up wages, capacity utilization decreases, and to maintain profits companies increase prices ... With the current substantial slack in the economy, a stagnant housing market with prices still not completely stabilized, few signs of impending inflation, and a continuing problem in the commercial real estate market, the FOMC can focus on jobs and keep interest rates low to support growth in the real economy as it gradually recovers.
Cumberland figures that
the continued weakness in the job market, no impending signs of inflation, and a fall election will keep policy interest rates at approximately their same level through this year.
This week's job report indicated payrolls rose by 162,000 jobs, which includes 48,000 temporary census workers. This could be a sign of recovery. Others say it is a recovery from February snow storm effects. However, previous months results have also been revised upwards, so it may not be so bad. Chart of the Day indicates a couple of things: job losses were more significant on this recession, and that job losses have probably bottomed out.
However, in a recent Gallup pOll finds that 20.3% of the US Workforce was underemployed in March. Gallup concludes with:
As unemployed Americans find part-time, temporary, and seasonal work, the official unemployment rate could decline. However, this does not necessarily mean more Americans are working at their desired capacity. It will continue to be important to track underemployment -- to shed light on the true state of the U.S. workforce.
Back in Nov 2, 2008, I reprinted an article regarding Why the Mortgage Crisis Happened. In Wednesday's Casey's Daily Dispatch, I read about the US Government's next big bit of legislation
would give the government unprecedented powers to split up firms considered too risky, and thus a threat to the economy, as well as put together a council of regulators to watch for risks in the financial system and create an independent consumer protection agency.In Dodd's own words, the critical pieces of his proposal include:
- It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy.
- It will create an advance warning system in the economy, so that there is always someone responsible looking out for the next big problem.
- It will ensure that all financial practices are exposed to the sunlight of transparency, so the exotic instruments like hedge funds and derivatives don.t lurk in the shadows and businesses can compete on a level playing field.
- It will protect consumers from unsafe financial products, such as the subprime mortgages that led to the financial crisis.
It seems to me that if the government undid all the stuff they've implemented since 1933, we wouldn't be in this mess, and wouldn't need these fixes. The second item above is particularily ironic, what with one hand of the government creating the mess, and the other hand of the government attempting to police the action.
Casey's Report goes onto to say it much better than I:
I do take issue with creating yet another bureaucracy tasked with 'consumer protection'. It's my understanding that prior to the financial crisis no fewer than seven regulatory agencies were tasked with the exact kind of 'consumer protection' proposed by Dodd's new bill. And they didn't do a darn thing to help.
Other evidence of government's incapability of policing markets comes to light with a whistle blower's report of Gold Market Manipulation. It is said that the market manipulation was to:
The objective of this manipulation is to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world's reserve currency. But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world.
Additionally:
... the CFTC hearing revealed that there is 100-times more paper-gold outstanding than physical gold ... if we get a squeeze on the naked shorts, the sky is the limit for precious metal prices... Over the past ten years, the gold cartel has staged a controlled retreat. It has been fighting the advancing gold price with propaganda, paper short sales and the occasional dishoarding of physical metal from central bank vaults and more recently, the IMF. This retreat is I suspect about to turn into a rout, which means the upside potential for the precious metals is huge.