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Recession? Try Economic Depression at Trader’s Narrative

Recession? Try Economic Depression

Novembers preliminary -11,000 nonfarm payroll figures blew expectations out of the water. A few more of such surprises and we’ll be very close to the first interest rate hike in a long, long time. Which wouldn’t necessarily be a bad thing given the relationship between equities and interest rates.

But whether you believe the number to be accurate or agree with TrimTabs that the statistics are so massaged that they lose all credibility, it is a little too soon to start celebrating. By the way, TrimTabs believes that the number should have been -255,000 according to their own modified methodology.

Gather round and steady your nerves (or get ready to cry into your beer/Haagen-Dazs) as I present some sobering balance to today’s glowing report. First, of all, even if we believe the BLS numbers, this economic contraction has been nothing like the ones we’ve seen so many times in the past +50 years:

nonfarm payroll long term chart of the day Dec 2009
Source: Chart of the Day

Going forward, the Fed’s own estimate for unemployment is also quite gloomy:
unemployment forecast Federal Reserve Dec 2009

As well, the duration of unemployment continues to into record terrain, rising from 25 weeks in August to 28 weeks in November. Many are obviously simply giving up after not being able to find a job and therefore, are taken out of the unemployment statistics. Turning things around, the employment to population ratio is still at a 26 year high at 58.5%.

While the major equity indexes peek above their October highs, there is significant loss of leadership. For example, Goldman Sachs (GS) topped out in mid October above $190 and has since slumped to $167. Apple (AAPL) technical outlook isn’t that great either.

Then we have Societe Generale’s top ranked global strategist, Albert Edwards, writing in a recent research report that the market will fall significantly below the March lows. And David Rosenberg of Gluskin Sheff, another prescient observer, argues that because of the collapse in credit as well as asset deflation, we are faced with a depression not a plain vanilla recession.

As well, he points to the social behavioral changes such as frugality and income seeking as a sign of a new secular theme. He continues on, listing what we do not see in a regular recession:

  • 15.7 million American households, or a third of those with a mortgage, have
    negative net equity…
  • 17.5%, or 1 in 6 Americans, are either unemployed or underemployed.
  • A mere 3.2% of respondents to the latest Conference Board’s Consumer Confidence Survey believe jobs are plentiful
  • 1 in 7 Americans with a mortgage are now either in arrears or in the foreclosure process.
  • Small business failures are up 44% year-over-year as was the case in Q3 this far into a Fed easing cycle.
  • 1 in 8 Americans are now on food stamps and there are 239 counties where at least 25% of the population is on the program
  • A 35% slide in home prices; a 50% plunge in commercial real estate values; and a 20% mall vacancy rate nationwide…

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5 Responses to “Recession? Try Economic Depression”  

  1. 1 E Nigma

    How many of the economic data points (ie, the bullets after the last paragraph) are leading economic indicators and how many are lagging economic indicators?

  2. 2 E Nigma

    How many of the economic data points (ie, the bullets after the last paragraph) are leading economic indicators. how many are lagging economic indicators and how many are coincidental economic indicators?

  3. 3 Aria

    This was yet another hodgepodge of information thrown into a smorgasbord of phantasmagoria with no coherent crux for the narrative message to hook on. Rambling through bunch of data doesn’t automatically make you cognizant of complex panoply of economical and market parameters.

  4. 4 jeremy

    Aria, well said, I can get a 120 page research documents from any well known UK or US investment bank, and end up equally confused, all they want to do is sell their unique cleverness, but it won’t make you a cent.

    Making money is about clarity, simplicity, and rare insight…cen it be found here or will you be frightened out early from every bull or bear market?

    I check in and out of this site from time to time, i maybe checking out again soon.

  5. 5 Babak

    Aria, it is called “thinking” and if you expect others to do it for you, you’ll be sorely disappointed.

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