Thursday, October 1, 2009

If You Ignore the Facts, Things Are Good

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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We are going to see a lot of new economic data in the next few days, including the monthly jobs report tomorrow. How the market reacts in the first four trading days of the quarter can give us a lot of insight on where stock and commodity prices will be heading in the next few months. The Consumer Spending report was already out this morning and spending for August was up 1.3%, the biggest gain since October 2001. The rosy numbers were due to the Cash for Clunkers program which ended August 31st... so don't expect September's numbers to look as good. The ISM Manufacturing report for September will be out later this morning and might provide more insight into the post Cash for Clunkers era, although the October report next month will be more revealing.

Weekly jobs claims surged upward to 551,000 this morning. The big rise was a surprise to economists and other people who's expectations are based on fantasy. Any number at or above 400,000 indicates the economy is in recession, 551,000 indicates a somewhat severe recession. A healthy economy has weekly claims at the 300,000 level. The idea that the economy can be recovering while unemployment gets worse is absurd and merely reflects how manipulated U.S. GDP figures are. The government can also 'statistically adjust' the jobs report as well. Watch to see how many people left the labor market in tomorrow's report. This is the fudge factor that the government uses to keep the reported unemployment rate from getting too high.

While all the money pumping the Fed has done in the last year has had only temporary and limited impact on the economy so far, it has certainly revved up the stock market. Last quarter was the best quarter for U.S. stocks since the fourth quarter of 2008 - the beginning of the tech bubble blow off that lasted until the beginning of 2000 and was followed by a Depression level drop in stock prices. The last six months have been the best two quarters for U.S. stocks since March 1987. Five months later U.S. stocks dropped 40% in only a few days. That was also at beginning of a bubble blow off. Only a handful of stocks survived the 1987 crash unscathed - most of them were gold miners. So far history seems to be repeating itself vis-a-vis money pumping and stock price behavior.

The IMF (International Monetary Fund) released revisions to its GDP predictions this morning. It now expects global GDP to decline only 1.1% this year, instead of 1.4% and for GDP to increase by 3.1% next year, instead of by 2.5%. While the report had the usual cheer leading bullish tone, a remark made at the press conference inadvertently revealed the truth. The IMF spokesman stated that the report "should not fool governments into thinking the crisis is over". Apparently they wanted to make it clear that their report was only intended to fool the public. The IMF also stated that the pattern of global demand needs to be rebalanced and this could not happen at current exchange rates and that countries with huge export surpluses needed to revalue their currencies upward. Doesn't that imply that countries with huge export deficits like the U.S. will see their currencies revalued lower? So much for that good news.

NEXT: Unemployment Rises as Car Sales Collapse

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:

Piet said...

Just posting some links to some historical unemployment level heat maps that may interest you and your readers

here is a map of California Unemployment in August 2009 (BLS data)

versus California Unemployment Levels 1 year ago