Friday, March 6, 2009

Media Appearance

I'll be on Air America at 6:05 CST to talk about the latest employment disaster report.

The Employment Situation in Pictures.

Click on all for a larger image. There are presented in no order of importance. All have been updated with today's information.

Employment Down -651,000

From the BLS:

Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors.


The number of long-term unemployed (those jobless for 27 weeks or more) increased by 270,000 to 2.9 million in February. Over the past 12 months, the number of long-term unemployed was up by 1.6 million. (See table A-9.)


In February, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) rose by 787,000, reaching 8.6 million. The number of such workers rose by 3.7 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs. (See table A-5.)


About 2.1 million persons (not seasonally adjusted) were marginally attached to the labor force in February, 466,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 731,000 discouraged workers in February, up by 335,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.3 million persons marginally attached to the labor force in February had not searched for work in the 4 weeks preceding
the survey for reasons such as school attendance or family responsibilities. (See table A-13.)


Total nonfarm payroll employment dropped by 651,000 in February. Since the recession began in December 2007, about 4.4 million jobs have been lost, with more than half (2.6 million) of the decrease occurring in the last 4 months. In February, employment declined in most major industry sectors, with the largest losses occurring in professional and business services, manufacturing, and construction. Health care continued to add jobs over the month. (See table B-1.)

Let's break this information down.

1.) The best read of job growth for the last expansion is a total of 8.2 million jobs created. 2.6 million jobs were lost in the last 4 months, or 31%. Since the recession began, we've lost 4.4 million jobs or 53%. There is no way to spin those numbers as anything except terrible.

2.) The number of people who worked part-time for economic reasons increased by 787,000. That's also a ton of people. That number has increased by 3.7 million over the last 12 months -- also a ton of people. That facts tells us two relevant data points. First, businesses are still cutting back sharply. Secondly, there is probably at least one more month of horrible job losses in the works; that number is simply too high for there not to be another serious round of job losses coming down the pike.

3.) Year over year, the unemployment rate of service occupations has increased from 6.7% to 9.1% the unemployment rate of natural resources, construction and maintenance has increased from 9.1% to 17.7% and the unemployment rate of production, transportation and material employment has increased from 6.6% to 13.1%.

4.) Hours worked is decreasing across a wide swath of industries.

Simply put, this is an incredibly ugly report.

Forex Friday's

Click on all images for a larger image

The weekly chart is very positive. Notice the following:

-- The MACD is giving a buy signa

-- The RSI is rising indicatin increasing price strength

-- Prices have been rising for the last three months

-- Prices have broken through upside resistance

-- All the SMAs are moving higher

-- The 10 week SMA is about to cross over the 20 week SMA, which will lead to a very bullish alignment of all the shorter SMAs being above the longer SMAs

Notice the following on the weekly chart:

-- Prices have been rising since mid-December

-- All the SMAs are moving higher

-- The shorter SMAs are above the longer SMAs

-- Prices are above the SMAs

-- The MACD is increasing

Bottom line: this is a good example of a bullish chart.

Thursday, March 5, 2009

Today's Markets

Click for larger image

The 5-minute chart shows a clear downward trajectory interrupted by bear market flag patterns. In other words, people have been selling into the rallies.

On the daily chart notice that prices are hugging the lower trend line of the downward sloping channel.

Fed Sees A Damaged Economy

From the most recent Beige Book:

Consumer spending remained sluggish on net, although many Districts noted some improvement in January and February compared with a dismal holiday spending season. Travel and tourist activity fell noticeably in key destinations, as did activity for a wide range of nonfinancial services, with substantial job cuts noted in many instances. Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall. Conditions weakened somewhat for agricultural producers and substantially for extractors of natural resources, with reduced global demand cited as an underlying determinant in both cases. Markets for residential real estate remained largely stagnant, with only minimal and scattered signs of stabilization emerging in some areas, while demand for commercial real estate weakened significantly. Reports from banks and other financial institutions indicated further drops in business loan demand, a slight deterioration in credit quality for businesses and households, and continued tight credit availability.

Upward price pressures continued to ease across a broad spectrum of final goods and services. This was largely associated with lower prices for energy and assorted raw materials compared with earlier periods, but also with weak final demand more generally, which spurred price discounting for items other than energy and food. With rising layoffs and hiring freezes, unemployment has risen in all areas, reducing or eliminating upward wage pressures. A number of reports pointed to outright reductions in hourly compensation costs, through wage reductions and reduction or elimination of some employment benefits.

None of this should be news to anybody. I wrote an article on 4th quarter GDP which has some relevant charts and graphs.

Anecdotal Job Market Information

Mr$. Bonddad is the HR director and an architectural firm in Houston.

1.) Last Friday she went to a recruiter event at an architectural school. Last year there were 26 firms; this year there were 6. And none of them were hiring.

2.) Her firm recently placed an advertisement from an administrative assistance. Last year she would have received between 50 and 100 resumes. This year she received 700.

This is one person's experience in a large city. But......

Thursday Oil Market Round-Up

Click on all charts for a larger image

On the weekly chart notice that prices have been in a triangle consolidation pattern for the last three months. Also note the MACD is rising and has given a clear buy signal. Also note the RSI is rising. Prices are above the 10 week SMA. There are two more areas of upside resistance that could keep prices from moving higher -- the upper line of the triangle and the 20 week SMA.

There's been a huge divergence between prices and the MACD over the last three months. Also note the RSI was hovering between 30 and 50 for most of that time but has posted some gains over the last fewweeks. From a price perspective, notice that prices were rebuffed at the 45 level recently but have since rebounded and are trying to move through the level again.

Bottom line: this chart is looking pretty good from a bullish perspective.

Wednesday, March 4, 2009

Today's Markets

Click on all for larger images

Today the market opened higher but then moved down to the 50 day SMA. The market repeated this several times throughout the trading day. Note the market sold-off at the end on a volume spike, indicating traders did not want to hold a position overnight.

On the daily chart, notice we're still in a downward sloping channel. In other words -- we're not out of the woods by a long shot.

Are We Going to 600 on the S&P?

Tim Knight makes a strong case that it's possible. Watch the first half of this video.

More Signs of Credit Thawing

From Bernanke's testimony yesterday:

The measures taken since September by the Federal Reserve, other U.S. government entities, and foreign governments have helped improve conditions in some financial markets. In particular, strains in short-term funding markets have eased notably since last fall, and London interbank offered rates, or Libor--which influence the interest rates faced by many U.S. households and businesses--have decreased sharply. Conditions in the commercial paper market also have improved, even for lower-rated borrowers, and the sharp outflows from money market mutual funds in September have been replaced by modest inflows. In the market for conforming mortgages, interest rates have fallen nearly 1 percentage point since the announcement of our intention to purchase agency debt and agency mortgage-backed securities. Corporate risk spreads have also declined somewhat from extraordinarily high levels, although bond spreads remain elevated by historical standards. Likely spurred by the improvements in pricing and liquidity, issuance of investment-grade corporate bonds has been strong, and speculative-grade issuance, which was near zero in the fourth quarter, has picked up somewhat more recently. Nevertheless, significant stresses persist in many markets. For example, most securitization markets remain closed, and some financial institutions remain under pressure.

Let's look at some charts to see how this is playing out

Rate on 30 day commercial paper spiked at the end of last year but have since come down

Issuance from the non-financial sector is good, but asset-backed and financial issuance is still weak.
And spreads have definitely come down.

All the Libor rates have dropped considerably. In addition, the same link shows a drop in mortgage rates.

In addition,

Companies with risky credit ratings are lining up to tap the speculative-grade, or "junk," bond market for funds as they fear the window of opportunity could soon close.

The recent turmoil in the stock market and continuing problems at large financial institutions including Citigroup and American International Group have heightened fears that those suffering big losses will be forced to sell debt securities to raise precious capital.

Such selling could crowd out new debt sales, as had been the case last autumn.


Still, it isn't cheap to issue debt in the high-yield market with interest rates for risky companies raising new debt coming in near 10% -- and that is after selling the bonds at a discount. But the incentive is there to get in while the water's still warm. It could always get worse.

"There really doesn't seem to be any floor for how low things can go," said Scott Grzankowski, a former hedge-fund trader and now an analyst at KDP Advisor. "So if you have funding needs you might as well tap the capital markets now in case they seize up like they did three months ago."

20% of Homes Are Underwater

From the WSJ:

Twenty percent of all U.S. residential properties that had a mortgage on them were underwater at the end of December, with mortgage debt greater than what the homes were worth, according to a report released Wednesday by First American CoreLogic.

That's more than 8.3 million mortgages that were upside down at the end of the year, compared with 7.6 million three months earlier. It's a problem that is expected to get worse as home prices continue to fall.

"The accelerating share of negative equity, combined with deteriorating economic conditions, means that mortgage risk will continue to increase until home prices and the economy begin to stabilize," said Mark Fleming, chief economist of First American CoreLogic, in a news release. First American CoreLogic is a Santa Ana, Calif.-based provider of real estate data and mortgage analytics.

"The worrisome issue is not just the severity of negative equity in the 'sand' states, but the geographic broadening of negative equity that is expected to occur throughout the year," he added. "Sand" states include California, Nevada, Arizona and Florida.

Repeat after me: we're nowhere near a bottom in housing

Wednesday Commodity Round-Up

The main issue with copper is prices are near their lowest levels in three years. However, also note the 20 and 50 day SMAs are moving lower. However, the 10 day SMA has turned neutral. In addition, prices and the SMAs are tied-up, indicating a lack of overall direction.

Aluminum is in a classic bear market pattern. Prices are below all the SMAs, the shorter SMAs are below the longer SMAs and all the SMAs are moving lower. In addition, prices have been in a downtrend since last summer.

Silver benefitted from the recent rally in gold. Prices fell starting last summer but bottomed in the first part of the fourth quarter and have since been moving higher. However, notice that prices have run into resistance at the 50 day SMA recently.

Tuesday, March 3, 2009

Today's Markets

Although prices gapped up at the beginning of the day, they made three moves lower. Note that each successive move was higher -- which is good thing. That tells us there is buying interest 69.80/70 level.

Notice the clear down/up/down movement over the last 10 days.

The daily chart shows that prices are below key levels. The good news is they haven't moved any lower. The bad news they haven't moved higher yet and are still just hanging there.

You Are Here

Click for a much larger image

The Bad Asset Plan

From the WSJ:

The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. It's central to the administration's efforts to unglue credit markets, alongside a Federal Reserve program aimed at spurring consumer lending in areas such as credit cards and home loans that will be officially launched Tuesday.


These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.

I've had issues with nationalization -- primarily because no one has effectively dealt with the issue of preventing the type of corruption that led to the financial sector's problems from happening again.

Over the last several weeks I endorsed a plan (and yes, I know that so many people are lining up for a Bonddad endorsement that it means so much) where the government would essentially create a "super-bank". I liked this idea because it only involved one bank -- meaning, there was only one institution to monitor. That made sense.

However, this idea is interesting. The government and the private sector form a partnership with the government putting up money along with the private sector. In addition, the private sector would run the fund. The main problem is the fact that banks would have to sell their bad assets at some price -- which they have so far been unwilling to do. However, if we can get some savvy investment people to run these funds, it could be the start of a semi-private RTC that has intriguing potential.

Treasury Tuesday

Despite hitting a high at the end of last year, the short term end of the Treasury market has been falling since. Prices are now in a downward sloping trend channel. Also note all the SMAs are moving lower. Prices have been running into upside resistance at the 20 day SMA.

Prices dropped from a high at the end of last year and have been dropping since. But note that prices have been consolidating for the last 2-3 weeks in a triangle consolidation pattern. The main reason is prices have been caught between convergent market trends. On the bearish side, Treasuries were very overbought at the end of last year and needed to fall. In addition, there is tremendous downside pressure from the massive supply coming on the market. However, Treasuries are still the safe haven option which helps to stabilize the downside moves.

Monday, March 2, 2009

Today's Markets

Click on all images for a larger picture.

Wow -- what a bloodbath. Let's see what the charts say:

The SPYs broke though lower resistance and the downward sloping bottom of a trading channel. Also notice that prices are below all the SMAs, the SMAs are moving lower and the shorter SMAs are below the longer SMAs

On the IWMs (Russell 2000), notice that over the last few weeks we've had three gaps moving lower. Bottom line -- prices are in free fall right now.

On the DIA notice that we've had four gaps down since the first of the year. Notice that today's action was an extreme downside move -- big time.

All of these charts are bearish. Hell, all of these charts show a market in panic selling mode. There is nothing good here. Nothing at all.

For a really interesting post, see this post from Corey over at Afraid to Trade.

Some Happy News

From New Deal Democrat over at Economist Populist:

The DJIA fell to 6825 this morning. That means that the Oct. 2007 - present bear market is the 2nd worst in 138 years.

The second worst, until today, was the loss of 51.51% from the market's 1937 high of 194.14 to 94.13. When the DJIA fell below 6833, we surpassed that percentage loss.

The worst, obviously, was the 1929-32 contraction of almost 90%.

And the hits just keep coming....

Fourth Quarter GDP Looks Terrible

Click on all images for a larger image

There are four components of GDP: personal consumption expenditures, gross private domestic investment, new exports and government spending. Let's look at each of these areas with graphs to see what they look like over the course of the last expansion which started in the fourth quarter of 2007.

Personal consumption expenditures fell out of bed for the last two quarters, dropping 3.8% and 4.3% respectively. Also note the preceding three quarters (4Q07 - 2Q08) were weak as well, with growth of 1%, .9% and 1.2% respectively. And the two quarters before that (2Q07 and 3Q07) came in at 2%. In other words, PCEs have been weakening for one and a half years.

Let's look at this from two more angles.

The above chart is the chart for the raw total of PCEs. Notice the latest drop-off is the largest in over 45 years. In and of itself, that should raise concern.

But also notice the steep drop-off in the year over year numbers. That's also the largest drop-off we've seen in the last 45 years.

Gross private domestic investment is made-up of three sub-categories: residential and non-residential structures and equipment and software investment. First, here's the total of all real gross private domestic investment:

The macro-number has been weak for 8 of the last 11 quarters. And one of the three positive quarters (3Q08) had a .4% growth rate. In other words, it wasn't anything to write home about.

Let's take a look at the sub-components.

Real private residential fixed investment has fallen off a cliff for the last few years. The reason are clear: residential real estate construction is also falling off a cliff.

It's interesting that on the year over year level we've seen rates of decline at similar levels.

Real private non-residential fixed investment is also dropping, but it is nowhere near the levels of the residential sector. However, also note it has only been dropping since the actual beginning of the current recession (December 2007). As a result

The year over year rate of decline is dropping but isn't at previous levels yet either. However -- I think the operative word there is "yet".

Equipment and software investment has been dropping, both on a quarter over quarter basis and

year over year basis.

So -- the problems in investment started in the residential area, but have since moved to all major subgroups. In addition, at the macro level, the drop in residential investment has been strong enough to make 8 of the last 11 quarters negative. In other words -- it's been bad for sometime.

Exports were the one solid performer -- until last quarter when they dropped over 20%. Imports dropped as well due to the lack of consumer demand.

The bottom line is simple: there is no area of the economy looking good right now.

Late Credit Card Payments Hitting Records

From the WSJ:

In January, late payments on credit cards hit a record high, according to Fitch Ratings. By year end, Fitch estimates that credit-card defaults, or balances that credit-card companies write off as uncollectible, will surpass the previous record of 7.7% recorded by the Federal Deposit Insurance Corp. in the first quarter of 2002, and approach 9%. Defaults hit a record low of 1.37% in the first quarter of 1984 and hovered well under 5% during the recent boom years, according to the FDIC.

And consider this report from February 27:

Moody's predicted the charge-off rate index could move into double digits by the end of this year if unemployment keeps rising. The government releases the February unemployment rate, which could touch 8%, next Friday.

The January delinquency rate, which forecasts the charge-off rate, climbed to 5.94%, the highest in 17 years. The record high of 6.31% in January 1992 is likely to be passed in the months ahead, Moody's said.

Meanwhile, payment rates, which have been falling since early 2007, are near a five-year low. In January, the principal payment rate fell to 16.39%, about 2.7 percentage points below the rate in January 2008.

Market Mondays

On the SPY chart, notice the following:

-- Prices have been declining for the last year. They hit a low point in November, bounced a bit higher but have been moving lower since the beginning of the year.

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below all the SMAs

Notice the following on the DIA chart:

-- Prices are near their lowest point in a year

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below all the SMAs

Notice the following on the QQQQ chart:

-- Prices broke through key support over the last few weeks.

-- All the SMAs are moving lower

-- Prices are below all the SMAs

Bottom line: these are incredibly bearish charts. Period.