The "BLS" is all "BS"

Okay, let me get this straight; we may lose 824,000 jobs (or have that many less created) due to the Bureau of Labor Statistics ("BLS") not counting right.

http://globaleconomicanalysis.blogspot.com/2010/02/824000-will-disappear-on-february-5-bls.html

Now the low number of people losing their jobs this past month seems to be getting more attention, but in my book the revision to the BLS stats seems to be more significant. Now this loss adjustment is just through March of 2009, so I tend to think more are in the line.

I link a good (a very good post) that discusses the reason the BLS estimates are BS. It all boils down to this birth-death model thingy. Not humans, but businesses. Seems that the BLS somehow believed that during the worst recession since the Great Depression we were somehow creating new companies. Funny, right.

Well the new job adjustment, which is nearly a million people less employed, is only through March 2009. Some feel this "adjustment" is simply history, as in old news. Well, if the BLS had to eliminate close to a million jobs to correct their records through last March, what corrections are needed through the end of the year? Does this seriously not deserve more attention? And more importantly, please return to fundamentals. Housing is still sucking wind, mortgage defaults are still high and ARMs defaults should be climbing, unemployment is (after the LS contortions are revealed) still on the rise and significant. Short story - we are still sucking wind. Sorry, but I am not buying yet any other story.

Disclosures: None

Is it just me or are things getting worse again?

There seems to be a significant uptick in negative financial news and reports the past week, and not just about the market being down. Here are a few tidbits just from this morning:

Existing Home Sales Down 16.7%

Now some of this is likely due to the buy-it-forward situation, i.e. buyers lured into buying a home by the first time home buyer's credit. That program has been extended and expanded, but still we are seeing the biggest drop in existing home sales in 40 years.

http://www.marketwatch.com/story/existing-home-sales-plummet-167-in-december-2010-01-25-10100?reflink=MW_news_stmp

To add to the home buyer problems, the NY Times has a piece in its Business section on why homeowners who are under water should perhaps simply walk away. It gives some pretty compelling reasons - though it ignores some potentially nasty tax issues. Still, if jingle-mail becomes more common place, as the article suggests and/or as option ARM resets might promote, then the housing note above is even more serious.

http://www.nytimes.com/2010/01/24/business/economy/24view.html

Debt Bomb!

I have written quite a bit on individual and government debt here in the U.S., as does Forbes in the linked article below. What the article does a nice job discussing is how the U.S. looks darn right rosy compared to some (okay, many) other countries. If Europe and Japan are in worse shape than the U.S., I am not seeing a global recovery any time soon. This bomb is ticking and there is no where to hide.

http://www.forbes.com/forbes/2010/0208/debt-recession-worldwide-finances-global-debt-bomb.html

And if you think China is your port in the storm, think again. Banks there are being downgraded, the government is increasing capital ratios and things are just a tad skittish (that is a financial term of art) at the moment.

http://www.bloomberg.com/apps/news?pid=20601087&sid=azhfGjKbslLc&pos=1

http://www.bloomberg.com/apps/news?pid=20601087&sid=aRCLJIpY19XI&pos=4

But Fear Not!!

Help is on the way. Word has it that the troops are on the way. Yes another stimulus plan is in the works. The Senate is considering an $80 billion jobs bill.

http://www.bloomberg.com/apps/news?pid=20601087&sid=abTQEDZlLMpg&pos=8

Hey, the last stimulus worked so well at creating jobs, why not? Well, I will tell you why not. As government debt climbs closer to 90% of GDP it will have a significantly escalating negative effect on economic growth. Seriously, studies show this. Not to mention that we will be leaving our kids with a whole lot of debt just as we are approaching predicted crises in Social Security and Medicare to finance. Oh, we have so much to look forward to - NOT.

Disclosures: None.

Oh Those Fianancial Institutions - The Poor Dears

I feel so bad for the large financial institutions who brought us this mess, who are back to paying record bonuses and who are back to their ways of old. It seems Obama has finally taken some advice from Paul Volcker and is seeking to put some restrictions on the size and trading activity of these behemoths. Now I am all for competitive forces being used as a first line of defense to keep companies acting appropriately, but these institutions have shown repeatedly that they are wholly driven by greed and are more than willing to risk destroying the global economy to line their pockets, so I am all for it.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0_fV_cRuyvk&pos=1

The fact that these restrictions could hurt their profitability and force them into more traditional banking roles - which currently don't seem to be very profitable due to the hangover of bad loans these institutions made - is okay by me. I agree with Volcker that most of the complex financial instruments these entities have developed over the past 20 years serve no valid purpose and merely increase risk and short term profits.

http://www.bloomberg.com/apps/news?pid=20601087&sid=amU399MsmbB0&pos=3

In any event, between these proposed restrictions, China trying to cool down lending, some less than stellar earnings reports and a mounting consensus that the market has climbed too far too fast, it is not surprising that stocks have taken a breather this week. Indeed, with employment numbers getting worse in 39 states in December:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNZFxL6vFWZE&pos=6

And with most state unemployment funds either out of money and already borrowing from the federal government or destined to get there in the next six months, it is not surprising at all for folks to pause a bit from their market buying spree of the past nine months. Oh, and did I mention credit card defaults at record levels?

http://globaleconomicanalysis.blogspot.com/2010/01/25-state-unemployment-funds-bankrupt.html

The real question is whether this signals a trend to the bear side, sideways movement for a while or simply a bump in the bull road ahead. I tend to think for now we will not see a significant bear shift and that things will go a bit sideways for a while, with perhaps a bit of a bear slant. To me the true bear market will start in earnest in July. Why July?

By July the stimulus should be pretty much worn off, unemployment should continue to be high, option-ARM mortgages will be reaching peak season for 2010, CRE loans will continue their increase in defaults and the reality that heavily indebted consumers cannot support a recovery will set in. I suspect second quarter earnings will be less than stellar, so I look to July as a likely month for stuff to really start hitting the fan. It could come sooner or later, but the timing seems good for July in my book. (Hey, I was wrong all last year so you never know. Even a broken clock is right twice a day.) Nonetheless, let me note that I am not trying to time anything in my investments. I have given up trying to do so as I am wrong more than right. Rather, in my book the fundamentals are not there for the market recovery we have seen so I am simply banking on this reality setting in eventually. You should define eventually for yourself should you desire to do so.

Disclosures: None.

It is good to have company!

I mentioned Mr. Gross from PIMCO, the world's largest bond fund, having some issues with our current recovery. He is not alone, now Paul Krugman, a Nobel Prize winning economists, and others are seeing other problems in our future. Now, I must say I do not wholly agree with Mr. Krugman's mantra about throwing massive amounts of more money at the situation, but I do agree with his view that we are in a world of hurt. The fundamentals simply do not indicate any other alternative.

http://www.nakedcapitalism.com/2010/01/guest-post-krugman-says-american-economy-will-not-recover-for-a-long-time.html

And This Folks Makes Me Sick

Geitner, probably Obama's key financial operative, was head of the New York Fed when it allegedly required AIG to hide the fact that it was paying 100 cents on the dollars (with our taxpayer money) to entities on swaps. Entities like Goldman, another entity tightly tied to an Obama operative, got much more than they ever dreamed of and the NY Fed apparently tried to push AIG to illegally hide it all from the SEC - and us. Now I put a lot of allegedlys and other qualifiers in this because I have no personal knowledge of this. But if it is true, I am truly sick. The rules apparently never have and never will apply to the A-holes that got us here.

http://www.nakedcapitalism.com/2010/01/ny-fed-told-aig-to-hide-details-of-swaps-payouts-to-banks.html

Disclosures: None.

This is Gross.

I do not have a long post tonight. I am merely posting the monthly newsletter from Bill Gross of PIMCO, the world's largest bond fund. Now I think he is a very smart guy. I certainly hope so as I have good chunk of my retirement in his hands. In any event, Mr. Gross seems to think that all the fiscal stimulus this year and quantitative easing will come home to roost in 2010. He also has some bad news for the carry trade folks (it is mostly just about playing big dollars and leverage to take advantage of interest rate differentials between countries - but don't tell anyone), which if you do not understand, join the club. Hopefully it has little impact on the regular folks like us. [Okay, I say hopefully, but if the carry trade bets go bad, which I think they will this year or next, it will have an impact, probably significant, on anyone invested in the market. So perhaps you do need to worry about it and should worry about it, but my point really is that individuals have little they can do to stop it and it is a very difficult market to understand.]

I also like Bill's prose and his understanding of some things not so financial, like literature. Enjoy the read of his newsletter. I did.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Let’s+Get+Fisical+January+2010.htm

Disclosures: None.

It will come. . .

Okay, I have been predicting doom and gloom for a long time but to be honest I have for some time been saying it can take a long long time for the obvious flaws in our system to come home to rest. So let me start with a disclosure. I bought more put options on December 31, which is in keeping with my statements on this blog. Obviously today I lost money. Quite a bit actually as I have a lot of put options, but the point today is that I bought 2012 options last week as I am firmly believing, as Keynes warned, that irrational exubereance can last longer than my solvency. It will happen, I just do not know when.

And now I present you with Ambrose Evans-Pritchard. I have linked his articles before. He writes for the Telegraph in England. He is, if anything, more doom and gloom than me and he does so for a major news outlet. And so I refer you to his piece, which I think is more pessimitic than reality, but it sells newspapers:

http://www.nakedcapitalism.com/2010/01/ambrose-evans-pritchard-apocalypse-2010.html

I am not going to say anything about this article otherwise but I have to point out one FACT contained within it:

"Household debt as a share of GDP sits near record levels in two-fifths of the world economy."

This is one of my two plus two facts. I cannot see how we can get over this without debt repayment big time. Go figure.

Disclosures: None.

2010, Do I Dare Predict?

For 2009 I did predictions that I labeled as items I hoped would not occur. They were all pretty much doom and gloom predictions, though some, like unemployment topping 8% ,were a bit too optimistic. Still, my predictions on the stock market being down significantly were not right for the year (but would have been had the year ended March 9). So with the new year coming, is the gloom passing? Is the doom behind us? Am I an idiot?

Let's start with me simply posting here the first six headlines as they appear at this very moment at Bloomberg:

•China Manufacturing Grows at Fastest Pace in 20 Months, Cementing Recovery
•U.S. Jobless Claims Unexpectedly Decline to Lowest Level Since July 2008
•South Korea's Exports Rise at Fastest Pace in 17 Months as Demand Revives
•Commodities Post Biggest Annual Gain in Four Decades as China's Use Surges
• Hatoyama Says He'll Focus on Deflation, Jobs as `Honeymoon Period' Ends
•AT&T Biggest Winner With $15 Billion Savings From Lowest Yields Since 2005

Wow!! Those are some incredible stories!! Everything is absolutely fantastic!! And so, it is with heavy heart that I am still a pessimistic sod.

Now my quandry here is that I believe we are in a major bubble building process and I have no idea how long this process will last. I suspect it will pop in 2010 or 2011, but it could last longer. Still, I am going out on a limb and predicting the "POP" in late 2010 or early 2011. Too much air in too little time and too little balloon to handle it, in my opinion. So here are my predictions for 2010 (I am just guessing here so do not invest based upon them):

1. The U.S. is going to start to run into some serious issues in getting other countries to buy its debt and finance stimulus spending. I am not expecting a massive sell-off by sovereigns, primarily China and Japan, who hold our debt but they will be net sellers, not net buyers in 2010, and their purchases will be hard to replace.
2. As I did last year I am predicting the S&P will be down 10-20% by year end from where it ended today. Hey, the prediction did not work for 2009 so if I keep predicting it every year eventually I will be right. In truth, I do believe the market is well over bought and we have no where else to go but down as stimulus dollars wear off and the government runs out of stimulus dollars to throw at this mess. I really think we will be more than 30% off our current highs but am being a bit conservative in my prediction.
3. The Euro will have some major hits as countries, like Greece, suffer some major ratings downgrades. Do not look to the Euro to replace the dollar any time soon.
4. Interest rates in the U.S. will end the year roughly 2% above where they are currently. Mortgage rates have already increased steadily for the past four weeks. The Fed is running out of ammo to keep them down.
5. Housing will remain stable but will not climb off the bottom it is at. Adjustable rate/Alt-A loans will peak in defaults and this will keep the banks on the sidelines. Fannie Mae and Freddie Mac will continue to provide most loans, with government support, and their books will continue to look worse and worse. Commercial real estate will continue to decline in the U.S. We are so overbuilt in this area that we could go a decade with no construction and still not catch up. Bottom line, real estate on the residential level is probably at its low or near there but do not expect any big increases.
6. Tiger Woods will find the 19th Ho.

Disclosures: None.