Friday, September 7, 2007

Welcome to the Recession

Stocks were slammed again on Friday after the non-farm employment report showed the nation lost a net 4,000 jobs in the month of August. The consensus opinion was that the report would show a gain of 110,000 jobs. So much for the opinions of so-called experts. About the only thing the assembled group of economists, analysts and forecasters are expert about is being totally, completely and hilariously wrong.

Additionally, the numbers from June and July were adjusted lower, to gains of 69,000 for June and 68,000 from July. Essentially, the total of 133,000 new jobs in the prior three months, does not even come close to keeping pace with growth in the employment sector, as roughly a net of 130,000 persons enter the workforce per month.

So, the question is if employment growth is not keeping pace with the overall size of the workforce, how soon does that shortfall become reflected in GDP and plunge the nation into a recession? Broadly defined as two consecutive quarters of negative real GDP growth, the current employment numbers suggest that the 3rd quarter of 2007 - July, August and September - could show up as a net loss in GDP.

That would be one quarter. If the 4th quarter doesn't show improvement (and there's good reason to believe that this government - which has shown a propensity to lie about just about everything else - will fudge the numbers), we'll officially be in a recession.

It's not that evil a situation. A recession is just an ordinary, orderly slowdown in business activity. Some businesses are affected more than others. Some actually will do better. There will be job losses, lots of whining, more fear-mongering by the government and the press, but most of us will be able to go about our lives without too much bother.

Of course, about 15% of the population will feel real pain, either in the form of a job loss, home loss, pay cut, layoff or other calamitous outcome of poor macro-economic planning. And if the government and private sectors don't respond properly, the recession woes could spread beyond the select group to a broader portion of the society, deepening and widening the pain.

Dow 13,113.38 -249.97; NASDAQ 2,565.70 -48.62; S&P 500 1,453.55 -25.00; NYSE Composite 9,486.44 -151.11

At the heart of all of this is the credit crunch and coming banking scandal brought on by the popping of the housing bubble and the inevitable unwinding of the sub-prime mortgage fiasco. More on banks, financial services and their arcane reporting policies and how this is likely to become the locus of an enormous banking scandal.

In any case, the indices approached confirmation of bear market conditions. For some, today's losses will suffice, though many will wait until the S&P crosses the rubicon of 1430 to the downside or the Dow drops below 12,860, as explained in Wednesday's post. That's where support exists. Upside resistance is now just a dot far off on a distant horizon to which nobody can actually navigate.

Breadth was spectacular, albeit on low volume. Decliners overwhelmed advancing issues by a 4-1 margin. New lows took over from new highs in a large way, 214-67.

The detachment from reality in the world oil markets is nearly consummate, as crude for October delivery rose another 40 cents to $76.70, approaching an all-time record.
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Gold rose another $5.10 to $709.70, and silver got a big boost, up 23 cents to $12.76 an ounce.

It was a short but painful week for investors, as fears of complete financial meltdown reappeared. The Fed may want to lower interest rates at their next meeting, though that alone will not solve the problems created by years of loose credit policy and poor fiscal and monetary management at the top of our system.

Banks, bankers, economists and financiers are mostly to blame. Unfortunately for the rest of us, those same people will be called upon to fix this mess. Americans are in for a continuation of a long, ugly ride down the economic food chain. It's sickening.

Enjoy the weekend. We can set about to fixing this mess on Monday.

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