Unemployment – Yes I bet 7.5% or lower by August 22, 2010

Fellow DU'ers - Video to follow soon

http://www.opednews.com/articles/Unemployment---Yes-I-bet-by-Steven-Leser-090822-160.html

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By Steven Leser

Talking heads make a lot of predictions. I remember a lot of conservative talking heads in early to mid 2008 predicting the economy would continue to be strong throughout the rest of that year. In contrast, I made the following predictions on April 2, 2008:

I see a Dow in the 7000-9000 range, the S&P 500 struggling to stay over the 1000 mark and a NASDAQ in the 1400-1600 range. I see unemployment and inflation both between fifteen to twenty five percent. I see many consumers defaulting on their credit cards and the major crisis in the banking and lending industry will be compounded by hordes of consumers defaulting on their credit cards. As a result of these credit card defaults, more banks will fail and major banking insurers will fail as a result as well as investment funds and securities that are based on credit card debt. I believe there will be consumer and corporate bankruptcies on a massive scale.
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All of this came true except for the unemployment rate, and the reason that unemployment did not reach that high is because of government intervention in the crisis by both Presidents over the past 10-12 months. Recall, however, regarding my predictions that at the time I made them, the Dow was at 12626, the S&P was at 1370 and the Nasdaq was at 2279.

Today, on the Fox News' show “Cashin' In”, I bet that in one year, unemployment will be at or below 7.5%. I backed up that bet with some serious, albeit humorous (for everyone but me, I assure you) potential consequences. We'll get back to the consequences in a moment. Most people, including those folks at Cashin' In off camera immediately after I made the prediction, have been asking me why I think that unemployment will get to such a comparatively low figure in only 12 months. Few if any other people are predicting this.

There are a couple of key indicators that tell me that not only are we in a recovery, but we are in the beginnings of what economists call a “V shaped” recovery, or as investopedia describes it “"a V-shaped recovery represents the shape of the chart of certain economic measures, such as employment, GDP and industrial output. A V-shaped recovery involves a sharp decline in these metrics followed by a sharp rise back to its previous peak.“. I talked about some of those indicators in this article, http://www.opednews.com/articles/Economy-Recovering--Repub-by-Steven-Leser-090724-283.html . Since that article we've seen even more signs. Here is what leads me to believe we are in for a robust recovery:

1. As I noted from Kudlow's articles including his July 23rd “Recovery Canaries in the Economic Coal Mine “, http://www.cnbc.com/id/32105734/ Corporate income is up across multiple sectors

2. The housing market is recovering briskly - Sale of homes is rising.

The July report http://news.yahoo.com/s/afp/20090821/bs_afp/useconomypropertysalesbank_20090821210529 that came out August 21st showed that existing home sales in July rose 7.2% to an adjusted rate of 5.24 million units. This indicates a stabilization of the housing industry is well underway and if this is what is happening, it would have an immense positive effect on the economy.

3. The equity markets are up significantly and appear to be continuing to rise

4. Already, we see that monthly unemployment figures are stabilizing and perhaps even starting a downward trend in marked contrast to predictions that the unemployment rate would shoot up to 10%. The July unemployment figures stunned most economists when they dropped from 9.5% in June to 9.4% in July. While this is not a precipitous drop, it is an indication that those who predicted a continuous and significant rise in the unemployment rate were not correct and in fact that unemployment may recover faster and sharper than most predicted.

Finally, the lions share of the effects of President Obama's economic stimulus package will be felt in 2010. One third of the President's $787 Billion stimulus is/was tax cuts. Of that, $75 Billion is aimed at middle and upper middle class families who, thanks to the cuts, do not have to pay the alternative minimum tax. These tax cuts are probably what we have to thank for the economic recovery we have seen so far in 2009. When the infrastructure construction aspects of the stimulus get into high gear, coupled with strong corporate earnings and a recovering housing market and you have the ingredients for serious downward pressure on the unemployment rate.

Getting back to my prediction on “Cashin' In”, one of the regulars on the show is Wayne Rogers, formerly of M*A*S*H. and House Calls fame. I'm a big fan of M*A*S*H, so I bet that the unemployment rate will be at or below 7.5% by August 22, 2010 or, in honor of Wayne and M*A*S*H, I would show up on the show dressed as Klinger.

So now there are real consequences behind my prediction on the unemployment rate.

A "V-shaped recovery"?

I'm going to enjoy seeing him in a dress.

But I would be glad for you to be right and me to be wrong.

As of July, the labor force is 154,504,000 people. If the labor force stayed constant (it would most likely increase) you need to add about 2.9 million jobs in the next 12 months. It's extremely unlikely that will happen.

But the unemployment rate will be falling and we'll be adding jobs, that's the good news.

already seeing a good many of them, spouse and I included, to opt for early retirement. Improvement in the equity markets only makes that more likely.

I expect the work force to drop significantly in the next 3 years. We are already seeing a drop in my state as more than 2% of those who fell off the unemployment rolls filed for Social Security.

Historically, this graph shows the possibilities:



Because of the information I discussed in the in the OP, I believe the recovery will follow the rapid model, not the consensus or jobless model.

Full disclosure - the people who did the research of past recessions to come up with this graph disagree with me in their article: http://www.frbsf.org/publications/economics/letter/2009/el2009-18.html

on edit: I also want to say that this article came out a full two months before the July job numbers came out. I daresay that the folks who wrote the article would have been VERY surprised by the July unemployment numbers and very well might have altered their predictions accordingly.

And we probably won't be for several more months, even though the recession likely ended in June.

Unless the reduction in jobless claims starts accelerating, the current trend suggests claims will reach 400K early next year. That's usually the cutoff point between net job losses and net job growth.

If that happens you're going to be talking about needing 2.9 million jobs in roughly 6 months. While that's possible, it's not likely at all.

You said
"I see unemployment and inflation both between fifteen and twenty five percent." You were not only wrong about the extent of unemployment, but also inflation. Thanks goodness for that. The combination of very high inflation with what actually did happen would have really left us in a another great depression. Also, so far the bank failures have more to do with real estate loans than credit card defaults (although these are up too)

However, you certainly predicted the direction and to some extent the magnitude of economic change, which is impressive, so I hope your new predictions are correct as well.

... what I didnt account for in the whole mix and interaction of things is how the rest of the equation, i.e. plunging equity markets, surging unemployment, foreclosures, etc., would be so great that they would overcome the serious inflationary pressures in the economy.

In several articles, I wrote that to conquer inflation, the President (who at that time was Bush) should reach out to Paul Volcker. I feel very comfortable about the potential for inflation rearing its head in the economy with Volcker on Barack's team.

Just saying

unemployed since december, and no one seems to want to hire anyone over 40.

so, even if employment picks up, I predict companies will only hire the young and cheapest labor, meaning all us baby boomers will continue in unemployment.

You need to begin reading the views of credible economists before you spread any more nonsense on the state of the economy. Let's hope that not many saw your absurd predictions and bogus analysis on the economy.

So you think we are in a V shaped recovery? The proponents of a V shaped recovery were proven absolutely wrong months ago. You must be the only person on this planet still proposing a V shaped recovery!

The July unemployment figures didn't stun any serious economists.

Here's serious articles on the true state of the economy written by people who actually knows what they are talking about.

Read them.

You'll learn something.

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A Phantom Economic Recovery
By Nouriel Roubini
Nouriel Roubini is chairman of Roubini Global Economics and a professor at the Stern School of Business, New York University.
August 16, 2009


Where is the US and global economy headed? Last year, there were two sides to the debate. One camp argued that the recession in the US would be V-shaped—short and shallow. It would last only eight months, like the two previous recessions of 1990-1991 and 2001, and the world would decouple from the US contraction.

Others, including me, argued that given the excesses of private sector leverage (in households, financial institutions and corporate firms), this would be a U-shaped recession—long and deep. It would last about 24 months, and the world would not decouple from the US contraction.

Today, 20 months into the US recession—a recession that became global in the summer of 2008 with a massive recoupling—the V-shaped decoupling view is out the window. This is the worst US and global recession in 60 years. If the US recession were—as is most likely—to be over at the end of the year, it will have been three times as long and about fives times as deep—in terms of the cumulative decline in output—as the previous two.

Today’s consensus among economists is that the recession is already over, that the US and global economy will rapidly return to growth and that there is no risk of a relapse. Unfortunately, this new consensus could be as wrong now as the defenders of the V-shaped scenario were for the past three years.

So, the end of this severe global recession will be closer at the end of this year than it is now, the recovery will be anaemic rather than robust in advanced economies, and there is a rising risk of a double-dip recession. The recent market rallies in stocks, commodities and credit may have gotten ahead of the improvement in the real economy. If so, a correction cannot be too far behind.

Read on at:

http://www.rgemonitor.com/blog/roubini/257506/roubini_project_syndicate_op-ed__a_phantom_economic_recovery

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Roubini Statement on the U.S. Economic Outlook
July 16, 2009


“Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped eight-month long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19th month of a severe recession; so the V is out the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.

“I have also consistently argued – including in my remarks today - that while the consensus is that the U.S. economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.

“I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year. On one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long-term interest rates (because of concerns about medium-term fiscal sustainability and because of an increase in expected inflation), thus leading to a crowding out of private demand.

“Also, as I fleshed out in detail in recent remarks the labor market is still very weak. I predict a peak unemployment rate of close to 11% in 2010. Such a large unemployment rate will have negative effects on labor income and consumption growth; will postpone the bottoming out of the housing sector; will lead to larger defaults and losses on bank loans (residential and commercial mortgages, credit cards, auto loans, leveraged loans); will increase the size of the budget deficit (even before any additional stimulus is implemented); and will increase protectionist pressures.

“So, yes there is light at the end of the tunnel for the U.S. and the global economy. But as I have consistently argued, the recession will continue through the end of the year, and the recovery will be weak and at risk of a double-dip, as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting.

Read on at:

http://www.rgemonitor.com/blog/roubini/257299/roubini_statement_on_the_us_economic_outlook

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US: Home Sales Rise, But So Do Inventories
BNP Paribas
Aughust 21, 2009

In spite of higher demand, inventories increased by
7.3% m/m in July as soaring foreclosure pushed the
number of empty homes available for sale higher. As
a result, the month-supply measure of inventory
remained unchanged at 9.4 month in July. The level
of months-supply has eased from a cycle peak of 11.3
month reached in April 2008, but remains well above
a level of 5 to 6 months-supply that is considered
standard in the industry. More worryingly, the level of
inventories has been trending higher since the
beginning of the year. Indeed, while moratoria plans
temporarily delayed foreclosures proceeding around
the turn of the year, these plans expired in March,
causing a rebound in foreclosures and pushing the
level of empty homes available for sale steadily
higher. According to the NAR, distressed homes sales
accounted for 31% of transactions in July.

http://www.rgemonitor.com/redir.php?sid=1&tgid=10000&cid=375536

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Housing Price Gains Don’t Signal Bottom: First American
By AUSTIN KILGORE
August 20, 2009

The year-over-year housing price decline decelerated to its lowest level of the year in June, but that doesn’t mean housing is about to hit bottom, according to officials at First American CoreLogic, a division of The First American Corp (FAF: 31.19 +3.07%).

National housing prices decreased 7.8% in June 2009 compared to June 2008, according to First American’s Loan Performance Home Price Index (HPI).

First American said home prices have improved 3.3% during the first six months of the year, but a number of artificial variables contributed to the moderation of year-over-year declines. Home prices are up in part due to the decline of distressed sales, rather than an increase in traditional real estate transactions.

First American’s researchers believe more than 15.2m mortgagors are underwater, representing nearly one-third of the nation’s mortgage market.

Khatner said First American expects home prices won’t bottom out until the end of 2010. He also said subsidies like the first-time homebuyer tax credit and artificially low interest rates won’t be around forever, and will contributed to continued lower prices down the road.

Read on:

http://www.housingwire.com/2009/08/20/price-improvements-doesnt-signal-bottom-says-first-american/

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Normal Economic Recovery Highly Unlikely
August 13, 2009

Although GDP in the current quarter will probably be up, the chances for a typical V-shaped recovery are exceedingly slim. First, positive GDP quarters during recessions are not unusual, and have occurred in six of the ten post-war recessions prior to this one. Second, even if the current quarter proves to be the statistical end of the recession the ensuing recovery is likely to be so weak that it will hardly be visible to the naked eye. Third, the uptick in the current quarter will be a result of a temporary catch-up of inventories to meet a still tepid level of demand, and the 'cash for clunkers' program that is merely shifting auto sales forward and drawing demand away from alternative spending. Incomes are receiving a boost from temporary tax cuts, a one-time social security payment and extended job benefits. Looking ahead, we see no drivers for a sustainable recovery for the following reasons.

Read on at:

http://www.comstockfunds.com/default.aspx?act=newsletter.aspx&category=market+commentary&menuitemid=29&MenuGroup=Home&NewsLetterID=1476&startrow=1&&AspxAutoDetectCookieSupport=1

and the housing markey is not looking good.

Using the Dow as an indicator for economic recovery for regular folks is a non starter.

we shall see what we shall see..

provided by credible economists rather than Yahoo news. Steve didn't provide any credible links, outside of himself, to back up his economic analysis(?) or predictions.

Oh wait .... I stand corrected. Steve does cite Larry Kudlow from CNBC as a credible source for economic information! Anyone ever see this Kudlow character on CNBC? Anytime I see his mug and hear his Wall Street cheering bull shit I want to throw something at the TV screen.

Steve .... Are you at all aware of Kudlow's background and don't you tire of his relentless defense of Wall Street banksters and corporate crooks?

Kudlow was a member of the Bush-Cheney Transition Advisory Committee. During President Reagan's first term, Kudlow was the associate director for economics and planning, Office of Management and Budget, Executive Office of the President, where he was engaged in the development of the administration's economic and budget policy.

The problem will be replacing manufacturing jobs permanently lost.

The only hope for this is that we regain manufacturing jobs as a result of green revolution manufacturing, especially in energy generation.

With significant inventories in the housing market there is a very good chance that there will be a double dip in the recovery.

1. Timing, he said this would happen in 2008 ("throuout the rest of the year"), not 2009.
2. Inflation, which he predicted would hit 15-25%.
3. The cause of the banking credit problem, which had jack-all to do with credit cards, it was CDS and bad mortgages slipped into investment vehicles.

So, he was wrong, wrong, and wrong, and insists "All of this came true except for the unemployment rate"....

Yeahbutno. Thanks for playing.

truly boggles the mind.

Steven? You know that your predictions were totally off the mark.

Right?

Think about it.

I'm serious.

And enough self-promotion already.

OK?