Review of Employment Report and Markets 11/7
By Larry Doyle on November 8, 2008 at 4:50 PM in Credit Card Companies, Current Affairs, Economy, Home Loan, Housing & Housing Crisis, Unemployment, Zbigniew Brzezinski
The highly anticipated October employment report came in as follows:
| unemployment rate | 6.5% up from 6.1% |
| non-farm payrolls | -240k jobs vs consensus estimate of -200k |
| September revision | a loss of 284k jobs from initial estimate of 159k! |
| Labor costs | +3.5% year over year |
Jobs were lost in virtually every sector: manufacturing, construction, and especially the service sector, which had been the sector that provided job strength over the last few years.
In summary, there is nothing to like about this report and it is likely to get worse. Estimates on unemployment rate range from 7% to 9% by the middle of 2009.
Read more here on how the “Economy Sheds Jobs.”
Goldman Sachs, which had the most accurate call on the employment report, is now calling for a -3.5% GDP for 4th qtr 2008 and a -2% for 1st qtr 2009.
Also: The market expects a .50 cut in the Fed Funds rate in December to an overall rate of .5%.
This call leads us to wonder whether we are going to move into a Japanese-style economy from the 1990s in which lending rates were literally 0 but savings were still very significant and borrowing anemic. Banks did not fully recognize losses. Inflation was not an issue given that borrowing needs were non-existent. This scenario is not the case here in the United States since our deficit borrowing will be enormous!!
Equity markets are expected to open flat to slightly higher this morning. Actually those markets opened up app 1% and got as high as 2.5% but have come back down to +1% after the GM earnings. (11:30 am).
Bonds are lower with rates up by app 8-10 basis points.
Commodities are mixed with early call on gold up 2-3% but copper is lower … again … oil also looks like it will open slightly lower but moved higher in sync with the overall market.
The auto situation continues to receive a lot of focus. The “cash burn” rate for Ford and GM is between 2-3bln a month.
The Big 3 are asking for 50bln in capital to address health care costs and liquidity … expect them to get it from Uncle Sam with Uncle Sam taking warrants in the companies … all that said, indications are that the auto companies will have layoffs and cost cuts wherever possible. Ford posted earnings of -$1.31 per share vs expectations of -.93. GM posted earnings (how is it that they are called earnings when in fact they are losses?!) of -$7.35 per share vs expectations of -$3.94. This GM situation is truly dire.
Read more here how “Ford Plans More Cuts.”
All the focus on bank lending really needs to focus on the ability of the banks and brokers to “sell” those loans (mortgages, auto loans, credit card loans, et al) to investors through the “securitization” process.
Investors are very cautious and have little appetite at current rates to buy these loans. Given that lack of demand, banks are not willing to lend. Ultimately rates for these products need to move higher to attract investors.
The idea that Freddie and Fannie will be the buyer of last resort for these mortgages is a movie that we have seen before and it has a very bad ending.
Read more here on how “JP Morgan’s Illiquid Assets Rise.”
Speaking of Fannie: Expect a RECORD loss when they post 3rd qtr earnings.
Another situation that bears watching is AIG … they are trying to sell divisions to repay Uncle Sam but are meeting with little demand currently or buyers are very cautious as they can’t get financing for the purchase.
With all of the government intervention currently and more intervention expected, it is not a stretch to say that as taxpayers we are all investors in the biggest multi-strategy hedge fund in the world. Problem is, I think that our “investment” may in many circumstances be like that roach motel. We can get it, but just how the heck do we get out …??
Last but not least … Warren Buffett purchased preferred stakes in Goldman Sachs at 125 with a 10% dividend and warrants to purchase more at 115 … Goldman closed yesterday at app 81 … yes down 35% from Buffett’s purchase … Buffett did the same trade with General Electric when GE was at 22.25 … GE closed yesterday at 18.3 … yes down app 20% … Warren is smart but he has the luxury of time and excess cash … those investments were made in late September.
I caution you from focusing too much on the day-to-day swings in the markets and continue to assess the trends in the economy. Bounces are temporary. Markets correct by price and time.
Granted we have had app a 40% correction in price, but we will likely now suffer from either more price corrections or a market that at best “treads water” thus a time correction.
We hope you had a Happy Friday!!
……..
Ed.’s Note: Our apologies for not posting this story on Friday. It was entirely the editor’s fault. LD wrote this by mid-day Friday. We will try to do better.
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What we need to do right now is contact McCain electors in the electoral college to require a roll call and use parliamentary procedures, objections and rules to challenge the legitimacy of this president. McCain electors have a right to question Obama’s presidency if they are required to vote for him. We need to show Democrats every step of the way that we object to an Obama presidency. We can’t stop now. Do not rest. Make this the first battle to take back our party from Acorn and the Chicago thugs who stole it from us. Keep fighting!
They may sound a little wacko, but the guys on talk radio keep me going.
http://www.patriotbrigaderadio.com/livejava.php
Are you for REAL?
Friend, you really need to get a life. I’m a Hillary supporter who voted for Obama, and I never wanted to go after Bush/Cheney like that, and they deserved to be gone after like that.
Bailing out the auto industry makes me absolutely sick. They offer, for the most part, lousy products so why should taxpayers be forced to “invest”? Where’s it going to end?
Union Thugs need to keep the gravy train running.
Ayres feels vindicated
http://edgeoforever.wordpress.com/2008/11/08/bill-ayres-feels-vindicated/
Thank for more hard work, LD.
I am afraid you will have many, many more hours ahead analyzing the financial ‘challenges’ to come.
I wonder do you have any thoughts on the effects of Soros on the American economy.
Here is a repost of Obama IS A Fraud’s comment in the previous thread:
George Soros’ Liberal Agenda Will Carry Weight In Obama Presidency
by Rowan Scarborough
11/05/2008
No man has a larger stake in a president Barack Obama administration than ultra-liberal billionaire George Soros.
This decade, the Hungarian-born hedge fund investor has poured tens of millions of dollars into left-wing attack groups and Democratic campaigns. Soros’ grand plan is to destroy the Republican Party and conservative movement, while promoting the wish list of the political Left.
With Democratic victories Tuesday, Soros may be on the cusp of fulfilling his dreams of social reorder — funded by a fortune of $7 billion he amassed through rampant speculation on world currencies.
Soros has channeled his gains into such groups as Moveon.org and the Center for American Progress, not to mention the Democratic Party and its candidates. He may rightly have claimed any Democrat victory as his own this Election Day and expect President Obama to adopt his American vision.
“Soros is Obama’s principal patron,” said Richard Lawrence Poe, co-author with David Horowitz of “The Shadow Party,” a critical look at the network of left-wing tax-exempt groups the investor sponsors. The groups in turn doled out money to liberal candidates such as Obama.
The book’s subtitle is, “How George Soros, Hillary Clinton, and Sixties Radicals Seized Control of the Democratic Party.”
“He created Obama,” Poe told HUMAN EVENTS. “An Obama presidency will be a Soros presidency.”
Poe said federal election records show Soros jump-started Obama’s 2004 U.S. Senate campaign with $60,000 from himself and family members.
“These personal contributions are but a drop in the bucket compared to the unknown quantities of money Soros has channeled into the Obama campaign through his so-called Shadow Party,” the author said.
To understand the 78-year-old Soros’ world view, first look at his two obsessions: he dislikes President Bush intently, likening him to Hitler. And he dismisses the war on terror as a waste of time.
Then there is the press. Any one on the Left with lots of money who bankrolls liberal causes typically receives flattering coverage. Soros is no exception. He enjoys puff-ball treatment from the New York Times, Washington Post and their followers.
CNBC, for example, presents the talking-head Soros as a non-partisan investor, never telling viewers of his liberal crusade to destroy Republicans and how that might color his views.
His hatred of Bush and of the war against radical Islamic terrorists stand as the underpinnings for scores of leftist positions.
He funds his causes through his New York City-based Open Society Institute. Its web site is full of flowery prose about eliminating hunger, bringing social justice and encouraging diversity of opinion.
But beneath the propaganda is a financial grant system channeled to the hard left.
Click the link for “U.S. Programs” and this national security objective pops up: “Shifting the paradigm away from the ‘war on terror.’” In other words, terrorists are victims and the U.S. is the perpetrator and must be stopped. The web page portrays America as a racist society at its roots.
Other Soros demands:
– Legalize gay marriage and euthanasia, and make abortion more available. He funds groups that claim they are Catholics for choice.
– Legalize illegal drugs, or at least reduce the penalties. Soros believes crack cocaine dealers are victims because powder cocaine sellers receive shorter prisoner sentences. They are typically white, while crack users are black, he says.
– Give felons the right to vote and end the death penalty.
– New rights for illegal aliens.
– An end to U.S. global supremacy.
“George Soros has stated repeatedly and explicitly that he views the United States and its capitalist ideology as a threat to world peace,” said Poe. “A consistent pattern, both in his political giving and in his philanthropic endeavors is to press for policies whose only possible effect will be to bankrupt the United States and end the reign of the U.S. dollar as the world’s dominant exchange currency. Soros wishes to replace the U.S. dollar with a global currency, issued by a global bank.”
Soros told the Washington Post in 2003 that defeating Bush’s reelection “is the central focus of my life” and “a matter of life and death.”
“When I hear Bush say, ‘You’re either with us or against us,’ ” Soros said, “it reminds me of the Germans. It conjures up memories of Nazi slogans on the walls, Der Feind Hort mit [The enemy is listening]. My experiences under Nazi and Soviet rule have sensitized me.”
He reportedly gave $5 million to Moveon.org, which promptly ran video ads comparing Bush to Hitler. An image of a saluting Hitler gives way to Bush taking the oath of office. Get it?
Despite the Open Society Institute’s lofty mission statement, Soros likes this sort of bare-knuckle personal destruction.
After all, Bush is not the only person Moveon.org has savaged. It called Gen. David Petraeus a commander who is betraying his country. In 2004, Moveon.org attacked the evangelical beliefs of George Gallup Jr., son of Gallup’s founder, because the company produced a presidential poll it did not like.
On the war, Soros has written that “terrorism is an abstraction.”
In his book, “The Age of Fallibility: Consequences of the War on Terror,” he wrote, “The Bush administration and the Nazi and communist regimes all engaged in the politics of fear. Indeed, the Bush administration has been able to improve on the techniques used by the Nazi and Communist propaganda machines by drawing on the innovations of the advertising and marketing industries.”
When Mr. Soros comes to Washington next year, Democrats will be listening. If they don’t, Moveon.org has some videos ready.
My opinion about George Soros plays into my concern about the mess that is campaign finance. Very simply our system is polluted with too much money buying too much influence. In that regard, how if ever wwill we ever truly develop a credible third party in this country to represent so many who feel misrepresented if not disenfranchised with the two party system.
Soros is free to offer his opinion and his money as he wishes but too many aggressive positions backed by too much money creates problems.
If there is not a group or an individual ther to effectively take him on, at the bare minimum I wish that there was an entity that could highlight and publicize his positions and his influence backed by his money.
Regrettably the media outlets that may take that task are few andfar between. WSJ is one but not enough.
No wonder the Stock market is taking a dive — not much good news at all.
Thank you LD — these are helpful in understanding what’s happening in the Financial world.
I have absolutely no faith that the dems under the current misguided leadership will be able to avert major disaster. The economic advisers of O-zero all have questionable resumes.
One economic opinion pundit wrote that all of O-zeros suggestions on how to “fix” the current mess have been tried before and have been shown to be worthless.
Problem is the O-zero and the nuts surrounding him are not creative thinkers — and none can see the whole picture. Most are ideologues with rigid ideas and theories. Most of these people had an active hand in creating the current mess.
I’m waiting for the Free market dogma from the ONE — any day now.
Save your money, that’s the message I’m getting. No more wasteful spending. Gifts will be smaller this holliday season. I once heard a rich person say “you don’t make a million dollars you save it” Pay your debts and go easy on the spending.
Where does Soros and his hedge fund fit into the “sudden” 9/14 crash that Paulson was surprised about?
I would just point out that the most accurate prediction on job came from the money behind Obama.
Goldman Sachs $874,207
Here is something else I noticed that I think needs to be investigated if someone knows how.
Top Industry of Obama Donors
1 Retired $40,053,318
2 Lawyers/Law Firms $36,755,162
Top Industry of McCain Donors
1 Retired $32,321,744
2 Lawyers/Law Firms $9,662,840
Now we KNOW from the polling, that Obama did not get the elderly vote. Does anyone believe they were actually donating to him in droves, donating more to him in fact than the person they voted for?!?
Something most definitely stinks here!
LD –
On “60 minutes” (last week I think) they had a segment on “bucket shops”. I didn’t see the first 10 minutes, so am a bit hazy on the detail,but came away with the impression that vast amounts of money (trillions) were involved in previously outlawed speculative “betting” on mortgage defaults.
Any insights and explainations you could give as to the who, what, when, where, how etc. – especially how it ties into the mortgage melt down and if the tax payer bailout will be used to cover any of these losses would be greatly appreciated.
Thanks for another great recaps of economic and market conditions. As always they are concise, insightful, and readily understood. No simple feat when dealing with economic matters.
Choo….pleease read a piece that I just finished and will likely be posted tomorrow entitled, “Wall St. Model is Broken…and Won’t Soon be Fixed”,
Hopefeully that piece enlightens you on some of the questions that you pose here.
LD, again thanks for your tireless effort in helping us to understand and make wise choices.
Thanks, LD – great post, and very informative.
It is kinda funny for me to be worried abt the Dems running all three branches – a year ago, I would have been HAPPY abt it. But with the economy in the mess it is; with Dodd wanting to cut ACORN, La Raza, and the Urban league on for approx. $140 Bn in bailout repayment,and with ACORN getting kickbacks on new mortgages; with Pelosi wanting to increase the amt of IEC checks; with talk of putting 401(k)s into government securities, with whopping 3% interest; and now Obama talking abt MORE bailout money and bailing out Detroit (hone of his BFF, convicted felon, Kilpatrick), I am more than a little concerned.
What kind of real oversight will there be? How can we know what they are REALLY doing with our money? How will they be able to grow jobs if they are spending all the apportioned funds in primarily one sector? These are just some of the questions I have.
I share your concerns….