The economy will start adding jobs again–in April

Unemployment will start to decline and the economy will start to add jobs again in April 2010.

At least that’s the result you get if you extrapolate the current rate of decrease in new jobless claims out into the future. The Financial Times did the calculation in its September 26-27 paper.

The calculation works like this:

Last week the number of initial jobless claims–the number of people newly unemployed–fell by 4% to 530,000.

The weekly number jumps around so much because of short-term news that it isn’t especially useful as an indicator. Economists prefer to use the four week moving average. (This average of the most recent four weeks changes every week as the oldest week drops out of the calculation and the most recently completed week gets added.)

Right now the four week moving average is giving us good news too. By this measure the number of initial jobless claims is falling at a 6% rate.

There’s always a lot of churn in U.S. economy so the number of initial jobless claims doesn’t have to fall to zero before the economy as a whole starts to add jobs. Unemployment will start to drop when the number of people getting new jobs exceeds the number losing their jobs for the first time.

So when will that be? Read more

Did the United States prosper because of or inspite of its leaders?

The great stock picker and mutual fund manager Peter Lynch once advised, “Buy businesses so simple even an idiot could run them. Because one day an idiot will.”

After reading David S. Reynolds’s Waking Giant: America in the Age of Jackson (HarperCollins, 2008), I can’t help wondering if the same thing applies to countries.

Call it Manifest Destiny. Or the workings of God’s hand. Or the inevitable workings of capital and labor. Or an idea so simple even an idiot couldn’t mess it up.

But there’s got to be some reason why the United States survived the first half of the nineteenth century despite the rather shaky quality of its leaders. And the somewhat uncertain character of the average citizen, for that matter.

If you like your history strong on armies marching over the landscape or are fascinated by accounts of who skunked who in the smoke-filled back rooms, then this isn’t the book for you.

But if you read history because you enjoy the details that give a period character, that make the past different from the present, then this is your book. Because that’s exactly the parts of the story that Reynolds finds fascinating and brings to life.

Take, for example, the fact that the average American spent most of the years between the war of 1812 and the end of Andrew Jackson’s presidency in 1837 constantly inebriated if not outright drunk. Read more

Way down the road I can see early signs of the next stock market–and it’s not going to look a lot like the last market or today’s either

Sometimes the shortest distance to portfolio disaster is a straight line between two points.

This, I believe, is one of those times. If I’ve been clear about nothing else in the last few weeks, I hope I’ve been clear on how impossible it is to find a reliable, investible trend in the current market if you’re looking more than a few months out.

Most investors, even if they’re being very, very careful, are radically underestimating the difficulty of finding an investible trend right now. According to the conventional wisdom there are two alternative possible trends: either the trend line points up from here into a sustained recovery that looks a whole lot like the economy and market before the financial crisis or it points downward into a second bottom that looks a whole lot like the financial crisis after the recovery turns out to be a mirage.

But it’s not even that simple. There’s another alternative. One with more historical data behind it. In this scenario we’re still passing through a period of confusion without a trend. On the other side, and yet to emerge, is a new trend that won’t look like either the pre-crisis or crisis economy and stock market.

I have a very strong suspicion that a year from now things will look very different from both where we are now and from where we once were. I can’t give you all the details of that still to emerge trend but I can block in some of that third alternative.

Does that sound like I’m about to make your investing life even more confusing? You bet. But the likelihood, history shows us, is that the way to make money after a crisis like this won’t strongly resemble the way to make money before the crisis. So investors at least need to consider that now it really is time for something completely different. Read more

Huh? Wall Street figures higher unemployment is good news?

You’d think that last week’s jump in the August unemployment rate to 9.7%–the consensus among economists was for just 9.5%–would have sent stocks tumbling. After all, if more people are out of work, consumers will buy less. And it’s not exactly a vote of confidence in the economy that CEOs still aren’t hiring.

 But when Wall Street’s in a bullish mood it manages to find a way to turn bad news into good—at least for the short run.

 The current story on why high unemployment is good for stocks runs like this: Because companies are still cutting payrolls—another 216,000 jobs lost in August—while the economy is stabilizing, corporate profits will be higher than expected in the third quarter. Read more

GDP numbers show the recession crawling to an end but followed by a very slow and weak recovery

The government’s reports on quarterly GDP (gross domestic product) are the most detailed picture investors get of the state of the economy. The initial report for the second quarter shows an economy that’s still contracting but at a much slower pace than in the last two quarters. It also shows an economy where growth is very dependent on the much maligned Obama stimulus spending package and where consumers and CEOs are still sitting on their wallets.

In short it looks like the recession is coming to an end but that the recovery is going to be so slow and so shallow that many of us might not notice a whole lot of improvement. Certainly not initially. Read more