The Big Stall

Saturday, September 08, 2007 | 07:44 AM

Regular readers of The Big Picture will recognize the sentiment presented below. Its a simple 3 part analysis: 1) The economy is soft; 2) Job creation is weak, and getting weaker; and 3) most of the shills you see on TV are idiots.

The following is via Alan Abelson's Barron's column, titled The Big Stall:

"For reasons that have invariably eluded us -- except that's what their paymasters tell them to do -- the incorrigible cheerleaders on Wall Street and in Washington have been insisting that the economy was strong, a sentiment, we regret to say, with few exceptions, mindlessly echoed by our colleagues in the press and in the electronic media. And by way of confirmation they cited the particular "strength" in employment.

Comes now Friday's employment report for August, and guess what? It's a bummer. Compared with the recently scaled-down consensus estimates of 90,000-100,000 additions, the Bureau of Labor Statistics reports that, in fact, last month saw a loss of 4,000 jobs. It looks like a long goodbye to Goldilocks. What's more, in another poke in the eye to the received wisdom, the job picture was much worse in both June and July than originally reported: Revisions slashed June by a whopping 57,000 slots and July by 24,000.

Nor is that the whole sad story. For were it not for the enhancement of August's sickly totals by a formidable 120,000 jobs mythically created by the BLS's "birth/death" contraption, the final tally would have been downright ugly. And the so-called household data, which bulls used to eagerly parade because it consistently outdid the establishment count, continued this year's dismal -- or, should we say, accurate -- performance, shedding 316,000 jobs last month.

What last month's dismal employment showing does is pretty much cinch the case for a cut in the federal-funds rate. It also, we think, pretty much cinches the case for recession, late this year or early next."

Hard to argue with most of that . . . and as mentioned recently, we think the odds of a recession are about 65%.


The Big Stall
Alan Abelson
Barron's September 10, 2007

Saturday, September 08, 2007 | 07:44 AM | Permalink | Comments (68) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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The question is will a rate cut help? It might cause temporary euphoria in the stock markets, but it will not restore confidence in assets.

There is more than one issue with which to deal. There is a liquidity problem in the CP markets - but more than that - there is a crisis of confidence both in the CP and ABCP markets - not only in the assets held for collateral but in the ratings agencies that issued the ratings.

It is like borrowing money to make a bet on a game of Russian Roulette. If there is one bullet in a sixshooter, everyone can calculate his risk and borrow accordingly; however, the problem with the game today is that nobody knows for sure how many bullets are in the gun - it could be zero or it could be six.

Lowering the Federal Funds target rate does not add transparency to the Russian Roulette game - if risk cannot be guaged accurately, a slight lowering of the rate of borrowing will not help. All it will do is add fuel to existing speculative bubbles, setting up a bigger collapse.

Posted by: Winston Munn | Sep 8, 2007 8:37:39 AM

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