The State of Unemployment and the Economy

This past week we found that the published unemployment rate rose to 9.8%, while continuous unemployment benefit claims rose 53,000. Especially hard hit were the goods producing areas, manufacturing and the battered construction industry. Overall, there was a jump in unemployment of 276,000 for the month – a significant and substantial number.

How did the market react to this on Friday? It actually ended up for the day. What does this tell you? It is obvious that the Fed is propping up the markets no matter what happens. By pouring money into the economy and purchasing treasuries, and I believe securities - although not publicized, we have a highly manipulated environment. In reality the Dow should be at least 1,000 points lower at this point in time. Bernanke’s risk is to create wealth by increasing share prices, hoping that this will psychologically make people feel better and spend more money on consumer goods. Also, he hopes that employers, feeling good about their company’s stock rising, will hire more people. Well obviously that is not case if the unemployment rate rose to 9.8; probably the real rate is more like 1 ½ to 2 times higher than the reported rate.

Also, as I have said before, the printing presses of the Fed are destroying the dollar. This week it dropped to a three-week low versus the yen and fell against all of its other most-traded counterparts, except the Mexican peso and Canadian dollar. Could inflation be far behind as the Fed pumps more money into the economy?

Another important event to mention was the expiration of unemployment benefits for nearly 2 million people on November 30. It seems likely that the political parties will work out an agreement, as of this writing, to temporarily extend the benefits. But what about the chronically unemployed who have been out of work for two years or more, since the crisis began? The over 50 category, commercial construction and teachers come to mind, as groups who will have a tough time getting jobs in the future. After all, there will be a time when the unemployment benefits will cease and with little hope for jobs, it will become a nightmare for some people.

C. Cohn
Cohn-Reilly Report

___________Comments

Melisa Connelly said...
yes, there does seem to be a disconnect where the market is concerned. The market is ranging on, while jobs are still not coming. The Bush taxes were extended and so were the unemployment benefits -that's good I guess. Enthusiastic holiday shopping showed that consumers were feeling more confident, therefore the feds did manage to manipulate public perception of economic stability to a small degree.

Charlie said...
Although some hiring has occurred in different sectors,unemployment is still high - we may never get back to the pre-crisis numbers; companies are operating under a different model, taking a lean/mean approach. Resource productivity is up because staff is putting in more hours than ever to compensate for lack of personnel. I think there is definitely a disconnect here. We ended the year with the Dow overbought at levels not seen since the summer of 2008; up almost 80% since the March 2009 low. Will we have a correction early this year, as technical analysis indicates, or will the Fed override that and continue to prop up the markets? We should know very soon.

January 2, 2011 1:34 PM

Ireland Beats Spain to the Bailout Line

Ireland is the latest to lose its financial bearings in the European Union. This comes with distinction, as the government adamantly denied that they had any difficulty this past Summer. With their tail between their legs, the Irish Government is forced to accept the largest international bailout to date. Last Thursday was the first time the finance minister acknowledged needing help. It is widely believed that the sour loans lead to the huge financial losses that nearly toppled the Island.
Much needed help is on the way, amid fierce concerns for the impact it will have on the EU, and Spain in particular. The IMF is prepared to package over €110 billion Euros as bailout for Ireland. Where does that leave Spain? Spain has a greater need for the financial bailout than Ireland or Greece. Here is the dilemma, once the IMF bails out Ireland, the €350 billion Euros needed to salvage Spain’s debt and deficits will exceed what is available. There must be some way to avoid this train wreck. Perhaps the IMF could come up with an alternative; for instance; The bailout could be done on a drawdown schedule. The IMF could provide Ireland with bailout installments over time. This might give them a chance to help Spain, and work toward soliciting additional funds to meet Ireland's bailout installments that are due later in the payment schedule. Just a thought.

In the meantime, in anticipation of the Ireland bailout, Portugal and Spain’s bond yields have increased nearly 12 basis points. That is only the beginning. The list below serves as a reminder as to just how steep these bailouts are for the EU.

-Greece bailout: €110 billion Euro Greece bailout
-Ireland’s bailout: €113 billion Euros
-Spain Needs: €350-billion Euros

Portugal is reportedly the next in line for a bailout, while the IMF is looking at Belgium as another EU member in financial distress. Although, an official from one of the leading EU countries pointed out that Belgium’s debt is largely internal, so it's not at all in the same boat as Ireland or Spain. Belgium’s financial problems will not have as much of an impact on international investors.

The Euro has declined to a two-month low against the dollar, as crisis continues to unfold. I will be closely watching to see what solutions are put forth from the authorities at IMF, and how the EU will wiggles out of this one. America's economic stability is still at large, while economies around globe also struggle to climb out of the valley of a deep recession.

K. Reilly
Cohn-Reilly Report

Greece Recovery: 6-Months After Bailout

Greece’s recovery is likely going to be a long time coming. Last August the jobless rate jumped to 12.2% up 2% from July. With all the Prime Minister’s efforts to reduce the deficit, the government data illustrates slow progress. Reuters reportedly anticipates a contraction of Greece’s GDP by at least 5% over last year. As Greece is expected to report their 3rd quarter GDP on Friday, the Greek Finance Ministry warns that the Country's unemployment could reach 14.5% by next year.

Though a cloud still looms over Greece’s deficit, the Finance Ministry stated that their deficit has declined 30% since last year, which represents $23.8 billion in U.S. dollars, or €17 billion in Euros. This was achieved through drastic spending cuts. Admittedly, 30% off their debt is a substantial chunk off Greece’s deficit, but unfortunately it still came in below the 36.9% target. To compound the disappointment, the Finance Ministry's revenue projections were also thwarted as a result of rebellious tax evaders and weakening demand. As part of this Spring’s €110 billion bailout, agreement the government of Greece pledged to reduce the deficit by 5.5 of the GDP, which would bring the deficit down to 9.5% of the GDP, as opposed to the estimated 15% in 2009. Nevertheless the Prime Minister, George Papandreou confidently expressed that the deficit will be 5.5% lower by year’s end

At the moment the Greece’s quarterly economic hiccups have minimal impact on the European Union in the short-term, since their borrowing needs have been met by the bailout. The European Union will now have to shift it attention to financial problems mounting in Spain.

K. Reilly
The Cohn-Reilly Report

___________Comments


Erin Thak said...
From what I'm reading, there are so many more members of the European Union that are in need of Financial help that Spain may not be the next country to get the attention of the IMF. like the article

The Elections Are Over – What’s Next For The Economy?

The American people have spoken and have clearly shown how unhappy they are with the Administration and the Democrats, formerly in control of both houses - result - the House is now in Republican hands. It is the nature of our political landscape to seek new blood when results are unsatisfactory. No surprise, considering unemployment is still high, with the actual rate somewhere in the teens, not the published 9.5% - 10% range. Many are not being counted because they are no longer eligible for unemployment benefits or they never had any to begin with. The housing sector is still weak and the commercial construction industry is a disaster. The Democrats are lucky to have held onto the Senate.

More Reasons for Political Unrest:

Mr. Obama claims that he cut small business taxes 16 times to fend off public perception that he is not a friend to small business. However, half of the “tax cuts” are actually incentives that reward businesses for taking actions they might not otherwise take - in other words, you have to spend money to get the tax benefit. For example, only businesses that already provide health insurance to their employees now would consider the health-care credit a tax cut. The main beneficiaries are businesses making big investments (and perhaps those caught investing in tax-shelter scams). Encouraging such investments may be a worthwhile public policy goal, but in this economic climate, the number of companies that will participate is likely to be very limited. Those inclined to be suspicious of Mr.Obama probably won’t take much comfort in this offering.

Today the Fed announced another round of asset purchases to the tune of $600 billion, adding to the $2 trillion already spent from 2008 to present. This second round of quantitative easing comes with many risks. The idea behind asset purchases is to flood the economy with money (the Fed printing press), which would lower interest rates and spur more lending and spending. But new asset bubbles could form if the Fed doesn't start backing away from its policy of easy money, often thought to be the source of the housing bubble which caused the recession in the first place.

Kansas City Fed President Thomas Hoenig has been warning of asset bubbles since early this year, and consistently voted against additional asset purchases and low interest rates. There are already troubling signs of possible new bubbles, like increases in the values of various assets from Treasuries to gold to other commodities.

The dollar is at risk: at the last Fed meeting policymakers said prices were too low, and signaled they were ready to take action if necessary. That caused a drop in the value of the dollar, as investors fear the currency will lose value in the future. That day, the dollar fell about 1% against the euro, and almost 4% more since then. If more confidence is lost, a downward spiral for the greenback could raise prices by making the cost of various commodities and imports, such as food and oil, more expensive for Americans. That could also drive up interest rates, as overseas investors financing U.S. government debt would demand higher rates to compensate for expected declines in the dollar. Higher rates could lead to a host of problems, like making business and consumer loans more expensive. It would also hurt the value of the Fed's huge asset holdings.

Click to continue

C. Cohn
Cohn-Reilly Report

Game Changer: Housing Market Forces Feds to Reassess

The Housing Market is pulling the economy down. Clearly the recent unveiling of the foreclosure debacle is a game changer in the Fed’s strategy to bring the economy back around. Any plan set for the last quarter of this year is null and void. The cost of unraveling the legal web is likely in the billions when it is all said and done. Ben Bernanke is no doubt under intense pressure to take action toward healing the economy. Although he has been suspiciously silent in the days leading up to the Foreclosure Freeze outbreak, he was quoted in the Wall Street Journal as saying he will take the measures necessary.

What about the rumors and speculation about Quantitative Easing? This is a monetary policy strategy that infuses money into the economy by purchasing securities. If the Federal Reserve buys bonds, banks will then have money from the sale of the bonds, which can then increase their ability/desire to lend to businesses and individuals. The domino effect will serve to speed up the economy. Unfortunately last year’s attempts to speed up the economy had little impact, so specialists are debating about whether or not quantitative easing will be enough at this point.

Nevertheless, the stock market is dancing to its own beat, seemingly not connected to the sluggish economy. In the meantime a lot will hinge on the two-day meeting held next week, , beginning November 3rd. Investors are not expecting the quantitative easing measures to have the traction needed to spur the economy. It will undoubtedly take more than throwing money at the problem, which is why next weeks Fed meeting is highly anticipated.

(See Interesting Article about the Currency War at Reuters)

K. Reilly
The Cohn-Reilly Report

________________________ RECOMENDATIONS

Also Check out: Socially responsible Investing site below:
SocialResponsibleInvest.com

-COMMENT HIGHLIGHTS-

________________Comment
Anonymous said......
Hi, I do believe this is an excellent web site. I stumbled upon it ;) I am going to return once again since i have bookmarked it. Money and freedom is the greatest way to change, may you be rich and continue to guide others. Feel free to visit my page - justin bieber smoking weed on Game Changer: Housing Market Forces Feds to Reassess – February 25, 2013
________________Comment
Anonymous said......

Ives said....
You can now find custom countrywide property all over the world. All you have to focus on is your homework. October 29, 2010 12:19 AM

Cohn-Reilly Report said...
Glad you felt moved to comment, Yves. Unfortunately I am not sure what you meant. Hope you will be visiting us again soon

Goldman: Polishing Off the Tarnish

After over 140 years in business, the prestigious investment bank that has long been the envy of many companies that have come and gone. Goldman continues to make all kinds of money irrespective of the scandal launched by the SEC investigation this past Spring, which precipitated a hearing on Capital Hill. This was to be only the beginning of a bad year for the gold plated maverick, at least where their reputation is concerned.

Not long after the SEC investigation ended in a $500 million settlement, a German bank; Landesbank Baden-Wurttemberg (LBBW), filed a suit claiming the firm knowingly sold $660 million of subprime mortgage-backed securities to a subsidiary of LBBW.
As to be expected, Goldman began to take action to buff off the tarnish derived from the unbecoming headlines of greed and deception. To this end the company formed a Business Standards committee, which is headed by Goldman’s chairman and vice chairman, Jerry Corrigan and Michael Evans, respectively. The Business Standards committee will review strategies to rebuild its once stellar reputation.

A series of surveys conducted by Goldman’s Business Standards Committee revealed that their clients believe that Goldman will make them money, but do not feel that they are trustworthy. If the Goldman committee approaches this “perception” issue the way it aggressively approaches its other business strategies, this will soon be a vague memory.

K. Reilly
The Cohn-Reilly Report


___________Comments

Kirsten said...

Goldman has been able to escape criticism for a century. I saw a documentary about GS that talked about how many of the good old boys from the firm went on to work for presidents, so they have been essentially "untouchable" until now. It makes you wonder if they have been doing transactions like this all along
OCTOBER 28, 2010 7:03 AM

Home Sweet Home?: Foreclosure Freeze Incites Serious Concern

In New York , three of the largest banks implemented a freeze on foreclosures amid concerns of illegitimate filings and erroneous documents. According to the Mortgage Bankers Association, NY has upwards of 80,000 mortgage loans in foreclosure. When JP Morgan Chase, Bank of America and GMAC prompted the freeze, it certainly brought much needed attention to the problem. Last week, it was made public, although not officially announced. Shortly thereafter many other banks followed suit. Apparently Attorney Generals from forty states are calling for a freeze, including New York Attorney General Andrew Cuomo. It is widely reported that Cuomo stipulated that the biggest mortgage lenders immediately halt all foreclosures.

Just as the foreclosure crisis began a new wave of court proceedings, a more pressing crisis unfolds. Not only does Cuomo plan to extend the freeze beyond the BofA, JPM Chase and GMAC, but he wants the halt to include evictions, and foreclosure sales.

This is probably good news to hundreds of thousands of home owners across the country who are struggling to stay in their homes, with little or no alternatives. The freeze is anticipated to pause the process for at least one year - enabling homeowners to go without the pressure of making mortgage payments. At least for a few homeowners, this may be just the extra time they need to get their finances back on track, or at the very least prepare an alternative living situation for their families.

Why the Drastic Freeze?
Apparently what is described as “faulty” paperwork, ranges from affidavits that do not stipulate who originated or owns the loan, to forged documents. This could mean that countless foreclosures may be overturned, which puts the many recent buyers of foreclosed properties on shaky grounds at the very least. Oh What tangled web we weave, to quote Sir Walter Scott. This essentially puts the last two years of foreclosed property sales in uncertain territory. Meanwhile, Back on Wall Street, this spells deep trouble for the big three, and many other mortgage underwriters. Although Wells Fargo and CitiGroup maintain that their documents are straight, that remains to be seen. It is hard to phathom the entire mortgage industry is pausing to resolve a nationwide scandal involving erroneous foreclosure documents, yet Wells Fargo and CitiBank mortgage documents are 100% clear of any errors.

Massive Costly Clean Up Ahead: As courts from state-to-state take on the daunting task of sifting through thousands of documents to verify the true mortgage holders, banks will have to expend costly legal support to prove their position. The costs on both sides of the fence will ultimately translate to higher interest rates for borrowers, and yet another nightmare for tax payers. It is difficult to determine how deep this crisis really is, but I imagine that this is just the tip of the iceberg.

K. Reilly
Cohn-Reilly Report