Recession, Stagflation, and Inflation ….  oh my!

Today the all powerful wizard behind the curtain (US Government) gave the citizens of this Country a rebate. A rebate in the form of cold cash to be delivered by your friendly US Mail delivery person this summer. That is if the Senate does not chop it to pieces before it gets signed by the President.

The Government thinks that $600 per tax paying household (more if with children) will pull the country out of the grips of a recession. We don’t feel as optimistic as the Government does. Those who are hurting the most will use the extra money to pay bills, those who don’t need are already spending money so an extra $600 bucks would probably just go in the bank. The debt being carried by individuals in this country has accelerated over the past year, the people carrying this debt would use this free Government money to help pay down their debt. And paying bills and debt does little for the overall economy.

To us, this free (not so free when the Government deficit will only get worse now) handout  is only a "make the consumer feel good" action by the Government. Will it actually do anything? Only time will answer that question, but we don’t think so. Will Dorothy go shopping with her lion, tiger, and tin man friends to the mall with the money? Maybe she can use it to help buy a new house because not many other people are buying as I will discuss next.

Housing figures from the National Association of Realtors was released this morning. The housing crisis continues to worsen and has reached levels which are historic. The National Association of Realtors started keeping track of home sales and price data starting in 1968. And on an annualized basis the home prices fell into the negative column for the first time since the data collection was started in 1968. The lead economist for the Realtors Association said that although there is no figures before 1968 he calculates from other forms of data that this is the first time the annualized home prices fell this low since the Great Depression of 1929. After this very bleak data was released today some talking heads said we are nearing a bottom. Based on what? All they have to do is look at the chart and see that it continues to worsen. Show me 3 or 4 months of data where the decline stops and then I’ll say we may be at a turning point. But people who say they think the housing crisis is near a bottom are just shooting from the hip and not going on the facts.

The chart below is the home sales data which was updated with today’s new figures. Notice the line I drew from 1998 to now and that we have now fallen below the low point of the 90’s. I don’t see any bottom here yet.

(data source: Moody’s)

Also today we had initial jobless claims. They came in better than expected and suddenly everyone is talking about the unemployment situation must be better than everyone feared. A person can not take one snap shot of data and form an accurate forecast or opinion for that matter. I look at trends, not snapshots. The trend in unemployment is going in the direction of getting worse and today’s weekly data does not violate that trend.

A statistic that does not get discussed much is the data collected for mass layoffs. Any company that lays off 50 or more workers in a single episode is considered a mass lay off. And this data is tracked and referred to as an "event". If a company lays off 500 workers in one shot it is an event, if a company lays off 100 workers it is an "event". So while the actual number of people being laid off is not known from these events, we can still analyze the trend of those events to determine the direction of the employment health. The chart below shows the mass lay off events up to the end of 2007, observe that the trend of "events" has been rising for the last 18 months. The big spike in 2005 was due to the employment interruption resulting from Hurricane Katrina. The largest lay off events this month occurred in construction, manufacturing, transportation, and hotels/food services. I expect to see this trend to continue with the retail sector creeping up in the list of mass lay off events. Lisa has been keeping a scratchpad tally of corporate layoff announcements which we get on the news wires and the numbers are climbing.

(data source: Moody’s)

Some good earnings from Microsoft tonight is boosting the Nasdaq in after hours. I am anticipating that we will see a gap up in Microsoft in the morning and a pullback by the end of the day as people will use the opportunity to cash out on the strength.

Last night I showed you charts of various sectors and their overhead resistance levels. You can view those dynamic charts with my annotations on them each day to see how the markets react to my support and resistance levels I identified. The link to our charts is HERE.

I will add a permanent link to the charts in the upper left sidebar of our site shortly.