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December 31, 2009 |
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Below is a link to a recent segment of the “Marketplace Money” radio show.
I caught a particular portion of it and found it interesting. The interviewer asked about the investment lessons that were learned in 2009. Go ahead and click to fast forward to the 7th minute and listen until about the 12th minute. The respondents were quick to answer about the lessons learned. What they couldn’t answer quite as easily was about the lessons that were not learned this year.
One answer that finally came to one panel member was that people learned the hard lesson of being too “overdosed” on stocks. This is a peculiar answer when you look at funds such as Vanguard’s Managed Payout Funds and Fidelity’s Income Replacement Funds. These new fangled funds, which I just happened to look at the day before, are designed to provide a steady payout of money in an attempt to meet the lifestyle needs of current retirees.
These mutual funds hope to pay out between 3% and 7% per year in most cases. For people and an industry that supposedly learned to "not overdose on stocks" anymore, please explain to me why big firms like Vanguard and Fidelity think it is prudent to shove about 55% to 77% of their funds into, of all things…stocks? At today’s levels? It kind of proves that our industry probably didn’t learn that particular lesson at all.
Anyway, it was in interesting segment to listen to and it highlights that not much has been learned, or changed, for that matter. It also shows that sometimes the best question is the one that flips a premise on its head…such as, what have we not learned?
December 3, 2009 |
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The latest unemployment insurance claims data came out this morning. Most investors typically focus on the initial claims filed for the previous week. Given that Thanksgiving fell in last week’s tally and given that the week-to-week data is quite lumpy, the best figure to look at are the four-week moving average.
The 4-week average of initial unemployment claims is heading downward. In normal non-recession economies, we see about 300,000 first-time claims per week. The peak of initial claims during this recession was about 650,000 logged in early April ’09. Since then, we’ve seen an improvement for basically eight straight months. The figure now is about 480,000 initial claims. This is a substantial improvement.
Unfortunately, a figure of 480k claims per week matches the peak we saw during the ’00-’02 and ’90-’91 recessions. This makes it is hard to say there’s unequivocal evidence of a job recovery.
Perhaps more importantly, we are looking at the total number of people who are claiming unemployment benefits. The graph below shows that we now have about 10 million people collecting benefits. This total includes all those getting “regular” state-based programs plus the “emergency” and “extended” unemployment programs paid for at least partially by the Federal government.
The fact that this 10 million figure has held steady for the past five or six months – in the face of fewer initial claims for that same period – raises some questions about the level ongoing creation of jobs that’s always happening under the covers. Now, the number of new jobs is much more important than the number still losing jobs.
Typically, newly unemployed people file claims (initial claims) and some people lose their benefits (due to reaching their 39 week limit) and, finally, some people ultimately find new jobs. In other words, people naturally flow into and out of the pool of workers and into and out of the unemployment system. This churn – sometimes balanced and other times not balanced - is nonetheless happening all the time.
Presently, due to repeated extension of benefits granted by Congress, there aren’t that many flowing out of the unemployment system due to the exhaustion of benefits. And, this is why the steadiness of the 10 million claimants figure is kind of disconcerting. If fewer have been flowing in (lower initial claims), and the total pool of unemployment claimants is holding steady, it does call into question the strength of our job creation mechanism.
Tomorrow’s jobs report will likely show a reduction in net job losses. It may even show a cessation of job losses. Certainly, judging from the unemployment claims data, seemingly fewer are being fired. (Frankly, how could it be any other way compared with earlier this year?)
What we haven’t discerned yet is whether or not enough people are being hired to justify the optimism in the markets. With over 27 million currently unemployed + under-employed workers, along with about 1.5 million new people entering the labor pool each year, it is going to take a lot of optimism to get things back to “normal”. And, judging from today’s prices, the market is increasingly expecting that “normal” is in the not too distant future.
