by ilene - July 19th, 2009 2:25 pm
Courtesy of Jake at Econompic Data
Urban.org provides a nice background on Unemployment Insurance benefits and the problems certain states faced at the end of 2008:
The states finance UI benefits with payroll taxes paid by employers into state trust funds maintained at the U.S. Treasury. State balances earn interest income. The Treasury also makes loans to states whose trust funds have been exhausted. At the end of 2008, trust fund balances were low in several states, and three (Indiana, Michigan, and South Carolina) had already borrowed to maintain benefit payments to eligible workers.
Those states were just the beginning. Economic Populist with the details:
$10.9 billion. That’s the amount of money currently lent by Federal Department of Labor (DOL) to a group of 15 states whose unemployment insurance (UI) trust funds have run dry.
How did we get here? Back to Urban.org (bold mine):
For the aggregate U.S. economy, the highest-ever payout rate was 2.22 percent of payroll experienced during January-December 1982. Before the current recession, reserves across 51 state UI programs totaled $37.6 billion in December 2007 and represented just 0.80 percent of total payroll for the year. The RRM at the end of 2007 was 0.36, that is, the reserve ratio of 0.80 percent divided by the high cost rate of 2.22 percent. Reserves totaled about a third of the recommended actuarial standard and represented roughly four months of benefits at the highest-ever payout rate.
In other words, based on the level of unemployment insurance needed in the 1982 recession, states only had about 4 months worth of unemployment ready to pay out. Thus, the following can’t be a surprise. Back to Economic Populist:
And it’s about to get a whole hell of a lot worse. By the end of the year that number will likely have have grown to 35 states. Total DOL emergency loans to states at that time? Nearly $50 billion dollars. The situation will be far worse for some states than others. The states appearing in red on the map below are those that will need DOL loans to keep unemployment benefits rolling.
What’s $50 billion amongst friends?
by Zero Hedge - July 19th, 2009 1:09 pm
When discussing high-frequency trading, Zero Hedge recently asked "As Goldman is becoming the primary conduit of trading (whether principal or agency) in virtually all markets, the risk of a massive liquidity drain becomes exponentially larger, and the risk of an exogenous event approaches LTCM and Lehman levels. It is this key risk driver that regulators should be focusing on, instead of chasing and attempting to punish the perpetrators of the most recent market crash (we are not saying they should not, but they should prioritize and now should focus on what is most critical to maintaining a functioning market topology). " It seems we were wrong about authoritarian figures never predicting the implicit risk of this subset of program trading – ironically, it was well over 20 years ago and none other than the future Chairman of the Federal Reserve Larry Summers who had some prophetic words of caution. In a paper titled "Commentary on ‘Policies to Curb Stock Market Volatility" in which Larry was discussing the cause and effect of Black Monday (about which he is quite wrong that nobody had seen coming), he lays out some oddly forward looking observations about program trading, or positive-feedback trading as high frequency trading was yet to become a staple market diet.
"In any event, positive-feedback trading is likely to increase volatility substantially. If one wants to design regulatory interventions that will decrease volatility, one must think about measures that will discourage positive-feedback trading rather than negative-feedback trading. Positive-feedback trading is substantially discouraged when traders using that strategy suffer massive losses, which is what one observed after the crash. Everyone who had been pursuing positive-feedback strategies bought more and more as the market went higher and higher, thinking that their portfolio insurance would enable them to get out. They were wrong. It’s clear that the crash reduced volatility by reducing the attractiveness of positive-feedback trading."
And some very peculiar observations on margin requirements by Larry, which may have much to do with why it has become so difficult to borrow any heretofore presumed liquid stock:
"More generally, the case for margin requirements raises a question. Instead of asking why the market fell
by Chart School - July 19th, 2009 12:44 pm
Courtesy of Corey at Afraid to Trade
With Google (GOOG) announcing earnings that ‘disappointed’ Thursday night and Intel’s (INTC) earnings earlier in the week surprised, let’s take a quick look as of July 17th at these two market moving stocks.
First, with Google (GOOG):
Google, like Apple (AAPL), has been in a very strong uptrend off the early March lows. With only one pullback before the June highs, price rose almost without pausing.
The run-up into the June high was tremendously powerful (that’s why people trade Google – for the action and volatility) which terminated in a doji that gapped up into an exhaustion/reversal bar just above $440.
We had an “abc” move down off those highs into what appears to have formed a “double top” at prior resistance with a slight negative momentum divergence.
Notice how volume spiked Thursday as traders/investors took positions in expectation of blow-away profits (similar perhaps to Intel). Playing the ‘earnings game’ can be very risky, as expectations were not met by Google’s latest announcement. We are now in a ‘pullback/retracement’ mode.
Next, on to Intel (INTC):
As opposed to Google, expectations for Intel (INTC) were lower, and so better than expected numbers caused the stock to surge, driving the S&P minis up nine points after Tuesday’s close (which preceded a trend day on Wednesday… though strangely enough Intel formed a doji on Wednesday and a ‘trend day’ on Thursday).
Volume surged to a new 2009 high as did price and the 3/10 momentum oscillator – all signs of fresh and enduring momentum that should lead to higher prices in the established up-trend (though expect a pullback/retracement instead of a parabolic rally – the new momentum high indicates a short-term overbought reading, as do all oscillators).
So it’s a different picture as painted by two market leaders.
Corey Rosenbloom, CMT
Afraid to Trade.com
Photo: A Winning Miss, Buxom woman rolling dice, copyrighted by Art Photo Co., Grand Rapids, Mich, Wikipedia.
by ilene - July 19th, 2009 12:08 pm
Courtesy of Edward Harrison at Credit Writedown
While Tim Geithner is out in the Middle East making the obligatory rounds, professing support for a strong U.S. dollar, investment strategists are wondering aloud whether a weak U.S. dollar is really what the U.S. government wants. David Rosenberg put out the following note over at Gluskin, Sheff.
It is the second anniversary of the credit crunch and after all of the fiscal and monetary policy initiatives, the best we get are green shoots and now that story is getting stale. Go back two years and you will see that the funds rate was 5.25%. Today it is zero. The fiscal deficit was 2.0% of GDP two years ago. Today it is 13%. Mortgage rates were 6.5%. Today they are 4.7%. Homeowner affordability with all the government measures is 70% stronger today than it was then too. The Fed’s balance sheet then was $850 billion. Today it is bloated at $2 trillion. The government has tried just about everything. Or has it? What if we were to tell you that the one policy tool that is unchanged since the summer of 2007 is… the U.S. dollar? It is exactly the same level now, on any trade-weighted measure, as it was back then. The greenback is struggling at the 50-day moving average, and this could well be the next policy shoe to drop.
We have seen huge fiscal and monetary stimulus. We have seen the Fed buy up toxic assets and bloat its balance sheet to unprecedented levels. There have even been mammoth changes in the affordability of homes, largely due to lower mortgage rates (and declining values). In short, everything has been done in the last two years to spur growth in America – that is everything except devaluing the greenback.
With unemployment still rising and Congress’s biannual election season coming up in no time, it would be quite tempting to orchestrate a devaluation in order to get a short-term boost.
As we said above, the U.S. government has practically exhausted all of its policy options … except for one; the U.S. dollar. It is the only policy tool that has not budged one iota since the crisis erupted two years ago. As we mull this over, we recall all too well this great book that a client referred us