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More fuzzy numbers, layoffs expand in concert with the GDP, Bill Gross requests a bailout

U.S. Q2 productivitiy revised higher, unit labor costs lower (Sept 4 – MarketWatch)

WASHINGTON (MarketWatch) — The productivity of U.S. nonfarm businesses was revised higher in the second quarter than previously estimated, the Labor Department reported Thursday. Productivity, which is defined as output per hour worked, rose at a 4.3% annual rate in the quarter, revised from 2.2% in the earlier estimate a month ago.

Unit labor costs — a key inflation gauge – fell 0.5%, revised down from a gain of 1.3%, the biggest decrease since the third quarter of 2007. For the last year, productivity increased to 3.4% from the previously reported 2.8%. This is the fastest annual increase in productivity in four years. Unit labor costs rose 0.6% year-over-year, compared with the previous estimate of 1.5%. Low unit labor costs should dampen concern about wage growth pressure from high oil and commodity prices.

Here is yet another fuzzy number that is so far off the charts as to be unbelievable or even laughable. The way this works is that productivity is output divided by input. Leaving aside how tricky it is to gauge output in a service-based economy, this is another case where a too-low inflation reading will boost a key economic statistic. Like GDP, productivity is trying to measure true output, so any underestimation of inflation will skew this reading into more positive territory.

How absurd is a 4.3% rate of productivity growth? If that rate were to continue, it would mean that in sixteen years, one-half as many people could produce just as much as everybody does today. Does that sound reasonable? It shouldn’t, because it is an unreasonably high number, and a simple glance at it says as much.


Worst summer for layoffs since 2002 (Sept 3 – MSNBC)

Job cuts announced by U.S. employers last month jumped 12 percent over a year ago to cap the busiest summer of downsizing in six years, according to a report released Wednesday. The latest tally pushes the total of announced cuts in 2008 to 667,996, up 29 percent from 515,855 in the first eight months of 2007.

Here is yet another bit of data that is utterly out of line with the concept of a still-expanding economy. In 2002, we were still mired in the after-effects of the 2001 recession.


So how is it possible to (allegedly) be expanding at a rate of 3.3% at the same time that layoffs are so high that they are better matched to a recessionary period?


It’s not.


Again, anybody who is following the government's reported statistics is being led horribly astray at this point.


If your financial advisor ever quotes favorable government statistics in support of getting you into or keeping you in a failing stock fund, I would strongly counsel you get yourself a second opinion. There are many good advisors out there who are extremely competent. I know a few, if you are interested.


U.S. Must Buy Assets to Prevent 'Financial Tsunami,' Gross Says (Sept 4 – Bloomberg)

Sept. 4 (Bloomberg) — The U.S. government needs to start buying assets to stem a bourgeoning "financial tsunami,'' according to Bill Gross, manager of the world's biggest bond fund.

A process of "delevering,'' where banks are shrinking and cutting off lending, is sapping demand for loans, bonds, stocks and commodities, driving down prices of assets of even `"mpeccable quality,'' Gross said. The decline may continue until the government steps in as a buyer, he said.

"Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' Gross of Newport Beach, California-based Pacific Investment Management Co. said in commentary posted on the firm's Web site today. "If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

Wow – talk about Chutzpah! A few months ago, Bill Gross and PIMCO went on a big buying spree of Fannie and Freddie (GSE) debt. At the time, they knew they were taking a risk, but they thought everybody was pricing that debt too low and they could make a few bucks by being cleverer than the next guy.

Turns out the next guy knew what he was doing, and PIMCO did not. At this point, you might think that they would re-evaluate their stance, lick their wounds, and promise their investors not to be so fool-hardy next time.

Instead, Bill Gross comes out swinging, essentially saying that "if the US government (taxpayers) doesn’t bail us out of our bad decisions, worse things are going to unfold in the economy."

I happen to agree with his assessment of the risks to the economy (they are severe), it’s just that I wholeheartedly disagree with the notion that the Treasury needs to step in and bail out those who made bad decisions during these past few months and years. At this point, somebody is going to have to take a loss. Mr. Gross is hoping that the losses will be shared by everybody so that gains can be preserved for his relatively (and proportionally) few clients.  What does need to happen?  House prices need to realign with incomes, and everybody who took a gamble that "this time it would be different" needs to learn to be more careful next time.  Of course, that outcome will be fought tooth and nail.


A Market Decline in Search of a Reason (NYT – Sept 4)

Stocks on Wall Street plunged on Thursday, but few investors seemed to know why.

A broad sell-off sent the Dow Jones industrial average more than 320 points in afternoon trading, hours after the government reported that the number of Americans filing for unemployment benefits unexpectedly rose last week.

“Victory has many fathers but failure is an orphan."

This article made my day. I actually laughed out loud. During a 300 point up day, trust me, there’d be LOTS of reasons given as to ‘why’ that happened. None of them would have been right, but at least there would be a slew of reasons like “investors cheered the low labor unit costs numbers released by the BEA today…” or some such nonsense.

Today the market went down because there were more sellers than buyers. We can start there. Next we might note that the stock market, more often than not, measures the amount of extra money floating around looking for something to do – think of it as a liquidity gauge. Were I trying to report on why the market went down sharply today, I’d begin by seeing if  liquidity might suddenly be drying up.

Perhaps a good place to start would be the crumbling credit markets, where most of the hot money used by hedge funds to bid things up came from. Or at least used to.