Notes From Underground: Unemployment was “less bad”

The unemployment rate moved higher but that is meaningless for the markets. However, talk radio will have something negative to discuss. The interesting data was that private sector jobs grew more than expected and, more importantly, average hourly earnings (AHE) rose much more than expected and that is a good thing for potential consumer spending.

The more important news is a story that the Washington Post broke about a new stimulus package coming from the Obama administration. The Obama camp have the cover of Nobel laureate Paul Krugman to bring forward a much more robust stimulus package heavily centered on tax cuts for small and medium business. What else is going to be forthcoming? We have no idea but this package will err on being bigger not smaller than previously projected.

Why do we believe a bigger program is coming? Because Secretary of Commerce Gary Locke opened his big mouth in a November 2009 interview and was forced to recant his words as being “impercise.”  It seems to us that Secretary Locke was so excited about the stimulus plan that he couldn’t contain his enthusiasm. A package of tax cuts aimed at small business is what the financial markets want to see.

A payroll tax moratorium would be a major move but we at NOTES doubt they will do that because if wage earners saw what came out of their weekly checks in real time there would be tax sticker shock. We still think that Geithner has plans for doing some type of massive mortgage refinance as the executive branch has control of Fannie and Freddie and does not need Congressional approval.

The bottom line is that something is up and coupled with a “less bad” employment, the Obama administration may be able to gain some positive momentum heading into the November elections so as to stem some of the negative political fallout. This election is not about wars. It is totally focused on the economy. The commerce secretary, through his premature excitement, has let the cat out of the bag. The question remains: How loud will it roar? If the plan includes the cut on dividend taxes, we could see the equity markets rally hard. We wait to see how aggressive they plan to be.

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5 Responses to “Notes From Underground: Unemployment was “less bad””

  1. Danny Says:


    Per your recommendation, I placed an order for a used copy of Bernard Connolly’s book (as it is out of print). With a little luck I might actually receive it!

    If you happen to have an extra 2 minutes, I actually posted a blog piece on a website called Seeking Alpha regarding retail sales and unemployment. Granted it doesn’t do too much more than point out the obvious relationship…all the while, exposing my need to improve my writing and my knowledge of global macro. But just in case you are interested:

    In your view, would you give more creedence to a massive refi or a new stimulus with an objective of building some positive economic momentum? It seems to me another economically impotent, albiet politically loaded, stimulus plan wouldn’t do a whole lot of meaningful good – if the first stimulus was any guide.

    Based on previous commentary you have made regarding intertemporal missallocation…I am inclined to believe you would prefer the major refi plan as it would, in a sense, speed up a necessary process of cleaning up the household balance sheet or at least shift the void to the banks where bailout/stimulus is already in existence. While on the other hand, an additional stimulus plan stands a solid shot of exacerbating the problem of “intertemporal missallocation” in a desperate attempt to gain some political capital.

    Which speaking of that…I am started to wonder is Thomas Hoenig under fire for being out of touch a.k.a. dead wrong…or is he simply concerned about the issue of intertemporal missallocation?

    As always thank you for your time.

  2. Chuck Says:

    Danny … Excellent analysis of retail vs unemployment rate changes! Intuitively, it makes sense, but I had not seen this study previously and I was shocked at how closely the two variables moved (R-squared).

    Thanks for sharing.

  3. yra Says:

    just bringing foward future demand will not do the trick.I think a massive ewfi of mortgages would put money in main streets pockets and stem the massive amount of foreclosures so I believe that is the better choice in the near term and it won’t need congress as Geithner has already seized fannie and freddie

  4. Paul Says:


    whats your take on the impact these stimulae will have on the USD?

  5. yra Says:

    Paul–all things are relative in the world of currencies and we know Europe has more than its share of problems —but I see nothing in U.S. policy that makes me want to own Dollars–right now it is a question of what is worse the Euro or the Dollar—am waiting for the algo models of risk on risk off to go thru a dynamic change or lose a lot of money as the market reverts to fundamentals–otherwise until then trade what you see and don’t try to take too much out of any trade

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