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Mark's Market Blog

6-6-09: Markets, Unemployment, Foreclosures: Everything's Up!

By Mark Lawrence

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When we left our hero last Friday, he was boxed in by a convergence of the 150 day and 15 day moving averages. Since the market can't trade in a zero height area, it was pretty easy to predict that it would breakout in some direction. We guessed up 'cause the Fed isn't done throwing this little party. Sure enough, the market jumped up on Monday to a new level, then stuck there.

Some time ago Obama urged, perhaps one could even say required the passage of a $800B stimulus bill, arguing that without this stimulus we were looking into the abyss. His people produced a graph for the various senators and congressmen showing their projections of unemployment for the next six years with and without this stimulus. It's been a few months now, I thought it interesting to see how we're doing relative to these projections. The graph below was produced in the white house, except for the red dots, added on to show the actual monthly unemployment figures.

A couple of things leap out at us: first, there's no sense in these figures of a down-turn in unemployment yet. Second, we're clearly headed for total unemployment well in excess of the 9% figure extrapolated by Obama in the absence of a stimulus: clearly we're headed for more than 10% unemployment, as we saw in this blog back in January before the inauguration. Third, in the absence of Obama's stimulus, we can only imagine how much worse things would be right now. Many people, me included, think unemployment will peak somewhere between 11% and 12%, meaning we have almost 3,000,000 more jobs yet to lose. While the government was reporting 320,000 jobs lost in May, they quietly also announced that they had found another 82,000 jobs that had been lost in March and April, but that report was lost in the excitement of this latest green shoot. One wonders how many additional May job losses will be found in the next 60 days.

Housing markets aren't doing so well. There are a bit over 1 million empty houses out there waiting for new owners. Foreclosures are broadening: for the first time since the rapid growth of subprime lending, prime fixed- rate loans now represent the largest share of new foreclosures. There are 40 months' worth of $750,000+ homes on the market. Rates on 30-year fixed, conforming mortgage loans jumped half a percentage point to 5.25% last week. Credit Suisse says mid-2010 is the peak for scheduled ARM resets, and resets will stay high well into 2012. While most of the subprime loans issued during the boom years have been washed out by now, there are still about half a trillion dollars' worth of option ARMs. There's an even more alarming $2.5 trillion in "alt-A" loans, which are between prime and subprime. The banks are nothing like done bleeding and are not at all well into recovery.

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