Insights & Advice

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Expect More Bad News in the Coming Weeks

Don’t shoot the messenger. Believe me, I would be happy to find a few silver linings in this month’s gathering black clouds but it may well prove impossible. October was a brutal month for the economy and just how bad it was will be revealed over the next few weeks.

Today’s unemployment number of 6.5% (worse than expected) brings the year’s total job losses to 1.2 million the most since 2001 when the nation was also struggling with recession. As the scorecard of statistics for October hits the markets from consumer spending to productivity to housing it will be hard to sustain either a positive attitude or a winning market.

Sometimes the headline numbers like unemployment don’t mean much to us until we dig a little deeper. After all 6.5% doesn’t seem like much, right? Yet, if you examine how many workers are already unemployed and have been since 2007 then things get a bit more worrisome. There are over 3.8 million of us who have been drawing unemployment benefits for more than a week. If you take the percentage of workers who are working part-time while they look for a full-time job plus those who can’t find a job then the number rises to 11%, the most since 1994.

It will get worse. Many economists think the unemployment number will reach 8% before this is over. As someone living with an intelligent, hard-working, American who has been unemployed for five months, I no longer ignore these numbers. In our area there are dozens of applicants for every job and each week the number of news jobs available shrinks dramatically.

It is encouraging that Barak Obama appears to be moving quickly (see my column “The Next President Must hit the Ground Running”). He has already appointed his chief of staff, Rahm Emanuel, talked to nine world leaders about the financial crisis among other topics and this afternoon the President-Elect met with his “brain trust” to begin work on his number one priority, the economy. Hopefully he has a fortune teller among his advisers because he is going to need one.

In the meantime, the markets this week once again turned down with a vengeance erasing some of the pre-election bear market bounce. The S&P 500 gave back 7.6% of its 18% gain off the October 10th lows although Friday the indexes ended in the plus column. Many traders expect another re-test of the bottom over the next week or two. That wouldn’t surprise me. The markets will remain quite volatile. However, I have noticed one encouraging sign. Many income and high-yield bond funds (for the first time all year) have held up a bit better than stocks over the last few days.

That may signal a change possibly brought about by the improvement in the credit markets over the last few weeks. I believe income and interest bearing funds are the place investors should be going into 2009. Some funds are yielding anywhere between 6 and 12% depending on risk and prices have been battered down to five year lows just like stocks. It may soon be time to put a little money to work in that area.

Posted in A Few Dollars More, At the Market