Unemployment To Rise, Stock Market Heading For Meltdown

Calculated Risk on why he thinks unemployment is going to rise:

This morning, in the "Negative News Flow" post, I noted that the unemployment rate will probably start ticking up again soon.

Here are a few reasons why I think the unemployment rate will increase (some overlap):

1) The main reason is the general slowing economy. There is a general relationship between GDP and the unemployment rate (see Okun's Law), and since I expect a 2nd half slowdown (from a sluggish 1st half), I also expect few payroll jobs to be added in the 2nd half - and that suggests the unemployment rate will rise.

2) With the end of the housing tax credit, I expect residential construction employment to decline further over the next few months.

3) The 4-week average for initial weekly unemployment claims has increased recently. This is the highest level since February.

Robert Reich notes in his latest post that

More people are out of work today than were last year, counting everyone too discouraged even to look for work. The number of workers filing new claims for jobless benefits rose last week to the highest level since February. Not counting temporary census workers, a total of only 12,000 net new private and public jobs were created in July -- when 125,000 are needed each month just to keep up with growth in the population of people who want and need to work.

Not since the government began to measure the ups and downs of the business cycle has such a deep recession been followed by such anemic job growth. Jobs came back at a faster pace even in March 1933 after the economy started to "recover" from the depths of the Great Depression. Of course, that job growth didn't last long. That recovery wasn't really a recovery at all. The Great Depression continued. And that's exactly my point. The Great Recession continues.

Oh, yes, the Great Recession - let's call it the Great Obama Recession - continues unabated.

And to make matters worse, Wall Street is abuzz with worries that the stock market is going to crash once traders come back from summer:

Forget about Friday the 13th. Many on Wall Street took to whispering about an even scarier phenomenon—the "Hindenburg Omen."

The Omen, named after the famous German airship in 1937 that crashed in Lakehurst, N.J., is a technical indicator that foreshadows not just a bear market but a stock-market crash. Its creator, a blind mathematician named Jim Miekka, said his indicator is now predicting a market meltdown in September.

...

Mr. Miekka came up with the Omen in 1995 as a way to predict big market downturns, developing a formula that parses data like 52-week stock levels and the moving averages of the New York Stock Exchange. He said the Hindenburg Omen's name was coined by a fellow market technician, Kennedy Gammage, when they found out the name "Titanic" already had been taken.

The confluence of data used by the Omen was officially tripped this week. There were 92 companies that hit new 52-week highs on Thursday, or 2.9% of all companies traded on the New York Stock Exchange. There were also 81 new lows, or 2.6% of the total. Each number must exceed 2.5% for the Omen to occur, according to Mr. Miekka.

Other criteria include a rising 10-week moving average for NYSE and a negative McClellan Oscillator, a technical indicator that measures market fluctuations. Mr. Miekka said the appearance of one signal is usually an indication of a market top, but the Omen becomes more accurate when there are two or more close together.

The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes.

"The Hindenburg Omen does show some deteriorating internals, which signals some major concerns," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But it isn't a reason to move to 100% in cash. We're taking a wait-and-see approach, but considering its recent history, we're considering it more than other indicators."

Take the Hindenburg Omen buzz with an extra large grain of salt, the point is that the markets have been volatile, Wall Street is full of uncertainty again and uncertainty can turn to fear very quickly.

And fear could mean the Dow and S&P plummeting below 2008 levels.

It would be nice if President Accountability were doing something about all of this, but he isn't.

He is vacationing instead.




Think of this summer as the economic analogue to Bush's August 2001 PDB.

Had Bush acted on that information, maybe 9/11 could have been averted.

Were President Accountability to stop listening to Larry Summers and Timmeh Geithner and actually take steps to put people back to work and reassure Americans they can and will find work if they look for it, maybe the coming economic disaster could be avoided.

But time is running short.

And Obama and company seem pretty oblivious to the warning signs.

Or they just don't give a shit.

Either way, they're not doing much of anything to stave off disaster.