Looking for Work or Given Up?

Ronald Reagan once said, it’s a recession when your neighbor loses his job...


It’s a depression if you lose yours...

And the Gipper offered a bit of humor during the 1980 Presidential campaign by saying...

And it's a recovery when Jimmy Carter loses his.




Back in the early 80s unemployment was high. It reached 10.8%. We're a ways from that yet--and hopefully it won't reach that level with the current recession. Let's take a look at what is currently happening.

The Bureau of Labor Statistics (BLS) keeps the official record on US unemployment. There are two definitions which I'd like to call to your attention:

• The unemployment rate, or U-3. This is a measure of someone without work, available for work and who has actively searched for work within the last month. U-3 is the most commonly publicized statistic regarding employment.
  
  It is currently 8.5 percent.
  

• The labor underutilization rate, or U-6. This is U-3 plus people who have not actively looked for work in the past month because they got discouraged and gave up.
  
  U-6 also measures the number of people who aren't able to find enough work, i.e. people who are working part-time when they want to work full-time. They are called the under-employed.
  
  It is currently 15.6 percent.
  

Here is a chart showing U-3 unemployment statistics though the last 11 recessions, dating back to just after WWII. (Note that the latest data in this graph is only through February.)



Now let's take a look at the labor underutilization rate, U-6. Since the metric was revised in 1994, we are looking at an estimate of U-6 (upper line in orange) compared with U-3 (lower line in blue) all the way back to 1900.

Times are hard now--but you'll quickly notice that times were hard in the early 1980s--and particularly brutal during the Great Recession.


Our parents and great-grandparents faced tough times, too. There were bread lines. And there were people wondering if things would ever get better.


Well, things did get better for them--and if you're looking for work, things will get better for you, too. It can be tough. Hang in there. There will be blue skies for you...just as lyricist Irving Berlin wrote:

Blue skies
Smiling at me
Nothing but blue skies
Do I see

Bluebirds
Singing a song
Nothing but bluebirds
All day long

Never saw the sun shining so bright
Never saw things going so right
Noticing the days hurrying by
When you're in love, my how they fly

Blue days
All of them gone
Nothing but blue skies
From now on

Mayo's Mistake?

Earlier this week, Mike Mayo, analyst for Calyon Securities, downgraded several banks, including Wells Fargo. This had a profound effect on the outlook of the banking sector, and investors experienced a significant drop in the US stock market. Mayo expects loan losses at the banks to be as bad as the Great Depression by 2010.


But will he be right in this assessment? Well, maybe it didn't take long to find out!

Later in the week, Wells Fargo surprised us with an earning pre-announcement. They said they made about $3 billion in the 1st quarter. They declared that their buy-out of Wachovia was a success.


Wells Fargo went on to say that the low cost of money combined with a strong demand for mortgage loan financing was the elixir they needed for success.


It makes we wonder if we will receive other favorable reports from the banking sector over the coming two weeks of "earnings season." Recall that the US stock market began to rally in early March after an internal memo from Citigroup's Vikram Pandit said they were enjoying a couple good months.

He wrote in addition to our strong capital position, I am most encouraged with the strength of our business so far in 2009. In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007. In January and February alone, our revenues excluding externally disclosed marks were $19 billion.

Then on top of that the FASB accounting group revised the mark-to-market rule (for more on this, see my March 19 article) in a way that provides a much fairer means of valuing stressed assets. Instead of being forced to use fire-sale accounting, a more reasonable cash flow basis will now be used for the 1st quarter to value assets that are otherwise performing on a long-term basis.

From time to time I truly wonder about the value of commentary made by experts. I even wonder about their integrity--wondering if sometimes dire pronouncements are made in order for immediate gain for their own company--at the expense of many investors and even employees at these banks.

I don't have any way of knowing about this--I'm just wondering--but as for me, the next time I'm offered Mayo, I am going to pass--and use the butter instead!!!

Milton Friedman: Thoughts on Greed

Milton Friedman was the grandmaster of free-market economic theory in the postwar era and a prime force in the movement of nations toward less government and greater reliance on individual responsibility.

His philosophy influenced world leaders such as President Reagan and former British Prime Minister Margaret Thatcher--and this in turn has helped YOU to benefit economically through the prosperity in the United States.


Friedman led the postwar challenge to the hallowed theories of John Maynard Keynes, the British economist who maintained that governments had a duty to help capitalistic economies through periods of recession and to prevent boom times from exploding into high inflation.

In Friedman's view, government had the opposite obligation: to keep its hands off the economy, to let the free market do its work. The only economic lever that Friedman would allow government to use was the one that controlled the supply of money - a monetarist view that had gone out of favor when he embraced it in the 1950s.

He went on to record a signal achievement, predicting the unprecedented combination of rising unemployment and rising inflation that came to be called stagflation.

If you remember anything about the 70s--Carter's govermental interferences and wage controls earlier in the decade--you'll remember our monumental problems with recession and super-inflation.

His work earned him the Nobel Memorial Prize in Economic Science in 1976.

To Alan Greenspan, Friedman came along at an opportune time. The Keynesian consensus among economists, he said - one that had worked well from the 1930s - could not explain the stagflation of the 1970s. But he also said that Friedman had made a broader political argument: that you have to have economic freedom to have political freedom.

Friedman was interviewed by TV host, Phil Donahue, in this classic dialog about the nature of greed in societies.

Stages of Investment Grief

Swiss-born psychiatrist Elisabeth Kübler-Ross' five stages of grief are a core component of modern psychoanalysis and are used to help people deal with tragedies.


Diane Garnick, investment strategist at Invesco, indentifies the five stages as they apply to investors, some of whom might be saying (or thinking) the following:

• Stage 1, Denial: "I should throw away my 401(k) statement without even opening it.

• Stage 2, Anger: "Why did this happen to me? It is unfair that Wall Street benefited at my expense." Or, "Why in the world is AIG's bailout money going to its counterparties like Goldman and Deutsche Bank?"

• Stage 3, Bargaining: "Just give me one relief rally and I can make it all back and sell."

• Stage 4, Depression: "The market stinks, no one is hiring anywhere. Why should I bother?"

• Stage 5, Acceptance: "It's bad, but these things don't last forever. I'm going to work on my career and portfolio to be prepared for the opportunities when they do come."

Here is a recent interview with her on this subject.