Friday, March 6, 2009

Financial Crisis, 6 Mar 2009: Dow 6,626.94, +32.50 (+0.49%)

The Tao of Dow

The week ended on a massive rally. An brisk morning start began Wall Street’s day 50 points higher than the prior evening’s close, and a quick surge led the Dow Jones Industrial Average (DJIA) to an early intraday high of 6,755.17.

However, the swift exuberance was extinguished shortly after 9:45 AM, and the rest of the day was a rocky decline, dipping below the 6,500 level before before 3:00 pm. The intraday low of 6,470.11 was hit right around 3:24 pm. Then, something sparked in the market, and the last half-hour was filled with a massive upsurge to close at 6,626.94. For the day, the Dow was up +32.50 (+0.49%).

It was the silver lining to a terrible week. Had the last half-hour not occurred, the market would have been down over 400 points on the week. As it was, it was “only” down a little over 300 points, from 6,932.23 Monday’s opening to Friday’s close at 6,626.94. This is net drop of 4.4% for the week as a whole. Except for one thing.

The prior week’s Friday close was 7,062.93. Given a Friday-to-Friday analysis, the week was down just shy of 436, or –6.17%.

The market had held up reasonably well for the first half of the week, cresting the 6,950 point twice in the week (Monday and Wednesday). Yet resistance collapsed on Thursday and Friday with the terrible economic news of more job losses and talks of insolvency for General Motors.

Unemployment Rate Crests 8.0%

As reported by Madlen Reed of the Associated Press, the U.S. government’s Bureau of Labor Statistics released figures that the economy has been shedding well over 600,000 jobs each month for the past quarter:

Month Job Losses Jobless %
December 2008681,0007.2%
January 2009655,0007.6%
February 2009651,0008.1%

One can read the Bureau’s report directly online. The release of the Employment Situation begins grimly:
Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent… Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors…

The number of unemployed persons increased by 851,000 to 12.5 million in February, and the unemployment rate rose to 8.1 percent. Over the past 12 months, the number of unemployed persons has increased by about 5.0 million, and the unemployment rate has risen by 3.3 percentage points.

Among the unemployed, the number of job losers and persons who completed temporary jobs increased by 716,000 to 7.7 million in February. This measure has grown by 3.8 million in the last 12 months.

The number of long-term unemployed (those jobless for 27 weeks or more) increased by 270,000 to 2.9 million in February. Over the past 12 months, the number of long-term unemployed was up by 1.6 million.
As major corporations continue to have unstaunched losses, and as Wall Street melts, the possibility is for small corporations and individuals to move into market segments to compete — if, and this is a big if — they are able to free their own capital or to raise funds from other sources, and if market conditions and regulations allow them to enter business unfettered.

Otherwise, key opportunities will pass for small businesses and individuals too, causing markets to shut down completely.

The stimulus bill, ideally, is geared to address joblessness immediately. Without a change in the current economy, joblessness will rise to well over 10-12% in the span of the next quarter or two, causing even more chaos.

Rent and Torn

While everyone is focused presently upon the home buyers fiasco, increasing unemployment can also lead to massive disruptions to renters also. Property management companies are being hit as people have to leave their present rentals as jobs dry up, or they may decide to room together to save rent, Many newly completed apartment complexes or recently purchased properties are finding they are already underwater and priced out of the present market.

The UK is seeing a rapid decline in rental values over the past year, upwards of 11.7% in areas around London, and 14.3% around Manchester, as the economy tightens and more home owners put unsold properties out for let.

New York City is likewise seeing a decline in rentals, too. Given various incentives being offered by landlords, rates have been calculated to have dropped upwards of 10-15%, as reported by the New York Times on 30 January 2009.

The word “recession” has been used so far, though the use of the term “depression” is now starting to be considered, such as by this article in the Salt Lake Tribune. We would have to reach an unemployment rate of 10% and be in this crisis for three years before it formally qualifies according to technical definitions. The old joke cited by Amity Shlaes indicates the key difference: “A recession is when you lose your job. A depression is when I lose mine.

Yet for many in the United States today, the symptoms already clearly indicate the condition. Such patients cannot afford to wait for the formal diagnosis. And for millions this is not an easy joke to laugh off.

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