Is today the worst day of the recession? A lot of people seem to think so.
I’ll get into that in a moment, in an otherwise light trading day for technology stocks. I think we’re seeing a run out of tech this week and into more stable companies, especially in the consumer staples marketplace.
Watching CNBC this morning I saw Grant Tinker, global portfolio manager at Axa Framlington Gemini, talking about the flight to stability. "Buy great companies at fair prices, instead of fair companies at great prices," Tinker said. He thinks that the U.S. 'nifty fifty' is a good place to invest, with household names like Johnson & Johnson, Wal-Mart, Colgate-Palmolive, and McDonald's. It’s all about protecting your money from further losses. Said Tinker; “They won't be the leaders in a bear-market rally, but they will be the leaders in a new bull market.”
Back to the recession. With 533,000 jobs lost in the past month, CNBC was once again the place to be – if you want to get a grip on what the horrific jobs number means to the economy. Strangely, the market seemed pretty passive about the jobs number, only off about 100 points in mid-day trading. Most experts on CNBC seem to think that the number represented the bottom of the recession, with some calling it the worst day of the recession, adding that we can only go up from here.
• “This is history,” says economist Ram Bhagavatula. “December payrolls will be weak as well. The leading indicators will come from a slow re-activation of the credit markets and increases in consumer spending. You should begin to see that in the next couple of months.”
• "Every recession has its worst day, and this is probably the worst day," added Chris Rupkey of Bank of Tokyo-Mitsubishi.
• "The job number is a unique number because it reflects an unprecedented economic situation, which began with the bankruptcy of Lehman on Sept 15, “ says Federal Reserve analyst David Jones, of DMJ advisors. “The economy has never been shut down as quicly as it was following that bankruptcy. The economic response to that cut off in credit is unprecedented.” Jones points out that the last time we saw a jobs number that bad was in 1974, when the economy shed 600,000 jobs in one month. But that was the lowpoint during that recession – job losses were nowhere near as bad after that.
• “Severe drops like this (the Sept.-Nov payrolls ) cannot be sustained,” says Robert Brusca, chief economist at Fact & Opinion Economics. “It suggests we are getting so weak there will be a turnaround."
• “There's now starting to be some visibility about how this might end.” Says David Resler, chief economist at Nomura International. Resler adds that sinking gasoline prices, lower interest rates, and a pickup in housing sales, along with a probable stimulus package from Washington in January could give the economy a nice bounce in 2009.
I’ve said all along that this financial mess was grounded in the declining housing market, the one appreciable asset and subsequent piggy bank for so many homeowners over the past few years – until prices started dropping, of course. So when the U.S. Treasury announced that it would buy up 600,000 in mortgage-backed securities, interest rates fell, and the mortgage market picked up speed again. That’s the kind of momentum we’ll need to get the economy moving again.
Having said that, I like the theory that the worst jobs number in 35 years represents a bottom. We’ll know for sure next month. If job losses look better, then we should know we’re on our way back from the brink.