Tepid Markets and More Bad News
By Frank Barbera CMT. January 27, 2009
Over the last few weeks, it has been hard if not impossible to avoid seeing and hearing indications of the nation's worsening economic plight. Without question, the nation's plunge into the economic abyss continues unchecked as many people are now deeply concerned about what the future holds. America, it seems, has reached a point where many long overdue chickens are unfortunately now coming home to roost. With a dearth of national savings, and far too much debt of all shapes and sizes, the economic carnage continues to mount on an almost daily basis.
On Monday, January 26th, a day dubbed “Bloody Monday,” over 50,000 job cuts were announced by seven major companies, including Caterpillar cutting 20,000 jobs, over 8,000 at Pfizer (10% of workforce), Sprint-Nextel cutting over 8,000 jobs, Home Depot 7,000 jobs, ING over 7,000 jobs, Texas Instruments cutting 3,400 employees, and Deere reducing 700 jobs. A few days earlier, Microsoft announced its first job layoffs ever with over 5,000 job cuts at its Redmond, Washington corporate headquarters.
Since just the start of 2009, over 200,000 job cuts have been announced, with nearly 2.6 million jobs lost in 2008. For the US, that single year job loss is the highest total seen since 1945. Since election day in November 2008, over 500,000 jobs have been cut (see complete listing at end of this article). In total, more then 11 million Americans are now unemployed with nearly 21 million in a less than desireable situation. Breaking down the numbers, 11 million are out of work, another 1.90 million are not counted as unemployed because they haven’t looked for work in the last four weeks, and more then 8 million are under-employed, meaning they are working part-time, but are seeking full time work. As a result, with the official unemployment rate now at 7.2%, adding in those not seeking work but nevertheless unemployed, and those under-employed, we arrive at a final unemployment/underemployment ratio of 13.40%. Call it the new misery index as for many families, it is nearly impossible to survive in today’s world of high prices, with the wages paid from part time work. As can be seen by the long term chart of All US Civilians Unemployed for 15 weeks or more, the angle of ascent in the unemployment series is now consistent with the most severe economic contractions seen in the last several decades.
Above: chart courtesy of economagic.com
Elsewhere, on the Housing front, Tuesday was the S&P release of the latest figures for the Case-Shiller 20 city home index, which fell 2.2% in the latest period, and a record 18.20% in the past 12 months. According to Case-Shiller, home prices are now down 25% from the peak in mid-2006, with prices in Pheonix, Arizona down 33%, 32% in Las Vegas and 31% in San Francisco representing some of the areas hardest hit. According to CBS Marketwatch and High Frequency Economics, housing wealth is now falling by $380 billion per month, or about $370 per adult per week. In our work, we often monitor the trend in Median Home prices as a directional indicator for the overall housing market, which was dropped a further 7% in the last few months since we last updated the chart. In my view, it is still quite clear that a great deal of further downside movement is likely in the median home price with our downside target of $162,500 still in effect. Over the last few months, median home prices have cracked the Double Top on the chart to the downside, decisively breaking the key $220,000 mark. From here, a trip to the 10 year lower band is likely to play out with a more important bottom potentially seen toward the middle of 2010. For home prices, 2009 is actually likely to be a bigger decline than the sell off seen in 2008, with much of the high end communities rolling over. That’s the message we see in the data where MACD on Median Home prices is making new generational lows. That speaks to building downside momentum, and a further collapse in home prices in the year ahead. Between now and year-end 2009, I believe the Median Home price will break down below $190,000 dollars with the recent low in October 2008 at $214,500 dollars.
Above: US Median Home prices monthly 1963 to present with 10 year bands.
Above: close up view, US Median Home price with long term bands and moving average (upper clip), and Moving Average Convergence-Divergence gauge (MACD) bottom clip.
In light of all this negative news, it was not surprising to see today that Consumer Confidence fell in January to a historic new low, with the overall Conference Board gauge at 37.70, down from 38.60 in December. As can be seen in the chart below, the index is now well below the +70 reading which we use to define a US recession. For what its worth, using just this gauge of recession, the recession would have started around March 2008, which is a bit later the NBER start date of October 2007. Within the sub-components of Consumer Confidence, this month's reading on Forward Expectations fell to 43.00 from 44.20, while Present Situation also fell from 30.20 to a reading of 29.90. While the Ratio of Forward Expectations to Present Situation actually declined slightly from 1.463 to 1.438, the overall trend of the ratio remains strongly up and is above the moving average indicating a recession remains in force. Within these gauges, the next few months will be important to focus on the Forward Expectations component as that is always the first indicator to show an improvement and provide some advance warning on when today’s sad state of affairs may begin to relent.
Above: the Headline gauge from the Conference Board measuring US Consumer Confidence
Above: top clip, US Present Situation, Middle: Forward Expectations and lower: Ratio of Forward Expectations to Present Situation.
While on the subject of sentiment, we see a number of conflicting signals at work in the markets right now. This suggests it is a good time for traders to go slow and really wait for patterns to set up. In the stock market I note that while prices have managed to bounce a bit off the recent lows, over the same period of time the Volatility Index has declined rather substantially. Over the last five days, the S&P has bounced off a low of 804.47 and moved up to the area near 845.71. That’s about a 29% retracement of the preceding decline which totaled approximately 140 S&P points. At the same time, the VIX Index has moved down from a high of 56.25 on 1/20 to a low today of 40.57. Considering that the 1/6/09 low was at 38.52, we see that VIX has retraced nearly the entire advance indicating an abrupt drop off in the level of fear. Unfortunately, this kind of outcome is usually not a good sign where bear markets are concerned. It suggests a certain level of rising ‘apathy,’ and that can be an indicator that a further decline still lay ahead.
At the same time, in looking at the price action of some of the largest US Financials, a tentative bullish case could be made that a number of these stocks are deeply oversold. For the XLF, which is a Financial ETF, there is strong near term resistance at $9.40. It remains very possible that prices could in the very near term retest the prior lows, or make token new lows. Still, the Obama Administration appears to be talking up the idea of an ‘aggregator bank’ which could eventually lift the toxic bad debts off the books of the zombie banks. While that might be months down the road before becoming reality, a trading rally ‘on the news’ for the financials would not be too great a surprise but should be attempted only by those with a strong stomach and a lot of time to keep a close watch on prices during the day. Where trading the financials is involved, stops in this climate are a must.
Other cross-currents we have noted are the robust move up in Gold, which thus far, has not been remotely confirmed by either the Aussie Dollar or the Canadian Dollar, both of which are miles below their equivalent September highs. Does this mean that gold is breaking away from the pack and becoming a bonafide ‘safe haven play’ once again? Or does is mean that their gold is vulnerable given what appears to be strong deflationary pressures still present in the charts of the resource currencies? As a result, we see a global economy that continues to sink and investment markets that at the present time are best suited for ‘hit and run’ trading as the near term trends for most markets are now very flat. Against this larger backdrop, we would theorize that any drop off in volatility is likely to be a short-term affair, and only a temporary lull in the action.
At the close, the DJIA ended up 58.70 index points at a reading of 8174.73, with the S&P 500 up 9.14 at 845.71. NASDAQ was strong today gaining 1.13% to end with a gain of 16.84 index points at 1506.30. The 10 Year Bond yield fell to 2.52%, down 11 basis points, while Gold also fell ending the day at $897, down $11.00 per ounce. That’s all for now.
From Bloomberg Business News and Challenger, Gray & Christmas Inc
U.S. Companies Cut 519,895 Jobs Since Election
Jan. 27 (Bloomberg) -- U.S. companies have announced more than 519,895 job cuts since the Election Day victory by Barack Obama, who has proposed a plan to create as many as 4 million jobs to boost the economy. Following is a list of dismissals announced since Nov. 1, based on information compiled by Bloomberg News and Challenger, Gray & Christmas, the Chicago-based executive search firm. Only companies with 500 or more job cuts are included in the table.
DATE COMPANY CUTS
==============================================================
Nov-08 Citigroup 75,000# Dec-08 Merrill Lynch (Bank of America Merger) 35,000
Jan-09 Circuit City 34,000
Jan-09 Caterpillar 20,000
Jan-09 Pfizer 19,000
Nov-08 Lehman Brothers 16,000
Dec-08 KB Toys 15,000
Nov-08 DHL Express 14,900
Jan-09 Alcoa 13,500
Dec-08 AT&T 12,000
Dec-08 Dow Chemical Co. (contractors & full time) 11,000
Jan-09 General Electric (GE Capital) 11,000*
Dec-08 JPMorgan Chase (Washington Mutual) 9,200
Jan-09 Sprint/Nextel 8,000
Nov-08 Circuit City Stores 7,305
Jan-09 Home Depot 7,000
Nov-08 Sun Microsystems 6,000
Jan-09 Eaton 5,200
Jan-09 Intel 5,000
Jan-09 Microsoft 5,000
Jan-09 Schlumberger 5,000
Dec-08 Federal-Mogul 4,600
Jan-09 Boeing 4,500
Nov-08 ArvinMeritor 4,000
Jan-09 Hertz 4,000
Jan-09 Motorola 4,000
Dec-08 Wyndham Hotel Group 4,000
Jan-09 Avery Dennison 3,600@
Jan-09 Corning 3,500
Dec-08 Omnicom Group 3,500
Dec-08 United States Steel 3,500
Dec-08 Bristol-Myers Squibb Co (wound-care unit) 3,400
Jan-09 Texas Instruments 3,400
Jan-09 Xerox 3,400
Nov-08 Pepsi Bottling Group 3,150
Dec-08 Ryder Systems 3,100
Nov-08 Lehman Brothers (Barclays) 3,000
Nov-08 First American 2,950
Jan-09 IBM 2,800
Dec-08 DuPont 2,500
Dec-08 Tyco Electronics 2,500
Dec-08 Western Digital 2,500
Jan-09 EMC 2,400
Nov-08 Freescale Semiconductor 2,400
Dec-08 Avis Budget Group 2,200
Jan-09 Cooper Industries 2,200
Dec-08 Newell Rubbermaid 2,200
Dec-08 Office Depot 2,200
Jan-09 Textron 2,200
Jan-09 Freightliner 2,100
Jan-09 Cessna Aircraft 2,000
Jan-09 Delta 2,000
Dec-08 General Motors 2,000
Nov-08 General Motors (salaried workers) 2,000
Jan-09 MeadWestvaco 2,000
Dec-08 Stanley Works 2,000
Dec-08 Viasystems Group 2,000
Dec-08 Air Transport Services Group (ABX Freight Unit) 1,900
Jan-09 Bank of America 1,900
Jan-09 Clear Channel Communications 1,850
Dec-08 3M 1,800
Nov-08 Applied Materials 1,800
Nov-08 Bank of New York Mellon 1,800
Dec-08 Belden 1,800
Dec-08 State Street 1,800
Dec-08 Danaher 1,700
Nov-08 Fidelity National Investments 1,600
Dec-08 Pentair 1,600
Nov-08 Washington Mutual (Pleasanton Campus) 1,600
Jan-09 Freeport-McMoran 1,550
Jan-09 Baker Hughes 1,500
Dec-08 Kemet 1,500
Dec-08 ON Semiconductor 1,500
Jan-09 WellPoint 1,500
Dec-08 Con-Way 1,450
Dec-08 Cooper Tire & Rubber 1,400
Dec-08 Furniture Brands International 1,400
Dec-08 InBev (Anheuser-Busch) 1,400
Jan-09 Williams-Sonoma 1,400
Dec-08 Air Products & Chemicals 1,300
Jan-09 ConocoPhillips 1,300
Nov-08 Morgan Stanley 1,300
Dec-08 Unisys 1,300
Nov-08 Fidelity Investments 1,288
Nov-08 ArvinMeritor (hourly & salaried) 1,250
Jan-09 Compass Bank 1,200
Jan-09 Kennametal 1,200
Jan-09 Huntsman 1,175
Dec-08 Hutchinson Technology 1,125
Jan-09 Advanced Micro Devices 1,100
Dec-08 Fairchild Semiconductor 1,100
Jan-09 Harley-Davidson 1,100
Nov-08 HSBC North America Holdings (Investment Bank) 1,100
Jan-09 Rio Tinto Alcan 1,100
Jan-09 Saks 1,100
Dec-08 Aetna 1,000
Dec-08 Alcatel-Lucent (management jobs) 1,000
Jan-09 Alltel 1,000
Jan-09 Ashland 1,000
Jan-09 Bose 1,000
Jan-09 Ecolab 1,000
Jan-09 Electronic Arts 1,000
Dec-08 Electronic Arts 1,000
Dec-08 Genworth Financial 1,000
Nov-08 GlaxoSmithKline (US sales) 1,000
Nov-08 Mattel 1,000
Nov-08 Neptune Orient Lines 1,000
Dec-08 Sovereign Bancorp 1,000
Jan-09 UAL Corp (United Airlines) 1,000
Jan-09 Walgreens 1,000
Nov-08 USG 900
Nov-08 La-Z-Boy 850
Dec-08 Viacom 850
Jan-09 Barnes Group 800
Jan-09 Cummins 800
Jan-09 Suntech Power 800
Jan-09 Time Warner (Warner Bros.) 800
Dec-08 Sonoco Products 700
Jan-09 Deere 692
Dec-08 U.S. Steel 677
Nov-08 Lam Research 600
Jan-09 Seagate 600
Dec-08 Principal Financial 550
Jan-09 Bridgestone 543
Jan-09 Lincoln National 540
Dec-08 Agilent Tech 500
Nov-08 Hartford Financial Services 500
Dec-08 Las Vegas Sands 500
================================================================
Total 519,895
================================================================
Source: Challenger, Gray & Christmas, Inc. and Bloomberg
# -- Combined total for the year.
* -- May cut 7,500-11,000 this year.
@ -- Estimated 10 percent of workforce.
Frank Barbera
© 2009 Frank Barbera
Contact Information
Frank Barbera CMT
Editor, Gold Stock Technician
PO Box 48072
Los Angeles, CA 90048
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