Blogs & Comment

Market efficient or bewildered?

The stock market is rallying through bad news in typical bottoming fashion but these are off-the-chart times and one wonders if the market could be underestimating just how bad things can get. That thought comes to mind after reading a Jan. 7 news release from TrimTabs Investment Research (which uses income-tax withholdings from payrolls to estimate changes in U.S. employment — often in advance of government data). The release begins with:
TrimTabs Investment Research said today that it estimated the U.S. economy lost 683,000 jobs in December, the biggest monthly job loss in its records since 1970 .
The economy shed 2.3 million jobs in 2008, the biggest annual job loss since 1980, said Charles Biderman, CEO of TrimTabs. The economy could lose one to two million more jobs in the next several months because all the major indicators we track show the economy is deteriorating further.
TrimTabs said the recent decline in withholding taxes was due to layoffs, reduced holiday hiring, lower bonuses, wage furloughs, forced holidays, and temporary plant closings. Withholdings are plummeting, online job postings are in a free fall, and unemployment claims are steadily rising, said Mr. Biderman. Investors loading up on stocks in the belief that the economy will rebound quickly are going to wish they had kept their powder dry.
True, a massive policy response is on the way. But, typically, there are lags before policy measures have an impact. And this time around, as TrimTabsand other data sources suggest, a massive negative multiplier has been unleashed, the likes of which has rarely if ever — been seen since the 1930s. The dynamic of layoffs fueling layoffs — of contraction feeding on itself in general — has reached epic proportions; there would seem to be a risk that it may take longer than expected to reverse.