MONDAY, SEPTEMBER 8, 2008

UP AND DOWN WALL STREET  

A Moratorium on Optimism?

By ALAN ABELSON

Maybe it's time for a respite from knee-jerk bullishness. An election to sleep through?

IT WAS THE REPUBLICANS' TURN LAST WEEK, and they put on a nice show. In particular, we admire their casting. Not only did they choose a comely lass as their candidate for vice president, but they also contrived to keep both Mr. Bush and Mr. Cheney from appearing in the flesh.

The president was on hurricane watch, and we've not the slightest doubt that was the reason Gustav decided not to be the terror it had every intention of being when it headed for landfall. For his part, the veep was dispatched to Georgia (the one thousands of miles away in the Caucuses, not the Peachtree State) for fear that the low regard in which his fellow citizens hold him might be catching.

Which, of course, is precisely McCain's dilemma: How do you run on a promise of change when what you're promising is a change from the party whose standard you're bearing? One obvious way is by flip-flopping positions you've held, often for ages, a tack that John Kerry tried without, as we recall, notable success.

Or, it may be that, as his acceptance speech Thursday night suggests, except for being in favor of motherhood, the flag and congeniality, he might avoid taking a position, period. That may not strengthen his credentials as a maverick, but it would sure save him the angst of putting on a long face and talking about depressing subjects like unemployment, foreclosures and a limp economy.

Sarah Palin was a big hit, juicing up the assembled with a lively and combative speech. Palin seems to have all the right stuff: She's articulate, bright and, like most politicians, a mite economical with the truth. We thought the most compelling argument in her behalf was offered by Linda Lingle, Hawaii's governor, who pointed out: "You can fit more than 250 states the size of Delaware within Alaska's border."

On reflection, we're not sure whether Ms. Lingle believes there are 250 states in our proud Union and if so, would she, please, name them. Nonetheless, she has given us an intriguing new yardstick for measuring civic achievement, which may, in time, prove as memorable and useful as that venerable and more general assessment of how many angels can fit on the head of a pin.

A number of hockey moms, incidentally, have expressed their indignation at Palin's little quip about the difference between a hockey mom and a pit bull is lipstick. Nothing better illustrates the bias of our media than that it refused to deign asking the pit bull community how it feels about the analogy.

With McCain vowing to shun rancor and leave the nasty work to his knife brigade, and the fire in Obama's belly seemingly having gone out when Hillary graciously allowed herself to be dragged from contention kicking and screaming, we can all relax, lean back and enjoy what has the makings of an historically boring election.

IN ITS OVERALL REACTION to the fortnight of political histrionics, played out first in Denver and then St. Paul, the stock market appeared to be seconding the notion that together the shindigs added up to one big, noisy yawn. More likely, we suspect, the Street opted to put first things first. Time enough another day to think about the election, which, after all, is a whole two months off, when your poor portfolio seems to be disappearing into thin air right before your horrified eyes.

In particular, the GOP's shebang took a back seat for the attention of beset investors in the holiday-shortened week that proved not short enough. Thursday's vicious 345-point walloping made its bruising self felt throughout the list, sparing relatively few stocks, no matter what their sector or flavor.

The momentary rout of the bulls was all the more damaging because it came absent any easily identified provocation. There had been some unappealing economic releases, but that has been the sad story virtually every week since the start of the year. And investors were a little antsy -- and with some justification, as it turned out -- about what Friday's report on jobs would show.

But the sudden burst of mass disenchantment was rooted in a kind of exhaustion of bullishness. Investors have been worn out responding to false sightings of bottoms and have gradually and somewhat grudgingly experienced a kind of epiphany as to the true, dismal state of the stuff that drives markets higher. Stuff like corporate profits, which are shrinking rather alarmingly (and, in the process, dangerously inflating P/Es), to consumer confidence and consumer wherewithal, both of which, not unrelatedly, have been badly mauled.

And, not least, credit remains hard to come by, and not only for Joe Blow out there in the real world trying to get a mortgage, but also, as we noted a couple of weeks ago, for hedge funds and other professionally (we use that word loosely) managed pools of capital, whose scarred investors have been striving to retrieve their dough, not always, alas, successfully.

On this score, there have been a mounting number of shotgun divorces between investors and institutions, and that has prompted a torrent of liquidations by the cash-shy institutions. Which, as night follows day, inexorably adds to the swelling market pressures.

What we need more than anything, it strikes us, is not a moratorium on short selling but a moratorium on the knee-jerk optimism by those who never saw the storm coming but are unhesitatingly eager to spot its ending. If nothing else, it might help the unwary navigate the hard times and rough markets that sill lie ahead.

The long and short of it is this: For the past 10 months, the congenital bulls and those heralding the start of a sustained equity-market upswing have been wrong; the few stubborn voices warning that the end of the bear market is nowhere in sight have been right. Will that always be true? Of course not. But don't hold your breath.

THAT THE DATA ON what happened to jobs in August were more of the melancholy same was no surprise. But in ways various and possibly nefarious, the contraction in payrolls was worse than it seemed at first bluish.

By the Bureau of Labor Statistics' hopeful count, 84,000 jobs were lost last month and the unemployment rate moved remorselessly higher, to 6.1%, the highest level in five years, from July's 5.7%. Any way you look at it, that's a horrendous jump. Moreover, the most inclusive tally of those out of work, which we've long felt provides a more accurate picture, is 10.7%, up from 10.3%. When you reach double-digit joblessness you're talking serious trouble, but 6.1% and climbing is bad enough.

Then we get to our favorite bug-a-boo, the so-called birth/death model, which attempts to capture the jobs created and lost by new firms not included in the regular survey. According to the BLS, 125,000 jobs were added via this fictional count. Try paying for a tank of gas at your friendly neighborhood station with a paycheck from one of those mythical jobs -- like the 16,000 supposedly added in construction or the 9,000 in good old finance -- but make sure you smile when you do it.

As Philippa Dunne and Doug Henwood, the perceptive pair who run the invariably rewarding Liscio Report, note, there were tangible upward revisions of jobs lost in the previous two months weighing in at a combined 58,000. Since the December peak of employment for the cycle, a cool 605,000 jobs have been eliminated, or an average 76,000 a month. Worse still, the private sector, over the same stretch, shed 758,000 jobs, which averages out to 95,000 a month.

Those, we might remind you, are the BLS' figures, palpably reduced courtesy of the birth/death absurdity. As Philippa and Doug observe, while the numbers are mild compared to earlier recessions "we've never seen eight consecutive months of job loss outside recessions." And they add, no doubt with a sly glance at the recession refuseniks, "There seems to be no reason to hesitate about using that word anymore."

Dotting the report here and there were some bright spots (there always are, we guess). Most noteworthy was the August rise in average hourly earnings of 0.4%. But even here, Philippa and Doug caution, the rise was 2%-plus behind the rate of inflation, which means, we might interject, that workers were earning more but conceivably enjoying it less. By contrast, a year ago, wages were running more than 2% ahead of inflation.

Turning to the household numbers, one finds that some 342,00 jobs vanished in August. Used to be that the household numbers were consistently more upbeat than the payroll totals and the economic cheerleaders pounced on them as the real McCoy. More recently, as in August, such tallies often have been steeply negative and, for some reason, those same cheerleaders tend to neglect them.

The Liscio duo conclude on a somber note. They cite such tell-tale indicators as the trend in temp and retail hiring and the workweek as portending further woe on the jobs front in the months to come. And they venture, "With the unemployment rate rising so sharply, there's almost no chance the Fed will be tightening anytime soon, especially with oil off $40 from its peak." The only question, they contend, is whether the downdraft will accelerate or continue eroding slowly.

In other words, how do you prefer your poison, straight or slow?


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