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More lies and distortions: ADP index tracks only the private sector. TrimTabs claim 745,000 jobs lost in April

 
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05/06/2009 10:04 PM
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More lies and distortions: ADP index tracks only the private sector. TrimTabs claim 745,000 jobs lost in April
Ilargi: Looking at numbers can be interesting, and no more so than when they're misleading, whether that happens intentionally or not. Early in the week, we got a bit of reality through Stephanie Pomboy, courtesy of an article by Abel Abelson in Barron's, entitled Shotgun Wedding .

" ... an overwhelming portion of some $8 trillion in mortgage debt (or 80% of the total) is teetering on the edge of, or in some state of, negative equity." As to the Fed's claim that the equity of homeowners as a group stands at 43%, she points out that what the Fed neglects to tell you is that roughly a third of them have their houses free and clear. Lo and behold, some basic arithmetic reveals that 67% of homeowners with mortgages have equity of less than 15%. That [..] suggests the "destruction priced into the credit markets hardly seems out of whack with potential reality."

And while, thanks to "the transfer of toxic assets to taxpayers" and the magic of accounting legerdemain, the scarred financials to some significant extent may be spared further pain, the same, alas, can't be said for the nonfinancial sector. Little recognized, she insists, is how much the extraordinary gains in domestic nonfinancial profits from the low in 2001 to the peak in 2006 -- a stunning rise of 388% -- owed to the housing bubble. "Who in his right mind," she asks, "would believe that explosion in profits during the housing-bubble stretch a mere coincidence and, therefore, in no way subject to the same inexorable decline?"


In other words, the Fed says homeowner equity is 43%, but "forgets" to mention that for 33% of owners, equity is 100%, since they own outright. For the remaining 67% who have mortgages, average equity is no more than 15% at best.

A report from Zillow's today states that 21.8% of all homeowners are underwater. But Zillow's too, as Barry Ritholtz points out, omits the fact that a third of US homes don't have a mortgage. Hence, among those that do, 33% owe more on their property than it's worth. This affects a total of 20.4 million homes, and, if we estimate 3 inhabitants per home, 60 million Americans. In 2008, plunging values cost homeowners $2.4 trillion.

Looking out over the landscape, it seems safe to predict that at least as much will vanish in 2009. If we add to that Meredith Whitney's claim that some $2.5 trillion in consumer credit card lines will go "poof" in the night, Americans stand to lose $7.5 trillion in spending power before the year is over. That is well over half of annual GDP, which, coincidentally, relies for over 70% on that same consumer spending power. Allow me to suggest that you read that last line once again, and think it over real well.

And we can add more fun to the numbers game: job losses. Luckily, we are treated to three greatly varying sets. The widely reported ADP index says 491.000 private sector jobs were lost in April, and not surprisingly, that had the more gullible part of the "markets" up in a wet panties tizzy. Not to be outdone, Bloomberg states "... a government report on May 8 may show payrolls fell by 610,000 in April". A curious detail is that the same article says "Government employers and auto companies announced the largest cutbacks, accounting for 39 percent of the layoffs.". See, the ADP index tracks only the private sector. Now we're starting to find that governments are among the biggest pink-slippers; and while that is not unexpected, it's not exactly a promising development.

But we're not done, there's a third unemployment estimate, this one from TrimTabs Investment Research. They claim that the U.S. economy dumped 745,000 jobs in April. And while Bloomberg reports that the jobless rate probably jumped to 8.9 percent, the highest since September 1983, TrimTabs predicts 10% by summer. And remember: that's U3. The more believable U6 recently passed 16% and shows no signs of slowing down, let alone looking back. A number never addressed, but very disturbing if you ask me, and also coming from TrimTabs, is this: "... wages and salaries plunged an adjusted 5.7% year-over-year."

Anywhere between 6 and 10 million people will lose their jobs, millions will lose their homes as well, while those that can hang on lose another 10%+ of their residences’ values, and for many their monthly payments, on Alt-A and Option-ARM loans, will go through the roof. Enjoy your rally if you like, your neighbors may not.
[link to theautomaticearth.blogspot.com]





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