Is the Recession Over?

April unemployment showed the U.S. losing 539,000 jobs, versus the 600,000 estimate, bringing the unemployment rate to 8.9%. U4, the unemployment rate that includes those that have stopped looking for work and those that are working just part time, now stands at 16%.

8.9% is the worst number in over 25 years, and the only good news is that the rate of decline in unemployment is declining...if only by a very small amount.

I guess its possible to spin this report into some kind of good news, but as far as I'm concerned this is just more terrible economic news. Not a day goes by that I don't see at least 5 market gurus come out and say that the recession is over, but what they don't say is exactly what the recovery is going to look like. Folks, this will not be a V shaped recovery, meaning that the economy will snap back just as quickly as it dropped. We've had those kinds of recessions in my lifetime, but this isn't going to be one of them. If we're lucky, this will be an L shaped recovery....meaning that things stop getting worse and simply stay incredibly slow for a long while. Then, after a year or two, the year over year comparisons begin to compare favorably. The alternative is a Depression, so even an L shaped recovery is good news.

I continue to forecast unemployment will break 10% this year.

Obama's multi-trillion dollar taxpayer funded bailout program will begin flooding the economy with money in the second half of the year, with even more in 2010/11, so the danger is that any recovery could be a phony one...and once the government funny money is gone we could begin seeing unemployment rise sharply once more. Then, in 2011 we could see the "real" economic hardships start. Our national debt levels will be so high that interest rates begin to skyrocket, yet the economy will be so slow that little business will be taking place.

Stagflation would lead to a repeat of the 1970's, with interest rates and inflation at 15-20%. Obviously, this means the worst could be in front of us, rather than in our rearview mirror.

MARKET UPDATE

Lots to cover, but I'll do my best to cover the most important facts. Yesterday was a traders delight. The big jump in banks gave us an opportunity to take strong profits. Then, we nailed the move into the short side and within 4 hours had another 20% gain. Folks, it rarely gets better than this. Having said that, the encouraging news from the bank stress tests, along with the positive spin they are putting on the unemployment numbers, have the futures trading higher by 80-100 points on the Dow.

Here's my take: I'm seeing something very interesting starting to happen. We rally (very briefly) on good news and then sell-off almost immediately. We've seen this exact thing happen several times this week with the ADP jobs number, retail sales, and then again after the stress test news yesterday. This is the exact opposite of the "wall of worry" move higher we've seen over the last 8 weeks and may well mean that the bear market rally is over. I will be watching this closely.

Also, beginning today, just about every large bank in the country will be announcing that they will soon issue massive numbers of new shares in order to stay in the governments good graces. This huge increase in supply cannot be good news for bank stocks. Again, I think we are most likely at a significant top, but I learned long ago that the market could care less what I think.

Kip