I have been away for the last two weeks. I was travelling in California and got to meet some fascinating (and extremely friendly) people there. There were a few things that caught my eye during my travel, first of it being the high unemployment rate in the region and the wealth distribution in the richer areas (such as L.A and San Franciso). I noticed a lot of homeless people in San Franciso, which is a bit odd since it is a bustling city with somewhat higher wages than the rest of the country. I deduced from a discussion with my taxi driver (yes, I talk to people as well, as compared to just looking at charts and graphs!) that he loved San Franciso because he was getting paid so much more even with higher than average expenses.
Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC: distressed banks, weaker currency, monetary and quantitative easing, however with broken credit channels, asset inflation, we expect to see 60% chance of recession.
From Yahoo!’s Daily Ticker Aaron Task interview Jeremy Siegal (Professor at Wharton School of Business), he is expecting a 25% chance of recession. See here
The numbers for August are rosy (for now). There was plenty of bad news in August, and fears of recession and job uncertainty. However the sad part is that the households kept shopping in August and the revenue amongst the biggest 26 retailers jumped by 4.6% (for stores that were open for more than a year). However we still need to know how much was it due to inflation, and how much was organic revenue growth. The reason we look for consumer spending is that it is the driving force behind the U.S economy, i.e 70% of the U.S economy. But we have yet to decipher the underlying factors for the increase in revenues for these stores. It may be that the consumers have been spending what they have been saving for the last 6 months (the average U.S household debt has been on the decline for the last 6 months).
The job numbers are coming in tomorrow morning (Friday, September 2nd). The market expects 93,000 jobs to be created in August, which will not be sufficient to bring the unemployment down, but still better than what we had earlier in June (expectation of 118,000, actual 52,000).
Fewer people applied for unemployment benefits last week. The market has been short-sighted and it is looking for any positive number. Media outlets have emphasized this statistic of unemployment benefits, however one week is not sufficient, given that the unemployment benefits have been extended to 99 weeks.
It is inevitable that Quantitative easing part III will be soon on our way. Lets see what plays are played tomorrow morning. A few stock to watch for would be Citibank (C), Wells Fargo (WFC), Bank of America (BAC) and Goldman Sachs (GS). These banks will probably will be leading dowards in early morning trading tomorrow, breaking off the gains they have had in the last 4 sessions.