Jobless Claims Break 400K for First Time this Cycle

As I've been saying, all this focus on preserving the financial system from implosion is taking away attention from the other major issues - the recession. I'm sorry... "the minor, shallow, and gone in 6 months slowdown". Weekly jobless claims finally breached the level that all of Wall Street's Kool Aid drinkers cannot explain away, the magical 400K level. What does that mean for tomorrow's job report? First, the weekly job claims from this week will be reflected in April's report - second, the monthly labor report is a work of fiction so it can say whatever they want it to say. [Apr 2: The Underemployment Rate is Rising]. Weekly jobless claims is a straightforward report so there cannot be much fiction writing in this one...

• The number of new people signing up for unemployment benefits last week shot up to the highest level in more than two years, fresh evidence of the damage to a national economy clobbered by housing, credit and financial crises.
• The Labor Department reported Thursday that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29. The increase left claims at their highest point since Sept. 17, 2005, following the blows of the devastating Gulf Coast hurricanes.
• "This report supports the view that the jobs market is deteriorating toward recessionary conditions," said T.J. Marta, a fixed-income strategist at RBC Capital Markets
• The latest snapshot of labor activity was worse than economists had anticipated. They had predicted claims would be much lower, around 365,000.
• Still, looking at the longer-term trend there was little doubt of the pickup in unemployment filings. A year ago, new claims stood at 319,000.
• Meanwhile, the number of people continuing to collect unemployment benefits rose by a sharp 97,000 to 2.94 million for the week ending March 22, the most recent period for which that information is available. That was the highest since July 17, 2004.

Now remember, in Kool Aid world you explain away this number by blaming it on Easter or American Axle layoffs or whatever you wish. Funny how holidays never seem to ruin the numbers during economic expansions but are a wonderful excuse during downtimes. And once again folks, remember the #1 excuse that will be used for months on end from here will be "employment is a lagging indicator - everything will be fine in 6 months - you have to look ahead, not backward."

I did find it ironic that by the time Uncle Ben finally admitted we now have a "chance" for a recession yesterday on Capital Hill, something I've been calling for since day 1 of this blog - I was at the least short exposure in a long time. Sort of a fitting irony and shows just how behind the curve these people are.

So now we are in a tough spot - this market wants to go up *(it continues to shrug off bad news and hold up very well after a massive rally earlier this week), but we have a potential nuclear bomb in tomorrow's useless labor report. I also am in a pickle with Ultrashorts ... with all the King's Horses and Men standing ready to save the financials despite what I see as a growing degradation (after mortgages, comes autos, credit cards, student loans - a big cluster-mess) - Ultrashort Financial (SKF) becomes a bit less interesting [Mar 19: Ultrashort Financials Not as Cool as They Used to Be]. Socialism makes investing much tougher.

So I am going to add a new Ultrashort, focusing on the consumer - Ultrashort Consumer Services (SCC). I discussed this one last week [Mar 28: Ignore Government Reports on Spending: Listen to JCPenney (JCP) and DSW (DSW)] Now the problem with this one is twofold - #1 the top 2 components, McDonald's (MCD) and Walmart's (WMT), are actually companies I like in the "pooring of America" scenario and #2 as long as people believe a recovery is coming in 6 months the retailers can keep popping. But since the government is built to bail out corporations and ignore individuals, retailers probably won't be affected as much by socialism (other than an ill fated attempt to prop up the housing market or send us rebate checks) But I believe inflation, real wage losses, and unemployment will overwhelm socialistic government programs. And many retailers and restaurants, as I've long been sailing, will be doomed as we go to a "forced savings" program as Americans. If I could short individual names, I'd much prefer that (a whole host of restaurants and retailers pop to mind) but I am forced into this instrument since I can only use ETFs.

So this will be a hedge I'll start today, and with the other names something that I'll adjust up and down as the Kool Aid ebbs and flows, along with other 6 Ultrashorts. Trying to find the correct mix and thinking out what the government can prop up versus what they cannot, is my current struggle and using up a lot of my intellectual horsepower.

Again folks this is the market we are going to be facing for a long while in my opinion - reality of economic degradation on one side, socialism plus hope on the other. It is going to make for a very difficult market, in terms of guessing where the pendulum of hope/socialism swings each day/week/month. As hope/socialism (i.e. the taxpayer takes the risk!) rises, risk premiums fall - and vice versa. As I've been stating, all Wall Street cares about is their own hide, so the daily relentless focus on their coming financial bailouts, is all that matters (to them). So with the Fed backstop clearly in space the mood is now much better. But the Main Street story is what drives domestic profits for US corporations... and as profits wane in our "70% of GDP based on consumer spending" economy, so "should" stock prices. "Should" being the operative word; that would be in a free market system. In "this" system, anything can happen.

Long Ultrashort Consumer Services in fund; no personal position