Editore"s Note
Tilting at Windmills

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November 2, 2007
By: Kevin Drum

WALL STREET STILL UNHAPPY....Employment is up smartly, but Wall Street still doesn't care. Is this because of the old high employment = tight job market = wage growth = inflation = higher interest rate cretinism that infests our economic elites? Or are the problems in the credit market even worse than us little people realize? Hmmm.

Kevin Drum 11:43 AM Permalink | Trackbacks | Comments (33)

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Problems in the credit market are pretty bad, that's for sure.

Posted by: y81 on November 2, 2007 at 11:48 AM | PERMALINK

It's called manic depression.

Posted by: Speed on November 2, 2007 at 11:53 AM | PERMALINK

Or are the problems in the credit market even worse than us little people realize?

Yes. If you look at the famous graph, the summer was just the start of 4 years of pain.

Posted by: Walker on November 2, 2007 at 11:54 AM | PERMALINK

Both +

Lest we forget: the interests of the commons (us) are not equivalent to the good of the market and corporate elites. (at least in their eyes)

Posted by: Evergreen2U on November 2, 2007 at 12:03 PM | PERMALINK

it's a global conspiracy to devalue my 401k.

Posted by: cleek on November 2, 2007 at 12:03 PM | PERMALINK

Kevin, this strikes me as investors ignoring the economic reports of the day and instead comparing the overall fundamentals of the economy to equities and realizing that equities are overpriced.

Good employment numbers won't make the credit crisis, falling dollar, and housing mess disappear.

Posted by: Tyro on November 2, 2007 at 12:06 PM | PERMALINK

Credit problems are much, much worse than anyone would like to admit. Financial institutions have constructed one of the largest ponzi schemes seen in a very, very long time, and the house of cards is starting to fall. Consumer-led recession is just around the corner, and unemployment will be on the rise.

Think about it; if GDP is so great, unemployment is in check, and markets are (or at least were a few days ago) at record highs, the why is the Fed cutting interest rates? They are not idiots; they know that they have destroyed the dollar and sent commodity prices to the moon. Thus, one can only conclude that something is totally freaking them out, and that something is a financial sector on the verge of collapse.

I think by this time next, just as the election is upon us, the state of the economy will make Iraq seem trivial. The days of basing our economy on selling cheap Chinese crap to each are over.

Posted by: CKT on November 2, 2007 at 12:07 PM | PERMALINK


Kevin, I think you're missing the big picture here. Wall Street cares most about the economy getting stronger in the long term, not just the individual day to day fluctuations. Wall Street understands the dollar has fallen recently, and this is making it more expensive for American companies to hire workers in foreign countries. This has led American companies to hire more domestic workers because they're cheaper. Although this is good news for American workers now, this is not a long term solution because the dollar will start rising again eventually. So Wall Street is unhappy because it's looking for long term economic growth and not just some incidental effect of a falling dollar which will go back up soon anyway. But it's not seeing that.

Posted by: Al on November 2, 2007 at 12:11 PM | PERMALINK

Even Wall Street can not ignore what Bush has done to the budget any longer.

Weak dollar. Huge deficits. And a pathological fear of sensible tax policy.

Posted by: cazart on November 2, 2007 at 12:29 PM | PERMALINK

Considering that at current demographics, it takes between (correct me if I'm wrong) between 130- and 150,000 jobs per month just to keep people entering employment age employed, I'm not sure that a monthly increase of 166,000 can be accurately described as "up smartly." The U-6 is holding steady at 8.4. (http://www.bls.gov/news.release/empsit.t12.htm)

Posted by: batavicus on November 2, 2007 at 12:31 PM | PERMALINK

will merrill and citigroup survive? with the billions in resets still to happen, i think not....

Posted by: linda on November 2, 2007 at 12:31 PM | PERMALINK

Ah, kevin.

It's looking like the media is going to hoodwink the voters into picking a Democrat, against their own interests. Look for a new depression if a Democrat wins the white house, and the market to rebound if the voters do the sensible thing and pick Rudy, Thompson, or Huckabee.

Posted by: egbert on November 2, 2007 at 12:32 PM | PERMALINK

Al write: "just some incidental effect of a falling dollar which will go back up soon anyway"

Uh, what makes you think that? Barring a steep hike in interest rates, a steep drop in Europe and Japan, and a sensible tax policy (you're right, cazart), what would make the dollar rise apprecialy?

Posted by: batavicus on November 2, 2007 at 12:38 PM | PERMALINK

It's up sharply today.

Lord knows what it will be revised to.

Quantum indeterminacy goes to Washington.

Posted by: Davis X. Machina on November 2, 2007 at 12:43 PM | PERMALINK

Maybe there is some reversion back to reality (i.e. pre-Bush years) now that Dems are the odds on favorites to take the White House, and job numbers such as this that would have been thought to have been weak or simply not great are once again being thought of that way.

Posted by: bubba on November 2, 2007 at 12:46 PM | PERMALINK

Maybe they just realized that the Boomers that have been dumping huge piles of cash into the market in the form of IRA's and 401K's over the last twenty years are starting to retire and withdraw their money.

Posted by: AJ on November 2, 2007 at 1:06 PM | PERMALINK

I think the problems in the credit market are WAY-Y-Y worse than most people realize. One analyst is predicting Merrill Lynch will be forced to write off an additional $10 BILLION (with a “b”) dollars, over the subprime loans it invested in. Other people in the know are predicting Washington Mutual could go down over it’s losses and some are even saying Bank of America is in trouble. If B of A were to go down over this, look out! That would be far and away the biggest bank failure in American history – bigger than the entire S&L collapse of the late 1980s and early 1990s. We may be talking DEPRESSION here, folks….

Thanks, George!

Posted by: The Conservative Deflator on November 2, 2007 at 1:43 PM | PERMALINK

Apparently the world markets think that Bernanke will be completely foolish with loose money policies since the dollar is down a lot today. Stocks are only down a little at the moment.

Posted by: freelunch on November 2, 2007 at 1:47 PM | PERMALINK

If you go by the headlines only then you probably would conclude the labor market is up smartly.

For example the headline of the NY Times "Employment Report Shows 166,000 Gain in Jobs, but if you read the article you quickly find the sunny headline is what the government is touting:

Two distinctly different views of the economy emerged today in a single report: the crucial employment survey issued by the Labor Department.

The economy added 166,000 jobs in October, the fastest pace in five months, according to employers. Payrolls grew at a pace more than twice what analysts had predicted, led by a sharp increase in the service sector.

But a survey of consumers showed that fewer Americans were employed last month over all. The labor force shrank by 211,000 jobs, and 465,000 Americans said they were no longer working.

http://www.nytimes.com/2007/11/02/business/02cnd-econ.html?_r=1&hp&oref=slogin Posted by: Catch22 on November 2, 2007 at 1:49 PM | PERMALINK

Yes - the payroll survey says employment grew but over at the household survey, we saw another decline in the employment to population ratio. I'm not buying this tight labor market thing at all.

Posted by: pgl on November 2, 2007 at 1:53 PM | PERMALINK

Catch22, pgl, the payroll survey and the household survey often diverge substantially. Sometimes one is better, sometimes the other. It isn't something cooked up by Diebold. In fact, if memory serves, during 2004, when Kevin Drum complained regularly about the "jobless recovery," the household survey was showing much better numbers than the payroll survey.

Anyway, the market is back up, so maybe my concerns about the credit market are overblown.

Posted by: y81 on November 2, 2007 at 1:59 PM | PERMALINK

Sinking Currency, Sinking Country


Posted by: Luther on November 2, 2007 at 2:05 PM | PERMALINK

You dont have to hatch conspiracies to see that the data just isnt that great.

"Catch22, pgl, the payroll survey and the household survey often diverge substantially. Sometimes one is better, sometimes the other. It isn't something cooked up by Diebold."

I didnt say they never diverge or even remotely implied that this was something "cooked up by Diebold."

The point is that the data is not particularly supportive of drawing the conclusion that employment is up smartly. Even if you ignore completely the consumer survey for a moment, 166,000 jobs in the big scheme of things is not particularly great. The fact that it may be the best in 5 months says more about the past 5 months being poor more than anything else.

Just because jobs growth is better than was expected does not mean that job growth was good. While estimates vary 166,000 in a month may be less than necessary to keep up with population growth.

Posted by: Catch22 on November 2, 2007 at 2:46 PM | PERMALINK

it's a global conspiracy to devalue my 401k.

Close. It's a Wall Street conspiracy to suck the wealth out of the middle-class and transfer it to the already rich.

Posted by: Jenna's Bush on November 2, 2007 at 4:42 PM | PERMALINK

In case Catch22 wants some backup. According to Dean Baker at the CEPR, the employed-to-population ratio fell to 62.5%. The ratio dropped for those aged between 35 and 44.

Posted by: batavicus on November 2, 2007 at 4:59 PM | PERMALINK

Catch22, you are correct that the data isn't that great (and the employment data in particular gets hugely revised month-to-month), but the flip side is that you can't use the data to bash anyone either, and especially you can't pick and choose between the two surveys for that purpose. A rule which hasn't been observed very scrupulously around here.

brojo, that seems a little overwrought, but you are free to short Merrill and Goldman stock and, if you are right, you will never have to work again.

Posted by: y81 on November 2, 2007 at 5:00 PM | PERMALINK

al: I think you're missing the big picture here.


when al writes about iraq..

you have to focus on for example...small things like the october one month death toll...

and ignore the big picture..

how's that flip flopping working out?

Posted by: mr. irony on November 2, 2007 at 5:21 PM | PERMALINK

Stan O'Neal didn't make an unauthorized trip over to Wachovia to explore a merger because he saw a bright future ahead for Merrill Lynch. It will be interesting as events unfold to see how bad the troubles at Merrill, Citigroup & Co. really are. By November 2008, Iraq/Iran, the price of oil and healthcare may not be the only major issues on the public's mind.

Posted by: Lyle on November 2, 2007 at 6:37 PM | PERMALINK

So, who's ready to invest MORE money in the market?

Isn't it more likely that anybody who stays in the markets now is just risking everything?

Mortgage owners are deflating.
Boomers are retiring and the Street will want to get their money before they can extract it.
Bush is president.
Oil is going crazy.

What's to invest in...safely?

Posted by: MarkH on November 2, 2007 at 7:45 PM | PERMALINK

It's that rigged scale and fun house mirror again you guys.

"Hidden US unemployment was 16.2 million or 10.3% of the labor force. They included 4.3 million who had part-time jobs because they could not find full-time employment and 4.8 million who wanted jobs but were not counted in official statistics because they were not looking, of whom about 1.4 million searched for work during the prior 12 months and were available for work during the reference week.

In addition, millions more were working full-time, year-around, yet earned less than the official poverty level for a family of four. In 2005, the latest year for which data were available, that number was 17.0 million, 16.2% of full-time workers. In June 2007, the latest month available, the number of job openings was only 4.3 million, nearly four job-seekers for each job opening, while corporate earnings continued to rise from job outsourcing and financial manipulation such as share buybacks made possible by a liquidity boom. "

"As with their flawed attitude toward risk, the authorities in charge of regulating financial markets and the US economy apparently think that inflation-fighting structural unemployment spread over the whole economic system is not damaging to the economy as long as the resultant profit is privatized and concentrated on a preferred selection of financial institutions, even if the privatized profit is achieved by externalizing the cost of risk to the entire financial system through structured finance. Free-market capitalists obviously think that socializing risk or unemployment is not dreaded evil socialism, only socializing profit is. "
- Either way, it could be an unkind cut _ By Henry C K Liu

Posted by: MsNThrope on November 3, 2007 at 12:33 PM | PERMALINK


No one thing is ever a safe investment. That's why "diversify" is aways the best advice.

Maybe a boomer money extractor is your best bet. How does that work anyway; do you hold them upside down and shake?

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