Unemployment Rate Climbs to 5.5% largest Jump since 1986/Oil Exploding up $6 to $134/Barrel

A warning to everyone this morning. Today could be a deep red day. Oil is surging up over $6 to $134/barrel and is up over $10 in two days. Folks, you aren't supposed to see moves like this in oil. The oil pits are in an absolute panic this morning. Morgan Stanley predicts oil could get to $150/barrel by the end of the month which means $5 a gallon gas!!

The word is China is splurging on oil in reaction to the earthquakes and getting ready for the Olympics. A combination of a weak dollar, higher demand, and our horrific jobs report has created the perfect storm for oil today. Its an absolute frenzy in the oil pits as I watch CNBC right now.

Stocks are already down 150 points on the DOW in the first 15 minutes of trading.

Unemployment Report

This is what got the hysteria started today. We had the largest monthly jump in the unemployment rate since 1986 as it jumped from 5% upto 5.5%. Percentage wise(10%) you need to go back to the 1070's to see any type of jump in unemployment like this. Here is the unemployment news from Bloomberg:

"June 6 (Bloomberg) -- The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades, signaling that the world's largest economy is stalling.
Payrolls fell by 49,000 after a 28,000 drop in April, the Labor Department said today in Washington. The jobless rate increased by half a point to 5.5 percent, higher than every forecast in a Bloomberg News survey, as an influx of teenagers into the workforce exceeded jobs available.

Employers are cutting back to protect profits as raw- material costs soar and sales slow. A weaker job market is another blow to Americans hit by falling home values, scarcer credit and higher fuel bills, adding to the risk that the longest consumer-spending expansion on record will come to an end.

``The labor market is still deteriorating,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The story is, we're still on the verge of a recession'' and ``at best, the economy is growing very, very slowly.''

``We've never seen a run of negative payroll numbers like this without the economy being in a recession,'' Avery Shenfeld, senior economist at CIBC World Markets in Toronto, said before the report. ``We are in a mild recession. We expect to see a few months of declines that are worse than this.''


My Take:

My what a difference a day makes. Yesterday you would have thought we were getting ready to enter a new bull market. Today it seems as if all hell has broken loose. A half point jump in unemployment is a HUGE move.

The GDP may statistically say we are not in a recession. I bet Americans beg to differ. Most feel like they are already in one. CNBC reported that almost 800,000 people lost their jobs last month.

This tells me that the the GDP number is either a lagging indicator, or it is a huge disconnect between how well corporate America and Wall St. is doing versus the average American. Corporate America and Wall St. have a massive tailwind as the Fed slashes rates helping profits.

The lower rates unfortunately are a huge headwind for the rest of us. It causes inflation and wealth destruction. Ironically, what helps Wall St. now will end up killing them down the road because the consumer is going to die from this combination of inflation and unemployment. This will end up pushing us into a recession.

When the average American can't find work it will result in a drop in the GDP because they will be forced to stop spending. Like the analyst above described. You never see a jump in the unemployment rate like this without the economy being in a recession.

The stimulus checks may skew GDP over the next couple months but that effect will be short lived. The way oil is heading that $600 may only buy you a few tanks of gas and dinner at a restaurant. One month and that check goes POOF!

National City Bank

This news didn't help the financials this moring:

"June 6 (Bloomberg) -- National City Corp.'s banking operations entered into a confidential ``memorandum of understanding'' with U.S. regulators, in essence putting the bank on probation, the Wall Street Journal said.

The agreement with the Office of the Comptroller of the Currency, came within the last month or so, the newspaper said. Under such agreements, banks get the ability to work with regulators
to solve problems without panicking depositors, the Journal said.

National City has been drastically reducing its mortgage and home-equity lending, cutting its staff by hundreds, the newspaper said."


Quick Take:

This bank almost went under a few months ago before securing last minute financing. It looks like the regulators are trying to sweep this under the rug without creating a bank run. I would love to read that "memorandum of understanding". It probably look like a death certificate.

This sounds like another bailout but we will have to see.

Bottom Line:

More cracks are starting to show in the economy. We are now down 200 points since I started writing this post. Put on a helmet and hold on for dear life. Its going to be a wild ride today.