Interesting day today eh? Stocks plunged as the jobs report came in much higher than expected. Unemployment rose to 9.5% as we lost another 467,000 jobs. Unemployment has basically doubled in the span of only one year.
Folks, I don't know how else to say this: The economy is collapsing at an unprecedented rate. I expect to see the unemployment rate at over 10% by the end of the summer. If you recall, the Fed's worse case scenario when they ran the stress tests on the banks was a 10.3% unemployment rate. I think we will easily be there by the fall. Perhaps this should have been their best case scenario? Idiots!
David Tice was just interviewed on Bloomberg. He predicts that unemployment will peak at somewhere between 12-15%. He also predicted that the US will enter into a depression. Yikes!
Nassim Taleb was on CNBC this morning talking about the failure of the financial system.
Taleb believes that between $40-70 TRILLION in debt must be cleared from the system in order ro recover.
He basically predicts that the system will fail because it has become too big and fragile. Like Fergusun said yesterday, he thinks that the Fed's solution to this debt problem is doomed.
Taleb and everyone else KNOWS that Bernanke's continued attempt to pump up the price of assets is not the solution and will result in a horrific failure. Nassim says Bernanke must accept and allow the inevitable deleveraging process of the financial system back down to what he calls "an equilibrium".
Ben will go down as a complete failure when the history books are written IMO.
Debt Debt Debt!
In my view, almost all of the great thinkers that don't have a personal incentive to keep stocks propped up have all come to the same conclusion. Our debt burden will prevent any recovery until its cleared!
Sadly, the government currently refuses to clear most of the the debt thats clogging the system. Until they are willing to do so, this financial crisis will continue to worsen. The problem is I believe the Fed has isn't confident that our fragile financial system can survive a massive debt default.
I am beginning to fear that our financial system WILL fail no matter which way we exit this crisis. Perhaps we need to start working on creating a new system that will never allow this to happen again. We need a system that controls risk, has full transparency, and strong fundamental regulation.
We currently see none of this in our current system. Our system is currently filled with thieves, zero transparency, and companies that are deemed "too big to fail".
If we don't change what we are doing, we are risking a catastrophe that could take several generations to fix.
Take a look at the forecasted debt to GDP ratio's if we continue on this path:
Ok, lets put this in perspective: Basically most of the ratings agencies declare a country bankrupt if their debt to GDP ratio hits 100%. The last time we hit these levels was after the massive run up in debt that was needed to fund WWII.
The chart above is conservative. Some believe that we may hit 100% of GDP within 5 or 10 years. Once this happens you can kiss our currency goodbye because no one will believe that we will ever pay be able this debt back at that point.
The real concern is a generation or two from now when the cost of health care and social security really start to ramp up to ridiculously unaffordable levels. The cost of supporting the retiring baby boomers is absolutely staggering, and it will haunt us for decades if we don't do something to fix it.
This model is totally UNSUSTAINABLE! We cannot survive as a country economically with 600% debt to GDP.
I think the jobs number today was a sobering wake up call for the bulls. We failed to see any follow through on last months promising improvement. The positive economic data seen in the past few months was nothing but a head fake. After a crash like we saw in Q4 '08 and Q1 of '09 we were bound to see some improvement in some areas. Nothing goes straight down.
The market was open an extra 15 minutes today due to technical glitches which was very bizarre. Stocks continued to sell off during this time.
Mole over at the Evil Speculator and others are much better sources for TA but let me give you my quick little take.
We firmly broke through 900 on the S&P. The next level of strong resistance is 880. I wouldn't be surprised to see us head down and test this. We closed at 896 today and sold off to 891 after hours.
If this doesn't hold things will get very interesting.
I have been getting more more bearish by the day the past two weeks as we continued to wander around in the low 900's. Today's break through could be significant. The bulls appear to now be on the defensive. Let's see if they decide to sell this rally and take profits.
If they do, things could turn real ugly fast.