<p>Interesting read from California Housing Forecast....</p>
<a href="http://www.californiahousingforecast.com/in-the-news/roubini-stock-market-a-suckers-rally.html">Roubini: Stock market a "sucker's rally"</a>
Posted on Wednesday, October 3, 2007 at 07:53AM by <a title="Registered Commenter" href="http://www.californiahousingforecast.com/display/ShowAuthorProfile?registeredAuthorId=115168&rootReturnUrl=http%3A%2F%2Fwww.californiahousingforecast.com%2Fin-the-news%2Froubini-stock-market-a-suckers-rally.html"><img class="inline-icon" title="Registered Commenter" alt="Registered Commenter" src="http://www.californiahousingforecast.com/layout/iconSets/dark/user-registered.png" />Schahrzad Berkland </a>| <a href="http://www.californiahousingforecast.com/in-the-news/roubini-stock-market-a-suckers-rally.html#comments"><img class="inline-icon" title="Comments" alt="Comments" src="http://www.californiahousingforecast.com/layout/iconSets/dark/comment.png" />Post a Comment </a>
<p>Nouriel Roubini<a target="_blank" href="http://www.rgemonitor.com/blog/roubini/218147"> reminds</a> us this stock market rise is a "sucker's rally". In the CNBC interview, he says no amount of Fed cuts can prevent a recession, due to the glut of supply in houses, cars, and consumer durables. Housing prices will fall for at least 3 years, up to 50% in some areas of the country per Dr. Shiller. He reminds us, correctly, that <strong>employment is a lagging indicator</strong>.</p>
<p>This morning <a href="http://www.cnbc.com/id/15840232?video=540554396&play=1">I was on CNBC for an interview on the stock market, jobs and the economy</a>. See my comments on the <a href="http://www.cnbc.com/id/15840232?video=540554396&play=1">stock market's "suckers rally"</a>. </p>
<p><strong>Analysts and investors ask why is the stock market is going up in spite of continued flow of lousy macro news</strong>. <a href="http://www.cnbc.com/id/15840232?video=540554396&play=1">In my view the answer is clear</a>: <strong>the market is expecting that the Fed will rescue the economy from a recession: the worse the macro news the stronger the revisions for further Fed rate cut</strong> that would - in the wishful thinking of the investors - rescue the economy from a recession. <strong>But the same pattern of delusion occurred in 2001:</strong> the economy entered in a recession in March 2001 and the S&P 500 rallied by a whopping 18% in April and May because the market and investors expected that the aggressive Fed easing would prevent a 2001 recession (the famed and deluded hope of a second half of 2001 growth rebound that never occurred). It was only in June when it was obvious that the economy was sinking in spite of the Fed attempt to bail it out that the stock market started to fall again; so it was then and it is now again a typical sucker's rally fed by expectations of a Fed bailout of the economy at a time when the credit woes and credit crunch in markets are actually as bad now than in August in spite of a marginal relief of the liquidity crunch. </p>
<p><a href="http://www.rgemonitor.com/blog/roubini/213894/">As for employment we will see the September figures on Friday</a>; i am much more pessimistic than consensus on this. It was not only the fact that <strong>August employment fell; also June and July were revised downward by 80K,</strong> the unemployment rate did not go up only because 500K discouraged workers left the labor force and did not show up as unemployed; and the household - as opposed to the establishment survey - showed a 300K job loss in August alone and much more since early 2007. </p>
<p>Also the BLS employment figure are totally distorted by a biased<strong> birth/death model</strong> for new jobs in new firms. <strong>The BLS statisticians created over 1 million jobs - that may not exist - for the last 12 months based on that flawed model.</strong> About 75% of job creation in the last 12 months is based on this statistical model rather than actual establishment survey data. So expect 400k less jobs shown in the year to March when the BLS does on Friday its annual benchmark revision. <strong>The last time the BED survey was made the original 500K jobs created by the private sector in Q3 turned out to be only 20K</strong>. So expect the annual revision to significantly reduce downwards the figures for job creation through Q1 of 2007.</p>
<p>In the meanwhile the housing recession is getting much worse, capex spending is now sinking and the corporate sector has a large financing gap (less corporate savings than investment based on the new flow of funds data), consumer confidence is down and the consumer is buffetted by falling home values, falling home equity withdrawal, a mortgage credit crunch, high oil and gasoline prices and now weaker income generation as the labor market is slackening. No wonder auto sales are faltering again after the artificially boost - via massive fire sale discounts - in August, <a href="http://www.reuters.com/article/economicNews/idUSNAT00323820071002">retail sales are sharply weakening in September</a> and falling year over year in real terms.....</p>
<p> </p>
<p><strong>Also, from Yahoo Finance this Morning...</strong></p>
<p>"Stock prices are higher in early trading today as some investors read a larger-than-expected increase in unemployment claims as support for another interest rate cut. " Cough cough....band-aid!</p>