The Short End of the Long View

Structural Unemployment..The WSJ has run several interesting articles on this topic lately. One addressed unemployment with the male population in their prime working years and the other the longer-term (or chronic) unemployment in this recession. In both cases, the aggregate data masks a growing reality which is likely causing this Fed a great deal of concern. The lag in employment at this phase of the current recovery provided the basis for Bernanke’s recent comments regarding a potential QE3.  These comments helped moved the market higher in the past week or so.

The longer-term unemployed tend to fragment from those actively seeking work. The term used lately is hysteresis.  Borrowed from chemistry, it implies that the past affects the present. In this case, the longer a person is out of work, the more this seems to influence his or her ability to get a job. This phenomenon has long been observed but rarely explained in the past. It could be just the stigma of having been out so long hindering one’s ability to get a new job. But in this cycle, the phenomenon seems far more pronounced.

It could be that there is such structural shrinkage in jobs connected to a previously dominant industry, such as housing, that a person with those skills has little to offer in growing sectors with new employment, such as wireless technology.  Most recoveries imply cyclical factors in re-employment, but those blur with secular if the basic business does not come back with vigor. This seems to be the case in a lot of industries in this recession.

It is not clear if stimulative economic policies will have much if any effect on chronically unemployed. With fiscal restraint in place, the only lever is left with the Fed, making the case for QE3 that much closer to launch..

MF Global…Bidding in the secondary market for MF Global claims has really heated up.  A number of institutions are now willing to pay 87 cents on the dollar and assume the recovery risk and timing issues associated with the securities. Perhaps this is due to the current low return environment or perhaps there is a clearer path to recovery for MF Global customers who lost their money when it was swept away from them in the chaotic final days of the firm.

This is a much higher price level than was envisioned several months ago. It could be that the counterparties may be forced to make restitution in a bigger way than was thought at the start of the fiasco.

In the meantime, emails now imply that Corzine gave ‘direct instructions’ to effectively steal client funds. This from the man who testified that he had no idea what happened to the monies. It does not look good for Mr. Corzine…

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