Thursday, May 07, 2009

Stress tests - like having your cake and eating it too

Well, given the consistent leaks during the week there was less suspense in the stress test results than watching a Seinfeld rerun for 114th time.

Banks are going to need more capital. No surprise there. The government can fix many of the rations that concern them by converting preferred equity to common equity. This another accounting gimmick to make the banks look healthier than they are. The biggest problem with the stress test is that, well its just wasn't very stressful.

Tomorrow we'll get a read on the "improving" job market. I almost fell out of my chair yesterday when I heard the spin that by losing just 491k jobs in April, the job market was somehow improving. Two points:

1) The ADP data is just plain bad. When they showed 700k jobs lost in March everyone said "jobs are a lagging indicator", but when they show 500k jobs lost it becomes a green shoot. Having your cake and eating it too. ADP has historically been a terrible predictor of the monthly jobs data. Estimates for tomorrow are all over the board, but given the statistical variations that can move this data, I expect the number to be "less bad" than feared. I'll try to provide a quick read of the data tomorrow morning.

2) The economy needs to add 150k jobs a month just to keep pace with population growth. Anything under that number and the unemployment rate grows. Even if you buy the ADP data, I think it's clear that unemployment will continue to trend upward if we're 650k jobs underwater this month.

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I had a pull my hair out of my head moment tonight.

Well, how the *#%! does the Chairman of the NY Federal Reserve get to stay on the Board of Directors of Goldman Sachs after they become a bank holding company? Thankfully, this word got out and Mr. Friedman has resigned from the Fed, but this is beyond comprehension that the Federal Reserve would approve such a relationship. Oh and while sitting on the board of Goldman Sachs and serving as the NY Fed Chairman, Mr. Friedman bought 37,000 shares of Goldman Sachs which have risen in value by almost $1.7 million. No conflict there.....

Whose your daddy? Goldman Sachs.

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