So it seems as if the best thing that ever happened to the economy was the
failure of Lehman Brothers and the seizing up of the capital markets.
I know that seems like a strange proposal. The credit market collapse clearly
was a major stress event for the economy and greatly worsened the recession.
However, without the moment of crisis, it would be very hard to muster
anything remotely encouraging to say about the recent economic data. The stock
market is all agog because Payrolls are "only" contracting by 250k or 300k
per month, and Initial Claims has fallen to the low level of 550k per week.
It bears remembering that Initial Claims never were as high as 550k
in the last recession, even in the wake of 9/11.
It is better to think of the Claims series, and other economic time series,
as consisting of two components. One is a regular cyclical pattern whose amplitude
depends on the severity of the recession given normal factors. The second is
an idiosyncratic wave, a one-time perturbation caused by a strong event. Think
about a rock dropped into a pond: at any point on the surface of the water
you can think of the water height being the height prior to the stone being
dropped, plus the ripple from the stone's impact; the ripple's effect diminishes
as it gets further from the point of impact and is dampened.
So, for instance, in 2001 the "steady state" of Initial Claims seems to have
been around 400k, but after 9/11 Claims spiked above 500k and then gradually
declined over the next few months back to the 400k rate, where it sat for a
while. The impact of the credit market seizure and Lehman bankruptcy (which
was one symptom of the severity of the episode) was broader and more lasting,
but is also fading. It is difficult to decompose the series into the natural
cyclical trend of claims and the ebbing effect of the crisis (I am sure Charlie
Eppes from the TV show "Numb3rs" could do it), but to get the general idea
we can do something simple.
In the two charts below, I have simply taken the trend from the 6 months prior
to the Lehman bankruptcy (on 9/15/08) and extended it. The first chart is of
Initial Claims and the second chart is of Payrolls. What you can see from this
- and you can draw similar pictures for many of the data series that have people
so exercised about 'green shoots' is that these employment indicators are about
where they would be, perhaps slightly better, than they would be if the economy
had simply continued to worsen at the rate it was worsening prior to the Lehman
collapse.
The second chart is the same analysis, on Payrolls. Again, there seems to
be a slight improvement over the prior trend, but nothing to write home about.
Now, since we can't easily decompose the two effects in the manner I have
described, it may be that the economy ex-Lehman-debacle is indeed improving
off what would have been just a less-deep trough. However, in the last couple
of recessions, the "flat part" lasted for quite a while. The initial rebound
from the stressor (Gulf War in 1990-91; 9/11 in 2001, see chart below) was
indeed pretty sharp...but then there was a long row to hoe.
Disclaimer: This document and any information enclosed
within the document contain restricted, privileged and confidential information
and are intended for distribution to authorized persons only. If you are not
the recipient of this document directly from Enduring Investments, you must
not disseminate, modify, copy or take action in reliance upon it unless expressly
permitted by Enduring Investments. None of the materials provided herein may
be used, reproduced or transmitted, in any form or by any means whatsoever,
including but not limited to electronically, mechanically, by way of recording
or by the use of any information storage and retrieval system without the written
permission of the Enduring Investments.
Certain information contained in this material constitutes
forward-looking statements, which can be identified by the use of forward-looking
terminology such as "may," "will," "should," "expect," "anticipate," "target," "project," "estimate," "intend,"
"continue," or "believe," or the negatives thereof or other variations thereon
or comparable terminology. Due to various risks and uncertainties, actual events
or results or the actual performance of the funds described herein may differ
materially from those reflected or contemplated in such forward-looking statements.
With respect to the present document and/or its attachments,
neither Enduring Investments, its principals, employees, agents nor its authorized
representatives, makes any warranty or representation, whether express or implied,
or assumes any legal liability for the accuracy, completeness or usefulness
of any information disclosed. Certain information is based on data provided
by third-party sources and, although believed to be reliable, it has not been
independently verified and its accuracy or completeness cannot be guaranteed
and should not be relied upon as such. Performance information and/or results,
are unaudited and their appearance in this document reflect the estimated returns
net of all expenses, including the management and performance fees similar
to those to be charged by funds sponsored by Enduring Investments. Past performance
is no guarantee of future results. Investment return and the principal value
of an investment will fluctuate and may be quite volatile. In addition to exposure
to adverse market conditions, investments may also be exposed to changes in
regulations, change in providers of capital and other service providers and
may be leveraged. The use of leverage magnifies changes in both increases and
decreases of the value of an investment when leverage is used.
Neither Enduring Investments, nor any of its principals,
employees, agents or authorized representatives accepts any responsibility
or liability whatsoever caused by any action taken in reliance upon this document
and/or its attachments. This document is for illustration and discussion purposes
only and does not represent an offering of shares or interests in any security.
The recipient of this document must consult the definitive offering memorandum
and relevant associated documentation for all details regarding the offering
and disclosure of the risks involved. The recipient of this documents and/or
attachments is urged to discuss the risks involved with a legal advisor and
tax advisor. The private investment funds described herein have not been registered
under the Investment Company Act of 1940, as amended, and the interests therein
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), or in any state or foreign securities laws. These interests will be
offered and sold only to "Accredited Investors" as defined in Regulation D
under the 1933 Act. By accepting this document and/or attachments, the recipient
of this document agrees that he/she or the entity they represent meets all
qualifications as an accredited (or similar requirements) investor in the jurisdiction(s)
which they are subject to the statutory regulations related to the investment
in the type of fund described in this document and/or attachments. Enduring
Investments assumes that by acceptance of this document and/or attachments
that the recipient understands the risks involved - including the loss of some
or all of any investment that the recipient or the entity that he/she represents.
An investment in the funds described herein is not suitable for all investors.
This document (and/or attachments to this document) is
as of the date indicated, is not complete nor has it been audited, and does
not contain certain material information about the products to be offered by
Enduring Investments, including important disclosures and risk factors associated
with an investment in the investment vehicles and is subject to revision at
any time and Enduring Investments is not obligated to inform you of any changes
made.
Circle Us