Ethan Wolff-Mann


The latest unemployment claims data rose again unexpectedly, with 742,000 Americans filing initial claims last week as coronavirus cases and deaths spiked around the country. The numbers were above what labor market observers expected and continuing claims also came in higher.

The numbers worry economists, even as good news about Pfizer and Moderna’s vaccine effectiveness in trials brought much-needed good news as daily COVID-19 cases top 170,000 and total deaths approach 250,000.

“When will it ever end this rising tide of joblessness,” mused MUFG’s Chris Rupkey in a grim note to clients. The joblessness and lack of stimulus are hurting the economy, he wrote, and pointed out that all of this “has the power to bring on another quarter of negative growth if the jobless count doesn’t stop going up.”

“It’s hard to believe the recession is over if workers keep losing their jobs at this rate,” Rupkey added. All in, with gig economy relief added, over a million people filed for some kind of relief, leading the economist to write, “What on Earth is going on?”

People line up outside a food pantry in Brooklyn, New York, on Nov. 12, 2020. The Department of Labor reported that another 742,000 Americans filed for first-time unemployment benefits last week. (Photo by Michael Nagle/Xinhua) (Xinhua/Michael Nagle/Wang Ying via Getty Images)

“The blame falls squarely on Washington where there is no attempt to fight the virus in a coordinated manner or to fight the recession by renewing and extending the unemployment benefits to the millions of jobless workers in the country,” Rupkey wrote. “Winter is coming and it is bleak and getting bleaker if you can’t find a job.”

Other economists share Rupkey’s grim outlook. In a note of his own Thursday, Pantheon’s Ian Shepherdson said, “The rise in initial claims is more likely to be signal than noise, unfortunately,” and that it’s “not a one-time fluke.”

“More likely, it captures the beginning of an upward trend which will persist until the Covid wave subsides,” he wrote. Once again, the virus controls the economy, underscoring the stakes for the vaccine and getting the virus under control through the methods at hand, like mask wearing.

Rising Google searches for unemployment claims raised a red flag

Shepherdson said that Pantheon saw the bad numbers coming based on rising Google searches this week for unemployment benefits and Wisconsin’s daily releases of jobless claims (it’s the only state to release numbers every day).

Pantheon expects case numbers to peak in mid-December, though the fallout of Thanksgiving gatherings is hard to predict. “The outlook for December is clearly deteriorating, making it ever-clearer that Congress needs to act very soon, unless they believe that a wasteland in the services sector is a good base for the post-COVID economy.”

Meanwhile, the Pandemic Unemployment Insurance and Pandemic Emergency Unemployment Compensation — programs created through the CARES Act to support workers who may not be eligible for benefits under traditional unemployment programs — are set to expire in six weeks, AnnElizabeth Konkel, an economist with, wrote in a note Thursday.

Konkel said that holiday hiring, which might otherwise provide job relief, is wrapping up shortly as businesses get in position for the season, and temperatures are dropping — which is bad for outdoor activity and heating costs.

“The combination of record coronavirus cases and the post-holiday winter months will likely be a grim time for the labor market,” wrote Konkel. “To lose unemployment benefits right after the holidays will only ratchet up the economic pain already felt by millions.”

Author: Ethan Wolff-Mann

Source: Finance. Yahoo: Economists warn new jobs data is a sign of worse things to come

Retail investors are both bullish and bearish about the future of the stock market and whether they should put money in now, with the differences in outlook falling considerably along demographic lines.

This data comes from a poll conducted by Harris and Yahoo Finance from 200 U.S. adults with financial assets or investments, with the pollsters weighing the data to ensure that results are projectable to appropriate U.S. populations.

The confusion and disconnect between market participants is hardly surprising. The economy is in crisis with massive unemployment due to the coronavirus, but stocks, after plunging in March, have roared back and pushed the S&P 500 index (^GSPC) well over 3,000, close to its record highs.

Four out of 10 people (41%) with equity investments expect trouble ahead in the next five years, with negative returns.

The survey found 18% of people with equity investments believe the losses will be between -5% and zero; and 11% believe they will be between -10% and -5%.

Despite these outlooks, just 19% of respondents said it’s a good time to decrease exposure to the market, indicating that many are planning to stay the course.

Furthermore, since these numbers come from people holding equity investments, this bearish sentiment is not including all those who decided to ditch their stocks for cash at some point during the crisis.

There may be a lot of bears, but over half the survey respondents (51%) believe investment results will be modestly positive (less than 5% gains) in the next five years.

Age and gender divides outlook

The bull-bear sentiment showed interesting differences when it comes to gender and age. People between 35 and 44 proved especially bullish compared to other groups; 67% of them said it was a good time to invest, with just 9% to the contrary.

Putting this in comparison, the next most aggressive group was the 18 to 34 cohort, of whom just 32% think it’s a good time to increase exposure to stocks.

Similarly, men are thinking about the market far more aggressively. 41% of them say that it’s a good time to increase holdings in the stock market compared to just 21% of women.

The Harris Poll’s CEO Will Johnson offered a possible explanation for the gender disconnect, noting that women have been hit far differently than men when it comes to job losses.

“We may all be in this together, but the recession isn’t hitting all of us equally,” said Johnson. “A greater percentage of women are losing their jobs through layoffs or furloughs than men. One key reason is that women disproportionately work in sectors that were shut down by the pandemic, such as retail, hospitality and education.”

This gender carryover continues when it comes to whether people feel they will hit their investment goals, with 32% of men saying they are “very confident” compared to just 4% of women.

This confidence gap narrowed when respondents were asked if they were “fairly confident” about achieving their investment goals – 60% of men said they felt at least that sure compared to 47% of women.

Age-wise, older people (55+), likely de-risked by the conventional wisdom of moving from stocks to bonds and cash, were more likely to report confidence in achieving their goals.

Author: Ethan Wolff-Mann

Source: Finance. Yahoo: 41% of retail investors expect negative returns in the next 5 years: Survey

There’s been a surge of interest in stocks of companies in financial trouble, most notably Hertz (HTZ), which filed for Chapter 11 bankruptcy and was dumped by activist investor Carl Icahn only to be picked up by many users on Robinhood and other stock-trading platforms.

The interest in Hertz has been so hot that the company asked and was granted the right to sell $1 billion in new shares of stock that are essentially worthless.

“What you’re getting right now is this great disconnect between fundamentals and finance,” said Mohamed El-Erian, chief economic adviser at Allianz, on CNBC. “Take Hertz. A company in a bankruptcy procedure that saw its share price go up….now they’re talking about issuing stocks, warning investors they may be worthless.”

On June 9, Hertz opened at $3.37 and saw highs and lows of $6.25 and $3.09, respectively, which represent massive swings over 80%. The whole week was like this, with moments during the day where the stock was up or down to a huge degree. Even on June 11, the flattest day for the stock, there were moments when the stock was up 7%.

Hertz isn’t the only stock like this; J.C. Penney, which is also in Chapter 11, and other risky companies, like Chesapeake Energy (CHK) have also had wild rides in the market of late. Chesapeake shares went from the low teens on June 4 to a session high of $77.50 on June 8 (around a 397% gain), finishing the week at just under $20.

Many see the trend as part of the narrative of retail traders, bored from a lack of sports and betting — potentially armed with stimulus money — to use the stock market as a casino.

“With the volatility, it is kind of like watching a sports game,” Barstool Sports’ Dave Portnoy, who has become a day trader, recently told Bloomberg.

Robinhood users love Hertz, for now

The latest trend of investing in bankrupt and otherwise distressed companies is standard day-trading on steroids. These investors appear not to be looking for long-term gains, but rather the chance that they will be on the winning side of wild volatility. In other words, they are speculating.

According to Robintrack, Hertz has been an especially hot stock for Robinhood users. Over the past week, the company has been the No. 2 most popular stock in portfolios. Only electric car company Nikola (NKLA) has seen a bigger surge. While J.C. Penney has been unavailable.

Robinhood users may love mega cap stocks like Apple (AAPL) and Amazon (AMZN), but they’ve also consistently shown interest in stocks with low prices, like Ford (F) and GE (GE), which are currently the top two on the company’s popularity board. GoPro (GPRO) is also in the top 10. Hexo (HEXO), which is almost a penny stock at a dollar per share, is currently in more portfolios than Amazon (AMZN). The lower the price, the easier to trade.

“Clearly there’s some speculative fever going on right now,” said Kathy Jones, Charles Schwab’s chief fixed income strategist. “Money is cheap trading is cheap, and this is what they’re doing.”

Very risky business

A huge profit in a day or week is sweet, but the volatility swings both ways, and just like how the house always wins, bankrupt companies often end with a loss — because they are literally bankrupt and have no money.

There’s a reason why bankrupt companies aren’t worth much, and whoever ends up holding the bag may not want to. For those who are looking for a piece of a bankrupt company, investors are the last in line for any remaining asset value — everyone gets paid back before them when a company goes bust.

While the rewards are easily imaginable when you see big swings, the risk isn’t. Unlike a roulette wheel, there is no obvious measure of risk/reward. On the other hand, for someone who is using the market in lieu of the casino — say, for small amounts — maybe that’s not a bug.

Looking at the volume, however, the amounts are not that small. A year ago, Hertz had a trade volume of around 2 million to 7 million per day. But on Monday, volume hit 533,891,800. A lot of parties are getting involved, and those numbers suggest that this may be more than the $20 blackjack table.

All of this has a lot of people shaking their heads.

“When you see this kind of froth in stocks that have declared bankruptcy, that’s never a good sign,” said Matt Maley, chief market strategist at Miller Tabak on Yahoo Finance’s The First Trade. “When we’re on the kind of speculation by people who are not used to being involved in the market, that’s a poor sign for the length of a rally.”

Author: Ethan Wolff-Mann

Source: Finance. Yahoo: Stocks of bankrupt companies going bananas despite companies being broke

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