Carelessness, Aimlessness and Joblessness

Tumble outta bed
And stumble to the kitchen
Pour myself a cup of ambition
Yawnin, stretchin, try to come to life
Jump in the shower
And the blood starts pumpin
Out on the streets
The traffic starts jumpin
And folks like me on the job from 9 to 5

-Dolly Parton

According to the Bureau of Labor Statistics, close to 600,000 additional Americans will not need to "tumble outta bed" so early in February - except perhaps to fight the long and growing lines at the unemployment office. For the third month in a row, nonfarm payrolls fell by over half a million jobs, bringing the total number of jobs lost to 3.6 million since January 2008.

With over half of those jobs disappearing in the last three months, it's difficult to imagine the remainder of the economy has felt the effects. Certainly those in power to effect change haven't.

Given a nonfarm work force of approximately 132 million, about three percent of American workers have lost their jobs. A "fair" distribution of this pain would include three senators and 13 congressmen who would be out on the street, not to be replaced until the economy recovers.

Instead, debates ensue and political jockeying increases as the fear of losing reelection and having no sweet lobbying position to fall back on metastasizes. Fear can be a great motivator, but it often obfuscates the best path toward salvation.

Unfortunately, there have been several instances recently where fear simply paralyzed, leading to greater uncertainty and lower confidence.

The first was of course the initial TARP bill which was passed under the premise the Treasury would buy up "troubled assets" from banks in order to allow them to move on with any lending opportunities. By relieving them of this ball and chain, the banking system would be left more agile to seek profitable lending and investing opportunities, while the taxpayer would receive any benefit or detriment to holding those securities.

Instead, Hank Paulson changed course and used his new authority to inject capital into the banking system. Because the market was set up for him to go one direction and he went another, there was an increase in uncertainty which decreased confidence.

Now, we seem to be back to the debate of a creating a "bad bank" which is very similar to Paulson's original plan. The details remain sketchy and much debate will ensue, but simply changing course once again increased uncertainty which decreased confidence.

Last week, it was announced that the Treasury may wish to substitute their preferred investments in the banking industry for common. The fact the Treasury leaves open the possibility for significant rule changes after the game is on is a strong incentive for private investors to stay away from the financial sector on the equity side. Why invest when the government can simply change the rules after you've committed? This sort of authoritarian activity breeds uncertainty which decreases confidence.

Yesterday, the new Treasury Secretary Timothy Geithner announced an overhaul of the TARP program along with several other bailout programs underway. While I applaud the revealing of a single consolidated plan to approach today's issues, I also realize many of these announcements are modifications to previously announced plans. Again, changing the rules midstream increases uncertainty and could decrease confidence.

In times of crisis, it is sometimes more important to have a plan as opposed to the perfect plan. But convincing the markets you have no plan is the best way to continue to deepen the current recession. Confidence breeds confidence.

Hopefully, yesterday's announcements are the first steps toward a consistent and strong plan for recovery. Timothy Geithner certainly has been given this opportunity. Let's hope he takes it and runs directly on goal.

Key Developments

Yesterday, the Treasury announced alterations to many of the bailout programs in place. Looking through the details, we are encouraged that Treasury Secretary Timothy Geithner is focused on the most important issues: uncertainty surrounding existing investment pricing, access to capital, and the ability of homeowners to payoff existing mortgages. Addressing these three issues drive at the heart of the confidence problem faced by the markets today.

Nonfarm payrolls declined 598,000 and the unemployment rate jumped from 7.2 to 7.6 percent in January. The 3.6 million jobs lost in this recession far eclipses the 2.7 million jobs lost after the dot-com bubble burst. But, more importantly, today's job losses have occurred over just 13 months and seem to be increasing whereas the job losses earlier in this decade occurred over 30 months, reducing the shock effect on the remainder of the economy.

There seems to be some risk-taking going on in the bond market as investors are disgusted by near-zero yields on Treasury investments. Last week, there were about $35 billion in corporate bond issuance and both investment grade and high yield spreads continued to tighten. Though this could be a temporary phenomenon, long-term investors seem to be more confident a light at the end of the tunnel actually exists.