While the Fed struck a dovish tone at its last meeting, market participants may be overly dovish, wh...
Unemployment Much Worse Than 8.6%
12/02/2011 11:34 am EST
Investment veteran Vahan Janjigian outlines two much more realistic measures of jobs in America that have him concerned. Also, he explains why he is becoming a bit more positive on one beleaguered market sector.
Vahan, I want to talk to you about the housing market and the employment picture. Tell me what is going on.
Well, two very bad things. Let’s start with employment. The employment situation and the economy are terrible.
Of course, the unemployment rate has been very high for quite some time. If you look at the U6 figure, which includes people who are working part-time, the underemployed because they can’t find a full-time job, or people who have simply given up looking for work; that figure is always extremely high.
But there is another figure I like to focus on. It is called the participation rate. That figure has really been plummeting.
What is that?
This is a figure that takes the percentage of people who are working and divides by the percentage of people who are capable of working.
So in the denominator, we have everybody over the age of 16 who is not institutionalized—and by institutionalized, we mean that they are not in the military, they are not in prison, they are not in a mental facility, or they are not in a home for the aged. Everybody else is considered capable of working.
Now this figure is never 100%, because, of course, there are some people who are capable of working who aren’t working. An 18-year-old who is in school, for example, is not going to be working. Someone who chooses to be a stay-at-home mom or dad is not going to be working, or somebody who is 65 years old and retired but is capable of working is not going to be working.
So in a healthy economy, we would expect this figure to be somewhere above 70%. It is currently down at 64%, which means that there are a lot of people who cannot find jobs—they want to be working, they can’t find jobs.
There are a lot of people who have simply given up looking for work, and are becoming part of the very, very long-term unemployed. This is something that really concerns me.
Well what do you say to the people that say, you are unemployed, it’s your fault. That you should move and go pick berries in Georgia or something…what do you say to that?
Well, I would actually say to some extent there is truth to that. There are people, and I know people who refuse to take jobs that they consider to be underneath them.
On the other hand, I know a man who is in his 80s. He has a PhD in engineering. He was a professor at a University in the former Soviet Union. He immigrated to the United States. He didn’t qualify for any benefits except welfare. He refused to go on welfare. He worked seven days a week two jobs, bagging groceries at a supermarket and giving out parking tickets for the police department.
Now many people in his position would have said bagging groceries is beneath me. I am not going to do this. I think it is more shameful not to work than to do a job that you are capable of doing if it is available. But certainly there are other people who simply cannot find good jobs.
There is also the situation where, suppose you live in Illinois and there is a job in Alabama, why don’t you move there? Well, many years ago, it wasn’t too difficult to do that, because all you had to do was put your house up for sale. These days, it is very difficult to do that because the housing market is so bad.
Let’s talk about that.
People are stuck in houses. They are underwater, which means that they owe more on their house than the house is worth, and they can’t easily sell the house and move, so that presents a big problem.
However, I am growing a little bit more optimistic about the housing situation right now, because I focus very much on the Case-Shiller Price Index. That has actually stabilized quite a bit. It is no longer plummeting the way that it used to.
Housing prices hit a peak in 2006. They came down very strongly, but over the past ten months or so they have been hanging around the same level. I think there is a good chance that we may start seeing some small appreciation in housing very soon; I think that would be very good for the economy.
Now even though housing prices have come way off their peaks, the average rate of appreciation from 2000 to the present—the annualized average rate—comes out to about 3%. So we are still well above where we were in 2000.
Some people look at that and say "Aha! See? Housing prices are going to fall more." I look at it and say, well, that’s the historic average. We are now at the historic average…there is no need for housing prices to fall more.
I think we are going to stay stable for quite some time, so I am going a little bit more bullish now about housing.
How about the feeling that the foreclosure process should just run its course and then let investors come in and pick off the cream of the crop?
That is a very difficult situation. I mean, the foreclosure problem is a real problem.
I don’t blame the banks so much as many other people do—the robo-signing and all that stuff. Certainly to some extent, there were individuals who bought houses that they clearly could not afford to buy. They lied on their applications in order to get the mortgages, the No Doc loans.
And, of course, you do have to put some blame on the lenders because they didn’t look very carefully. Because all they knew that we are going to close this loan, and then we are going to secure ties that collateralize it and sell it off to somebody else. So that was a problem.
Certainly, we need to have some compassion for people who are stuck in a very difficult situation, but the housing market needs to clear. We need to get to a point where people can buy and sell houses on the merits of that alone.
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