LESSON #1

Yesterday OBAMA said that the stimulus package was working!  The reason that was given is that the new claims for unemployment was down.  After giving that some serious analytical thought (maybe 10 seconds), I found that I was getting dizzy from the SPIN.  Here is why I don't see it that way.

Consider a company that once had 1000 employees.  As they viewed their future, they are forced to cut back hours and product lines and put on a hiring freeze.  As a result, they cut back 300 jobs(30%x 1000).  Next, they realize that business is still bad, they close manufacturing plants, other product lines, consolidate jobs, start using unpaid days off and cut back another 300 jobs(43% x 700) leaving their workforce at 400.  Finally, they are forced to lay off 250 (62.5% x 400) - all except those essential to providing security, those that are used to moth ball the manufacturing plants and those that will file for bankruptcy.  In two months 125 (83% x 150) will be released.

But the stimulus is working!  The number that filed for unemployment benefits this week (250) was down from last week (300) and in two months, the number filing will be only 125 - half of this week!  Obama signs of success!

Will the last one with a job please turn out the lights!

LESSON #2

Does anyone really believe that if the Treasury floods the market with debt to buy Mortgage Backed Securities then the mortgage rates will drop?

If you do, please look at the mortgage rates.  Buyers of MBS will only buy those securities if the return makes sense (higher than treasuries).  As the treasury increases the supply of treasury securities, the yield must go up to balance the demand.  With the yield on treasuries going up, the yield on MBS must go up to get investors other than the FED to buy them.  Many of us learned this DAY 1 in economics class. 

Will the constitutional lawyer please not insult us any more with SPIN - Do you think he actually believes what he is dumping on us?

Have a nice day!