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On The One Hand... And On The Other...

Posted by Chris Farrell on Monday, February 4, 2008

You've heard President Truman's famous quip that he wanted a one-handed economist after getting so many briefings on the econonmy that started with "On the one hand"... and then went into "on the other hand".

Jim Paulson, the chief investment officer at Wells Capital Management, (managing almost $220 billion in assets) took a look into the recent dismal employment report and came up with his own version of the two-handed economist. He had some fun with the idea, and came up with an intriguing final message or conclusion. I'm not sure if I buy into his conclusion, but his analysis is well worth reading. Download file

Enjoy. (And hopefully you can read the file. I'm still learning how to use this software. Let me know if you have any problems. Thanks.)

Comments (1)

bsimon:

Chris, the file download worked.

Seems like just looking at the unemployment rate & similar measures isn't telling us much. What can we glean from other data? I'm curious about the size of the total workforce relative to the population & changes to median wages. It seems like the economy will remain stalled as long as the number of employed Americans remains flat and/or wages remain flat.

Moving away from employment to real estate, it likewise seems the real estate market will remain stalled until some combination of things happen. Before the market stalled, we reached record levels of homeownership. Now we know this phenomena was the result of sub-prime mortages, making homeowners out of people who couldn't qualify for mortgages under normal conditions. As lenders foreclose on these homes, where will the potential buyers come from? With lenders paying closer attention to borrowers' ability to repay loans, the potential pool of buyers is diminishing. It seems that the ratio between home prices & wages has to return to a sensible level before the real estate market will recover.

Posted by bsimon | February 5, 2008 11:18 AM

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