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We highlight General Motors Corp. ([url=]GM[/url]), Fannie Mae ([url=]FNM[/url]) and Freddie Mac ([url=]FRE[/url]).

New Claims for unemployment insurance fell to 601,000, a decline of 31,000 from last week. The four-week average, which is a much more significant measure given the inherent volatility of the series, fell to 625,500 -- a decline of 14,750 from last week.

More significantly, it is now down 5.35% from its peak a month ago of 658,750. As the first chart below shows (larger version available at, a significant decline in new claims has signaled the end of most recessions, and I would say that this sort of decline is right at the borderline of being significant.

This does not mean that we are going to have a vigorous recovery. Continuing claims continue to rise, and I fully expect the unemployment report tomorrow to be ugly.

Continuing claims rose to yet a new record, at 6.351 million, an increase of 56,000 from last week. Even there, however, for months continuing claims have been going up in the 100,000+ per week range, so we are seeing that second derivative start to change here, as well.

This good news could still be reversed as the effects of the Chrysler bankruptcy and the possible General Motors ([url=]GM[/url]) bankruptcy kick in. Still, I would have to say there is now probably about a 75% chance that when the NBER eventually decides when the recession ended it will have been this May or June. However, don't expect the NBER to get around to making that announcement until around the end of the year.

Am I hanging too much hope on a single indicator? Possibly. However, credit market indicators have also shown dramatic improvement from the crisis levels and are now back close to "normal." For example, the TED spread, or the difference between what banks charge each other for very short term loans over short term T-bills, is now down to 77.5 basis points, down from a peak of 464 basis points during the height of the crisis last October. This shows that the banks now have a lot more confidence in each other than they used to.

Other markets are starting to look better as well -- not pointing to a boom, but also saying that the worst-case scenario will not come to pass. Two of the most important of these are the Baltic Dry Index (BDI, blue line) and the price of Copper (brown line). The chart below (from shows that, while both are still far, far below their peaks, both have made significant recoveries from their lows. Unfortunately, the scale only shows the BDI, not copper, but it was well over $4 a pound at the top, fell to around $1.25 and is now back at $2.18 a pound.

Why should you care about these? The Baltic dry index measures the cost to charter ships that carry bulk cargo, stuff like coal and iron ore. Since ships are expensive and the supply of them does not increase or decrease quickly, owners want to keep them in operation at all costs, even if it means they are not making much. Thus it is a very sensitive indicator of world wide demand for basic raw materials -- you know, the stuff that actually goes into to making things.

Copper has long been known as the metal with a Ph.D in economics. Any time you have a need to conduct electricity, you need copper. So every electric motor, every transmission line, etc. uses copper -- every house with electrical wiring needs copper. Copper mines do not come on or off line quickly, and thus changes in price largely reflect changes in demand, not fluctuations in supply.

Yes, unemployment is going to continue to rise, and people are going to be feeling poor for quite a time to come. This is what happened after both of the last two recessions, and I suspect it will be even more pronounced this time around. The economy still faces huge long-term headwinds, and these are not a gust, but more like sustained trade winds.

The consumer has too much debt and too little wealth. Savings rates need to be higher, retirement aspirations have been dashed. There is no need for residential investment to increase significantly, given the huge overhang of housing inventory.

We are facing a big second wave of foreclosures, and the only reason that mortgage rates are low is because the Fed is buying up all the mortgage-backed securities issued by Fannie Mae ([url=]FNM[/url]) and Freddie Mac ([url=]FRE[/url]), and by the end of the year will own over 20% of all the outstanding issues.

Still, the extraordinary actions that have been taken seem to be working. They are, however, not a free lunch. The costs will have to be paid later, and in part much later, in the form of higher taxes on and lower services for our kids and grandkids. But the dramatic expansion of the money supply, the bailing out of the banks, and the stimulus package all seem to be having the desired effect.

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