For Immediate Release
Chicago, IL – March 12, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Kroger (KR), American Express (AXP), Fannie Mae (FNM), Bank of America (BAC) and MGIC (MTG).
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Here are highlights from Thursday’s Analyst Blog:
Initial Jobless Claims Edge Down
Who really wants to put “nothing” for 9 months or a year on their resume? Do people really think that will make them more attractive to potential future employers? Or do those who claim the disincentive effect really think that this is a plan by the unemployed to retire at age 35 and live forever on extended unemployment benefits, that in many states are less $400 a week?
What would happen to those 5.691 million people if extended claims were eliminated? They would simply have no income at all. They have already been living for six months on a far lower income than they were when they were employed. During those six months they have probably already depleted much of their savings.
In the run-up to this downturn, the savings rate was at near record lows (the only lower time in history was during the absolute depths of the Great Depression), so the currently unemployed, in general, probably didn’t have much in the way of savings to begin with, particularly if they were not in the top 10% of earners before they got their pink slips.
What savings they did have was probably inside a 401-k or IRA. That means when they draw on it, not only is it taxed as ordinary income, but that they have to pay a 10% penalty on it. Of course it also means that they are going to have a much delayed and more frugal retirement than they would have it they had not had this bout of unemployment.
With no income, and savings depleted, they could not shop for groceries at Kroger’s (KR), or if they did, they would be doing it with food stamps. They would for the most part turn to the food banks, but they are already very overstretched (yes, we need a food bank bailout). They have probably already run up their credit card balances, but would have no hope of paying them off. That would not exactly be great news for American Express (AXP).
With one in four houses with mortgages now underwater, they do not have the option of drawing on their home equity (if they are homeowners) the way they did in the previous recession. Even if they are not under water, if they have less than 10% equity in the house, it is extremely unlikely that any bank would give then a homeowner equity line of credit (HELOC) or second mortgage. Indeed, they are likely to just stop paying their mortgage and wait for the sheriff to show up at the door.
In many areas people can live rent- and mortgage-payment-free for more than a year before the deputies knock. That’s good for their survival, but it is not good for the whole mortgage complex, from Fannie Mae (FNM) to Bank of America (BAC) to the mortgage insurers like MGIC (MTG).
Those $400 a week checks get spent, and spent fast. As they do, the money flows back into the economy and keeps other people at work. They add to aggregate demand, and low aggregate demand is the reason the economy is in a slump (or at least the transmission mechanism). In fact, the Congressional Budget Office scores extended benefits as one of the most effective stimulus programs out there in terms of jobs created or saved per dollar spent.
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