Wednesday, November 18, 2009

Blackmont Capital: Unemployment Could Reach 15%

Nearly two weeks ago, the Wall Street Journal reported that unemployment had reached 10.2% and under-employment (the so-called "U-6" figure) had reached a shocking 17.5%.

Investment firm Blackmont Capital believes that the worst is yet to come.

...The graph of unemployment with the default rates is meant to show that the rate of unemployment will continue upward for some time once default rates have peaked. You will see this in the 1980-1984 period, the 1990-1994 period and lastly the period of 2000-2004...

The basic assumption generated with this study results in a rate of ascent in the rate of unemployment once high yield default rates peaks. I will have applied an average of these three periods discussed going forward in our three base cases.

This rate of ascent is shown in the graph with the subsequent higher unemployment rate. It does carry upward for some time and will lag the turning point of the high yield default rate peak.

...Lastly we provide an overview of my unemployment projections based on three scenarios. The base case number one takes the view that high yield default rates are peaking and will start to drop from this level now. The rate of unemployment ranges from 10% to 11.5% with this given scenario. In the base case number two, I am using a composite of both peaks in 1991 and 2002 to suggest that default rates may carry upward one percent more. The resulting effect on unemployment targets will range from 11% to 13.5%. In our final analysis base case number three will use the peak at 13% in default rates established in 1991. Unemployment rates in this scenario show a range of 12.5% and 15% before possibly peaking.

A simple back o' the napkin calculation for the total under-employment rate if the latter model holds: A U-6 figure of 26% to complement the 15% unemployment rate.

We got the change, but hope just left town.

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