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Guest Post: Unemployment Projections Based On High Yield Default Rates
Submitted by Yves Lamoureux of Blackmont Capital
Most participants these days should take the “thinking outside the box” more seriously. With this in mind, I have studied the behavior of default rates and high yield spreads. In doing so, I also discovered that the general YoY growth in the GDP was mainly going down. The resulting effect on unemployment should then be obvious.
I show in the first graph the result of higher debt having a diminishing effect on labor.You notice that like a weaker GDP trend would suggest, the rate in unemployment shows higher peaks from the 1950’s onward. It would not be surprising that we exceeds the 1985 peak close to 11%.
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. These are times very similar in each starts of decades, coincidence?
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.
In exploring various thesis, I seldom have a psychological prejudice. I suggest people doing pseudo-finance do the same.
Yves Lamoureux, Investment Advisor , Blackmont Capital inc.
The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CIFinancial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.
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I wonder how many jobs were "saved or created" by this report?
69 000 000 000 saved jobs over the course of the next 4 years
Thank you for asking
BO
That would be 18,000 jobs in Dakota's 27th congressional district and another 12,000 in Arizona's 15th district, alone!
And all jobs saved were in Congressional district 3.14159
Interesting model. Thanks for the post.
We used to dream about having a box to think outside of.
Since SMEs are the main source of employment, perhaps SME bankruptcies would be better indicator of where unemployment is headed. The high yield corporate sector is more capital intensive than SMEs.
This is Canada, but the structure is similar in other countries. SMEs can't tap the bond markets, so high yield corporates don't capture this segment.
http://www.cfib-fcei.ca/cfib-documents/SMEEmployment.pdf
I like to use the real measure of unemployment,,,, SGS 22% Now
U3 10.2%
U6 17.8%
The issue is accuracy and "scope" of the "U" series themselves.
We have neither and, as a result, we will never really know.
Add it to the list of shenanigans and diversions.
Add it to the list of shenanigans and diversions.
I'm shocked, and this is nothing more than an outrage!!! To think that our government would....
Agreed, BLS would never allow those numbers out... you'd see birth/death model cubed
Excellent; now here's a report with reasoned projections for default rates & unemployment. Bully!
This is meaningless myopic tripe. Why even post it?
I am Chumbawamba.
MYOPIC TRIPE BITCHES!!!
I am a chumpawamba.
I project unemployment topping off around 40%.. then the collapse comes
How refreshing.....Do you do parties???
Anon, 40% is not unlikely.
is that you, Gerald Celente?
seriously, i can see U3 hitting 13% by mid next year. after that, all bets are off.
just wait until people actually have to start paying for shelter again - 7% of mortgages are not making payments today, that is serious stimulus for the people, when that goes away, look out.
Yup. That is when I really start playing the inflation trade. Ben will literally drop money from helicopters.
quick thought - look at the second chart above...I wonder whether the higher peaks during the '70s to '80s is related to the fact that (just as now) HY firms were able to 'roll' debt out - refi short-term debt into longer-term without actually delevering - hence the rise in defaults, flush of govt-sponsored liquidity, term out debt, drop in defaults, drop in spreads-cycle that we repeat at the behest of the Fed. HY spread term structures are still pretty flat or inverted while the IG curves have started to steepen up in many individual names and increasingly in indices...seems that investors might have been bullish on HY (reaching for yield) but did not allocate that risk across the curve in a consistent manner...
sorry just thinking out loud...
http://www.prudentbear.com/index.php/thebearslairview?art_id=10309
OH MY GOD!
I guess the Government will need to go back and run these Stress Tests on the banks all over again.
Who would have thought that was remotely possible, after seeing those governement provided "worst case" unemployment projections?
I'm beginning to feel stimulated already.
If unemployment rate reach 15% then real unemployment rate will be around 30%. What you got is a lot of people with a lot of free time for getting into trouble. It's going to be a shooting war if it reach that high.
...and there will be no excuse for those who offshore work from the US. At even our current levels of U6/U3 unemployment, nothing they say will hold water.
For once, they'll be shaking in their boots, in fear of a lot of people who have creative ways to apply their free time. Such free time courtesy of US-hostile globalization.