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Posts Tagged ‘unemployment report’

This should be an interesting week in the markets.  We have the end of the quarter which typically produces some volatility for the market.  We also have the very important unemployment report that will be due out on Friday.  The unemployment indicator has become one of most important monthly indicators.  Although employment is considered a lagging indicator (an indicator that is one of the last to recover), its continued weakness might be signaling a bigger problem.  In his weekly newsletter John Mauldin wrote about the unemployment situation from another perspective.  To sign up for John’s free newsletter go to www.frontlinethoughts.com

He wrote that it takes the creation of 15 million jobs just to get us back to normal employment around 5%.  He makes that estimate by assuming the monthly job destruction will soon becoming to an end.  I think that he estimates another 500,000 jobs will be lost.  He writes, “that means that to get back to 5% unemployment within five years we need to see, on average, the creation of 250,000 jobs per month.  As an Average!!”   

Then he states these statistics:

“If you take the best year, which was 2006, you get an average monthly growth of 232,000. If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000. That is a long way from 250,000.”

I equate the destruction in employment much like a perfect storm.  The damage has been so great that it will take a long time to recover.  Both the Bush and the Obama Administrations allowed the unemployment situation to get this bad without doing anything about it.  In fact, I still don’t see anything in the works to fix this problem.  The stimulus bill will create mostly government based jobs.  However, I don’t think it will create enough to even put a dent in these numbers.

So, do you think that the market already expects the unemployment situation to remain this ugly?  Of course, there is the notion of a job-less recovery (which that has never made sense).  However, I think that this situation goes well beyond a typical unemployment problem.  Can the market continue to remain positive in the midst of so many people being affected by lack of employment?  I personally think that we see this problem manifest slowly and at some point the markets feel the impact. 

I know that this is far from positive but it is important to see all sides so that you can make prudent decisions with retirement dollars.

Levels to Watch on the S&P 500

From time to time, I like to point out important price levels on the S&P 500. 

Above 1080 – Positive

Between 1080 and 1043 – Neutral

Below 1041-Negative

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Back in March of this year when the stock market found a bottom, I posed a question that I felt would be “the” question for investors. Is this a bear market rally or is this the beginning of a bull market?

I have felt all along that this is nothing more than a bear market rally. A bear market rally is a pause in the bear market where the stock market goes up for a period of time.  Think of it as the bear resting and gathering energy for the next big decline. 

Of course, if it is a new bull market, then the March low of this year was the worst that it will get. 

I believe that we might be getting close to finding out.  Many of the indicators are stating that the moment of truth is here.  If this were a healthy normal market, we would at least see some type of market decline in the course of a new bull market.   I think that we might have already started that process.  If this is a bear market rally, then this decline will morph into something serious.  This should be a big test. 

For this stock market to change from a bear to a bull, the important level for the S&P 500 to reach would be 1121.  The S&P 500 would have to surpass that level and stay above that level.  If that were to occur, the evidence would support a major change for the stock market trend.

The unemployment numbers came out again this past Friday and showed more disturbing news for the economy.  Remember, if they cannot fix unemployment, this economy is going to have a tough time getting going again.  Unfortunately, Obama’s answer to more jobs is Government jobs through the stimulus program.  That is not the type of solution that will solve this problem.   

According to the Government’s “version” of the unemployment report, we lost 216,000 jobs. Of course, that was after they “added” back in 118,000 jobs that they created out of thin air.  As a review, each month the Government “estimates” the number of jobs created each month that they “feel” the Department of Labor misses.  It is such a farce. 

The number of those jobless as well as the overall unemployment rate is much higher than reported.  It is an absolute joke that they continue to report this garbage. 

I wanted to give you a link to an article about Robert Prechter.  He is a well regarded market analyst that has called major tops and bottoms of the market.  He uses a discipline called the Elliot Wave Theory. According to Elliot Wave, we have again hit a major top and it is about to get ugly.  Who knows if this is right or not?  I do know that he has a very strong track record and warrants some attention. 

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The faster they go up…the harder they fall.  The price of oil was a good example of this last year.  The price of oil took off last year and fell just as hard.  When markets move quickly in either direction, the corresponding move can be intense.  So, it should be no surprise that we have seen such an explosive move by the stock market since the bear market declined so severely in such a small amount of time.

Even in the 1929 bear market, I couldn’t find a time where the stock market went up 38% so fast.  It is pretty amazing.  I don’t think that this is sustainable. There is an upward price level target for the S&P 500 of 945 to 950.  The next two days are huge days for news.  Today, you have the results of the banking stress test.  Yesterday, it was announced that Bank of America who, as recently as January, needed bail-out money from the Government, (needed to raise 34 billion dollars in additional capital).  What did the stock do yesterday?  It went up 17%. 

If you ask me, a bank that is required to raise 34 billion dollars is not a healthy sign.  This is a good indication that pure speculation is driving this market and risk doesn’t matter.  Those are the most dangerous types of markets. 

We have news from 19 banks that will be revealed tomorrow.  I sense that there is a great deal of agenda with this stress test.  It is just hard to see exactly what the Government is doing.  I guess we will soon find out.  That news should produce a great deal of volatility. 

Then we have the unemployment report on Friday.  As I have stated earlier, I have a feeling we are going to get a big surprise.  Don’t forget that the Government tinkers with this number.  I am sure that as part of the “everything is OK, at least we want you to believe it” campaign, it would be pretty convenient to get some good unemployment numbers.  The ADP unemployment numbers came out today and were not as weak.  This was a little surprising as well.

There are a lot of catalysts out there.  It wouldn’t surprise me to see the S&P 500 go right up to 950 and then start a decline at least down to 875.  To me, it seems like we might even go back down and revisit the price levels around the March lows of 666 at least some time this year.  From 920 or so, that would be a big drop of around 30%. 

One more thing is for sure…the decline that could occur after an already 38% move in such a short time period should be a big one.

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First of all, sorry for the late post.  Typically I post in the morning.  Today was out of control all day long. 

Let’s start with the unemployment report.  This is what initially rocked the markets. 

The number was reported this morning that 651,000 people lost their jobs.  They also went back to January and December and changed the job losses to 651,000 and 681,000 respectively. 

 

Let’s look at the Government estimate as to how many jobs were created.  The Government has a little formula that they apply called the birth and death ratio.  This is the number of jobs that they estimate were created or cut that the jobs report doesn’t include.  For February they created, out of thin air, an estimated 174,000 jobs. 

My favorite part of their number is that they “estimate” that 35,000 jobs were added to the Leisure and Hospitality sector.  That is completely believable since so many Americans are going to take their unemployment checks and take the family on cruises or travel to Disneyland.  I can definitely see how they would “estimate” that the leisure and hospitality sector was gearing up for a big travel season seeing the condition of the stock market and the economy. There is just so much discretionary income floating around out there. Will someone please stop the insanity?

 

So that 651,000 number was probably more like 800,000 plus.  If they would have printed that number, we would start to see 1930’s type numbers.

 

These numbers don’t tell the whole story.  What is the real unemployment rate?  There are services that track the “real” numbers that the government are not reporting.  They give a true reading on the status of employment by counting everyone who is unemployed.  There are so many people who fall out of the system and are not counted. 

 

Before today’s number one service was reporting an unemployment rate of 17%.  I haven’t seen their latest report given the carnage reported this morning.  Keep in mind, 25% were unemployed during the Great Depression.  Back then, they did actual reporting and not any of this nonsense fantasy reporting. 

 

The unemployment number is a serious concern because there is nothing out there to fix that problem. Obama refuses to give any tax incentive to encourage small businesses to hire people.  However, he has no problem in paying out $ 11,000 in incentives to distressed home owners and mortgage services for using his mortgage rescue plan.

 

The S&P 500 closed out this week under the price level of 700.  That is not a very good sign for the market short-term.  It shows that there is still a large amount of weakness in the markets still.  I will be updating you on Monday of what this next week potentially brings.

 

 

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