Delusional Stock Market Ignores Fundamentals by Rallying on Bad U.S. Unemployment Data
Stock-Markets / Financial Markets 2009 Feb 07, 2009 - 01:24 PM
U.S. Unemployment Rate rises to 7.6%. - The unemployment rate in the U.S. climbed to the highest level since 1992 in January and payrolls tumbled as the recession showed no sign of abating.
The jobless rate rose to 7.6 percent from 7.2 percent in December, the Labor Department said today in Washington. Payrolls fell by 598,000, the biggest monthly decline since December 1974, after dropping by 577,000 in the previous month.
According to the Department of Labor , Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined
by 3.6 million since the start of the recession in December 2007; about one half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors.
Tell us something we don't know already.
The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a government watchdog says. The Congressional Oversight Panel, in a report released Friday, said last year's overpayments amounted to a taxpayer-financed $78 billion subsidy of the firms.
You could see this coming when they originally announced the bailout. There were no conditions and no oversight on the first “stimulus package.”
When will stock investors look at the fundamentals?
-- U.S. stocks gained for a second day on speculation a government report showing the highest unemployment rate since 1992 will force Congress to pass an economic stimulus package. “They see this as putting additional pressure on Congress and the president to put forth a stimulus package,” said Peter Jankovskis , the Lisle, Illinois-based co-chief investment officer at Oakbrook Investments LLC, which manages $1.1 billion. “People are looking at this as something that will force a resolution of the current deadlock.”
Bonds are deeply oversold. Is there too much worry for a decline?
-- Treasuries fell as traders focused on the record $67 billion in notes and bonds scheduled to be sold next week after a government report showed that unemployment climbed to the highest level since 1992. We know the economy will get weaker,” said Theodore Ake, head of U.S. Treasury trading at Mizuho Securities USA Inc. in New York, one of 17 primary dealers that trade with the Federal Reserve. “The uncertainties are, ‘How much paper, who's going to buy all that paper and at what point will the Fed step in to purchase longer term paper?'”
Gold may be making a top.
( Bloomberg ) -- Gold, little changed in London, may decline as a two-day rally leads investors to sell the metal and as a stronger dollar reduces demand for bullion as an alternative investment.
Even after the terrific loss of jobs, traders are still looking considering inflation rather than deflation as the driving force in the economy.
Japanese stocks nearing the tipping point.
Japanese stocks climbed, extending the Nikkei 225 Stock Average's second weekly gain, as a weaker yen lifted the earnings prospects for makers of cars and electronics.
A weaker yen may strengthen Japan's export business, which is mainly in automobiles and consumer goods. More than half of the companies already reporting earnings reduced their forecasts due to the strengthening yen. This may be a bright spot for manufacturers in the first quarter if the yen continues to slide.
Chinese investors figure stimulus will help them, too.
-- China's stocks rose to the highest in more than four months, completing the biggest weekly gain since mid-November amid expectations government stimulus measures will revive the world's third-largest economy. The Shanghai Composite, the world's second-best performer this year, has rebounded 25 percent since the government pledged 4 trillion-yuan ($585 billion) of spending to revive economic growth. The central bank has also cut the key lending rate five times since September to support industries and stem job losses.
Will the economic stimulus package help or hurt the dollar?
-- The US dollar extended gains on the yen and euro on Thursday as US senators prepared to vote on a major economic stimulus plan and the market awaited a key plan to steady the banking sector.
Low rates generally make a currency less attractive. That logic has been upset in recent weeks amid expectations that a stimulus package could lift the sluggish economy.
Better to rent than to own.
T he price of home ownership has been going up faster than the cost of renting a house. Just comparing the cost of a mortgage to the cost of a rental home shows a significant differential. There does not seem to be any financial reason to own a home – except for appreciation . This is why we buy a home. We purchase it and hold it for a period of time – then we sell it. We psychologically believe we have made a lot of money, but the reality is that the majority just buy another house – so there has been no realized gain.
Gasoline prices starting to dip in the Midwest?
The Energy Information Administration reports that, “ The relationship between crude oil and retail gasoline prices is similar to dancers on the reality show “So You Think You Can Dance.” On that show, the contestants dance with a partner, but also do solo numbers. So, too, crude oil and retail gasoline prices seemingly move in tandem at times, but at other times seem to be disconnected. What is the relationship between crude oil prices and retail gasoline prices? It's more complicated than may appear on the surface. ”
The bitter cold winter is finally affecting Natural gas prices...a little.
The Energy Information Agency's Natural Gas Weekly Update reports, “ Consistent with the frigid temperatures that blanketed much of the country east of the Rocky Mountains, prices at most trading locations in this area of the country increased on the week, with the highest jumps occurring in Florida and the Northeast. The Midwest and the producing regions along the Gulf of Mexico also posted price increases on the week, albeit significantly smaller than those recorded in Florida and the Northeast.”
We are seeing wreckage washing ashore from the perfect storm.
Consumers are struggling with years of accumulated debt amid dwindling resources. They are now forced to begin saving a higher percentage of their income, leaving less for spending.
Consumers ran squarely into the perfect storm last year, and the wreckage will be washing ashore for some time. The three supports that prop up spending have been devastated: income growth, credit availability, and wealth. Spending, adjusted for inflation, dropped for the second quarter in a row at the end of last year, and another decline this winter is likely. Consumer buying has not fallen for three consecutive quarters since record-keeping began in 1947. Households are in the middle of a wrenching adjustment that will not play out quickly—to the great detriment of economic growth at least through the first half of the year.
We're on the air every Friday.
Tim Wood, John Grant and I are back in our weekly session on the markets. The market has been a real roller coaster ride this week. You will be able to access the interview by clicking here .
New IPTV program going strong.
This week's show on www.yorba.tv is packed with information about the direction of the markets. I'm on every Tuesday at 4:00 pm EDT . You can find the archives of my latest programs by clicking here .
Please make an appointment to discuss our investment strategies by calling Claire or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at tpi@thepracticalinvestor.com .
Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com
As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals
Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.
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08 Feb 09, 09:31 |
the market
the market is always right. |
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