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Recovery vs Unemployment
By Marek W. Stupka | November 22, 2009
U.S. unemployment has not hit 10% since 1983. The highest American unemployment rate on record, 10.8%, was reached in late 1982 and lingered in the calendars till January 1983. On November 6, 2009, the U.S. unemployment posted a shocking double-digit number again : 10,2% !!
Hilary Kramer, chief investment strategist at A& G Capital Research said that: “As long as the consumer is 70% of the gross domestic product, then we can’t recover with so many unemployed and underemployed.”
But let’s face it, how real are threats of the unemployment ghosts influencing the already booming recovery? There is no doubt - unemployment is here to stay. That, of course, doesn’t mean the U.S. as well as the global economy is not recovering.
Personally, I don’t expect the employment situation to get better until at least the start of next year. Some companies may even wait until next year to begin hiring people to help their bottom line through the end of the fourth quarter. Moreover, unemployment is a lagging indicator. It is absolutely normal and even typical for unemployment to continue to inch up for several months after the DJIA and the S&P 500 trough. In other words, history shows that the unemployment rate only starts to fall 6 to 7 months after the Dow Jones Industrial Average crosses from below an important psychological level - in our case it is the 10,000 mark. It was reached in the early November 2009, so don’t expect the NFP showing positive numbers until June-July 2010.
OK, what should a savvy investor do these days? What is the best fundamental data to follow? Well, let’s be honest, the absolute worst thing an investor can do is try to time the market according to unemployment numbers! If you do this, you will miss the train and settle your long-term trades too late..
And so, investors shouldn’t put too much weight on the unemployment numbers. These numbers won’t improve soon, as employers will first try to replace their lost workforce with technology and then hire temporary workers before hiring employees full-time.
Right now, the Nr.1 fundamental story of the Fall 2009 is the CONSUMER CONFIDENCE. Yes, we all know that the GDP figures are on the rise again. That, my friend, is already history. Now, when it comes to fundamentals, the absolute superior thing you should focus on is confidence of the U.S. buyers. I strongly advise to watch the indicators like CB Consumer Confidence and Personal Spending to determine how soon the markets will recover.
P.S. Note that there is no doubt in my mind about the global recovery being already underway. The only thing we need to find out in the days to come is how fast the recovery process is going to blossom. This, my fellow traders, is the beginning of many investment opportunities, this is the dawn of big money being made at the FOREX front, too…
Topics: Miscellanous, News From Wall Street |
November 24th, 2009 at 1:51 pm
hallo there
so you recommend tracking consumer confidence
why would I do that? I don’t think the markets will recover, this is just a temporary bubble driven by government spending, it will soon deflate and we will see another market freefall all the way down to March levels, or even lower
mark my words
rich
November 24th, 2009 at 1:58 pm
Hallo Richard,
disagree. The industry propeller is already rotating too fast to let the markets do what you’re saying they will do.
A financial market analyst, no matter how skeptical he or she might be, will never ever recommend selling off let’s say the S&P500 or 100 aiming for the March levels.
The fundamental data coming from across all industry sectors just won’t allow anybody to be that pessimistic.
Now, you see, there is no doubt - the markets will recover.
How soon we will see this depends predominantly on one factor - U.S. consumer confidence and spending. Of course, the story’s a bit more complex than that, but CC is crucial.
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November 24th, 2009 at 2:00 pm
I also believe in recovery.-
d