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Will We Really Rally?

A colleague called me on Friday and said "You know what?  I was listening to NPR and some guy who with works with or for, or around George Soros was just on and said he expects the market to rally into summer and then collapse this fall!  That's just what you were talking about..."

 

Well, yeah, how about that? And for several months, and I have my reasons.  Nevertheless, I continue to get emails from people anxious to insist that the rally is illusionary and we're just inches from the jaws of hell.

 

Because it's Saturday and we've got a little more reading time than usual (*most of us anyway) let me share a particularly well drafted example:

"It should be clear to you that what you call ‘rocket fuel’ has already been discounted in the world markets, so therefore only has limited, and short-term, effect.

There will be no rally this summer [as you believe] because the game is really over. We’ve already seen the desperation [what you call the PTB have resorted to. I don’t have to tell you that collusion to manipulate the market is a severe criminal felony – but of course that doesn’t apply to the PTB. But we already know that they are buying up the market [with well-coordinated buy programs – it had to be well-coordinated because they cannot do it on their own anymore like they used to in those critical moments in yesteryear] and then having to continue these collusive and criminal exercises in order to keep the markets from collapsing again. But they’ll soon run out of gas. It may take us into the fall or winter, but they’ll become exhausted trying to do what can NO LONGER be done.

As I said: the game’s over. The rocket fuel they’re using smells a little more each day – doesn’t it remind you of just ‘bad wind’-?

But there’s something much more important than the markets or the economy…. Because while we try to profit from knowing, we are sacrificing our souls. Our complicity is passive perhaps, but we are in truth playing the game with them. It needs to be seen for what it is ….involuntary conspiracy. Thus do we all become guilty-!

Just look at what the power cabal has done in its criminal war adventure [just to be firmly in the oil site]. How much criminality are we supposed to endure? After all, there is still some moral position that is called ….collective responsibility, no-? And torture-? And bombing of women and children – that is …what do you call it-?

Perhaps we should all be impeached and strung up ….for permitting these horrors! Perhaps we will be…. The real horror is that no one is standing up and shouting ‘stop it’!

No, George, it’s too clear the game’s over. Those who have the slightest stake in it will neither see it nor know what otherwise to do. The world-class marketers already know it. The US is bankrupt …morally, socially, and economically – it just hasn’t gotten to main stream yet. But it will. Mark me!

So marked!  But, please mark mine as well: Even though we are a morally bankrupt, moral-compass-gone-missing kind of country that will bomb anyplace that threatens our version of global economic/dollar hegemony, that doesn't mean that we can't have one more good stock pump-and-dump episode before we take the last deep breath economically speaking.

 

I think of  investors (*as a group) as being like House, MD on teevee.  We're got the strangest damn set of symptoms going on here, so we have to keep running through our symptoms and see what diseases fit - or, what's the disease that we don't fit but yet is close and might just present differently here in this patient because of a hidden variable that's not adequately considered?

 

Certainly, one of the 'hidden variables' could be the extent to which financial markets frame their expectations based on numbers offered by government agencies, such as the Jobs Report out from the Bureau of Labor Statistics on Friday. 

 

In this week's report, I didn't get after BLS in my usual rabid drum-beating way for asking us to believe the numbers as presented, but a reader in Illinois remembered my enough of my previous rantings about how the Birth/Death Model is used to create jobs out of thin air to send this:

"George:

 

A take off from the old song …Who do you Love…should be Who do you Trust..    

 

This was a very weak jobs report. But it is even worse when one looks at Birth/Death Model assumptions.

 

He then went on to explain how the notion of adding 44-thousand jobs in the leisure/hospitality sector and how 28-thousand construction jobs were created is a major stretch of credibility (*should any exist after reading the recent inflation numbers).  Nevertheless, the BLS numbers are presented as Gospel and sites like this one that question their veracity are mainly discounted by the Establishment Media, also known as the MainStreamMedia, MSM, as hangouts of conspiracy theorists and nutjobs, than you very much.

 

While it's true that Ben Bernanke was forced this week to admit that there are serious signs pointing to a recession, we also see some very positive press going to the idea that the worst is nearly over, and even in the LA Times site, there are concepts like this one pop up: Ben Bernanke is a hero.

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While my esteemed other reader thinks the world is ending right here, my view continues to be tempered with a longer perspective.

 

First, we continue to see movement, such as the Dick Cheney's trips earlier this month to anywhere he can find a landing slot for Air Force Two in order to get everyone on the same page about U.S. intentions in the Middle East in general, and as they relate to Hamas, the Syrians, and Iran in particular.  This should play out shortly over coming weeks.

 

When war sooner or later does show up, it's good for the economy, even if it's a little inconvenient for its victims.

 

The second point is that gloominess about the jobs picture plays well on the Street where maximums like "Markets climb a wall of fear" abound.

 

I will grant you that "Huge Job Losses Set Off Recession Alarms", but at the same time I'd remind you that the view around Wall Street of jobs (* of other people, not traders and banksters) seems mostly one of contempt, with the marketing's figuring "Ah, more dead wood has been rooted out - cause for more optimism for higher profits to come thanks to lower overhead..." and thus layoffs in the minds of traders can be a good thing. 

 

Especially so when coupled with the word "bottom" because the conventional wisdom is that markets discount things anywhere from 9 to 18 months into the future.  This view suggests, recession or not, the market is already trading anywhere from year end 2008 into the fall of 2009.  If you believe the conventional wisdom, that is...

 

The third point has to do with technical indicators, so ponder these

• My friend Robin Landry figures we could have one more final blow-off top into summer to complete (*in Elliott wave terms) a fifth-of the fifth- of the fifth.  in other words, yes, this could wrap up the final advance from the lows in 2002 and would then open the door to a major decline down to a Super Cycle bottom that could take us under 3,000 in the Dow, but not just yet.  OK, fifth wave failures are not unheard of, but can I bet on that?  Not me, said Chicken Little.

• The Dow, from a technical standpoint looks pretty healthy.  Not only has the Dow put on 393-points this week, but a two-year look at the volatility index shows that we are backing off from recent nervousness (*where volatility is really spiking), and even  more important to me, under Dow Theory which offers that moves in the Transport Index are key to the market's underlying health, I see a major divergence in the three month view,  and an even larger divergence in the one-year view.  Are the Transports leading the way up?

 

With all this in hand, what do I think will happen next?  At least during some of the early going next week, I expect the market to pull back some - looks like it got just a little ahead of itself.  Not that the divergences aren't significant, but I look at four technical indicators. 

 

If you pull up the Dow Index on your trading platform, put in the MACD, the RSI, and both fast and slow stochastics.  To me, these look like they have gotten a little ahead of things, so a flat/somewhat down market next week could certainly be in the cards.

 

On balance, however, and for my personal trading decisions (*I don't offer financial advice, but I'm more than willing to share my view and tell anyone anything about what's going on in my account), I am optimistic that we are in a fifth and possibly final wave up.

 

Historically, fifth waves up have been really good for commodities, and so that's where my bets are placed now -- in my commodity account with call options in wheat, silver, and coffee.

 

Between now and summer, with perhaps some hesitation next week as headlines like "US loses jobs at fastest rate in 5 years" sink in, I expect a strenuous climb of that wall of worry, accented by a "patriotic rally" as the Middle East lights up.

 

So there you have it:  As paradoxical as it seems, Mr. Permabear is bullish in the very short term (*into summertime), at which point I may move a good portion of what's in the commodity account back into the stock side and buy LEAP puts and government inflation-indexed  bonds like there's no tomorrow.  (There might not be one.)

 

When we get to, say, August, I'm expecting to be 100% focused on capital preservation through what could be anything from a tempestuous pullback to sailing off the edge of the known financial earth - a fine time to be battened down for heavy weather indeed.

 

Again, THIS IS NOT INVESTMENT ADVICE - YOU'RE ON YOUR OWN THERE.  This is just my current trading plan, subject to change without notice, especially when the "Speculator Slices" is posted by HalfPastHuman, probbly late Sunday.

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My colleague asked me what I thought about Financial Advisors and I let him in on a little secret. "You know who my favorite financial advisors are?" I asked him.  "My wife Elaine and my sister Suzi.  Every time they ask me a question about any kind of consumer item I look at the stock in the underlying companies because a word from Suzi or Elaine is buzz and that means they have the potential to be home runs."

 

"Let me give you some examples:  My sister Suzi asked me a few years back what I thought of her buying a hybrid Toyota Prius when they first came out.  What automaker would have been a no-brainer pick when they came out with the Prius a few years back?  From when she asked about the Prius, she got one of the first ones delivered, the stock has better than doubled."

 

"Then, about 9-months back, Elaine's sister in Spokane told her about this great new cleaning thing called a "Swiffer" - which I have two of in my office now, along with replacement pads - one for the floor and one for the light dusting of other things, books computers and radios.  The stock of Proctor and Gamble ran from 62 1/2 to 74 1/5, roughly a 20% pop in 6 months probably due in large measure to Swiffers." 

 

"Then this week Elaine tells me about this Hasbro .MP3 playing toothbrush.  So, I am watching Hasbro climb."

 

Turns out my colleague's worst performers were those stocks he had purchased buying them 'by the numbers'. 

 

"Rearview Economics!" I told him.  "All you need to do to become a genius-level investor is to keep your eyes open to what's going on in the marketplace.  Where's the next Big Thing coming from.  You're not going to find opportunity in the trailing twelve month (TTM) numbers. Spot that next big thing, and who needs and investment advisor?  If you aren't good at spotting the next Big Thing, then by all means get yourself an advisor, but also realize their performance might not equal good stock handicappers who know how to spot value and innovation and who are willing to back up their hunches with some cash."

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Do I presently own Hasbro, P&G, or Toyota?  Nope.  As I explained, my present tiny portfolio continues to focus on commodities, driven by "Rust to fertilize food price surge", "Silver, gold turning into green," and "Coffee Increases as Dollar Falls."

 

Enjoy the weekend - I'll be doing taxes.  But keep your eyes on the headlines.  "Rice jumps as Africa joins race for supplies" says one headline as rice hits records.  After we get through what I think will be the last-train-out rally into summer, you can bet (*at least for now)  I will be getting extremely defensive.

 

Have a great weekend (HAGWE) and see you Monday morning.

 

(Unless you're a Peoplenomics subscriber, in which case, tomorrow we'll go over "How Would You Play the Crash?")

 

This week for Subscribers to Peoplenomics:

Long Term Solutions: Three Action Points

One of the occasional criticisms leveled at my writings is that I don't spend enough time offering solutions to what are the obvious problems that face the world's humans today. This week's report will be very short and to the point with three major solutions being offered. The first action point is a response to numerous emails from readers who say "I'm poor - and I can't get to debt-free and a paid up place to live, because of my miserable circumstance." I explain how to team with other family members or families to set up a very robust self organizing collective (*SOC). The second sketches the outline of a global political party to counterbalance rampant global corporatism; a short discussion of why a global political party (GPP) might actually work. The third is a short discussion focuses on the question "What is money?" and how we store 'value'.

 

                More for Subscribers                 Subscription Information

 

Invite Your Friends to Wake Up

If you know anyone who is sick of those endless "me too" and "good times are just ahead" reports on the economy, tell them about this site and our strange outlook on things.  If they still like you fine, and if not, you didn't need them anyway....  Click here to send 'em an invite...

 

$10 to Save Thousands

There are lots of ways to save money on food, shelter, transportation, and such.  It just takes a little reading and one source of good ideas is  our handy ebook "How to Live on $10,000 a year or less.  Still just $10.

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Last week's report is here.    If for back issues of this site, click here.  (Goes back to 1997!)

 

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Friday April 4, 2008

Employment Collapse: A "Marginally Attached" Reality Check

First the summary: Biggest losses in five years: The unemployment rate jumped more than some expected in the report out today -- up 3/10th's of one percent in March:

The unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarm payroll employment continued to trend down (-80,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Over the past 3 months, payroll employment has declined by 232,000. In March, employment continued to fall in construction, manufacturing, and employment services, while health care, food services, and mining added jobs. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.

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Over the month, unemployment rates rose for adult men (to 4.6 percent), adult women (4.6 percent), and Hispanics (6.9 percent). The jobless rates edged up for blacks (to 9.0 percent) and whites (4.5 percent), while the rate for teenagers (15.8 percent) was essentially unchanged. The unemployment rate for Asians was 3.6 percent, not seasonally adjusted. (See tables A-1, A-2, and A-3.)

In March, the number of persons unemployed because they lost jobs increased by 300,000 to 4.2 million. Over the past 12 months, the number of unemployed job losers has increased by 914,000.

The civilian labor force rose to 153.8 million over the month, offsetting a decline in the prior month. The labor force participation rate was 66.0 percent in March and has remained at or near that level since last spring. Total employ- ment held at 146.0 million. The employment-population ratio was little changed over the month at 62.6 percent. The ratio was down from its most recent peak of 63.4 percent in December 2006. (See table A-1.)

The number of persons who worked part time for economic reasons, at 4.9 million in March, was little changed over the month, but has risen by 629,000 over the past 12 months. This category includes persons who indicated that they were working part time because their hours had been cut back or because they were unable to find full-time jobs.

Now, a nickel's worth of analysis here.  First, the Labor Department let's on that there were really another 1.4 million people who were 'marginally attached' to the workforce.

"About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in March. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.   (<--- Can you believe this??? -gu)

Among the marginally attached, there were 401,000 discouraged workers in March, about the same as a year earlier. Discouraged workers are defined as persons not currently looking for work specifically because they believed no jobs were available for them. The other 951,000 persons classified as marginally attached to the labor force in March cited reasons such as school attendance or family responsibilities."

Hand me the calculator and a bottle of Jack, please? 

Add the admitted 7.815 million unemployed to the 1.4 million 'marginally attached that they didn't bother to count as 'unemployed' and we get 9.215 million, which on a workforce of 153.784 million pencils out to an RCH under six percent unemployment rate but it gets even worse because if you add the table A-12 (unadjusted) U6 (*Underemployed like PhD's flipping burgers) you get an unemployment or severely underemployed rate of about 15.3%.

And that's with a war going to keep the economy on life support!

Welcome to the Greater/Second Depression I've been writing about...

Did the linguistics or did they not say employment collapse in March?  80,000 jobs is close enough to collapse for us...

Revolution Meme: More Evidence?

A Digg to the Wayne Madsen report looks interesting: "Confidential Doc in Congress Warns of Conflict in America".  It's a subscriber item at WMR, but if you've been following the emergent meme you can understand why this is coming up on the Hill.

 

Say, you don't think 15.3% percent un and under employment would fuel such concerns, do you?  Meantime, back at the Cape...

 

Rocket Fuel and Spaghetti

I told you about how the Fed is pouring rocket fuel on the markets with free money in an effort to avoid the implosion of the Western financial systems that would accompany a large-scale financial lock up.

 

In his appearance on the Hill yesterday, Ben Bernanke was selling lawmakers that the Bear bailout was something that had to be done, although in truth, if the company had been allowed to go bankrupt, the fat cats at the top would have had to pay back millions in bonuses, which the bailout neatly avoided.

 

And the restructuring are continuing.  Take this morning's headline that "UBS urged to split off Investment Unit" as just one example.

 

Now, I don't want to sound conspiratorial (*although what the hell) but all the restructuring in the industry of late has an odor to it - the smell of money to be made.  The underlying strategy seems to be to take companies which picture themselves as mere victims of a crisis of confidence and split them into two pieces:  The disposable piece, where all the bad/liar's paper is concentrated, and the "core business" piece which seems to make money.

 

You notice that "Citi merger architect calls deal 'mistake'" in the Financial Times today? In the TimesOnline, we read how "Bear Stearns says traders' false rumours took bank to brink." Fer cryin' out loud, that's what traders do for heaven's sake - they push markets to extremes for money!  Get real.

 

The Fed bails out the bad business for a while, loaning them money on whatever pretext is handy, and the we get one more big rally before things all head south next fall or later; preferably in a democratic administration so the republicorps can promote their Big Lie of fiscal responsibility to a public which is nearly 50% on anti-depressants.  Ought to work just fine - has in the past, anyway.

 

In fact, the republicorp spin for a fall crash would be "Oh, it's 'cuz the markets are so worried about income democorps..."  Is this a great (duopolistic corptocracy of a ) country, or what?

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So, what kind of headlines would you be writing down on the Street if you were trying to keep the illusion going that, as my friend Jim Kunstler would put it "It's all good" or, as they said in the 1930's Depression "Good Times are Just Ahead!"?

• "Bernanke: full effect of rate cuts yet to be felt"  (*as I explained, rocket fuel can be slow to light when surrounded by skeptics.)

• "How to cash in on lower interest rates"

• "Tax Payer bail-out ideas stabilize US dollar, trip gold"

• "When economy perks up, where will your cash be?"

 

What's going on at the more subtle levels is that the crisis is cycling up to boil and then simmering - back and forth like, just when I make a big pot of spaghetti like I will this afternoon.

 

The "Fed", being better at cooking the monetary spaghetti than me, reckoning they will know the exact moment to remove the spaghetti from the inflationary heat they've been applying, such that everything will be OK.  I'm betting they scorch it, and we get a short burst of Hyperinflation and then a massive deflation, which would be akin to cold, burned spaghetti.

 

Bankers to the Life Boats!  You women, children and families, ya'll just wait over there...

 

The Runs: Fonda Obama

Jane Fonda has endorsed Obama.  Wake me up when this is all over?<