Tag Archives: Jobs

A Better Market Picture?

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After months of going nowhere fast, the market is looking like it wants to go higher. The S&P is now within striking range of summer 2011 highs after hitting a low of 1074 back in October.

Why the sudden change in direction?

First, corporate earnings have been well received. Apple itself had a blowout quarter, getting a very positive market response, and now has the distinction of being the highest market cap stock in the world, neck and neck with Exxon Mobil.

Next, the market senses an improving (albeit slow) economy, with weekly jobless claims remaining under 400,000 for a number of consecutive weeks now. We’re also seeing an improved manufacturing picture and consumer sentiment has been improving as well.

Also, there has been considerable technical improvement in the market. Specifically, important indicators that technicians watch have gotten markedly better. For example, in early October of last year, the 20 day moving average on the S&P – that is, the average closing price for the preceding 20 day period – crossed above the 50 day moving average for the first time in a number of months, which was a very bullish development. Since that time the S&P has climbed 8%. Additionally, the 20 day crossed above the 200 day in early January, another bullish signal and resulting in a move higher.

S&P 500 6 Month Daily Chart

We’ve also seen the yield on the 10 year treasury bond move up from a December low of 1.8% to as high as 2.09 on January 23. This move in yields indicates investors are willing to take on more risk, benefiting equities.

Another key development has been the decline in the Volatility Index, or the “VIX” – commonly referred to as the “fear meter.” The VIX has gone from a reading of over 47 in early October to just over 18 in late January. That is a significant shift in thinking, and indicating more willingness to invest in and trade stocks.

Everything I’ve laid out has resulted in a better market picture, but can it last? Where might the market be headed?

My partner and Chief Market Strategist at Invested Central, Tom Bowley, just conducted a session titled, “The January Effect.” During his presentation Tom laid out historical data showing where the market ended up for the year based upon January’s performance. It’s clear after sitting in on the presentation that a strong January indicates a high probability of a strong year.

Of course, some will say we are in an election year, and that will influence market behavior. That might be true, but there are always events, some out of the blue, that can impact market performance. So, we pay more attention to what the charts and historical data tell us, with the belief that the market is always looking forward, and charts never lie.

It doesn’t really make sense to try to predict where the market will be by the end of 2012; we’re more focused on the here and now. But, if the bulls are able to clear the high of last year of 1370 on the S&P, it should pave the way for the market to go even higher.

Misery Loves Company

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The U.S. Misery Index recently hit a 28 year high, going back to 1983. The misery index is the sum of inflation and the unemployment rates and it hit 13 last month. So, it got me to thinking, where did things stand in 1983 and what did the next few years look like?

First, according to the Bureau of Labor Statistics, the unemployment rate in 1982 was 9.7% and then in 1983 it was 9.6%. This compares to an unemployment rate of 9.3% in 2009, 9.6% in 2010 and currently at 9.1% as we near year end. So, we are now three years into the 9%+ range, with no one predicting a drop by years end.

Just like 2012 will be, 1984 was an election year, and right on cue, the unemployment rate fell to 7.5%. As a result, then president Ronald Reagan got re-elected.

So, what happened to the stock market during and after the early 80′s? If you go back to April, 1984, you will see that the market began a steady rise in a stealth bull market that lasted 16 years.

One of the big differences I see between back then and now is that the elevated unemployment rate has lasted longer this time around. Where there were two 9+ unemployment rate years in the 80′s, we’re deep into our third year now. And, one thing that concerns me is that many of the people who have lost their jobs are now lacking the skills necessary to re-enter the workforce. Add to this the push to streamline and maximize productivity from the current workforce through innovation and increased technology and it starts to look like the unemployment rate could remain elevated for some time.

I do wish that history would consider repeating itself here; that is, let the misery index mark a turning point in both the unemployment rate and stock market performance. The unemployment rate began a descent in 1984 that lasted for 6 years and the S&P doubled.

While we cannot predict where things will stand at this time next year, I do know that politicians have an uncanny way of turning things to their advantage in election years, and as we saw when the misery index hit 13 twenty eight years ago, it sparked some changes that began a substantial turnaround. Maybe the miserable state we’re in right now will get even more miserable, but don’t be shocked if things look a lot different by this time next year.

See the current Misery Index for yourself!

GE’s Immelt – An opportunity to actually make a difference

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I read a story today where GE’s Jeff Immelt was quoted as saying about the nation, “We’re not trying that hard; We haven’t really tried as hard as we can to compete, educate, and sell our products around the world and I think we can do better.”

Now, on the surface, this sounds reasonable; how can we sell more US products abroad, and in the process, create more jobs? But, I remain skeptical about Immelt’s motives, especially considering that GE, under his leadership, and like many other large corporations, have shed thousands of jobs rather than look for creative ways to utilize displaced employees and help address the current unemployment picture.

Immelt tries to assuage the overall feeling of frustration and anger by many US citizens by saying, “It is natural to assume that people are angry and I think we have to be empathetic and understand people are not feeling great.”

OK, great again, but there are probably many former GE employees who would prefer a paycheck over empathy.

Immelt does acknowledge there might be something to the notion that there’s a huge discrepancy between an average worker’s pay and that of CEO’s by saying, “The discrepancy (the gap between the pay of CEO’s and average Americans) is certainly one of the problems today, in terms of why people feel the system is unfair.” But, he then downplays what most feel today by saying, “It is a symptom but it is not the problem.”

It’s also revealed in the article that GE expects to generate more than 60% of its revenue outside the US this year. So, why wouldn’t Immelt want all of us to “try harder” to sell more products across the globe?

Finally, Immelt say, in response to criticism that he (as a republican) is working in concert with President Obama, “People need to try; I’d rather be in the arena trying than not doing what I can to help.”

GE Executive CompensationSo, to all of this I say; how about GE trying harder to put more people back to work? For once, instead of waiting for the economy to try to miraculously recover on its own, how about Immelt and other top level CEO’s around the country stop the lip service and actually do something creative and different that might actually work? For example, I just looked at GE’s profile at the Yahoo Finance site and saw that the top 5 executives listed had combined compensation of $27.5 million for 2010, or an average of $5.5 million each. At the head of the pack? Immelt who brought in roughly $7.7 million, with no stock options showing as exercised during the year.

Let’s say, for example, that the 5 top execs at GE agreed to put 25% of their earnings into a pool so they could bring some employees back to work. At an average of $50,000 per employee, they could rehire 137 people. And, they could do it without spending one more dime. Now, this would mean that each of the top five execs would “only” end up taking home an average of $4.1 million, but come on; they could survive.

Now, imagine if this were to happen at the top 100 companies in the US, and assuming similar figures. Then we would see an additional 13,700 people back on the payroll instead of having to collect unemployment checks and draining the US financial system.

Before anyone gets riled up let me be clear; I’m all for hard work, ample reward and letting the market dictate the value of the work force. I started working when I was 13, I work as hard as any other guy out there and I’m always happy when my hard work pays off. But, this doesn’t mean that there isn’t a place for creativity from those who have blessed to be at the top of the economic food chain to help jump start our moribund economy.

Immelt talks a lot, and maybe he thinks that his words are soothing to those who find themselves on the flip side of the economic equation. But, I can tell you from the perspective of someone who’s much closer to the average man on the street than in the proverbial ivory tower, his words ring rather hollow.

Oh, and by the way; I just realized that I forgot to mention that GE got billions of dollars in taxpayer backed TARP funds..Sorry about that!

Stuck in neutral

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President Obama laid out his jobs plan last week and now the Republicans are coming back with some thoughts of their own. Right now it looks like the parties agree on extending and reducing the payroll tax component of the plan and will come up with some compromise on extending jobless benefits. The Republicans are vehemently opposed to raising taxes to cover the cost of Obama’s jobs plan so they will be offering alternatives that are likely going to be rejected by the Democratically controlled Senate.

While all of this goes on, the US is now teaming up with the Europeans and others to try to help them get through their economic mess. At the same time, freshly released data continues to show how weak our own economy is, with weekly jobless claims and inflation climbing while retail sales and manufacturing declines. Not very good combos.

When I look at everything going on it leads me to the conclusion that leaders around the world are truly stumped; they really don’t know what to do. Yes, the Fed is doing what it thinks is necessary to prevent a complete economic meltdown, but the “new world economy” is presenting challenges that no one knows how to deal with, and thus, the US market is stuck in neutral.

Of course, in the long run, it would seem like everyone around the world would benefit if there was full cooperation among the various nations. But, is it realistic to think that most countries would go out of their way to help other countries if it would hurt their own economy? I doubt it. And this is where it gets so tricky; trying to figure out how to help another country so your economy won’t collapse is one thing. But, helping another country weather a financial crisis to your detriment is another thing all together.

Let’s face it; the country with the most financial power calls the shots. And, for many years now, that has been the US. All of the sudden, our economic superiority is being called into question. And, we’re now being called on to cooperate with and assist other countries when we’ve got our own gargantuan fiscal mess to deal with. That’s just too much for most humans to comprehend.

As a nation, we look to our leaders to guide us through difficult times. They are the glue that is needed in times of crisis. Instead, we see a great division, with most of our elected leaders worried more about next year’s election rather than the well being of our country. It’s short sighted and could actually lead to the demise of our economic superiority. One thing that I am certain of is we will never get out of neutral unless there is a complete shift in thinking.

Are we becoming a tired nation?

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I just read an article by Patrick Allen where the head of the private equity firm Blackstone, Stephen Schwarzman, was quoted as saying, “We’re a bit like a great athlete who stopped training and gained a bunch of weight.” His point was that we are out of shape and need to lose some of that excess weight to put ourselves in a better position to get out of our economic funk.

It got me to thinking that another issue we are facing as a nation is we are also getting older and tired.

Let me speak for myself. I’m 59 years old, right in the dead center of the baby boomer generation. I started working when I was 14 years old when I had my first paper route in Detroit and I worked all through high school and college. So, I’ve been in the work force for 45 years now and imagine I will continue to work for many years to come, God willing!

I know from surveys and gatherings of our members that I represent our primary demographic at Invested Central, and while we have younger and older members as well, many are nearing the point in their lives when they may have expected to retire, realizing now that might have to be put on hold for a while. So, while the prior generation might have looked forward to retirement by age 65, perhaps it will be extended by a few years for more individuals who may not possess the same level of energy they did when they were younger. Makes sense.

Once all of us boomers do finally hang it up, there will be a big burden on younger generations to step up to the plate, and I wonder if they have it in them. I came from a family culture that emphasized hard work would pay off, and I’m lucky to have two children who aren’t afraid to roll up their sleeves. But I believe that part of our national lethargy at this moment has to do with an inability of the boomer generation to absorb all that is wrong with the world and to fashion solutions to get things back on track. That’s a lot different than when we felt we could solve all the problems of the world back in the 60′s.

One thing I do try to do faithfully is try to exercise every single day; do some sit ups and push ups, walk with the dog at the park, and since last year, ride my bike as often as I can. I do this as I realize that in order to keep my mind “razor sharp” and work through these challenging times, I need to be in good physical shape as well. I’ve managed to lose almost 20 pounds this year and it does make a difference. So, maybe Schwarzman is right; everyone needs to get off the couch and into better shape in order for us to move our nation forward.

Solutions leading to a stronger America

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Where do I start?

Let’s start with something everyone can relate to. We need fewer people losing their homes, we need more people working and we need small businesses to have easier access to funds to jump start the economy. I promise you, if we can make substantial progress with these three specific topics, we will be on our way to a better, stronger America. Oil is a problem as well, but let’s save that for another day.

Yes, we’ve got a deficit that is out of this world, but we’re not alone, and as crappy as things are in the US right now, we’re still the “go to” nation. So, let’s get it on the table right now; we need to lead the world out of its economic funk, because that will re-establish us as the power that we became and that we can become again.

The Fed has done everything necessary to keep interest rates low; they get high marks for that one. But, as my good friend and on-air partner Ed Handley from Fulcrum Securities pointed out during our show today, the Fed (actually, the White House, Congress, basically all elected officials) gets an F for doing its part (or lack thereof) to help stimulate jobs.

In addition, I don’t care what anyone says; the housing condition today is a national embarrassment; it’s beyond appalling. Yes, there are plenty of people out there who have figured out a way to scam the system and live rent free for years, but they are still in the minority, and for some of them, they might not even have a choice. Fine. It’s the other millions of homeowners who got lured by mortgage banks and didn’t have to show one iota of proof to back up their income and assets. And, this was all done SPECIFICALLY so the investment bankers could put together collateralized mortgage pools to sell to unsuspecting (some might say greedy) investors who were promised great returns.

So, make no mistake about it; the investment bankers and the mortgage bankers who went along with this scheme did just fine (Lehman accepted) while the vast majority of homeowners who took the banks up on their offers have completely gotten the shaft.

Next. Give me one really good reason why General Motors or any other corporation would go out of its way to create new jobs knowing that we could fall flat on our faces again? Do you honestly think GM wants to go through what it did to survive again when as a lean and mean company they can actually make money? Or, give me one good reason a bank would lend to anyone, other than someone who doesn’t need the money, knowing they can print profits simply from borrowing from the Fed for next to nothing and invest it into treasury bonds at no risk?

What’s the solution?

First, the banks must be forced to write down bad mortgages and work with homeowners to keep them in their homes. No more holding on to these bad loans that are underwater, “hoping” the market recovers. No more optional modification programs; ram it down their throats. A recovery isn’t going to happen even if you take mortgage interest rates to 0 (though it would help the cash flow, and thus the economy, of those lucky individuals who are actually able to refinance) because the vast majority of the individuals in the US don’t qualify for a mortgage loan. Yes, I know it doesn’t seem fair to those who aren’t under water, but we need a total “reset” of the housing market, because that will help everyone’s market value, and dramatically speed up a housing recovery. The banks will get spanked but the stock market would likely rally hard knowing a solution was at hand.

Next, IMMEDIATELY put a moratorium on FICA for the next year or two which would put substantial dollars in the pockets of both individuals and companies. All working individuals would get an immediate 5.65% raise (FICA was already lowered some in 2011, but it wasn’t enough). I would let individuals use those funds the best way they saw fit -savings, paying down debt, spending – while restricting corporate use unless the funds were used to create new jobs. Would it cause a problem within the social security fund? Maybe for a bit, but what about the $700 billion the banks got in their time of need? That seemed to work out just fine, and the impact from everyone getting a nice raise would become apparent quickly in the economy, quickly leading to more disposable income a big spike in demand for new jobs.

Next, I would have the government put aside a LARGE chunk of money to be loaned to small businesses at the same rate banks pay for use of funds and by that I mean businesses who have somehow survived the past several years and need some additional capital to move to the next level. I’m not talking about those businesses who have pristine credit; they can already get loans. I’m talking about those small businesses who had the tenacity through blood, sweat, tears and shear perseverance to make it through the most difficult time since the great depression. They’ve likely seen their own credit suffer, but they’ve demonstrated they’ve got what it takes to help lead the economy out of the muck. Let’s give them the resources they need so they can get innovative, add employees, lead the way in jump starting the economy. I certainly can’t say the same thing for those banks that got billions in stimulus dollars that you and I as taxpayers backed. They are more concerned with increasing dividends rather than putting people back to work, so don’t count on them to lead the charge here.

I realize all of this is easier said than done, but we need some more “out of the box” thinking to get us out of the current economic muck, as nothing else right now is working. These are my thoughts; attack three specific, important components of our system. Anyone got a better idea?

Warren Buffet on Jobs; a bit too optimistic?

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When Warren Buffet talks, people listen. So, when Buffet announced on CNBC the other day that the unemployment rate would be in the low 7′s by the 2012 election, I have to wonder how he arrived at that conclusion, and if he’s being too optimistic.

First of all, based upon the most recent reports, I haven’t seen any evidence that the employment picture is improving markedly. The weekly jobless claims continue to hover near the 400,000 range and there’s been very few announcements that large companies are hiring in any significant way. And, even though the overall unemployment rate was 9.0% last month, it’s still a long way from the low 7′s that Buffet envisions.

From my perspective, there’s little incentive for companies to add employees; why would they if profits are rising with reduced staffs? I’ve made the case for companies like General Motors before. They were taken to their knees, got lean and mean, and turned things around. Now they’re profitable, sharing some of their recent success with their employees, and not likely to add one more body than they need, relying more on improvements in technology and increased profitability.

Then there’s the whole issue with the price of oil, now sitting at $100 per barrel. If world consumption increases, and the price of oil continues to escalate, how is that going to help employment? For example, higher transportation prices will lead to higher food prices, which will lead to reduced spending, which will lead to a tightening of the belt. And, if the government is serious about reducing spending and bridging the deficit gap, how is that likely to help produce more jobs?

I want to be wrong here; more people working has to be a good thing for the economy, with the possibility of increased spending on goods and services. But, it seems to me that the golden age of full employment is history. I think we just need to get used to fewer people working.

What about that “Dirty Little Secret”?

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For a long time, I’ve pointed out that companies have no real incentive to hire employees, not with advances in technology and improving productivity and with more corporate interest in fat bottom lines. Thus, I was interested in a story I read yesterday by John Melloy, Executive Producer, Fast Money, “Market’s Dirty Little Secret: 9% Unemployment Just Fine”

In his story, John makes the contention that a high unemployment rate is actually good for corporate America, and quotes Stephen Weiss of Short Hills Capital:

While unemployment is a terrible circumstance for individuals and families, I am sure some companies believe they are better off with fewer people and are hiding behind a supposedly weak economy to keep their ranks thin, focusing instead on greater productivity from their current employees and ensuing higher margins.

Makes sense. In fact, not long ago, I made reference to General Motors, specifically asking what motivation they had to hire employees, considering they almost went down the tubes, and now they are content being more lean and mean. Undoubtedly, they are borderline paranoid about adding bodies, since they are focused on paying back the government to get them out of their hair.

It also makes sense because companies are hoarding cash, and in some cases, are concerned more about paying dividends than having to pay more workers. In fact, there are some major banks who have been talking about raising dividends, in spite of the fact that there are probably MANY bad loans that are not yet accounted for. Plus, how soon they forget that the entire banking system almost melted down just two years ago.

So, while many individuals continue to suffer, many of them being out of work for a few years now, companies aren’t about to go out of their way to give them a lift. No, it’s clearly more important to pump up the bottom line, give lip service that they are going to do their part to help get the economy back on track, when their actions are quite to the contrary. If I sound a bit jaded here, I suppose it’s because I am.

Unemployment picture still murky

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I was reading CNN Money’s reporting on weekly jobless claims, and while the numbers came out better than expected, we seem to be stuck in the 400-450k level, in spite of recent suggestions that companies are hiring again. Interestingly, we are seeing some decent economic numbers, showing an increase in manufacturing activity as well as strengthening in the services sector. So, one would think this could ultimately lead to additional hiring, but we’re not seeing that right now.

Think about it. We just went through 4th quarter earnings season, and many companies reported strong profits, some with record earnings; this with a greatly reduced work force. So, exactly where are the incentives to increase the work force? Do you think General Motors is chomping at the bit to add a bunch of workers after what they’ve been through? They almost went out of business, so they’ve completely retooled and streamlined, seeing that they can be highly profitable when they are lean and mean.

This is happening all across America. Advanced technology has led to greater productivity which has led to greater profitability. Having additional bodies lying around is no longer acceptable. And, those individuals who have been collecting unemployment checks for 1-2 years, their skills have eroded, leaving them vulnerable even if companies do start hiring again.

It now appears that the stock market has accepted the notion that unemployment could remain high for a long period of time, since it barely reacts even when the numbers are worse than expected. Just look at December’s non-farm payroll report, when only 103,000 jobs were created; way below market expectations. So, what’s happened since then? The market has achieved 2.5 year highs.

I hope I am completely wrong on this, because more jobs should help to create a more robust economy, but I just don’t see any signs that any major companies are going out of their way to add jobs. Many of them will put a positive spin on the situation, saying they are prepared to add employees as things pick up, but as Jerry Maguire said, “show me the money. “

Obama’s State of the Union Address

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President Obama will be in the spotlight tonight as he delivers his State of the Union Address to the nation. This particular speech is important, as it provides an opportunity for Obama to build on recent momentum by combining his oratory skills with practical solutions.

In order for the nation and the market to be receptive to his speech, Obama really has one thing to prove; that he can actually help spur the economy by getting more people back to work. If I were him, I would title my speech, “Getting people back to work”, and I would spend the entire hour talking specifically about how this can happen. Yes, we want to know that banks are going to lend to small businesses, that the housing problem will be dealt with swiftly and that we will continue to have a strong defense, but all of those things become irrelevant unless more people are working.

Since Obama doesn’t really have control over how many people are hired by corporate America, it will be his job to convince everyone listening, including the nation’s top CEO’s, that they would also be much better off if they take some of the cash they have stockpiled and used it to create jobs, as that could help accelerate consumer spending. Call it a domino affect. He’s certainly shown that he’s been willing to move more to the center of the political spectrum to help spur the economy, so now he needs to communicate to corporate leaders that it’s their turn to return the favor.

One thing I’ve learned is the market has a way of telegraphing whether or not they believe something is going to happen, so it won’t take long to get an idea of Obama’s effectiveness. And, his ability to turn lip service into reality, will go a long way towards getting us out of the worst economic slump since the Great Depression. I’m pulling for him, and you should too.