By Joshua E. Stone
As the S&P closes in and surpasses the 1220 target mapped out in Jan by me, and even earlier by others; the questions are becoming more and more glaring. Where is the volume in this rally? Where are the average investors? Does the rally mean the recovery will be strong? If so, then why is new employment still below 300k a month?
I have come to the conclusion there is a tale of two economies: one in which the traditional job market is gone forever, another where the job market is wide open and not enough talent to fill the demand.
I think the biggest challenge facing America going forward is its people. They are used to getting jobs the old fashioned way, where you go to the paper and find something you can live with, or you get a job at the local mill or car company because that’s all the town has ever known.
While there may not actually be a job posted at the local mill, there is a job there no doubt….its just the management and the seekers don’t see it. At a local mill there is one job I can think of right away that is most likely not being filled: social networking marketer. Another example of a job at a hospital or any big firm that is not being filled: waste reduction engineer. Radio and TV stations are already using social networking or WEB2.0 with great success. The forex industry is a near grandparent in this field already, with social forums and whole websites devoted to experts and consumers alike where you can chat and exchange ideas with like minded individuals.
Between social networking and reducing waste in this economy, we could see vast improvements’ in our productivity and profit thereby increasing the GDP. Things like this are already underway in the form of the Green Economy. These are just two examples I have thought of for the purposes of writing this article, but there are more. For example, it is well known that the high tech industry in the USA is flourishing, but is plagued by a lack of talent in the employment pool and flying vultures in the form of new taxes.
The result is jobs are outsourced, the employment is floundering, industry growth is stagnant and the long term outlook for the economy gets more uncertain to many. Since it appears the people of the USA have been collecting unemployment for the longest time in history, one can’t blame them for feeling like there is no hope for improving their situation.
In theory and in history, the spendicide the US government is committing on behalf of its people will work to get us out of recession in the short term. The problem is that the principles of good economics demand that we don’t run large deficits during the good times. This is something we have failed to do since the late nineties; this has put us in a very bad condition to deal with these tribulations. Aside from the fact the spending policy in Washington has to change dramatically, the private sector has to put the other foot forward and create sustainable jobs for the future, thereby increasing the size of the economy and the revenue base the government has. All that said, history seems to suggest government surpluses as well as taxes that are too low lead to recession.
If this does not happen the next financial tsunami known as the bond market collapse will surely be impossible to navigate and survive in a meaningful way. A strong US economy will help us weather the collapse of the bond market much better, I would think. It also needs to be said that the USA is not Greece or like any country anywhere else, and our bond market crises will not be like the ones we are seeing now in Europe. Will this be good or worse as a result, only time will tell. All that said, history seems to suggest government surpluses as well as taxes that are too low lead to recession. I also do know we can print our own money, so that certainly changes the traditional dynamics of any bond market crises we will have here in the USA.
It is also easy to blame the government for this jobs crisis, the current administration fails to get serious about a jobs creating energy policy. This will ultimately be all of our undoing as the prices for everything continues to soar for the average person. The average person is not going to make it through the transition to more energy efficient models as even the most optimistic plans don’t have everyone driving hybrids in the next few years. I know that high energy prices are deflationary, but cheap energy is a prerequisite for a strong economy. An idea that seems to be lost on everyone these days but the poor folks and business owners who are seeing 60% increases in the COD and fuel expenditures year over year as we transition into the new decade. A VAT tax will put many of the small businesses left in this country right out of business. The recent disaster in the Gulf of Mexico proves the argument and concern beyond a shadow of a doubt: industry and the US administrations have proven there incompetence regarding energy production and policy. Just the consequences of this most recent catastrophe alone may have wiped out nearly an entire gulf and may devastated many industries in one of the world’s formerly most prosperous and beautiful regions for decades to come. In my opinion the Gulf of Mexico has pretty much been quite devastated up to this point by dereliction in policy and industry, and this flow of oil into the sea will certainly not help at all…no matter how lucky we get with the exact details of the cleanup.
My take on the market and the economy at this point are not very optimistic, I do have some optimism. But it is fading as I see the real issues and problems in this country either not being fixed, or even being completely ignored or exacerbated by a seemingly inadvertently genocidal political and corporate establishment.
I do think the current bull market is still in place, as mentioned before on this blog, most bull markets have two year cycles, that puts the current cycle at the age of a toddler by next March and set to end its buoyant ways in the next several months. I don’t see the FED raising rates before then, so that leaves the markets with room to move up baring some development that changes the current trend: like the FED adjusting their language to allow for an increase in rates.
The events in Europe recently have also demonstrated the contagion effect is quite real and could very well if not already have capped the markets in this bull cycle. Some analyst say the market will begin to fall this summer and there is somewhat scary evidence to support that now with the way the markets fell and gold surged on the heels of the Greek crisis in recent days. On the other side the recent uptick in volume could be a sign the average investor is putting their toes back in the water, perhaps as a result of the regulatory bills being passed increasing confidence in the market. I see this market as quite strong still, and the trend we have seen since March of last year though threatened at this point has not quite been broken. The rally and fundamentals are still intact; bolstered by improving economic data and a burgeoning consumer wallet fattened from ripping up credit cards, selling jewelry and walking away from mortgages. I think some sideways action will be in store for summer, then fall will arrive and the market will have done the classic sneak range up by that time.
This leads me to think the most likely scenario for the recovery will be something like what one analyst I saw describe as square root shape. We are seeing a bounce, but I think we will have another recession soon if the taxes go up as many are saying they will next year, and of course as the “business as usual” policy continues.
On the foolishly optimistic side, we could see a history defying economic boom from here on out. I believe in the USA, so I am certain we will do well at the very least. As Americans we can all look forward to the next great road bump, they are hard to deal with and painful, but we need them to wake us up and keep making this world a freer and better place for us all on Gods Green Earth.
