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The Rorschach Test. You’ve probably heard of it. It’s the one where a psychologist shows you a series of inkblots, then records and analyzes your responses.
Is it a bat? A bird? A butterfly? Two people dancing or hugging? What you see all depends on how you perceive the image, and it’s supposed to shed some insight on what kind of person you are.
After digesting this morning’s unemployment report, and the market’s response to it, the test is exactly what I thought of! Why?
Well if you look at just the major headlines, and you’re an optimistic sort, you’d probably call it a blowout! After all …
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| It’s going take a lot more job growth, and a lot more wage growth, to really jumpstart economic growth. |
- The U.S. economy created 288,000 jobs in April, according to the Bureau of Labor Statistics. That was far, far above forecasts for a gain of 210,000 and the biggest gain in 24 months! Not only that, but March’s number was revised up by 11,000 and February’s was raised by 25,000.
- Unemployment? The rate that’s reported on the evening news tanked to 6.3 percent  from 6.7 percent in March. That was far better than the 6.6 percent that was expected by economists and the lowest level since September 2008!
- Long-term unemployment also fell sharply, and figures show that the job market has finally recovered all the positions lost during the Great Recession.
But if you look behind those headlines, and you’re the skeptical sort, you’d probably say “What? That’s IT?”
Take average hourly earnings — what your typical clock-puncher takes home. They stagnated last month, rather than rising 0.2 percent as forecast. On a year-over-year basis, earnings were up just 1.9 percent.
| “The Fed will be forced to raise short-term rates much sooner than Wall Street is expecting or predicting.” |
Folks, that’s just a few basis points above the official inflation rate of 1.5 percent! And it’s clear from the comments I’m reading that none of us in the real world actually believes that’s how much OUR costs are rising! So unless and until companies start dishing out more money to their employees — rather than showering shareholders with extra dough via buybacks and dividends — you’ve got a problem here.
Meanwhile, the labor market shrank by more than 800,000 last month as workers tuned out or dropped out. That pushed the labor force participation rate to 62.8 percent, down from 63.2 percent a month earlier and the lowest in 36 years!
Some of that probably stems from the overall population aging. But that can’t explain all of it. If things are so great, you have to wonder, why isn’t everyone pouring back into the job market to get their share of the bounty?
As an individual investor who is just trying to make a few nickels in this market, it’s extremely important to watch how we CLOSE over the next couple of days.
Today’s market action has been clouded by the latest news out of Ukraine, where an offensive is underway to tame the restive eastern region. The Russians could use that offensive as an excuse to invade.
But once that very short-term geopolitical tension settles down, you’ll want to see if the stock market decides to embrace the “half empty” or “half full” view, and validate the marginal new high in the Dow. We might be able to get some clues by looking elsewhere.
Until the Ukraine headlines hit, the currency market was acting like it “believed” the number. I say that because the dollar rallied sharply on optimism about future growth vis-Ã -vis growth in other regions like the European Union.
The bond market was more of a mixed bag. We saw a relatively small rise in long-term rates, but we got a much bigger surge in short-term ones.
Then there were the Eurodollar futures, a bond market instrument that tracks expectations about future Federal Reserve policy. They tanked in price initially today, which is the market’s way of pricing in a “tighter” Fed down the road.
If that continues, it will tell you that the bond market is coming around to my long-standing view: Namely, that the Fed will be forced to raise short-term rates much sooner than Wall Street is expecting or predicting.
This is NOT a mainstream view, mind you. But neither was my prediction from early 2013 that the Fed would have to taper QE sooner rather than later. But the Fed shocked many on Wall Street by cutting QE by $10 billion in December … and it has kept on cutting it in $10 billion increments at every meeting since then.
So where do you stand? Do you think the economy is picking up? Or is this latest jobs report just more government-manipulated mumbo-jumbo? Are your wages keeping pace with inflation? Or does it seem like you’re falling behind? Let’s discuss it.
| OUR READERS SPEAK |
Even before the latest report, reader Scot B. was having none of the positive spin. He said there’s “too much noise from the financial media & too many obviously fudged statistics from governments worldwide supporting a recovery most of us can’t see.”
Diane was on the same page, too. She said “You’re right Mike. I’m feeling much poorer today than 6 years ago for sure. My day to day living expenses are much higher, with no interest on my savings at all. I’m living on my principal where I was living on the interest 6 years ago. Definitely didn’t plan on that. My home value is still less than what it was 6 years ago. My portfolio hasn’t recovered from the 2008 crash. So the all-time high is for someone else. Not sure who, besides the 1 percenters like you’ve mentioned.”
Personally, I think it’s going to take a lot more job growth and a lot more wage growth to really jumpstart economic growth. But I do believe we’ve firmly put the “crisis stage” behind us. That was 2008’s story, not 2014’s!
So I believe you want to avoid/sell most bonds and bond funds, and instead look at select, highly rated stocks that are wrapped up in powerful sector bull markets. My latest special report “Six Mega Market Winners for 2014 — and Beyond!” emphasizes precisely that approach.
| MARKET ROUNDUP |
Here’s a quick recap of the OTHER important news of the day …
 Many of you had some great tips on the blog for saving money on services like cable, TV, satellite and more. Thanks for sharing, Alan B., who noted that you can easily watch a lot of TV from your computer. He called Dish to cancel … and they slashed his bill by 55 percent! You can find more tips in a USA Today story.
I’m much more of a football fan, followed by baseball and hockey. But since I went to college in Boston, I guess I’d have to root for Wicked Strong. Extra points to the reader who can answer the trivia question: “What exactly is a ‘bubblah?’ anyway?”
Reminder: If you have any thoughts to share on these market events, don’t hesitate to use this link to put them on our blog.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
