Although I’ll stick to my warning about the annual perils associated with stock markets during the 3rdQ (i.e. best to avoid – see previous postings) I do keep track of what’s going on in the economy by monitoring what I’ve learned (over 20 years) to be important indicators. Despite the ups and downs of investor psychology, which is always sensitive to noise (Europe financial strains, China growth slowing, fiscal cliffs and elections) there are two key items I consider important.
Fewer and fewer people are being fired (good for the economy) over time.
Yes stocks are in ‘correction’ territory, but we’re years away from a “bubble.”
The following chart evidences the favorable employment trend, based on recent Bureau of Labour statistics. The unemployment rate is less of a concern, since that metric is muddied by structural shifts taking place in the labor market and demographics. Fewer mass layoff events suggest that even struggling sectors (especially manufacturing) are letting go fewer employees on the margin now than they were in previous years.
Using seasonally adjusted data, during the first 9 months of 2009 mass layoff events translated into an average of 255,031 new jobless claims per month, declining to 151,348 per month during the first 3 quarters of 2010, 142,916 in 2011 and 128,358 this year.
The trend is your friend on the economic front, and continued easy monetary policy is fuel for equities. The big money (institutional investors and hedge funds) will likely wait until January to buy so get in front of them in November and December while the window dressing (selling) puts pressure on valuations.
What are you doing ? I talked to Mario who seems to be enthused about what he is doing. Mac
I love your articles and look forward to the next one. Read both of your books; great stuff. Like to think that I’m a maverick in everything that I do.. Back in the day when 20,000 Americans scurried across the border to avoid the – what did they call it, Police Action or some such BS- I went to the US and did two tours. I have pretty much lived my life doing what other people thought was just plain crazy. As an advisor I never ask clients what they want to invest in, instead I do up the forms and tell what they have to do and please sign here. I don’t do bonds – maybe 0.5% of my clients holdings, balanced funds maybe 5 – 10%, the rest is in equity funds that have low PE, low volatility, good stats all around, pay decent distributions, a small percent in growth, nothing in high risk and I move the money when the markets change, i.e. I follow the money and trail, usually before the trail has become a trail. February 2000 I pulled out of Tech Crap and did okay. In 2008 I went heavy into high yielding equity funds and in 2009 came out on top. I’m not the brightest bulb on the tree but I do know that all you get from sitting on the fence is a sore crotch.