Posted February 3rd 2012

 
The jobs report for January was a big surprise with 243,000 new jobs, dropping the unemployment rate to 8.3%. Also, the previous two months were revised upward.
 
These numbers are good and should be looked at in that context but it is wrong not to look deeper to get a complete picture on what is going on. One good trend is in manufacturing which continues to be the strongest growth component of job growth. Manufacturing in the U.S. is gaining strength on the back of increasing exports. I think this trend will continue. The world is becoming a flatter playing field where cheap wages in other countries are starting to look less like a big advantage. Transportation costs and U.S. productivity tilt in our favor. Also, in Asia demand for higher wages is starting to gain traction.
 
In one sense the jobs report is misleading. Well over one million workers dropped off the employment rolls. What happened to them? They are still unemployed. Many just stopped looking for jobs. Also, many are older workers and they may never reenter the job market as their skills wane.
 
We all know that the government has never properly counted the number of unemployed and underemployed but no matter how you read it January was a good month for returning workers.

 

Good Trading
Steve Peasley

Posted February 1st 2012

 
Determining the direction of the stock market in the short run is very difficult. There are so many unforeseen factors that can disrupt the most diligent analysis that calling an up or down market is akin to looking into a crystal ball. You need only look back to 2011 and the earthquake in Japan that disrupted the worldwide supply to understand how difficult projections can be. The economist that forecasted 3% growth in the U.S. can't factor in natural disasters. They also underestimated the impact of the European debt crisis on our stock market.
 
This does not mean you should not make the effort to gauge the strength or weakness of the future economy, but one should always understand the weaknesses of that effort.
 
If the economy grows stock prices generally go up and if it shrinks it falls. The economic cycle runs 'behind' the stock market cycle. If one can broadly predict the economic cycle then it is easier to understand the stock market cycle. Stock markets move up at bottoms of the economic cycle and fall before the economy falters.
 
The effort is difficult but worth it, warts and all.

 

Good Trading
Steve Peasley

 

Posted January 31st 2012

 
We have had a long run starting in the middle of December of rising stock prices. We are now near the highs made last May and June. Last summer we fell to the lows of the year and at that time we suggested that you buy the market. Today is a time to begin to sell the market.

 

This moving money in and out is often called market timing and it has not been in favor with established opinions by the large institutions or for that matter the SEC. However, ever since the dot.com collapse of 2000 the stock market has been in a Secular Bear mood. If you bought the indexes in 2000 you would still be at loss today in 2012. In the 1990’s we were in a Secular Bull market and buy and holding stocks would have worked, but no longer. At some point we will return to a Secular Bull market but until then you need to be more cautious.

 

Recognized swings in the market such as we have seen for 11 years is a prudent way to reduce risk and try and maximize return. It does not always work but often enough to make the effort valuable. It does not mean you sell completely out and then put it all back in at one time. It is more of an effort to capture as much of the upside and not be caught unprepared for the downside. Then when the market completes its correction buy back in those stocks that are on sale.

 

It is never easy but it is rewarding.

 

Good Trading
Steve Peasley

 

 

 

Steve Peasley