The Fourth of July fireworks come early this year.
Although by the calendar, the Fourth isn’t until Sunday, the big explosive economic news gets delivered on Thursday and Friday.
Thursday brings the possibility of a few ooohs, aaahs, and bangs with the report on initial claims for unemployment. The series has been volatile lately week to week, but the general trend has been disappointing with the number of new claims for unemployment failing to fall as quickly as hoped.
The consensus among economists calls for a slight increase to 458,000 from a prior 457,000.
The direction seems reasonable to me although the projected increase seems low considering the big drop off in construction activity that has followed the end of government subsidies for home buyers at the end of April.
The big boomers, however, are reserved for Friday.
That morning the government announces the non-farm payroll number and the unemployment rate for June. The consensus is calling for a drop in the number of people working of somewhere around 100,000 and slight rise in the unemployment rate to 9.8% from 9.7%. That would follow on the heels of disappointing job growth in May when the private sector added a piddling 41,000 jobs.
The bulk of the job gains for May came from a surge in hiring by the government of temporary census workers. That surge in hiring is over and many of these jobs will end in July. The end of temporary hiring will make it hard for June job numbers to show any month over month growth and, of course, the end of these jobs themselves in July will actually depress the payroll numbers.
These data releases have the demonstrated power to move stocks and with the long Fourth of July weekend ready to start just about as soon as the numbers are public you can bet that a lot of investors will be moving to the sidelines starting as soon as Tuesday or Wednesday. Volume is likely to get lighter as the week progresses. That in itself could add to any volatility on the numbers themselves.
Interesting read, more so because this guy that is quoted sees things similar to JJ, he says “Dee perceives the spanking move up from the lows—as do we—as a cyclical rally in a secular bear market.”
He is the only other person that I have heard put it that way, him and Jim (Jim first of course, by about 6 months…) Here is the article…
(And no I’m not depressed)
The Coming Storm
by Alan Abelson
Monday, June 28, 2010
provided by
BARRONS
“The bulls are ignoring the economic realities.”
http://finance.yahoo.com/banking-budgeting/article/109942/the-coming-storm;_ylt=AgdWq7EWvWNfm5Ht0rMFrOi7YWsA;_ylu=X3oDMTFhaXZjZTk0BHBvcwM0BHNlYwNzcGVjaWFsRmVhdHVyZXMEc2xrA2J1bGxzYXJlaWdubw–?mod=bb-budgeting
bsdgv, sigli,
Man, are you guys pessimistic! Why are you so depressed?
I agree that the vast majority of companies are poorly managed – even profitable companies. But as an individual stock investor, that doesn’t bother me too much. I look for and buy only those companies that stand out above the crowd.
You guys are regular readers of a blog written by a great investor. You also get a lot of good advice from many smart folks on here who gladly share their wisdom and research. That’s a great leg up.
There’s a lot to be happy about. If we readers here can’t beat the market, who can? If we can’t, what would that say about the wisdom of spending time here reading Jim’s posts and each others comments?
I, for one, think we can do it. And I suspect that, as regular readers and comment posters, that you do too. So let’s get positive, get focused, and do it!
I’m not optimistic, more not pessimistic since it doesn’t really do any good to be defeatist. It baffles me that markets and economists can’t seem to come to grips with aggregate demand and the % added by debt, and when debt reaches a maximum it is extremely hard to grow your way out of it. I think we’re there and it’ll be a long slog, new normal, whatever, but maybe Fisher is right and 500% debt:GDP is achievable. But what then? Ooh yeah, they’ll cut debt in Washington before it gets too bad. I have faith. Really.
Reasons it may not be look out below terrible: $2.25 trillion added to world GDP by developing markets alone this year is nothing to scoff at. Weekly incomes are up this year in US, but that’s being discounted as much as possible. Newly established households are starting from a great spot IF they have (a) job/s. We’re using less gas and it looks to me like demand destruction has accellerated in the face of declining prices. That’s a huge hole in the bottom of the bucket to patch, but at least it has begun.
Yeah, market is overvalued. I think the market is dancing and hoping to exit at 11:59, or hoping to wait it out long enough for valuations to catch up.
Don’t care for Krugman or the book and mag sellers on the other side (Art Laffer comes to mind). Real economists knock the Krugmans around pretty easy.
sigli:
I wish I were as optimistic as you are. I try to prepare myself for the bad times ahead of us.
Go to multpl dot com.
Long term average is around 15. This can be eye balled in the chart and it corresponds to an earnings yield of 1/15=6.7%
Currently S&P500 P/E=19.5 hence an earning yield of 1/19.5=5.1%.
Your 10-yr treasury yields 4+% meaning that you take this market’s risks for an additional 1%. I thought people asked 3-5% as market risk premium. 15 PE kind of gives you that.
15 PE and lower seems a better proposition. Let me be optimistic and assume that earnings will not drop but grow as the current anemic level corresponding to 15 PE. This means we’re looking at an S&P of 1075 * 15 / 19.5 = 830!
Yes, this is the fair price S&P500.
How bad could things get? Paul Krugman says:
The Third Depression
http://www.nytimes.com/2010/06/28/opinion/28krugman.html?partner=rssnyt&emc=rss
Howdy Mates,
Me Y.T.D. is still a wee bit down under, but I cut my deficit in the last month from minus 5% to minus 2 1/2% due to some lucky short term trades eeh? Jus tryin to get out of this year at least even.
Gonna go take a dip with the crocs. Feel safer with them than some of those wall street sharks!
Ahh, bloodsucker, you’re letting your Keynesian ways go now? Can’t we stimulate and pull sales forward forever?
On a more serious note, for some time I’ve been leaning toward a mix of growth income payers (the JNJ’s), slow growth incomies (electric utilities, specialty income trusts such as Liquor Stores IT), better managed bond funds in the 6-8% range, treasuries, oh yes, I said it treasuries, at the right price (4+% 10-yr), and the ultimate either way hedge in Oil stocks with good dividends.
This portfolio hedges both upside and downside risk.
As I understand, there are two schools of thought about the near term future of the economy. Some people say the conomy has grown as much as it can and now it is going side ways. The other groups says, we already turned south and it is only a matter of when the bad news will arrive.
If you are on the 2nd camp, you better sell everything long, go short if you want and sit pretty.
On the other hand, if you subscribe to the first analysis, the question is: Does the market deserve the P/E ratio that it currently sports? What is the proper ratio? What would be a more appropriate S&P level?
These are the questions everybody should ask himself/herself.
I was sidetracked at the open bar, where the heck did you say the party was ??@##%$! ?
sigli,
I got sidetracked at the Shrine of Chinese Growth. That seems to be where the party is…
Apparently, some of you haven’t been worshiping at the Shrine of Growth hard enough or long enough. Shame, shame.