Take a deep breath, guys.
With all the hyperventilating about today’s (February 4) disappointing initial claims for unemployment numbers you’d think that everyone has forgotten that unemployment is a lagging indicator.
Unemployment numbers will be one of the last economic indicators to improve. Other economic numbers released today show that the economy is about where it was expected to be at this point in the recovery.
No doubt the initial claims number—the number of previously employed workers filing claims for unemployment for the first time—was disappointing. For the week ended on January 30, initial claims climbed to 480,000 from 472,000 the week before. Wall Street economists had expected that the number would drop to 455,000.
The weekly initial claims numbers are incredibly volatile, which is why economists prefer to follow the four-week moving average for initial claims. Even here the most recent figures were a move in the wrong direction. The four-week moving average climbed to 469,000. That’s up from 457,000 the previous week and well above the recent low of 441,000 that the moving average set back on January 9.
OK. Certainly not what we were wishing for. But if wishes were horses, beggars would ride. And the rest of the day’s economic numbers say the economic recovery is on track in the United States.
For example, factory orders increased 1.0% in December. That’s the same growth as in November. Economists had been expecting just a 0.5% increase.
A revision of the numbers for durable goods orders showed that instead of increasing by just 0.3% as initially reported, orders for durable goods grew by 1%. And growth would have been even stronger if orders for nondefense aircraft (Boeing (BA) is the single biggest contributor to the nondefense aircraft number) hadn’t tumbled by 30% for a second consecutive month.
Productivity numbers were the most encouraging sign for anyone watching for a turn in the unemployment trend.
Nonfarm productivity jumped by 6.2% in the fourth quarter of 2009 after growing by 7.2% in the third quarter. (The consensus among economists was for a 6.5% increase.)
Although the gross productivity number fell short of expectations, the make-up of the number was encouraging for a turn to job growth. Extremely so.
In the third quarter much of the growth in productivity came from a decrease in the number of hours worked—workers put in fewer hours to produce more goods resulting in a big gain in productivity.
In the fourth quarter productivity growth came from an increase in goods produced (roughly a 7% increase) and in hours worked (1%). The growth in the number of hours worked actually took productivity growth down a bit, but the increase is extremely important for an eventual turn to job creation.
Before employers hire more workers, they increase the number of hours worked by current employees. It’s only when they see that they can’t get more production without hiring more workers that employment starts to rise.
So the productivity numbers contain a small leading indicator for a turn in the lagging unemployment indicator.
Pretty much where the economy should be in this stage of a relatively slow recovery from a very deep recession.
tostoryteller… i’m long in TEVA and although I couldn’t give you a specific reason it has held up so well, I think that it is because it is becoming a/the dominant generic drugmaker. TEVA was good regardless of whether health reform went thru. I’ve been very iimpressed with the co and mgmnt and would buy more if it became attractive.
javos,
I don’t disagree with your strategy, except for CD’s. There’s no point in locking your money into a disgustingly low-paying investment of any kind for a set period of time. Even a money market account would be better.
javos, uncertainty is the main sentiment on Wall Street right now, that is what we are trying to exploit.
All of these fundamentals and technicals discussed are relevant in normal markets. This is NOT a normal market. Worldwide de-leveraging (consumer, corporate, and government) is necessary and will occur over the next several YEARS. Add to that a pissed U.S. public in an election year, and you have the perfect storm environment for anything BUT a normal business and market environment. Forget logic, hold 75-80% assets in the safest investment you can find (cash, CDs?), and put the rest is the riskiest position for making money to the downside (short SP500, short Rus2000, short Treasuries.)
STL,
Yes, although feel free to take advantage of buying opportunities as they present themselves.
kricmond,
That depends on what you’re holding. If you’re holding any fixed income funds, or good dividend-paying stocks or funds, I would say keep those for now. If you have any stocks which you consider cheap at their current prices, I’d keep those too.
This is only general advice. As always, there are exceptions. And as Dennis Miller used to say, “I could be wrong…”
Thanks EdMcGon for your quick reply,
so I am taking from your point of view, don’t hold your current positon in the market or hold and wait?
EdMcGon…
When you say…”keeping a heavy cash weighting in your portfolio for the time being”, is that for buying later when stocks are lower priced or is there another reason for keeping the cash??
Jim I read your articles often and believe you to be right on many of them, but when you use these government numbers for things like productivity and GDP I think you are fooling yourself. I wish you would do an article (and research) on how our GDP is actually figured. According to an article I read, (it used carburetors as an example) the way we figure our current GDP, it would add in the productivity of a part (carburetor) (time worked and all that good stuff) even though the part was now imported into the country, by doing this it made us look more productive when in fact we were less productive, we used many fewer people to build that car and the parts for it. If the productivity numbers are figured anywhere close to this they are probably way out of whack as well.
kricmond, to reply to your question: as an investor (medium and long time horizon) I almost totally agree with Jim’s recommendations and have followed his buy signals and price targets. He also made us aware of a period of volatility ahead reassuring us time and time again that uptrend is still there. As trader I tend to follow a shorter time horizon and I play volatility differently. I still have cash on the sideline for both strategies. 2010 will be very interesting investor/trader year.
kricmond,
I can’t speak for Jim on this specific point, but I would recommend keeping a heavy cash weighting in your portfolio for the time being.
Another thank you from me. Glad to have all your posts but this one was much needed. And the picture is perfect!
As for BRF. I think I’d rather be in specific stocks in Brazil, like ITUB, ABV, BRFS, – for reasons Jim already mentioned – and because it’s easier for me to understand a specific company. BRF is likely to track the froth.
The Canadian Bank, BMO looks attractive at this point too in part because of the dividend. Any thoughts?
off subject. interesting that TEVA has held up in this froth. Any ideas?
thanks.
agreed, Jim. All good points. I’ve been adding to almost all my positions over the last few weeks.
on a side note, love the stock photo, or is that your webmaster out there posing during his lunch break?
Good afternoon Mopama,
If the Dow breaks a 10000; use that as an indicator for to retreat to the sidelines?
EdMcGon,
You and Jim suggestion is to wait for the storm to past that’s coming in the up and coming months?
http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477 this is a good starting point
Jim and the rest of regulars, I absolutely enjoy coming to this site everyday. I learn so much from all of you. Here is my question for you all, what resources would you recommend for a beginner to obtain and learn about things like factory orders, productivity rates, capacity rates, business models etc etc etc.? Where to get explanations (some are obvious I know) and then where to you find the info?
P.S. Yes, I’ve read Jim’s book
EdMcGon, if Dow breaks 10000 next support level will be 9750.
Jim, I agree. Most traders and investors remind me of shakespearian plays…when the crash dashed so many hopes and the recovery (having presented itself in Act II), littered with ups and downs, has so many drama queens grasping for the fickle dagger. Unemployment is messy for a lot of reasons. It does lag. It will improve, albeit slowly. Herd mentality is predictable and frustrating to those of us that wish they would get a life. Perhaps a dose of comedy would be in order to match those good earnings I’ve been reading about. Nah! More tradgedy, please!
Mopama,
What do you think about shorting the Dow?
Reading charts: If Dow breaks 10000 we could see a looong leg DOWN!!! Be safe!!!
I just loaded up on more brf! 🙂
STL,
I’m holding off to buy some more BRF tomorrow. At the present price, even if it starts to rise tomorrow, I should be able to still get it cheap.
YX,
The obsessed one is me. And I discuss it here because, at the moment, it’s the only holding I have in common with Jim. Mind you, that’s not a knock on Jim. I just cashed in much of my portfolio waiting for the current market storm to pass. But that’s my portfolio strategy.
Currently, I am looking to take advantage of BRF’s drop in price to get more. I would also add that Jim suggested that VERY tactic in his initial recommendation.
Seaturtlelady, trading and investing have different meaning. Every day in the market there are different actors working together and sometime one prevails on the others. They are divided by their time horizon. It is important for everyone to understand which type of trader/investor one is before putting money on the table and act accordingly. I hope you don’t take it the wrong way. Good luck!
Some of you just got too obsesed bout BRF. Get over it. I bought several days ago and paid few bucks more than today. So what? I still have plenty room for profit, if Jim’s target is right.
EdMcGon…
OMG…BRF at 41.99…did you get in???
A “calming” voice amidst in a raging sea…
Thank youuuu!!
lol where do you find these stock pictures for your posts
Thanks a bunch, Jim. I’m breathing. Scooped up some more Brazil this morning.
Jim:
Thanks for another timely blog! I had bunch of low orders pending while I was posting comments on your site. After I posted “No needs to panic”, I went to check my orders. Several were executed. Today is good bargain hunting day! Maybe tomorrow (Friday) too. I am saving couple orders for tomorrow, just in case none wants to buy on Friday.