Best of the Week
Most Popular
1. Trumponomics Stock Market 2018 - The Manchurian President (1/2) - Nadeem_Walayat
2.Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - Dan_Amerman
3.China is Now Officially at War With the US and Japan - Graham_Summers
4.Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18 - Plunger
5.Stock Market Longer-Term Charts Show Incredible Potential - Chris_Vermeulen
6.U.S. Stock Market Cycles Update - Jim_Curry
7.Another Stock Market Drop Next Week? - Brad_Gudgeon
8.The Death of the US Real Estate Dream - Harry_Dent
9.Gold Market Signal vs. Noise - Jordan_Roy_Byrne
10.The Fonzie–Ponzi Theory of Government Debt: An Update - F_F_Wiley
Last 7 days
SPX Losing Gains - 17th Aug 18
What Gold Is Not - 17th Aug 18
Dollargeddon - Gold Price to Soar Above $6,000 - 16th Aug 18
Stock Market Higher Again, Correction Over? - 16th Aug 18
Up Your Forex Trading Game - 16th Aug 18
Large Caps Underperformance vs. Small Caps is Bullish for Stocks - 16th Aug 18
“The Big Grab” - Failing Pension and Retirement System - 16th Aug 18
How US Indo-Pacific Vision Forgot Asian Development - 16th Aug 18
Impulse Moves in the Currencies - 15th Aug 19
Best Merlin UK Theme Park Summer Holiday 2018 - Thorpe, Alton Towers, LegoLand or Chessington? - 15th Aug 18
The Essence of Writing an Essay that Must be Understood - 15th Aug 19
Is Solar Energy Rising From The Ashes Again? - 15th Aug 18
A Bullish Bond Argument That Hides in Plain Sight - 15th Aug 18
Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - 15th Aug 19
A Depressed Economy And A Silver Boom - 15th Aug 19
Moving Averages Help You Define Market Trend – Here’s How - 14th Aug 18
It's Time for A New Economic Strategy in Turkey - 14th Aug 18
Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - 14th Aug 18
Dow Stock Market Trend Forecast 2018 - Video - 13th Aug 18
Stock Market Downtrend to Continue? - 13th Aug 18
More Signs That the Stock Market Will Rally Until 2019 - 13th Aug 18
New Stock Market Correction Underway - 13th Aug 18
Talk Cold Turkey Economic Crisis - 13th Aug 18
Which UK Best Theme Park - Alton Towers vs Thorpe Park vs Lego Land vs Chessington World - 12th Aug 18
USD is Rising. What this Means for Currencies and Stocks - 12th Aug 18
Hardest US Housing Market Places to Live - Look Out Middle Class - 12th Aug 18
America’s Suburbs Are Making a Comeback - 12th Aug 18
Stock Market US Presidential Cycle, Seasonal Analysis and Economy - Video - 12th Aug 18
Yield Curve Inversion and the Stock Market - Video - 11th Aug 18
Land Rover Discovery Sport 1st Dealer Oil Change Service - What to Expect - 11th Aug 18
How to Setup Webinars and Use Them to Overcome the Barriers in E-Learning - 11th Aug 18
Big US Stocks’ Q2’18 Fundamentals - 11th Aug 18
Dow Stock Market Trend Forecast 2018 - 10th Aug 18
SPX Testing Its First Support Level - 10th Aug 18
Dreaming of a "Comfortable Retirement" on a Public Pension? - 10th Aug 18
The Forrest Gump of All Future Democrat Election Losses - 10th Aug 18
More Uncertainty as Stocks Got Closer to January Record High - 10th Aug 18

Market Oracle FREE Newsletter

Trading Any Market

Warnings We’ll Wish We’d Heeded — Plunging US Jobless Claims

Economics / Unemployment Dec 20, 2016 - 07:50 AM GMT

By: John_Rubino

Economics

It’s the same story every time: Imbalances build up during a recovery but most investors ignore them because good times have become the new normal and the uptrend seems bullet-proof. Then things fall apart and everyone wishes they’d paid attention to history.

This series will cover a few of the more glaring examples of late-cycle myopia, beginning with jobless claims, i.e., the number of people joining the ranks of the unemployed.


In hard times when layoffs are widespread and new jobs scarce, this number spikes. In better times, when jobs are plentiful and employers are desperate to keep good people, the number falls.

But when it falls past a certain point wages start rising at a rate that leads (through market forces and/or Federal Reserve actions) to rising inflation and higher interest rates, which are destabilizing and generally cause a recession.

So let’s see what this stat says about our place in the current business cycle:

It certainly looks like we’re back in 1999 or 2007, with a tightening labor market at the tail end of a long recovery. If so, interest rates should be rising. And they are:

On the surface, at least, the US seems to be following the standard script: A few years of recovery, followed by a tightening labor market followed by rising interest rates. Followed by a recession that works off the imbalances built up during the expansion.

But the interesting part of the process is always the (many and seemingly quite reasonable) reasons why it’s different this time and the old rules no longer apply. The latest batch includes the following:

1) The terrible quality of the new jobs being created. Where in past recoveries people who were initially laid off tended to eventually regain their old jobs or something similar, in this recovery the new jobs are mostly in service industries (read bar-tending and waitressing) that are no one’s idea of career-track. So there’s room for a few more years of growth to get those people back into their old high-paying spots before wage inflation really gets going.

2) The incoming administration is proposing a big increase in government spending and tax cutting, paid for with borrowed money. This is stimulative and should turbocharge growth, which in turn should boost corporate profits, making stocks a lot more attractive.

3) The next stage of monetary policy experimentation seems to involve central banks buying equities more or less indiscriminately with newly created currency. The Bank of Japan, for instance, now owns about half of that country’s equity ETFs, thus providing a huge boost to the Japanese stock market. Let the Fed decide to join this party and it’s anyone’s guess how high blue chip stocks can climb.

When laid out this way, these do sound like compelling reasons for optimism. And maybe they are. But remember, every single expansion in the past century came with equally-strong arguments for ignoring traditional limits. And every one of them turned out to be illusory.

By John Rubino

dollarcollapse.com

Copyright 2016 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules