Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investor Warning: Job Creation Data Fuelled by Cheap Money

Stock-Markets / Financial Markets 2013 Mar 11, 2013 - 03:44 PM GMT

By: InvestmentContrarian


Sasha Cekerevac writes: The latest monthly employment data had a positive headline; a stronger than expected job creation number. However, looking at the core information, there remain significant concerns regarding the U.S. economic recovery and job creation specifically.

For February, job creation for non-farm related payrolls totaled 236,000. This number was far higher than expected, giving a boost to the stock market. (Source: “Employment situation summary,” Bureau of Labor Statistics, March 8, 2013, accessed March 8, 2013.)

One might tend to think the economic recovery is going full steam ahead. I would urge caution, however.

To begin with, job creation data from the Bureau of Labor Statistics is notorious for large revisions. This latest report shows just how volatile this job creation data really is.

The Bureau of Labor Statistics has revised job creation data for January from 157,000, down to only 119,000. That is a huge revision in percentage terms, creating difficulties when calculating whether or not an economic recovery is occurring.

My biggest worry for a sustained economic recovery is the continued decline in the participation rate. This is the number of people who are active in the employment market. People who have given up looking for work drop out of this data, which is why this level continues to decline.

The current seasonally adjusted participation rate of working age people is 63.5%. This is the lowest level since September 1981. (Source: “Payrolls Surge as U.S. Jobless Rate Falls to Five-Year Low,” Bloomberg, March 8, 2013, accessed March 8, 2013.)

This means that a huge amount of people have given up looking for work and are not active participants in the economic recovery. The job creation machine that should be the American economy is not creating enough positions for all of our citizens.

The real worry is how much of this economic recovery and job creation has been boosted by the stimulus policies of the Federal Reserve. If the latest job creation numbers are purely from additional monetary stimulus, once the Federal Reserve begins to withdraw from the market, we could see a failure for the economic recovery to continue.

Look at the two of the strongest sectors: housing and automotive sales. The economic recovery in these two sectors is clearly driven by the Federal Reserve’s monetary policies.

While over the short term, the job creation and economic recovery are positive, I don't believe they are sustainable without the Federal Reserve. This is the problem; we need to get a real, long-term structural economic recovery without a central bank trying to inflate various sectors.

Sure, as long as the Federal Reserve continues pumping money, I think both the automotive and home industries will benefit. But what happens later this year or next year when we hear of a possible reversal in monetary policy?

I don’t believe housing or automotive sales can be generated at the current pace if interest rates rise. The economic recovery will have significant issues, as will job creation, once the Federal Reserve stops influencing the market.

We all want job creation and an economic recovery as soon as possible. However, I believe we must also balance short-term gains versus long-term costs.

The economic recovery that's being built for job creation over the next several decades needs to be structurally sound. Much like a house built with concrete is stronger structurally than a house built with straw.

If this job creation is based purely on the Federal Reserve’s policies, this cannot last forever. At some point, the economic recovery will fade, as will job creation.

Investors in the housing industry as well as the automotive industry should continue to see companies in these industries have strong earnings and revenue for as long as the Federal Reserve keeps monetary policy stimulus very easy.

However, I think investors in both of these industries should be very concerned in the second half of 2013, as these stocks will be extremely vulnerable.

Once the discussion of monetary policy tightening begins, I believe both automotive and housing-related stocks could suffer a significant decline. In fact, the fall of 2013 could be extremely dangerous for all stocks.


By Sasha Cekerevac, BA

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives

Copyright © 2013 Investment Contrarians - 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.

Investment Contrarians Archive

© 2005-2019 - 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