Will This Economy Ever Create Job Growth?

Economists missed the jobs estimates by a wide margin this morning. The nonfarm payrolls report showed the economy shed -263,000 jobs in September, far more than the consensus of -175k jobs.

This is a disappointing number for investors. We need to see the number of job losses continuing to decline. That plays into stronger consumer confidence, and strong personal spending, which is the biggest component in the GDP calculations (consumer spending accounts for nearly 70% of GDP).

On the flip side, I have said in the past that this recovery is not going to be smooth sailing. Rather, the economic data coming in will be lumpy at best. At times, it will look like the path to recovery is at our doorstep, while at other times it will appear we have taken a step back. I think today's jobs report falls into the latter category.

The news pushed the S&P 500 lower this morning, all the way down to its 50-day average near the 1020 level. It is the first test of the 50-day average since July. It also marks more than a -5% correction from its highs last week, and I am not in the camp who says we have to have a 10% correction here. So while there may be some additional downside, my guess is we have seen the worst of this decline already.

Bearish sentiment is already on the rise, quickly, as the put/call ratios have been very elevated the last few days. I would expect to see similar dislocations in the investor surveys. So my thesis is that the "stair-step" market is still alive, and I will look to use this pullback as another buying opportunity.

The dollar is moving lower now, pushing oil back to $70 and gold back above the $1000 level; the 10-year yield is hovering near 3.20% after a dip this morning all the way down to 3.10%; and the VIX is now down a touch after briefly topping the 29.50 level, an elevated level for this index.

Trading comment: Yesterday I added to a few stocks, including Baidu (BIDU) and Goldman Sachs (GS). I aslo think STEC (STEC) is very attractive at these levels, even thought the technicals are broken. In etf land, I've added a little to financials [[XLF]] and tech [[XLK]].

Disclosure: long BIDU, GS, STEC, XLF, XLK, VXX

Comments

[market ace:]

Gee I wondered who was buying stocks and now I know the skewed thinking that causes someone to actually buy into a market destined for oblivion. A market that not even GS and gov't manipulation can continue to prop up.

If you look at the projections for job growth in the US during the next few years there are only three categories expanding - Healthcare (soon to be Gov't controlled), Education (already gov't controlled) and GOVERNMENT. Anyone can see that this will never grow or sustain an economic recovery and that reality will set in soon. There are 35 million on food stamps, unemployment at 17% and 1 in 8 mortgages are delinquent or in foreclosure. This is not to mention unsustainable US debt, artificial interest rates and qauntitative easing. These factors should tell you to keep very tight stops on your stocks as they are not fuel for a bull market

I have been getting stopped out like crazy this past wek with 5% trailing stops and loving every minute of it.

Are you really buying stocks now?

Oct 02 06:02 PM

[Jordan Kahn:]

Yes, I am. If you're so confident the mkt is going lower, put on some short positions. I've been hearing your arguments since the March bottom, but the mkt hasn't seemed to have rolled over yet.

On Oct 02 06:02 PM market ace wrote:

> Gee I wondered who was buying stocks and now I know the skewed thinking
> that causes someone to actually buy into a market destined for oblivion.
> A market that not even GS and gov't manipulation can continue to
> prop up.
>
> If you look at the projections for job growth in the US during the
> next few years there are only three categories expanding - Healthcare
> (soon to be Gov't controlled), Education (already gov't controlled)
> and GOVERNMENT. Anyone can see that this will never grow or sustain
> an economic recovery and that reality will set in soon. There are
> 35 million on food stamps, unemployment at 17% and 1 in 8 mortgages
> are delinquent or in foreclosure. This is not to mention unsustainable
> US debt, artificial interest rates and qauntitative easing. These
> factors should tell you to keep very tight stops on your stocks as
> they are not fuel for a bull market
>
> I have been getting stopped out like crazy this past wek with 5%
> trailing stops and loving every minute of it.
>
> Are you really buying stocks now?

Oct 02 08:37 PM

[genghis khan:]

I'm still picking stocks in the mining, and energy sectors. My indicators for inflation are starting to go off one by one, regardless of the denials by government shills. All you have to do is pay attention to industrial materials and grocery prices.

Market Ace is absolutely correct re: tight stops

Oct 03 12:51 AM

[LCACM:]

The US economy is like an anemic patient whose vitality is being sucked out by the Chinese Dragon taking advantage of US Free Market ideology. However, Short sellers can get squeezed when Government provides Blood transfusions in the form of easy credit and quantitative easing, to prevent the patient from collapsing. Long term investors have to worry that the giant hissing sound of jobs leaving the US that Ross Perot alluded to, is being abated by politicians of both parties in exchange for campaign contributions. It is possible though not probable that the slumbering millions who have lost their jobs, wake up and demand corrective action from their elected representatives, further clouding the investor’s horizon.

Oct 03 02:56 AM

[nickeldimer:]

what kind of fall will commodities and oil have short term and where will they go from there-to the moon are we all ready

Oct 03 10:20 AM

[thannagan:]

The US consumer can't spend a lot more any time soon without releveraging. That can't happen, (unemployment, lower net assets, and tighter credit) and probably shouldn't in any event. The US economy can't rely on the US consumer being a growing 70% or more of the action, for a very long time. The consumer goods action needs to go where the global growth in spending is greatest - emerging markets anyone. There are savers aplenty, that want toys like ours, but they aren't in the tapped-out US. The US consumer binges are over for some time - perhaps a generation. So, whoever adapts to this well, and sooner than others, will win. Those who wait on the old normal to return will wait a long time. So, I like foresighted names with global views and inovative products or marketing capability - US based or others.

Oct 03 10:52 AM

[Mad Hedge F...:]

nhy For the last six months there has been a great big whopping contradiction in the markets. The stock market has been discounting a return to the “Roaring Twenties,” while the bond market has been anticipating the return of the “Great Depression.” After yesterday’s publication of the Labor Dept.’s September nonfarm payroll number showing the loss of another 263,000 jobs, it looks like the bond market now has the upper hand. The really disturbing aspect of this number is that 57,000 teachers were fired, as states chop budgets to the bone. This is really eating our seed corn by the handfull. Stocks have dropped 5% from last week’s peak, as the bond market soared, the ten year yield reaching nosebleed territory of 3.05%. My call to buy the TBT, a leveraged bet that US Treasury bonds would fall, is starting to look a little green about the gills. The dollar still maintains its flight to safety status, which to me, is one of the great ironies of all time. It’s like that reprobate, alcoholic uncle with the bad teeth, who, when your car breaks down in the middle of a downpour in a bad neighborhood, will always let you crash on his sofa. Let’s call him your Uncle Sam. You have to hand it to PIMCO’s inveterate card counter, Bill Gross, who says this is all about transitioning to a “new” normal of 1%-2% real GDP growth. That’s why he was loading the boat with bond yields at 4%, a ballsey move at the time, which now smells like roses. I guess that’s why they call him the “Bond King.” As for me, I’m never wrong, just early. Sometimes way early.

Oct 03 12:47 PM

[Old Trader:]

Mr. Kahn,

Regarding your suggestion to Market Ace that he, in effect, "put his money where his mouth is" by going short implies an "either/or" scenario, in terms of avaiable options.

Alternatively, one could just stay in cash (he mentions being stopped out of positions). Before I get jumped on for settling for the puny MM returns, I'd suggest it might be better to post a sub 1% positive return over a period of a couple of months, than suffer a loss of 10%. Unless, you're guranteeing there's no way the S&P could decline by 10% from this point (say to 925/935)?

Oct 03 12:57 PM

[bbowen7:]

The economy won't begin to add net jobs until GDP growth exceeds 2 to 2 1/2 %. And most economists agree that won't happen through 2010. We can add jobs by making energy generation inefficient (e.g. solar panels and windmills instead of coal or nuclear), and by providing medical care for 40 million people, but that is on the margin. As long as the emphasis is on addition of consumption and making production less efficient, we can't get there. We've got to make stuff.

Oct 03 04:53 PM

[Joe Duggins:]

The healthcare industry is continuing to create jobs despite the global economic downturn. Medical training will be an utter necessity in order to provide services to the increasing geriatric population. Unemployment rates have been going up in most other sectors like retail and construction. Job cuts and recession are the biggest concern in everybody's mind today. Healthcare schools have seen to contribute for thousands of medical industry jobs every month.

Healthcare schools work to reduce the growing disparity in demand for medical services and the available personnel. Healthcare program graduates will be in high demand over the next several decades. The fastest growing employment category is with geriatrics and nursing. Career growth potential with education from the medical schools is said to double. Healthcare programs that work to train nurses are struggling to meet the increasing demand for qualified professionals. There is a chronic international shortage of four million trained healthcare professionals in the current year. Medical healthcare programs that offer graduate degree in healthcare have the highest job potential for the next five years. Healthcare providers continue to hire, as there is no risk to shrinkage in their end market. Government medical programs for the public are immune to the budget constraint measures. The costs of healthcare services continue to grow higher than the average national income. Major job-reports and labor statistics identify healthcare as a recession proof sector.

A decrease in private medical spending during recession is offset by public Medicaid expenditures. The projected annual spending on healthcare is said to increase by one fifth of the country's GDP in the future. A career in healthcare can guarantee growth and security even during the difficult times.
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Oct 04 01:20 AM

[Wisdom vs. ...:]

you bears think it is 1930, but it is really 1975; the economy is bad, not terrible and not going to get much worse after the rest of the commercial RE goes belly up.

the administration is completely killing small business capital spending and hiring with one anti-small biz proposal after another (not to mention extra taxes on the people who start small biz's, the upper middle class); thus, there will be no job creation until we get a new administration.

you are forgetting that the int'l market is nothing like it once was; china is not going to implode, money will continue to roll in from that direction, add a little india and the rest of APAC... add it all up? plenty of undervalued stocks out there, esp ones with china exposure. you bears, keep shorting my techs, i have enjoyed taking your money all summer

Oct 04 09:37 PM