Don't Let the Headlines Fool You

An early CNBC headline today (10/6/09) read: Stocks Power Upward!

Then came others: “crude is higher, greenback lower, dollar under attack”, “gold hits all-time high”. What are we to make of these confusing and contradictory claims?

The primary purpose of our Seeking Alpha columns and threads is the sharing of financial information, without digressing unduly into political discussion and debate.

This writer has found it almost impossible over the past several months to comment on either current market conditions or future direction without trespassing into the political realm, and thus gave himself an extended sabbatical.

Today these reservations are being abandoned - - - there is just too much at stake not to speak out. As this is being written the Dow is up 157 points after gaining 112 points yesterday. And now it rests (comfortably?) above 9700. What will keep it there is anyone’s guess.

But let’s posit a few:

- continuing investor exuberance

(based on more promises and more hope?)

- continuing US government largesse for the next needy category

(bailed out banks, homeowners, auto mfrs, clunker-owners = I’m next)

- continuing purchases of US paper by our major debt-holders

(China cannot shoot itself in the foot; they want us as consumers of their exports)

On the other side of the scale, weighing much more heavily IMHO, are some economic facts difficult to ignore:

• Unemployment rate is now bouncing against the 10% level
• Private-sector payrolls are lower today than at end of 1999
• US needs to replace 7.2 million lost jobs, and population growth will require another 100,000 new jobs a month (WSJ/10/5/2009)
  

The Dow does not climb when unemployment is rising

click to enlarge

This latest charge by the Dow has ambiguous origins, and is not to be trusted. Cautious investors and traders will keep in mind that the Treasury still runs the PPT (Plunge Protection Team), and does not have to disclose its activity in the market. Statistics from government agencies, regardless of the administration in power, are often slanted to produce desired results. One egregious example:

• Need to reduce budget deficits? Just remove food and energy from Consumer Price Index, thus reducing future Social Security outlays.
• Political considerations can no longer be ignored. They impact the marketplace severely. This Administration has frightened the public with its oratory and ubiquity, and with promises that intelligent investors know cannot be kept. With true unemployment rising and unlikely to decline any time in the near future, consumers are tightening their belts and their purse strings.
  
• And they are not likely to relax their grip any time soon. Their fears of what this Administration could do are many:
• airwaves are filled with unsupported statements rendered as fact;
• unkept promises of transparency and openness, bi-partisanship;
• pay-offs to labor unions, trade groups, financial backers; trial lawyers, etc;
• trade agreements altered or abrogated to benefit constituencies;
• a visible trend to “Chicago politics”: to secure power create dependencies that can deliver votes;
• demagoguery of the Health Care Plan (17% of our GDP) with no solid answers to legitimate questions;
• 39 Executive Branch czars (at last count), not vetted by Congress.

This list could go on and on, but by now you should have the drift - - - there are just too many reasons to be doubtful of what this Administration will do to the economic fabric of our country, in both the short and long run. The investing public will not be fooled in the long run.

Now is the time to sell High - - - take advantage of it. Take some money off the table while you have this opportunity. The time to buy low is sure to come. One more glance at the chart above should be all the proof you need.

P.S. Wise investors use times like this to add a contra to their portfolios. We particularly like SDS, which HottingerSignals holds and trades.

Comments

[Gary A:]

According to Pimco, unemployment is a LEADING indicator, not a lagging one as that buffoon Larry Summers has said as late as October 2nd. It is leading because the jobs are gone forever.

Therefore, we have a serious problem here, a depression type problem, that will not be solved by bailing out bank cronies, by pumping with clunkers, etc. We have a deflationary problem and the dollar may strengthen because of this jobless "recovery".

Oct 07 02:04 PM

[Old Rick:]

An even better leading indicator might be average weekly hours worked which fell again last week to around 33 hours. It seems that job losses and unemployment rate almost by definition cannot reverse until weekly hours starts to move up.

Oct 07 06:18 PM

[guiron:]

Stick to the non-political. You're actually repeating false information, which I am guessing you haven't bothered to research: swampland.blogs.time.c.../

"According to Pimco, unemployment is a LEADING indicator, not a lagging one as that buffoon Larry Summers has said as late as October 2nd. It is leading because the jobs are gone forever."

Pimco makes money when the bond market heats up, IOW they are always bearish, to their benefit.

Oct 07 06:22 PM

[Jason Rines...:]

Good for you. Search my comments over the last couple of years. My forecasts are based on what Washington was doing and is doing. It's a political economy so trade accordingly. The czars and command economy being established are to quell civil unrest when the 2nd and most severe part of the depression arrives in 2011. Inflation deflation debate should be named the inflation/depression/g... depression sequence. In 400 years of CB history 'this time is different' is never true.

There is serious geopolitical risk in 2013 in the ME and in 2015 in Korea. Now check my comments and see if I was wrong on forecasting. I don't say that out of vanity. I love all of you gents and I love my America. One can still make plenty of money but the geopolitics and history rythming is folly to ignore.

Oct 07 10:27 PM

[JAMES CARLINI:]

Somehow those that are underemployed are not getting picked up on the radar of those who comment on the effects of the 10% or so unemployment and what impact it will have.

Underemployment - where those that were making $80K-$130K several years ago are now in lesser jobs making $35K-$45K - will have a much longerlasting impact on the housing market and consumer spending in general.

"Mainstream economists" don't seem to get this and do not factor in this critical component. Why? Because it's not a statistic on a chart - no one is tracking it.

If we could track underemployment, it is at a much higher percentage (20% - 40%?) and the impact on spending is even greater because these people spent money (they were at a much higher salary). Now, they are not spending anything and certainly will not be in the market to be buying any houses, new cars, or any other big ticket item. (great example - look at the boat industry - 18'-30' - how many manufacturers have gone under due to lack of sales?)

The traditional Haves and Have Nots have been segmented into the Haves, Have Nots and the Used-to-Haves. And the Used-to-Haves used to spend a lot of money driving the economy.

Add this to your equation.

Oct 08 02:01 AM

[auto44:]

The BS footprint is much larger and much more real and dangerous than the carbon footprint. I suggest that holding gold silver plat and currencies of countries that produce them along with some domestic companies that sell needed products in countries whose currencies are rising against ours is a key to dealing with the problems that the author so ably points out. I furthur suspect that at some point all the dolts/polititions will come to realize that our new found resource of natrual gas is the only real solutition to our energy problem and that industries that will provide the necessary build out will flourish along with the now suffering drillers and natrual gas companies. I STRONGLY suspect that natrual gas companies are the current sleepers that could explode so to speak.

Oct 08 10:22 AM

[Fritz Hotti...:]

Thanks for all the follow-up comments, and particularly the debate about unemployment being a leading of a lagging indicator.

IMHO, the newest and most accurate leading indicator is the public's distrust level of this Administration. Today we are given new data from the Dept. of Labor that "unemployment level has fallen".
All those putting faith in these words, get in line to buy the bridge I have for sale.

Oct 08 01:01 PM

[leo.vip:]

to the person who called Larry Summers a buffoon, maybe this article in the New Yorker can enlighten you a bit regarding the man's background. It is also an amazing read into what went on behind the scenes in the Obama administration when the markets melted.

www.newyorker.com/repo...

Oct 08 01:20 PM

[forge98:]

I, for one, do noy think Larry Summers is a bafoon. As a matter of fact, I have a suspicion that "they" may not be listening to him. Summers was a huge part of the continued globalization of the markets under Clinton. Of course, this was started by Reagan. I think he is a free market thinker, and certainly a globalist. The present admin's course is, in my view, not one of embracing the freedom of markets around the world. Tariff's against China or anybody else only hurt the US consumer, IMO. I'm very concerned for the short and intermediate term well being of our country. Long term I believe we will sort this mess out because we are still free to change the process at the ballot box. I think.

Oct 10 05:51 PM

[Fritz Hotti...:]

Forge, your last 2 words bear some merit.
We have to ask ourselves why Obama and his Administration are supporting a renegade President of Honduras, who was removed from office for attempting to change his country's constitution so he could hold office for more terms. Essentially he was taking a page out of the Castro and Chavez play-book, on how to gain control and rule without further challenge. (They were able to succeed because they duped their citizens into believing the govt would always take care of them.) Is this not what we are approaching here in the good old USA?


On Oct 10 05:51 PM forge98 wrote:

> I, for one, do noy think Larry Summers is a bafoon. As a matter
> of fact, I have a suspicion that "they" may not be listening to him.
> Summers was a huge part of the continued globalization of the markets
> under Clinton. Of course, this was started by Reagan. I think he
> is a free market thinker, and certainly a globalist. The present
> admin's course is, in my view, not one of embracing the freedom of
> markets around the world. Tariff's against China or anybody else
> only hurt the US consumer, IMO. I'm very concerned for the short
> and intermediate term well being of our country. Long term I believe
> we will sort this mess out because we are still free to change the
> process at the ballot box. I think.

Oct 12 09:20 PM

[forge98:]

Fritz,
I think it's safe to say we agree. I have been learning how to utilize the Hottinger signals on your website. I have a trial subscription and it is fascinating. Thank you for saying that two of the words in my post bear some merit. Thanks. Forge


On Oct 12 09:20 PM Fritz Hottinger wrote:

> Forge, your last 2 words bear some merit.
> We have to ask ourselves why Obama and his Administration are supporting
> a renegade President of Honduras, who was removed from office for
> attempting to change his country's constitution so he could hold
> office for more terms. Essentially he was taking a page out of the
> Castro and Chavez play-book, on how to gain control and rule without
> further challenge. (They were able to succeed because they duped
> their citizens into believing the govt would always take care of
> them.) Is this not what we are approaching here in the good old USA?
>

Oct 13 07:28 PM

[Fritz Hotti...:]

Sorry, Forge - - - did not phrase myself very well. I did not mean that just those last words were meritorious. I do agree with the entire thrust of your post - - - just found your "I think" closing a very succinct, and true way to spread caution. That is what i picked up on.

PS// Glad you are finding the Hottinger E-Zone System useful.
Will appreciate your feed-back as you gain experience with it.


On Oct 13 07:28 PM forge98 wrote:

> Fritz,
> I think it's safe to say we agree. I have been learning how to utilize
> the Hottinger signals on your website. I have a trial subscription
> and it is fascinating. Thank you for saying that two of the words
> in my post bear some merit. Thanks. Forge

Oct 13 08:28 PM