We continue to have a nice start to the month of September as the market continues to rally after a better than expected jobs report. Despite the nice start to the month, here are ten reasons that we believe this is just a move up to the top end of the trading range we have been in for months and not a sustainable rally.
1. Although the jobs report beat expectations, job growth is nowhere near the level we need to maintain employment; let alone fuel real job growth.
2. Furthermore, the U6 unemployment is 16.7%; the highest since April. In addition, the direction of job growth is down. July had private sector jobs added was 107,000; August had only 67,000 jobs added.
3. The direction of GDP is also down from over 5% in Q42009 to 3.7% in Q12010 to 1.6% in Q42010
4. The projected job growth in 2011 keeps coming down as well. Latest consensus is 1.8% from 2.3%
5. Health care premiums charged to workers are going up as result of Obamacare, and will start to be deducted out of worker’s paychecks. This is hardly a good thing for consumer spending or confidence
6. The capital of Pennsylvania just missed a bond payment and is considering bankruptcy. The last thing the economy needs is turmoil in the municipal bond market
7. The Mariner rig fire will likely prevent any quick end to the administration’s job killing drilling moratorium in the Gulf. Having highly paid oil workers sit idle is hardly what the Gulf economy needs right now
8. Retailers continue to have to resort to discounting to move merchandise according to the recent retail sales report. This is not good for margins, and a poor indicator of consumer confidence
9. The peak of Federal stimulus spending has now passed and its contribution to anemic GDP growth will lessen in the quarters ahead
10. Potential crises overseas continue to roil just below the surface
a. The overheated property sector bubble in China could very well pop by the end of the year
b. Ireland is a disaster and could be next European country to need help from the ECB
c. The financial system in Afghanistan is on verge of collapse due to a massive fraud and a run on its third largest bank.
Given this, enjoy the rally while it lasts and stay careful out there.
Disclosure: No positions mentioned