Last week I started a blog called, Stocks Leap on False Impression, but had to leave on a business trip before I had a chance to post it. Sorry about that. Here’s the opening to that blog:
The U.S. Department of Labor announced that the unemployment rate dropped to 7.8% from 8.2%. I have a hard time believing the number – or that the move is “good.”
First, in order for the U.S. to “break-even” in the labor market it has to add at least 150,000 jobs per month. That is the number required to replace retiring workers and to employ new workers entering the workforce for the first time. The recently reported .4% drop in the unemployment rate translates to approximately 750,000 new jobs. The U.S. hasn’t experienced any such increase. Caution to investors that take this as a positive change in Market condition.
Second, the economy remains weak. Factory orders fell 5% in August, producer prices posted their largest gain in three years (a.k.a. inflation for manufacturers), and retailers (sellers) are reporting slowing growth. Slowing retail growth is consistent with the rising trend of wholesale inventories. Hardly the edict for economic strength and stability.
While the economy remains soft, the “Market Makers” continue to add to their notorious history: Bank of America agreed to pay $2.4 billion to settle claims related to their thrifty acquisition of Merrill Lynch and J.P. Morgan Chase was accused of fraud – both accusations dated back to the 2008 financial crisis.
Since I began that blog, the International Monetary Fund (IMF) warned of a weakening global economy and highlighted how difficult a new recession would be to overcome. It sent stock prices down. But don’t be confused – this is not new news. World governments are tapped out, over-leveraged, and Markets and currencies are weak. Governments can no loner spend trillions of dollars to advertise economic growth while accumulating unprecedented debt that produces little benefit. As proven by the lack of economic vitality, this world model has clearly proven not to work.
A few blogs ago I showed you the performance trend of key market indicators from the Dow Jones Industrial Average’s all-time high (October 2007) until current. This time I show you the trend-lines of these indicators’ from the DJIA’s low point incurred after the 2008 market crash (March 2009.)
For those people thinking that gold is grossly over-valued now and during this time – think again. During the period gold has barely kept pace with the market Average and stock market strength highlights how extremely over-valued stock prices are at these levels. Listen, the economy has gone nowhere in the last several years and the money market is a train wreck waiting to happen. But the stock market looks as if everything is hunky-dory and gold looks confused – it is way too cheap for current Market conditions.
In a currency crisis like the one the world is experiencing gold should be skyrocketing and stocks should be bum. Yet the stock Average is up 75%, gold is slightly better at 88%, versus an economy that grew just 5% in Real terms during this time period.
Much to the contrary, stock market strength has gained a whopping 289% – almost 4 times better than the Average and gold. That’s way too much in an economy that’s growing at just 1% per year! The 15-51 Indicator indicates the level of inflation active in above-average stock portfolios.
Indeed, stocks were under-valued in March of 2009 when this chart began. They needed to correct in an upward fashion, which they did. But not ot these extremes. The action zone midpoint (11,347), which can be considered “fair value” in a stable economy, is 15% below the DJIA’s current value. The economy is not stable, nor is it growing. That means there’s nothing “fair” in stock prices.
Investors beware! The Market condition is much worse than stock market valuations portray. Expect a correction.
That’s what’s what when looking at the investment markets today.
Stay tuned…