Weekend Ramblings

Seems I'm in the writing mood these days. Friday's non-farm payroll number came in well below expectations at 120K causing SPX futures to tank 12 points. Cramer's calling this a "horrendous number". Talk about a manic depressive. Take a look at this chart for a moment

So, how really "horrendous" is jobs number when you look at this chart? What I see is a positive trend in jobs being added for well over a year now and this so called "miss" is simply a little blip which appears nothing out of the ordinary given how volatile these numbers can be be month to month. Here in Canada we had a jobs number that came in miles above expectations after showing sluggishness for a few months.  Getting euphoric or depressed over each data point is foolish. You need to focus on the bigger trend.

The US experienced a housing led recession in 1990 and a significantly bigger one in 2008 and so I think it's a good idea to compare the job numbers in the recoveries that followed each of them. A common complaint among bears in 2009 and 2010 was that this was a "jobless recovery". The exact same thing happened in the early 90's as well and the exact same "jobless recovery" complaint was made. It wasn't until 1993, about 2.5 years after the recession of 1990 had ended, that job gains were showing a clear positive trend but the gains were moderate. Then finally, in 94-95 jobs gains accelerated to around the 300K/month rate...that's quite a long time after the recession of 1990 had ended for job gains to have "normalized".

Now, like then, we are seeing the same thing unfold so far. It look a couple years to see jobs come back after the recession officially ended in 2009 but the gains so far have been moderate. If it took about 4 years for job gains to normalize after the 1990 housing led recession, it will probably take just as long or longer for that to happen this time given that the housing bust was more severe, but the key point here is that it can and probably will happen given the trend that's been in place. It's also important as I said before, to focus on the trend and not freak out like Cramer about month to month noise.

Here's an interesting Time article I found last year which I shared...I think I'll share it once more

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. In a normal rebound, Americans would be witnessing a flurry of hiring, new investment and lending, and buoyant growth. But the U.S. economy remains almost comatose a full year and a half after the recession officially ended. Unemployment is still high; real wages are declining. At a TIME economic forum last week, forecasters predicted that U.S. growth would amount to only 1.8% this year and 2.6% for next, about half the speed of a normal recovery. The current slump already ranks as the longest period of sustained weakness since the Great Depression.

That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out.

A lot of this stuff sounds familiar to you I'm sure. Oh by the way, I forgot to mention that the article was written in September....of 1992.

As far as the potential for the correction to have legs goes with this "bad" jobs number, it certainly serves as a good excuse. As I said in earlier posts, I'm not going to get overly fixated with corrections unless I believe they are going to be severe like the ones we saw in the summers of 2010 and 2011 which I don't given what I see. We've made a huge run and the market wasn't going to maintain that sort of pace forever otherwise we'd be on track for about a 50% gain on the year which is near impossible. I'm already seeing plenty of calls for 5-10% drops by even those who are bulls like Biggs. I suspect it will be less and perhaps we will see a period of consolidation for the next few weeks/months.