Skip to comments.Friday's Unemployment Report Didn't Sink the Markets (Here's the real reason...)
Posted on 06/05/2012 5:49:46 AM PDT by SeekAndFind
Saturday's Wall Street Journal had a very predictable above-the-fold headline: "Grim Job Report Sinks Markets." Sadly, for the world's leading business publication, and for the myriad other media outlets that led with something similar, the headline was utter nonsense.
That's the case given the simple truth that markets never price in the present, rather they always price in the future. What spooked the markets on Friday was not a jobs report that pointed to sluggish economic activity in the present, but a weak jobs report that will author policy responses that will make things worse in the future.
Indeed, imagine if in response to Friday's number President Obama held a press conference to say that with the economy struggling he would seek to make permanent the '03 tax cuts, slash federal spending to free up capital for entrepreneurs, open the borders to foreign products and immigrants, cease any and all new regulations while putting all existing ones under review, and then to top it off, he announced jointly with Treasury a plan to strengthen and stabilize the value of the dollar? If so, readers can rest assured that stock markets would have soared; limp job creation totally irrelevant to a bright future made bright by a suddenly chastened President pushing to remove federal barriers to economic growth.
Of course that's not what happened on Friday, and markets tanked not because of some Keynesian measure of employment, but instead fell because all indicators point to worse policy down the line. Stock markets discount what's ahead, and what's ahead isn't very appealing to investors.
First up, and very clear to those with a pulse, is that the jobless number points to the Federal Reserve pursuing yet another round of "quantitative easing." On its own this is anti-growth because measures meant to keep rates low protect those who commit capital to the dead money sector that is housing, and if not housing, QE protects those who invest in the total capital destruction that is government spending. Economies going backwards tend to repel investors, and with QE a screaming tautology that the Fed will be supporting yesterday's economic mania combined with economy-sapping government waste, investors on Friday were in a sour mood.
Second, and this was made most evident by a spike in the price of gold, quantitative easing has long correlated with dollar devaluation. To put it very simply, a Bernanke Fed that's meddled its way to the slowest recovery since the Great Depression will have a new excuse to make things worse; its interventions fully supported by an Obama administration that believes like the Bush administration before it that a weak dollar is the path to prosperity. Notable here is that investors weren't asked about how policies of dollar debasement impact their capital commitments, but since all investment is by definition a purchase of future dollar income streams, policies aimed at devaluing those income streams logically turned off investors.
Of course if the markets had soared on Friday absent any pro-growth statements from President Obama, those in our midst who tilt Republican would have said the rally was a function of investors pricing in a Mitt Romney victory come November. No doubt the jobless report boosts Romney's election chances, so why the sagging stock markets?
The answer to the above is pretty basic, and it's bad news for Republicans oddly optimistic that the supposed party of growth has finally learned its lesson. Investors don't think so, and the reason they don't has to do with Romney - though a great businessman - not having much more of a clue than Obama about pro-growth economic policy.
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These daily ups and downs don’t matter. As long as you prepare yourself for the long haul you will be fine for retirement. I have been in the stock market since June 1987 with 400 dollars...yep October 1987, it was about 20 cents but I stuck with it and added money every month since through ups and downs, good Presidents and bad ones and in the long run, it was been incredible to see the money grow and grow.
The best way a company can help its bottom line is to replace American workers with Red Chinese slaves. A good jobs reports should sink stock prices; we cost too much.
This seems to be a twisted tale to blame the market swoon on Romney instead of Obama. Is Real Clear Politics a leftist site?
You rode a secular bull market from 1987 to 2000. That is, the overall market rose steadily and irrepressibly for 25 years.
We are now in a secular bear market that is returning nothing to your average buy-and-hold investor. Sure, some win and some lose. But the market is not rising overall. It is stagnant with volatile swings. We could have an other 10 or 15 years of this secular bear.
People were wise to be heavily into stocks from 1985 to 2000. Those not into stocks today are not so unwise. We aren’t missing anything. I still have taken less loss on my portfolio than most people I know, after I moved to all cash/safe investments in 2006. There is nothing wrong with seeking safety during a secular bear market if you aren’t a day trader playing the volatility.