Up, Down or Nowhere At All
Over the weekend, Barron's were talking about preparing for the coming bear market, saying they’d interviewed 10 top Wall Street experts for their view on this year and next.
I only hope they use the same experts who spotted this year’s worst market start in eight decades…oh yeah, there weren’t any.
Their take on things is pretty much as follows: Stocks will either go up, down or nowhere much at all.
At First Blush...
Paltry US jobs data has been raised as "proof" that our recovery remains the weakest on record. The problem, however, isn’t the jobs; it’s a performance, education and people problem.
Good people are getting harder to find. The report told us payrolls rose only 151,000 month-on-month during August, the fourth weakest increase over the past 12 months.
However, the unemployment pool is shrinking and is now closing in on the two previous lows of 4.4% in May 2007 and 3.8% in April 2000.
And there are a record number of job openings. The June’s JOLTS report showed that there were 5.6 million job openings! Further, the ratio of the unemployed people to jobs available was down to 1.4 during June, which, next to May’s read of 1.3, is the lowest since April 2001! It's also a huge stretch better than the peak of 6.6 reaching back in July 2009.
This is the very same picture as painted in the early 1980s, and it all worked out just fine.
A flood of Generation Y workers is coming that gets more done with less, This is likely why the wage pressures so many expect simply are not coming to pass. The old government reporting profiles used for the last 70 years are simply no longer effectively measuring what the US economy is doing.
Gen Y is a group of techno-savvy multi-taskers who tend to create a deflationary force; that helps to offset rising costs in other areas and thereby foil old government reporting.
Data from NFIB’s August survey says: a) "Fourteen per cent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem. This issue ranks third out of nine major issues listed." and, b) a full "Twenty-six per cent of all owners reported job openings they could not fill in the current period, down 3 points from, the highest reading in this recovery.”
In short, there are lots more full-time jobs, and part-time jobs now account for just 17.9% of total employment. That is the lowest level since November 2008.
Bad Measurements
Bad measurements and bad data mean a huge likelihood that we’re seeing an underreporting of our economy’s strength.
The old reports don't even know how to measure things like the billions and billions of apps that are being downloaded, many of which are free. They do things we previously paid for and they make huge returns for their users on costs invested and output created.
The other pressures at work include Baby Boomers slowing or retiring. Those jobs in some cases go to lower-wage Millennials, and in others a millennial might start at $150K and do the job of three Boomers given technology and multi-tasking today.
It's all changing - fast.
Going forward, it is highly likely wages will not cause the inflation pressure we experienced in past cycles. And the trauma of 2008 is not just fresh in the minds of investors, but in corporate management as well. They remain completely obsessed with keeping a lid on costs and maintaining higher and higher profit margins.
The One Wrinkle?
We have spent so much time fretting over another 2008/2009 that no one planned for the massive demand building in the pipeline, as 86 million kids become adults!
That's all good news folks.
That, and every day more and more of our economy's output is coming from hard-to-measure technology and massively expanding services industries. The fact that most of our employment growth has been in services confirms that this sector is an obvious productivity laggard compared to manufacturing. And we’re closing in on new all-time highs in manufacturing output as well.
Our Collective Problem?
Money goes where it’s treated best. And there has been no incentive for businesses to take on new, risky ventures for years. The Obama administration kept creating reasons for businesses to "just wait until next year to decide.”
With the election almost here and the very, very poor policies espoused by Hillary you can understand why companies are staying focused on doing the best they can with what they have. They’re relying on the new generation to get them places via technology and services without having to risk a ton of new capital.
Choice
We all have to choose whether or not we participate.
As investors we can choose to look at history, where the markets have survived through our worst fears and are now once again at all-time highs.
Or we can choose to participate in the end of the world drama playing out in the media each day to get your attention.
How many times have experts told the masses to fear something that never unfolded? Too many to count, and there’s never an apology or admission or getting it wrong; only a subsequent prediction that’s usually just as wrong as the others.
Think about it: Do you recall ever hearing anything bad at the top of the tech bubble? For a year or two in advance, maybe? How about the housing bubble?
1982
Imagine it’s 1982. Inflation is 15%, the prime rate is 20.5%, 30-year treasuries are at 16%, the Dow Jones is at 900, and US GDP is about $6 Trillion.
Treasuries are now at 1.5%, inflation is fluttering around 2, the Dow Jones is near 18,500, US GDP is circa $18.5 Trillion, and everything you can possibly think has gone wrong all along the way.
Stop Fearing
Step back - recognize that people make markets. What we see each day is not some crazy machine on the edge of breaking. Instead, it is the normal, long-term process of a massive economic system unfolding, expanding, erring and then fixing its problems.
Those problems are the lifeblood of our forward movement.
And sure, there are times when it stinks and it’s easy to get off track and let your emotions pull you from your plan. Try not to buy into the fear.