Markets Rise Everywhere With No Jobs To Support Them

"Double, double, toil and trouble; Fire burn and cauldron bubble." - The witches chant from William Shakespeare's Macbeth

This morning the United State reported disastrous employment news.  It really should not have come as a surprise as I have been reading of layoffs from large and small companies across the country for months now.  I am now also watching as the S&P 500 which dropped over 1% on the news claw its way back towards the gain line once again.  It is certainly apparent that no matter what the news, the markets are going to go higher and if you listen to CNBC or one of the other market cheer leading channels within minutes you will be told just why things can only go higher from here!

Let me lead you through a number of very poignant metrics and you can make your own conclusions.but suffice it to say that I have now put on some S&P puts!  Not a large amount but enough to make me feel better. :)

First off you need jobs to create a strong economy.  Look at any model of economic strength and you will see a low unemployment number.  Jobs are the economy.  No jobs, no economic recovery period.  At present looking across the globe you have the Euro zone with unemployment above 12% the highest it has ever been and this masks the disasters that are Greece and Spain where unemployment is well past the Great Depression levels.  The United States has unemployment at north of 14% if you include the underemployed and some metrics have it as high as 20%.  Worse still is that 48 million people are now on food stamps in America up from 28 million just 5 years ago.  That is 11% compounded annual rate of growth!  What portfolio would not die for that number over the last five years?  So we have mounting unemployed and 15% of the people cannot feed themselves without government aid and the United States is supposedly the richest country in the world.

Without jobs the consumer has no spending power.  With no spending power companies cannot sell their products and profits slip (I expect a lot of companies to miss or lower their earnings targets going into this quarter's earnings reports).  So why is the market continuing higher?  It is very simple, the Federal Reserve is pumping money into the system and that money has to be invested.  With bond yields at historic lows the stock market and real estate are the direct beneficiaries.  Real estate is up over 8% nation wide while the yield on junk bonds has fallen to less than 3%.  Both of these are unsustainable.  First off housing prices cannot keep up this pace as consumers do not have the ability to purchase the houses.  The house prices are being propelled by large funds that are scooping up millions of houses at once because they can borrow money for next to nothing and this investment creates a better yield on their investment than the bond market.  This is not consumer demand this is speculation at its worst.

Furthermore with treasury yields falling to next to nothing bond buyers have once again ratcheted up the risk by buying junk.  This demand has pushed the price of these high risk bonds up reducing the yield to next to nothing.  The risk is not being met with commensurate return and this is a disaster waiting to happen.  To me it is not a case of if it will unravel but when.  Trying to even hazard a guess as to when this will unravel is futile as it will only occur when there is a loss of faith in the Federal Reserve's ability to control the markets.

For this reason sentiment indicators are worth watching and the most recent one was consumer confidence which dropped precipitously to 59.7 in March from 68 in February.  Consumers are starting to feel the very real pinch of lower income as another bite is being taken out of their pay with the tax increases, health care increases and gasoline and food price increases.  While this is not a good signal the Federal Reserve continues to believe that printing more money is the answer and is cajoling money printers around the world in Britain, Japan, Switzerland and others to join in the party.  This juice is what is fueling these speculative frenzies in the stock, bond and real estate markets.  Switch this juice off (which they will have to eventually) and all of these markets die virtually instantly as we have seen with the end of each of the previous 3 rounds of quantitative easing (or is it four, there have been so many I can barely keep up).

Do not get sucked in.  Keep your money in cash, gold or something that is safe and protected against a downturn as that is the best way to survive the storm as it appears that there are more than a few black clouds on the horizon.