Posted on 10/26/2009 7:48:25 PM PDT by blam
Why Is the Market Going Up When Jobs Are Going Down?
Invest With An Edge
October 26, 2009
Brandon Clay
Last month the national unemployment average rose to 9.8%. It’s actually at 17% if you count distressed and underemployed workers. Not only is unemployment data weak, it’s getting worse. Former Fed chairman Alan Greenspan said unemployment would hit at least 10% before turning back.
Even with this well-known data, the market is going up. The S&P 500 is sporting a mostly gentle uptrend from March to October. The market thinks we’re recovering. Bernanke and company have said as much. However, given that we have the toughest job market in a generation, to me it seems a little premature to declare recovery – at least a strong one.
I’m not alone in my assessment. CNNMoney.com’s Editor At Large Paul LaMonica recently said, “Repeat after us. There is no strong recovery without job growth. There is no strong recovery without job growth. Why does Wall Street not get that?”
A good question. Why is the market going up while jobs are going down?
[snip]
Unfortunately that only happened here. There's still way too much fat in American companies.
Rule #1: MBAs take care of their own.
While many productive low to mid salary range people have been laid off, very few of the 6 figure do nothing positions like Human Resources managers, Directors of Communications, Vice Presidents of Global Support Services, Vice Presidents of Community Affairs, Vice Presidents of Consulting Services, etc., etc. have been let go.
Barring any direct influence by Democrats (i.e. announcing in a press release that “a major insurance company will go bankrupt, I can’t say which but one that you likely do business with” — which happened last year — the markets always lag behind reality and are largely disconnected from reality — just a legal and usually less risky form of gambling in my opinion. The fact that the dollar has been devalued cannot be avoided.
Shedding jobs is a quick way to cut costs, as is moving production off-shore. It doesn't really matter what happens to the company in 5 or 7 years. As long as the traders get their money NOW and they get out before the stock (and the company) crash.
Mark
We have deflation. That's the reason why Social Security recipients will not be getting a cost of living increase in 2010.
I'm not disputing your assertion, but I do have some questions. I was under the impression that inflation is caused by increases in the money supply, effectively pushing the value of currency down. This, in turn, shows itself by the seeming increase in prices of goods and services. It seems to me, that with the exception of the "burst bubble" in housing, the prices of nearly everything has been increasing, and there are forecasts that energy costs will be going back up, which will, in turn raise the prices of everything again.
Am I missing something?
Thanks!
Mark
Here is part of the reason:
You're exactly right. This would be the definition of inflation.
However, the overall money supply in our economy is shrinking, not growing.
Everyone seems to be focused on the "monetary base", where the Fed has been stoking hundreds of billions in excess reserves into the account of various banks.
The thing to keep in mind is that these excess reserves are not actually circulating in the economy. They're just acting as a balance sheet liability entry so that the Fed could purchased hundreds of billios in toxic mortgage-backed security assets.
Our entire monetary system is based on debt. This may sound strange, but money = debt, and debt = money. That $10 bill in your wallet is actually a claim on someone elses future labor. You're the master over a debt slave in the amount of $10 in labor (whatever that value happens to be at a particular moment in time).
You need to focus on the debt destruction going on in our economy. Debt destruction is exactly the same as money destruction. They're equal.
The fact is that there is much more debt destruction happening in our economy than there is debt creation through the Federal government borrowing record amounts.
Anytime that debt destruction is larger than debt creation we get deflation. If the difference is large then we get a depression.
The Federal government is currently trying to create new debt any way it can - trying to keep pace with all of the debt destruction. This is the reason why they offer all of the "cash for clunkers" and "first time homebuyers" programs. The Federal government cannot create new debt fast enough - so they offer programs encouraging the public to create new debt as well.
This is the whole purpose behind the health-care legislation. It has absolutely nothing to do with health-care. It has everything to do with the Federal government seeking to create a new, gigantic "trust fund" where they can be custodians of 18% of our economy.
The Federal government will then do what they did with Social Security and steal the vast amount of money in the trust fund to keep the economic game going a little while longer. This money they steal will be replaced with Treasury security IOU's.
Think about what I just wrote. Let's say that you send the Federal governmen $1,000 for your health care payment. The government will collect everyone's premiums and have a big pile of money. They will then set aside the money necessary to pay the current fiscal year's outlays. Anything left over in the pile of money will be stolen and replaced with Treasury securities!
What does this mean to you? It means that some of your FUTURE taxes will go to repay those Treasury securities - meaning that you're going to be taxed to repay money that you already sent in the first place!
The international bankers are the ones that pulled credit from the economy. They did this on purpose so that they could steal the underlying wealth that the debt represented. Our economy is not run by our Federal government at all. It is completely controlled by the bankers. The Fed is simply a pipeline the bankers use to access the Federal government.
This is probably much more than you cared about - but it's my snippet of what's currently going on with our economy - and an explanation as to why our Federal government is spending like a drunken sailor. They have to, our they risk losing all of their accumulated power structure.
You're exactly right. This would be the definition of inflation.
However, the overall money supply in our economy is shrinking, not growing.
So the money supply in circulation is shrinking, but at the same time the value of each dollar is also going down? That seems to be a contradiction. If the circulating money supply is shrinking, then the relative value of the cash each person holds should be increasing, and the price of goods and services should be going down, (which I guess is the definition of deflation - to the point where it doesn't make financial sense to produce those goods and services: where it's not work the effort to produce, and shortages occur, which could eventually cause the price of goods and services to explode)?
I'll admit it: I'm much better with computers than I am with economics - I did take an ECO 101 course, and scraped through with a solid B+, and took a Marxist Economics course as well (I liked the instructor, the same as my Eco 101 & I needed a 300 level Eco course) and got both a B+ and a realization of just how WRONG (and in many ways, EVIL) Marxism really is.
Mark
Bingo! The CEOs are still doing quite well, getting their bonuses and all. The employees who are left are doing the jobs of all the people who were laid off and not even getting raises. It stinks.
Don’t get me wrong - anything government tried to do to “help” would only make things worse. It’s just the way the world is. Those on the top of the heap get it all.
Some of the dumbest, worst do-nothings were promoted - like the guy at “x” Corp. who donned an elf hat at the Christmas employee meeting to tell everyone there would be layoffs. Then he led them all in singing Christmas carols!
The company had a downturn due to mgt. buying up company stock when it was at its peak, only to see it crash in a few months. Their solution was layoffs, including many of their most experienced employees.
Mr. Elf was promoted to a new position with vague repsonsibilities, a nice title, and lots more $. Meanwhile the employees who were left were told raises would be postponed indefinitely, and they were doing the work of all those who had been laid off.
When major mistakes were made at “x” Corp. the big bosses held a company town hall meeting to tell everyone to stop making mistakes and then had them break into small groups to discuss how not to make mistakes. I kid you not.
There is a reason Dilbert is so popular - it’s painfully real.
Exactly. And it is for the most part. The only items that are more expensive than one year ago are those where the companies had to increase their prices in a last-ditch effort to drive revenue (since they aren't selling enough widgets at their previous price).
You also have a few companies that have been able so absorb a price increase due to selling necessities.
Lastly, there are those that were able to reduce their fixed costs enough (by laying off staff) to account for a price increase.
However, overall prices have been coming down.
We'll see the 3rd quarter GDP report this Thursday. It will show an increase in GDP - but the increase will mainly be due to increased exports (because the dollar is being artificially supressed) and a huge increase in government spending.
The GDP report can be interpreted as "we just took out an astronomical cash advance, so things are great".
It would be like you taking out a $20,000 cash advance at 20% interest and pretending you're rich for a little while.
The post of the week...people don't understand that they're about to get skinned a second time around.
I guess I just haven't seen this... Other than the housing market (as a result of the bubble bursting), consumer electronics (which follows "Moore's Law" as well as economy of scale), and oil prices (which are edging back up again after falling from a huge run-up), it seems as if everything else is going up... Is it possible that since the #1 cost in nearly every budget would be the home, and the value (as well as cost) of homes have been dropping, that this could make the inflation rate seem artificially low?
It's just that in nearly every case, things are more expensive to buy this year than they were a year ago... Especially necessities.
Mark
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