WASHINGTON, October 4, 2012 – Behaving about like we thought it would yesterday, the market opened up nicely, stayed up even more nicely, then sold of near the close. Fun and games?
Speaking of which, every financial maven and would-be maven has been marveling at the government’s latest job figures. The unemployment rate appears to have gone down a whopping 0.3% to 7.8%. Mirabile dictu. Is this, perhaps, President Obama’s “October Surprise?” Will this embolden the President to diss Mitt Romney on the stump after the former took a real thumping during Wednesday evening’s debate?
The answers are “maybe” and “of course.” And the media will help with the latter, rewriting the Election 2012 narrative once again after all of their writers and talking heads were seriously down in the dumps yesterday. The propaganda machine is alive and well.
With only 114,000 jobs allegedly created, that’s still over 200,000 short of 350,000—the number we were told, in 2009, that it would take to start making a real dent in total unemployment.
The real reason for the percentage decline in joblessness is all smoke and mirrors. As people drop off unemployment compensation and/or simply give up looking for work that’s not there, the denominator of that fraction (the bottom number) shrinks, effectively rendering numerator of the fraction (the numerator) into a greater part of the whole.
To oversimplify: if I start out with a fraction of, say ¼, the numerator—the number one—will be 25% of the whole. But if, for some arbitrary reason, I change the denominator to 3 (i.e., 1/3), the numerator is now 33% of the whole. In other words, that number 1 is now worth more and my percentage has grown larger.
That’s what’s going on here. One way of shrinking the unemployment number is to just allow nature to take its course with regard to the denominator of the fraction. Since, for some wild reason (politics?), the government idiotically refuses to include those who’ve dropped off the radar in their unemployment denominator, unemployment percentages can magically appear to improve without actually improving. Or even while rising. We saw this in last month’s report as well. But this “decline” gets unemployment below that magic number of 8%, just in time for you-know-who to crow about it going into November.
Ironically, the government does actually keep track of that real unemployment rate we’ve just been telling you about. CNBC notes this morning that the government’s so-called “U-6 unemployment number, which accounts for the underemployed and those who have given up looking for jobs, held steady at 14.7 percent.”
Why don’t the Feds use the U-6 number to compute the publicly announced unemployment rate? Beats the Maven, but again the reason is probably politics. And to be fair, this didn’t begin with President Obama. It’s been going on for a long time.
The alleged reason for not using the U-6 number is fairly simple: the government apparently has no really good way of counting people in the unemployed denominator once they’ve slipped off the radar screen. So even U-6 would appear to be an approximation of reality which probably still underestimates, to some extent, the actual figures in the real world.
Maybe it’s time to change the way the government produces this number. But that won’t happen as long as this or that president can take advantage of the false figures that make him look better to the electorate.
At any rate, we’re probably explaining and ranting in vain. The market is excited by this morning’s bogus unemployment numbers, so it’s shot upward from the open, with the Dow sitting at around plus 44 as of 9:48 a.m. EDT, though it’s likely to follow its graceful swan dive pattern sometime this afternoon.
This is actually somewhat funny, as the market last month would rally when the unemployment numbers got worse. That was because if the numbers got worse, the Bernank would surely be forced to announce QE3, at least according to the headline hungry financial media. We would guess that since QE3 is now a reality, and more money is flowing toward institutional trading desks (not ours) that the alleged jobless number is somehow evidence that QE3 “worked” (already?) and that we’ll be creating tons of jobs and paying down the national debt in the next quarter or two.
More than likely, the algos and HFTs are having fun, since they trade on hyped up headlines rather than economic facts. Just like the fun they had yesterday, pumping up the moribund coal stocks to an amazing extent, apparently based on Mitt Romney’s bullish coal comments during Wednesday evening’s debate. But hey, what if he doesn’t win, and Obama’s EPA continues to exterminate the coal industry? Let’s see if that little balloon deflates today.
Meanwhile, what shall we do amidst this undecipherable mess? Probably mostly sit tight. One of our chart services—very reliable—shows the only areas of remaining strength in the market are the healthcare area (pharmaceuticals, medical devices, medical facilities, biotech), gold, and (quite oddly) the airlines, the latter of which may show better numbers next quarter if fuel prices stay down long enough.
Being a skeptic, the Maven is still in trading mode, waiting patiently to buy more of the gold ETF he favors—IAU—on dips. He’s also established very small positions in Alaska Airlines (ALK) and Delta Air (DAL), and is eyeing up his favorite pharmas—Pfizer (PFE) and Abbott Labs (ABT)—if he can get a good price. Both pay nice dividends, which is insurance in this market.
But do note that both these pharmaceutical giants will be undergoing some restructuring between now and the end of Q1 2013 as they spin off some businesses to focus more on the creating and peddling of new drugs—the kind Obamacare will pay for, at least. As for the rest of the market, short term charts still look weak, which makes us nervous about big commitments here.
Barring an announcement of war between Turkey and Syria or some such thing in the Middle East, today is probably still a day, however, to relax and take a few more investible dollars off the table before going out to enjoy your day and your weekend.
So have a good one, already.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns a small position in HCLP, which is discussed in this article.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
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