The Market Perspective

A Real Look at 'Jobs'

Thursday Nov 12 2015

A Closer Look at All Those New U.S. Jobs
U.S. labor force participation rate is at its lowest level in 38 years

By Elliott Wave International

Editor's note: You'll find a text version of the story below the video.

I was in the café of a bookstore recently and overheard a young man tell his friend, "It's hard to get a job these days, even with a degree."

Of course, this was just one comment, and anecdotes are not a substitute for statistics.

But much of the talk about the U.S. job market is that it's far less robust than it use to be, despite a steady improvement in the official jobless rate since the Great Recession high of 10.0% in October 2009. This October, the official unemployment rate was 5%.

In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included.

The labor force participation rate is at its lowest level in 38 years.

This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work:

A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here.

Even those who are working are struggling to make headway. This chart and commentary from our October Elliott Wave Financial Forecast explains:

The mean measure of U.S. personal income peaked in 2006. The median measure shows that half of U.S. citizens are earning less money in real terms than they were in 2000. The five-wave form of the rise in mean income is further Elliott wave evidence that the decline is about to accelerate.

And what about the 2.95 million new jobs that were created in 2014, and the slightly more than 2 million so far in 2015?

The numbers sound impressive until you dig deeper. This is from the Atlantic magazine (September 4):

According to new research, between 2009 and 2014, wage loss across all jobs averaged 4 percent. But for those in the bottom quintile, those losses averaged 5.7 percent. ... The [jobs] where declines in real wages have been the most acute -- are also the jobs that have hired the highest share of new workers during the recovery.

It's true that average hourly earnings increased by nine cents in October. Even so, the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets.

Also consider that in September, the U.S. Consumer Price Index fell 0.2% and that the Producer Price Index declined by 0.5%.

All told, our stance remains that deflation is knocking at the door.

Get the full picture of what we see as a worldwide deflationary trend in our new report, Deflation and the Devaluation Derby.

Here's what you will learn:

• Currency devaluation's role in the developing global crisis
• How the self-reinforcing aspect of deflation is already apparent in commodities trading
• Why the top 1% of earners are in for a rude awakening
• How Europe's biggest economies are screeching to a halt
• The hair-raising future for U.S. stocks

Just recall how swiftly the 2007-2009 financial crisis unfolded. We anticipate that the next global financial crisis could be even more sudden and severe.

Prepare now with our new report, Deflation and the Devaluation Derby. CLICK TO CONTINUE READING >>

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Transports Not Confirming Industrials Move up

Tuesday Nov 10, 2015

Tuesday Nov 10, 2015

TheSPX and Dow Industrials have made new highs unconfirmed by the Transports or smaller cap indexes. 

DOW Industrial

DOG

DOG is an inverse ETF of the Industrials and it is performing as it should generating  buy signal on the SAR PAR. Note MACD is quite low and looks to be turning up. 

Short QQQ

The same buy signal is here for the ETF that shorts the QQQ.

Mainstream thinking is that we had the usual fall pullback for an overbought market. After the very strong rally, another pullback is now in order. Then  after say Thanksgiving the markets being their usual Nov thru May rally. 

The other line of thinking is that we have a Dow Theory sell signal August 24 with Industrials and Transports both  making new lows. The Transports did not confirm the new high in the Industrials. The Bulls ignore this saying just give it time. Other bear thoughts are that we are in a 40 year cycle high similar to 1932-1972, 1974-2014. I have written extensively about the 1973-74 meltdown and this is exactly the way it began.  There was weakness in many stocks, take CAT or PG for example ignored by those buying the nifty fifty back then. Today that would be social media stocks like Google or FB. 

I am in the bear camp on this one. 

Are Japan's Lost Decades Ending ?

Is Japan's Wicked Winter Almost Over?
Economic blossoms may bloom again in the Land of the Rising Sun

By Elliott Wave International

The winter season is a common metaphor for a bleak period in someone's life: Borrowing a line from Shakespeare, John Steinbeck titled his final novel "The Winter of Our Discontent."

Nikolai Kondratieff used "winter" to describe the worst part of an economic cycle. Indeed, the famous Russian economist used all four seasons as metaphors for the four natural phases of expansion and contraction that an economy goes through in 50 or 60 years.

Take a look at this chart:

Japan's economy has gone through a very long winter. The nation has experienced deflation for most of the past 25 years.

Here's a September 25 Financial Times headline:

Japan falls back into deflation for first time since 2013

But a change of seasons may be closer than many observers realize. Review this chart and commentary excerpted from a Special Report by Mark Galasiewski in the October issue of Elliott Wave International's monthly Global Market Perspective:

Let's see how that [Kondratieff] template has applied to Japan since the low in Japanese interest rates in 1946.

This chart shows three markers of the Japanese economy. At the top is the inflation-adjusted TOPIX. In the middle is the chart of 10-year JGB yields, showing the 1946 low at 3.69% and the 1961 high near 15%, followed by the long five-wave decline through to the present. At the bottom is the year-over-year percentage change in Japan's GDP.

... Japan's Spring lasted from the end of the Pacific War to the late 1950s. ... Japan's Summer extended from the late 1950s to the early 1980s. Japan's so-called bubble economy of the late 1980s and early 1990s was its Autumn. ... Finally, Japan's Winter lasted more than 20 years.

We conclude from the data that Japan is in the process of ending a Kondratieff Winter and is beginning a Kondratieff Spring ... .

Is this sleeping giant ready to offer opportunities for investors?

You can learn now in a new free report from Elliott Wave International, 3 Reasons to Get Excited About Japanese Stocks.

You'll get Galasiewski's Special Section on Japan, as presented to Elliott Wave International subscribers in Global Market Perspective.

Access your free report now >>

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Volatility-What to Expect in 2016, Rates on the Rise

Weekend Nov 7, 2015

Per Capital Tax Receipts Top Tick the Stock Market

or as Two Minds put it

The Most Important Chart you Have not Seen

Here is another puzzle piece that the stock market is making an important high. A top in tax receipts has called the top in the market since 1987. 

Recall the chart we ran last weekend showing a reliable 394 weeks between market tops, and that has also occurred. 

What to Expect Next Year

My academic presentation in Houston was themed that the discounted cash flow model did not adequately explain real world stock market behavior. Indeed social mood is at the root of fluctuations not DCF. The numbers represent the extent of rise and fall in the price of Cullen Frost Bank CFR. Now this is not Gamestop or YELP but a very well managed bank with a solid record of dividends. I was upset that I missed the last bottom in August but then began examining the chart. Since the high of Sept 2014, CFR has moved up and down some 84 dollars, more than the price of the shares today!  Yet the fortunes of the bank are unchanged, never a dividend missed. To me this is a microcosm of the wild swings in the overall market which have occurred since July of this year. 

Bottom Line If CFR can experience such swings, one can only imagine the volatility in store for less well managed firms with weak balance sheets. Speaking of which...

Valeant

 

 

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Goldman Sachs foreclosed with a margin call selling  1.3 Million shares of the CEO'sVRX.TO  stock Thursday Nov 5. It looks like a couple of other margin calls may have preceded that event, note blue arrows. Again the use of credit can truly wreck a stock price once the social mood switch is thrown. 

Stocks

NYSE Advance Decline Line

 

Yes the SPX and DJIA are near their previous highs but that is not he case for the NYSE, Transports, Value Line and smaller indexes like the Russell 2000. So we have a big cap rally  going not confirmed by the other indexes. 

NYSE A/D Volume

The Advance Decline Volume chart looks even weaker. This speaks to a lack of breadth in the rally though you would never know that reading Art Hill at stock charts. 

Dow Theory Sell Signal Still in Force

the 20% plunge int he Industrials and the Transports by August 24 confirmed a Dow Theory Sell Signal. Transports have rebounded not to their former highs but between 38-50%. the MAs appear to be moving together agin. I expect that will take another month or so.Typically MAs converge before a new direction occurs. IF cheap energy prices are a great thing why aren't Transports leading the way back up?

Bonds and Income Related Investments

Five year Yield

The really dramatic rise is on the short end, here is the five year yield. In a bit over a month it wiped out  four months of decline. That is a 30% rise since the low in October.

TBF

TBF is an inverse fund to bond prices. It rises with the yield. Recommended.

Utilities

The realization of rising rates knocked the Dow Utilities down 3.84%, Note how Utilities are violently moving up and down like our first chart CFR.  Rates are on the rise and it matters not what Janet and the FED does. 

REITs

The popular Cohen and Steers REIT was socked for a 4.28% decline as well. The quarterly distribution is 24 cents or 96 cents annually for an 8% return in dividends. Friday wiped out a year of those dividends with a drop of over 4%.

Warning As the FED has kept rates artificially low to help the economy, the FED forced fixed income savers into riskier utilities and REITs. Now as rates rise the principal of those investments is at severe risk as the two previous charts demonstrate.   REITs were one of the hardest hit sectors in the 1973-74 decline.

The US Dollar

The big rise in the dollar helped take bond prices, REITs, Junk Bonds JNK and Utilities all down.  The race is on to accumulate dollars to pay down world wide debt. 

Emerging Market

Shanghai

 

China has been attempting to 'command' its markets back to growth. Attempts include urging those with  no experience with investments to buy stocks and claiming a 6.5% growth rate. 

Shanghai Daily

the 38% re tracement is right at the 200 day MA, look for a failure at that level.  The Goldman Sachs Commodity Index is at top. The point being we are in a world wide deflationary collapse with interest rates now rising. 

Australia

Australia is certainly the most robust of the markets surrounding China. it too is in the grips of the deflationary wave. The 200 day MA also lies just over the price.Note we are seeing the same thing in Shanghai, Australia, and the Dow Transports. 

Energy

 

We now have three failures since the August price low in crude oil.  At top unleaded gasoline has been unable to stage any rally which is good news at the pump but no help to the Transport average as noted. The drop Friday was 1.92%.  We have been predicting a final low in the mid 30s. It will take a break of 40 to make that happen. 
 

Natural Gas and CHK

 

The price of natural gas and CHK Chesapeake who produces it are both in collapse mode. A return to the 2012 low seems inevitable. 

Gold

Gold is headed towards its previous low amid massive negative sentiment as noted, gold is just a pet rock reads one column in the WSJ. Gold is falling with the same deflationary forces as oil. 

The Bottom Line

Friday was an important turning point for interest rates, REITs, Utilities, and Junk bonds. While rates have been on the rise, the action cemented the case. I suspect the highs in all those markets have now been seen. As always the good intentions of low interest rates by the FED have pushed seniors into what are now some of the riskiest investments, REITs for example. As the prices for these securities drop their charts will look like the Valiant margin call we showed. The rush to exit will soon be up on us. 

The stock rally is concentrated in the DOW and S & P. Transports, Value Line, Russell are not confirming the rise in the big cap indexes. Hence we are either near a top or the roll over will likely begin prior to year end. Stocks are just now positive again for the year and that is only in the big caps. 

The darting in and out of otherwise strong issues like CFR shows how flighty social mood has now become. 

Bond prices are falling and will continue to do so. 

Oil and Natural Gas are headed lower as is gold. 

Commodity based markets like China and the countries surrounding it are falling. 

World wide deflation is upon us. 

Social Mood

Government ferrets out its own boogey man at market tops. The government sued RCA at the 1929 market top, the tech giant of that day. Clinton sued MSFT near the 2000 market top. IBM came under scrutiny in the 1966 market top. Now the NY state attorney general is declaring opposing climate change to be illegal.  His target is the deep pockets of Exxon Mobil one of the largest cap firms in the world.  Obama vetoed the Keystone pipeline this week with gasoline prices at their lows. But that eliminates thousands of private sector jobs in the name of dubious climate change, which he fervently believes. Hillary has also jumped on Exxon asking for an investigation. 

Shake Shak announced 12 cent quarter earnings. Extrapolating that would be 48 cents for the year. The stock trades at $50 giving this a 100 to 1 price earnings ratio. Wendy's trades at a 34 to 1 price earnings ratio. WEN had $2 B in annual sales for 2014. SHAK had $53 million for the quarter, which would be $212 million or about 10% of Wendy's sales. Yet the market cap for SHAK is $1.6 billion while WEN is $2.6 billion. Here is more proof that stock prices are a result of social mood not discounted cash flow. The stock is surely pricing in every possible good thing that could occur. 

Murder rates are on the rise. 

The White House denies that both the DEA and FBI director are right on the Ferguson Effect.

 

Violent crime was a another feature of the 1970s bear market. We are seeing an echo of that same mood with so many big cities run by law enforcement light Dem Mayors.  Already murders are on the rise in Blasio's NYC.

Pop Trends Price Culture

 

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The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

 

 

 

 

 

Stocks Next Two Days Important, Oil Struggles

Thursday Nov 5, 2015

Oil fell below the uptrend line form late August. It is now challenging that line again. Unless crude can take out $49, we assume lower prices lie ahead.

Stocks

The major market index has exceeded 61.8% of its fall. How it performs from here will tell us a lot about the end of this year. 

NYSE Weekly Advance Decline

The 31 weekly EMA has crossed the 34 EMA which is a big positive for the bulls. Will it regain its April May high, as we said last weekend this deserves to be monitored.