Advice from a blind man

by JDH on November 7, 2009

You are reading the visual observations of a blind man. I’m not literally a blind man. In fact, I had Lasik surgery, so my vision is quite good. (Actually I had the surgery twice on one of my eyes. It worked well the first time, but my eyes started to regress, so about two years later I went in for a touch up. Normally the surgeon doesn’t like to do the simple procedure more than two years apart, but in my case he gave it a shot and it worked great. No glasses. But I digress).

I can see, but I have no idea what I’m seeing. It’s as though I’m blind.

I see the unemployment rate over 10%. I see that 16.3% of the workforce, or one person in six, is either unemployed completely or working part-time. The Household Survey of Employment was horrific. 589,000 jobs were lost last month, or about 1.8 million jobs lost over the last three months.

(I remember “seeing” job losses during the internet-bubble-burst of 2001, but there weren’t that many jobs lost during the entire 2001 crash, let alone a short three month period). Even worse, the job loss is in full time employment.

The average work week last month was a record low 33 hours last month.

The unemployment hasn’t been this high since April of 1983, over a quarter century ago. If you add in the “marginally attached” workers and those poor souls who are working part time for economic reasons the unemployment rate is at 17.5%, a big increase from the previous record of 17% set in September.

Here’s the math I see: one in six Americans are either unemployed or under-employed. And that’s after the most massive monetary and fiscal stimulus in the history of the world.

We all know that the future growth of the economy is in the small business sector. What do I see? I see small businesses with less cash on their balance sheets, and greatly reduced access to credit as compared to two years ago, so I don’t see them growing anytime soon. Yes, the U.S. dollar is down, making exports more attractive, but that helps big corporations, not small businesses. I don’t see a mom and pop business exporting.

So, naturally, the boys at the Fed will be keeping interest rates low for a long time to come. That should keep the U.S. dollar on it’s downward path. Which is great for gold.

So, to summarize, I see a stock market that has rallied 60% from the March bottom, even though 2.8 million jobs have disappeared. This never happens. Normally if the stock market has recovered 60% from the lows we are far enough along in the recovery that over 2 million net new jobs have been created (which, in case you don’t understand, is the opposite of jobs being lost).

So why, with all of this bad news, is the market going up?

All I see is a bunch of investors who live in opposite land. If unemployment is high, that’s good news, because it means the government will inject more stimulus. The worse it gets the better it is, because there will be even more stimulus, which is good for the markets.

Nope, I just don’t see it.

DOWNov6-2009

What I see is a down trend line that remains intact since the highs of 2007. I also see an uptrend line intact since the lows of earlier this year. If one of these lines is broken, we will know whether or not this is a bull or bear market. I’m of the view that the bear will re-assert itself, and soon. But I’ve been blind to the uptrend all the way up, so who knows.

Not that I’m complaining this week. I bought some AEM.TO – Agnico-Eagle Mines Ltd. at $61.78 on October 29, then bought more at $57 on October 30, and then sold it all on November 3 for just under $62. I won’t get rich on it, but a profit is a profit, so I’ll take it.

Beyond the odd quick trade, and the continued appreciation in the few gold and silver stocks I continue to hold, I’m making a small profit, but mitigating risk by holding mostly cash.

I’ve been wrong since March, but that’s what I see, so that’s where I’m staying.