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Yardeni: Lower Unemployment in 2012 = Higher Stock Market in 2012

Editor — Sun, 08 Jan 2012 21:23:28 +0000

Initial unemployment claims may be the most important economic indicator for the stock market in 2012. It is one of the three components of our Fundamental Stock Market Indicator (FSMI), which is highly correlated with the S&P 500, [see graph below] so if initial unemployment claims remain under 400,000 and possibly continue to head lower during January, that would support the strong stock market rally that has kicked off the New Year so far. Words: 395

So says Ed Yardeni (http://blog.yardeni.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Yardeni goes on to say, in part:

The FSMI is still range-bound, but has moved higher during seven of the past nine weeks and is approaching its February 2011 cyclical peak. The recent rebound is attributable to the sharp drop in initial unemployment claims late last year…

Also supportive is the recent strength in the CRB raw industrials spot price index, which is another component of our FSMI . This commodity price index is also highly correlated with the S&P 500 Transportation index [as can be seen above], which is only 5% below its record high of early last year. (More for subscribers.)

*http://blog.yardeni.com/2012/01/fundamental-stock-market-indicator.html

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News Flash! OECD: Decisive Action Required Quickly to Avoid Massive Economic Disruption, a Credit Crunch and a Global Recession

Editor — Sat, 19 Nov 2011 07:42:53 +0000

Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track. [If not we can expect to see a] massive escalation in economic disruption, an increase in the risk of a credit crunch [and] the global economy tipping into a recession. Words: 834

So says the OECD (www.oecd.org) in an article* regarding their latest Economic Outlook report.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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The article goes on to say, in part:

The euro area crisis remains the key risk to the world economy, the Outlook says. Concerns about sovereign debt sustainability are becoming increasingly widespread. If not addressed, recent contagion to countries thought to have relatively solid public finances could

massively escalate economic disruption
increase the risk of a credit crunch [from increased] pressures on bank funding and balance sheets
tip the economy into a recession that monetary policy could do little to counter.

OECD Chief Economist Pier Carlo Padoan reported that:”Prospects only improve if decisive action is taken quickly. In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard.”Improved prospects would also depend on the enactment of a credible medium-term fiscal programme in the United States.

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The Outlook’s baseline scenario assumes that policy-makers take sufficient action to avoid:

disorderly sovereign defaults,
a sharp credit contraction,
systemic bank failures and
excessive fiscal tightening

and sees:

GDP across the OECD countries slowing from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013
unemployment in the OECD area remaining high for an extended period, with the jobless rate staying at around 8% through the next two years.

Mr. Padoan went on to say:

“We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy. We see:

the US growth recovering only slowly,
the euro area entering into mild recession and
Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”

GDP is projected:

in the U.S., to rise by 2.0% in 2012 and by a further 2.5% in 2013, after an expected expansion of 1.7% this year,
in the Euro area, to slow down from 1.6% this year to 0.2% next year, before picking up to 1.4% in 2013,
in Japan, to expand by 2% in 2012 and 1.6% in 2013, following a contraction of 0.3% in 2011, which reflects the impact of the earthquake and tsunami and subsequent reconstruction activity and
in China to ease to 8.5% in 2012, from 9.3% this year, before climbing back to 9.5% in 2013. Weaker activity in China and other emerging-market economies together with modest falls in commodity prices should put inflation in these countries on a downward trend, allowing some easing of monetary policy.

World growth will be sustained by the non-OECD countries
Contribution to annualised quarterly world real GDP growth, percentage points

Source: OECD Economic Outlook 90 database. Download the underlying data in Excel

Under the baseline scenario, weak activity, low levels of inflation and predominantly downside risks:

should trigger strongly accommodative monetary policy in OECD countries [with] central banks providing ample liquidity to calm tensions in financial markets and prepare contingency plans that could be implemented swiftly, if needed, but
could trigger an alternative, downside scenario where the outlook becomes much bleaker if there is a continued lack of effective action. This scenario could be prompted by a worsening of existing concerns about the banking system, contagion in euro-area sovereign debt markets or an excessively tight fiscal policy in the United States linked to the current political gridlock.

In the Strategic Response section of its Outlook, the OECD:

identifies country-specific policies that should be implemented if the macroeconomic situation derails,
[advises that] the financial sector must be stabilised,
[advises that] the social safety net [must be] protected,
[advises that] monetary policy [must be] eased further and
[recommends,] where feasible, [that] governments provide fiscal support while strengthening fiscal frameworks to reassure markets that public finances can be brought under control [and that] under this scenario, a wide range of structural measures to boost jobs and economic activity, all desirable in their own right, will become urgent…[to avoid the risk of unemployment] turning from cyclical to structural, thereby sapping potential growth, hitting confidence and weakening public finances.

*http://www.oecd.org/document/47/0,3746,en_21571361_44315115_49095919_1_1_1_1,00.html

Editor’s Note:

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These 5 Charts Clearly Show Just How Major – and Depressing – the Current Unemployment Situation REALLY Is

Editor — Wed, 09 Nov 2011 07:19:57 +0000

The unemployment rate declined [slightly in October] from 9.1% to 9.0%…[but a close look, in chart form, at the pattern of unemployment compared to the S&P 500, the extent of unemployment over 27 weeks duration, the ratio of employed people to those aged 16 and over, the average length of unemployment and how extensive unemployment has been in this most recent recession compared to each of the others over the past 60+ years, is very revealing as to how serious the situation is. It is very depressing, indeed.] Words: 601

So says Doug Short (http://advisorperspectives.com) which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Short goes on to say, in part:

Chart # 1

The chart below shows: the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the current and previous bear markets.

Chart # 2

The second chart (below) shows: the unemployment rate for the civilian population unemployed 27 weeks and over. The October number is 3.8% – down from last month’s 4.1%. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric remains significantly higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%.

Chart #3

The third chart (below) shows: the ratio of the number of employed people to the total civilian population age 16 and over and is an overlay of the unemployment rate and the employment-population ratio.

The inverse correlation between the two series is obvious. We can also see the accelerating growth of two-income households in the early 1980s. The July 2011 ratio was a modern low of 58.1% – a level not seen since the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. The latest ratio is consistent with levels of the early 1980s.

The employment-population ratio will be interesting to watch going forward. The first wave of Boomers will be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the Boomer transition to retirement will accelerate over the next several years.

Chart #4

The fourth chart (below) shows: the average length (weeks) of unemployment…We are perhaps seeing a paradigm shift [as a] …result of global outsourcing and efficiencies of technology. The post-recession duration of unemployment has continued to rise, although the October 39.4 is off last month’s all-time high of 40.5. It had approached a level nearly double the peak in 1983 following the 1981-82 recession.

Chart #5

The last chart (below)…shows: the percent of job losses from the peak employment month prior to every recession since 1948 (the earliest monthly unemployment figures collected by the Bureau of Labor Statistics). Note the addition of the dotted-line alternative for the current cycle, which shows unemployment excluding the temporary census hiring.

*http://advisorperspectives.com/dshort/updates/Unemployment-and-the-Market.php

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Continuing High Unemployment = More Money Printing = Higher Gold & Silver Prices

Editor — Tue, 08 Nov 2011 07:11:14 +0000

So says an article* by Parsimony Investment Research (http://www.parsimonyresearch.com/) posted on SeekingAlpha.com which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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The article goes on to say, in part:

We believe the Bernanke and the Federal Reserve are more focused on reducing unemployment given the greater near-term social consequences of unemployment, particularly long-term unemployment as defined by U-6 and youth unemployment.
The U-6 unemployment rate is 16.2% and the youth unemployment is 18.1%.

The chart below from the Bureau of Labor statistics shows that despite the easy monetary policy and the fiscal stimulus packages, there is an incremental 2 million people unemployed.

(Click charts to expand)

Between 2008 and 2011, the Federal Reserve has significantly expanded its balance sheet depicted by the monetary base (red line below) despite generating only a modest increase in real GDP (green line below).

Tactical Strategy

The physical markets for both gold and silver should determine the long-term price of the metal and we believe individual investors should continue to accumulate physical precious metals to diversify their wealth and help mitigate the loss of purchasing power from central bank intervention.

*http://seekingalpha.com/article/307282-federal-reserve-falling-short-on-its-dual-mandate-buy-precious-metals?ifp=0&source=email_macro_view

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Canada’s “Misery Index” On The Rise – but Still Below the Misery in the U.S.

Editor — Mon, 07 Nov 2011 07:50:06 +0000

Canadians may wish to consider the underlying trends in inflation and unemployment before making major financial decisions. Recent unemployment data in Canada shows unemployment at 7.3% [vs. 9.0% in the U.S.] and inflation rising to an uncomfortable 3.2% [vs. 3.6% in the U.S. for a Misery Index of 10.5 vs. 13.6 in the U.S. Let's take a look at the details.] Words: 585

So say Pacifica Partners (www.pacificapartners.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Pacifica Partners go on to say, in part:

While Canada has earned accolades from politicians and individuals for its fiscal prudence and strong banking system, many Canadians are not receiving the benefits of the gleeful conditions that they are being told they are experiencing…The Canadian misery index ( calculated by adding the unemployment rate to the inflation rate) has stealthily marched higher after hitting a low in the first quarter of 2008. The data indicate that the cost of living in Canadian cities is rising, and high unemployment is mounting…

[The chart below reveals]… that Toronto’s misery is at 16-year highs, while Vancouver’s and Montreal’s misery has also climbed sharply higher, and is now above the psychological threshold of 10%. Many might find this surprising, since this is counterintuitive to the broadly bullish opinions that have become the consensus. This finding is particularly noteworthy because the Organisation for Economic Co-operation and Development has singled out Canada as a country facing significant challenges from a steady climb in consumer debt.

(C lick here to view a larger version of this chart)

Critics will note that by excluding volatile items such as food and energy, inflation is up 1.9%, and that the misery index has traditionally used total, or “headline,” inflation. At the same time, many investors and non-investors alike are particularly irked by the “excluding food and energy” part of inflation data. With a hint of sarcasm, they will say, “Sure, inflation is no problem – if you do not have to drive or eat.” It is true that globally, much of the increase in headline inflation has been driven by food and energy prices due to weather and the effects of easy monetary policy in the US. Should headline inflation persist through high energy and food prices, it could trickle down into the core-inflation numbers.

With the Canadian and U.S. economies so closely linked to one another…much of what happens to Canada’s economy depends on the policy path of the Federal Reserve…The Federal Reserve has a dual mandate…[of] keeping prices (inflation) under control [and being] mindful of the U.S. unemployment rate. To that end, with 14 million Americans out of work, the Fed sees unemployment as the bigger issue…[but] that could inadvertently stoke inflation.

As Central Bankers have learned from past experience, once the inflation genie is let out, it is difficult to rein it in. Time will tell if this will be the case, but if inflation becomes persistent, then the misery index will become a much more popular economic data point than it has been in a very long time.

Conclusion

[To repeat] Canadians may wish to consider the underlying trends in inflation and unemployment before making major financial decisions. Recent unemployment data in Canada shows unemployment at 7.3% [vs. 9.0% in the U.S.] and inflation rising to an uncomfortable 3.2% [vs. 3.6% in the U.S. for a Misery Index of 10.5 vs. 13.6 in the U.S.]

*http://www.pacificapartners.com/blog/2011/11/04/canadians-misery-index-rising/

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Gold: Are You “The 99%” or “The 1%”?

Editor — Tue, 25 Oct 2011 07:48:11 +0000

So says Michael J. Kosares (www.usagold.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Kosares goes on to say, in part:

Misery Index Rising

Misery loves company, and particularly the company, comfort and security of gold. Since the financial breakdown of 2008, the Misery Index — unemployment and inflation added together — has been in a steep upward trajectory, as has the demand for gold coins and bullion.

The Misery Index was first popularized by Ronald Reagan in the 1980 presidential campaign. Reagan used it as a barometer for how well the country was doing economically. During Jimmy Carter’s presidency, the Misery Index hit an all-time high — almost 22%. Near the end of Reagan’s tenure in the White House, he had reduced the unemployment and inflation rates meaningfully — to 7.7% by 1986. Barrack Obama’s Misery Index now stands at almost 13% using federal government statistics and we all know things are getting worse, not better. We also know that things might be quite a bit worse than what we are led to believe. That’s where Shadow Government Statistics — an alternative, and some say more realistic, rendition of economic statistics — comes into the picture.

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Many question the government’s version of the consumer price and unemployment numbers, saying they are politically motivated and reported on the low side to quell public discontent. Shadow Government Statistics (SGS) publishes its own versions of the inflation and unemployment rates and its number are considerably different from the U.S. Department of Labor’s versions. SGS’ inflation numbers reflect the same statistical methodology the DOL used in 1980. Its unemployment numbers use the same methodology the government used in 1994… If SGS stats are applied, the Obama Administration’s Alternative Misery Index would be around 34% — far worse than the Carter Administration’s economic performance, and over 2.5 times worse than the numbers used by the federal government.

Political and Social Discontent Rising

A recent Washington Post poll found 73% of Americans doubt Washington’s ability to solve economic problems. In a certain sense, Americans have begun to take the matter into their own hands. Politically, the general discontent among Americans has manifested itself in the electoral successes of the Tea Party movement on the right, and on the left in the Occupy Wall Street movement that has recently captured headlines.

Demand for Gold Coins Rising

Financially, that public concern [regarding the economy] has manifested itself in booming demand for gold coins and bullion — a phenomena that transcends both the political spectrum and national borders. In fact, the Alternative Misery Index and the demand for gold coins have risen in tandem since 2008. (Please see the Gold Eagle Bullion Coin Sales chart below.)

Gallup Poll – Americans choose gold as the best long term investment

Reprinted with permission

According to a surprising recent Gallup poll (shown above), Americans view gold (34%) as the best long term investment over real estate (19%), stocks (17%), bonds (10%) and savings accounts (14%). Says Gallup:

Gold is Americans’ top pick as the best long-term investment regardless of gender, age, income, or party ID, but men, seniors, middle-income Americans, and Republicans are more enamored with it than are other Americans…That one in three Americans see gold as the best long-term investment may indicate a bubble in the value of this precious metal…[but,] at the same time, this sentiment among many Americans may be related to the growing lack of confidence in the U.S. economy. This is particularly the case among upper-income Americans, who are now more pessimistic about the direction of the economy than their middle- and lower-income counterparts. The last time this happened was during the financial crisis of late 2008 and early 2009.

U.S. Gold Eagle bullion coin sales, as shown in the chart below, are representative of the trend. Note the substantial growth from the time of the 2008 financial crisis forward. Note also that the growth is in number of ounces, not dollar volume. Bullion coin sales are seen generally by analysts as a proxy for the overall market.

Gold market amassing a boatload of potential energy

Ownership of Gold Remains at Less Than 1%

The number of people who actually own investment gold in the United States is miniscule when compared to those who own stocks — no matter what the polls say. 34% of Americans say gold is the best long-term investment, but how many of that 34% actually own it in the form of coins and bullion? No one has that figure, but my guess would be less than 1% (of the total population) and I doubt I am all that far from the truth. Compare that with the number of people who own stocks — 10% of the population reportedly owns 85% of the stocks.

Greater Ownership of Gold Will Cause Price to Skyrocket

Consider for a moment what might happen to the gold price and the supply of gold coins and bullion if, over the coming years, there were a steady progression toward 10% of the population becoming gold owners. When you consider that 34% of the population would like to own gold — no matter their present circumstances — and less than 1% actually owns it, you begin to understand why gold is not in a bubble at all, but in fact, is in a long-term secular bull market that is still amassing considerable potential energy.

In fact, it would be difficult to measure the effect of current gold owners doubling — to let’s say 2%, let alone to 10%. Let’s not forget that the inflation-adjusted all-time high for gold is about $2300 per ounce — a figure which reflects past monetary growth without regard to a significant rise in physical demand.

Blend in a doubling or tripling of global investment demand from current levels — a distinct possibility — and you paint a whole new picture for gold.

*http://www.usagold.com/amk/specialreportoct2011.html

Related Articles:

1. Price of Gold Will Explode Upward If – and When – We See….

For the past decade gold has been “catching up” to the amount of money (M2 and M3) in the system to make up for understatement of the gold price due to U.S. price fixing on its way to an inflation-adjusted value of approx. $2,300 – and that is just the beginning. If, and when, we see a release into the market of the trillions of U.S. dollars being stored on balance sheets of banks, companies, and other countries around the world then the price of gold should explode upward. Let me explain why that would be the case. Words: 850

2. Is Gold On Its Way to $3,000, $5,000, $10,000 or Even Higher? These Analysts Think So

143 analysts maintain that gold will eventually reach a parabolic peak price of at least $3,000/ozt. before the bubble bursts. Of those 143 a total of 103 see gold achieving a price of at least $5,000/ozt. and 20 predict that gold will reach a parabolic peak price of $10,000 per troy ounce or more. Take a look here at who is projecting what, by when and why. Words: 745

3. Peter Schiff on Gold: Don’t Look a Gift Horse in the Mouth!

[F]ollowing the crowd has never been the reason to buy gold. After all, that same logic would have recommended buying a house in Phoenix five years ago. Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold and buying dollars and euros? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 880

4. Gold to Bounce Back to $2,250 – $3,000; Silver to $52 – $62; HUI to mid-900s by Year End

A tsunami doesn’t start with a bang, but with a whimper. The first sign is a little hump in the water way out in the distance that is barely notable. Anyone who catches a glimpse of it simply continues to expect the day to be the same as the last many days – calm and beautiful waters along the shore. This is the point where we are, today in the Precious Metals sector. Many have seen the little roll of water out in the distance as Gold edged up in the first move of a more parabolic slope, yet most investors are mired in the same expectations of yesterday – a return for Gold to correct down into a lower base. Our analysis based on the fractal relationship to 1979 shows, however, that the mid 900s are a realistic target for the HUI by the end of the year or early in 2012; that $52 to $56 should be achievable for silver, with $58 to $62 as real possibilities; and that Gold should go the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, now on the radar screen. Let me explain why that is the case. Words: 2130

5. Don’t Delay! Here are 50 Ways to Invest in Gold

Beyond its role as a diversifying agent in a portfolio, perhaps the most enticing attribute that gold offers is the huge potential for price appreciation. Although prices were stuck in somewhat of a rut in the middle part of the last decade, financial turmoil, money printing, and widespread fears over inflation have pushed gold prices sharply higher in recent years to near all time highs… Given the continuation of easy money policies by the Fed and other central banks around the world, as well as the very real possibility of more turmoil in the financial space, it isn’t surprising that many investors are looking to cash in on this modern day gold rush. For these investors looking to make a play on this elusive metal, we explore below every nook and cranny of the investing world to offer 50 ways to play gold. Words: 2768

6. Tidal Wave of Global Gold Demand Developing

In the East…gold is not only celebrated, acquired, worn or displayed during holidays or special occasions; it is seen as an everyday symbol of wealth. Increases in demand from China and India have driven a 7.5 percent increase in demand for gold jewelry during the first half of the year despite a 25 percent increase in the price. [Overall,] gold buying in India jumped 38 percent during the second quarter alone…China’s gold purchases jumped 90 percent on a year-over-year basis through June. In addition, demand from central banks is growing dramatically. [Such activity is setting up a] perfect storm – a tidal wave of gold demand [which can only keep prices high and escalating. Let me be more explicit.] Words: 959

7. Buying Physical Gold? Follow These 5 Rules

If you’re interested in physical gold, I recommend you buy small gold bars which are available in a wide range of weights and can be bought for as little as 1 percent over the price of gold. [That being said, this article outlines five rules to follow before, during and after the purchase process.] Words: 813

8. Americans: Which Gold/Silver Bullion Assets are Permitted in Your IRA?

Some physical gold, silver, platinum and palladium bullion assets, in addition to traditional paper assets, can be part of your Individual Retirement Account (IRA) or Roth account and they can be bought and sold with no tax consequence until you move money out of the account. [This short articles reveals just what bullion assets can, and cannot, be included.] Words: 573

9. Eagles, Buffaloes & Maple Leafs: Gold Bullion Coins of U.S. & Canada

I think we all would agree that owning a 10 kg bar of gold would be nice but that it is probably out of the question at the current cost of over $500,000! I had the pleasure of caressing such a bar recently and being surprised at just how heavy (22.045855 lbs.) it was for such a small object. Below I describe the gold coins of Canada and the United States. Words: 870

10. The Future Price of Gold and the 2% Factor

It is my contention that the price of gold rallies whenever the U.S. dollar’s real short-term interest rate is below 2%, falls whenever the real short rate is above 2%, and holds steady at the equilibrium rate of 2%. Furthermore, for every one percentage point real rates differ from 2%, gold moves by eight times that amount per year. So if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (that’s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate. [Let me explain.] Words: 982

11. Gold is Not an Investment – Gold is Money – and Here’s Why

To fully understand gold’s role in an investment portfolio, we need to adopt a new mindset, a gold mindset which is, simply put: gold is not a bad investment, and gold is not a good investment. Gold is not an investment at all – gold is money.

12. Richard Russell: Get Prepared – A Gold Tsunami is Coming

If the temperature of full gold fever is a hot 106, we’re only at 99 now, but I can feel it, I can tell you that the temperature is rising, rising. The panic to buy gold will override everything else. It will be one of the greatest financial phenomena that most of today’s investors will ever see. It will blot out everything else like a cloud blotting out the sun. After the calm, comes the storm. We’ve been watching ten years of gold climbing amid an atmosphere of calm. The great gold tsunami lies ahead. It will be historic. Words: 480

13. Here’s the Definitive Article on Why Gold is Going Even Higher

[Whatever you] call it – a bubble, a frenzy or a mania – there seems to be a large number of voices in the marketplace who just are not fans of gold, whether prices are moving up, down or sideways [but] the reality is that gold doesn’t possess the traits necessary for a financial bubble to form. [In fact, the current worldwide economic and fiscal environment suggests that gold will go MUCH higher. Let me explain.] Words: 2368

14. Pension Funds: Why $5,000 Gold May Be Too Low!

You already know the basic reasons for owning gold — currency protection, inflation hedge, store of value, calamity insurance — many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future. [T]here is another driver of the price, however, that escapes many gold watchers and certainly the mainstream media [a]nd I’m convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we’ve ever seen. [Let me explain.] Words: 788

15. The Pros and Cons of Buying Gold Bars, Ingots and Coins

For a long time the buying and selling of gold has been outside the reach of the average citizen. The predominate banknote and the dominant currencies previously managed to position themselves very well in respect of the precious metal during stable periods. However, it is during difficult times [such as these when] quantitative easing and currency wars have highlighted the volatility and vulnerability of currencies…that the true, safe value of gold really stands out…Fortunately, it is now easier for you to convert your savings into gold… [than ever before and this article outlines the reason for buying physical gold and the advantages and disadvantages of buying gold bars, ingots and/or coins. Read on!] Words: 853

What is the Primary Reason for Lack of Economic Growth in America? Here is the Answer

Editor — Wed, 21 Sep 2011 07:14:36 +0000

The widespread stagnation in wages, rather than the level of unemployment, may offer a better explanation for the failure of economic growth to accelerate two years after the end of the recession. Workers’ ability to negotiate higher earnings won’t return until the job market strengthens, and flagging confidence has raised the risk that consumers may retrench. [Let us explain.] Words: 1018

So say Sho Chandra and Steve Matthews in an article* posted at www.bloomberg.com which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) has paraphrased, edited, abridged and reformatted to make for a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The article goes on to convey that:

Take-home pay, adjusted for prices, fell 0.3% in August, the third decrease in five months (Commerce Department)
Household income in 2010 dropped to $49,445, the lowest in more than a decade (Census Bureau)
The poverty rate jumped to 15.1%, a 17-year high
Inflation-adjusted weekly earnings have fallen for six consecutive months, and dropped 1.8% in August from a year earlier, a pace not seen since the 18-month economic slump ended in June 2009, with a record 91 percent of consumers expecting that growth in their incomes will match or fall behind price gains in the coming year (September Thomson Reuters/University of Michigan sentiment survey)
The S&P 500 Index (SPX) has fallen 17% since this year’s high of 1363.61 on April 29
The S&P/Case-Shiller index of property values in 20 cities is down 31% from the pre-recession peak in July 2006
The jobless rate held at 9.1% in September for a third consecutive month
Payrolls grew by only 50,000 after no change in August (Bloomberg News survey)
Consumer spending rose only at a 0.7% annual rate in the second quarter, less than half the 2.1 percent pace in January- March (Commerce Department) which is supported by the fact that the share of households saying it is a bad time to buy goods and services is at the second-lowest level on record and the highest level in three years (Bloomberg Consumer Comfort Index)
Gross domestic product expanded less than 1% on average in January-June, the worst six months of the recovery (Commerce Department)

Stagnation of Wages the Primary Reason for Lack of Economic Growth in America

“Those who are employed are worried about their income and are seeing real purchasing power get squeezed, therefore they’re set to retrench a bit,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “That’s the danger right now. It means the recovery remains very fragile.”

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“The biggest issue is that labor income is soft at a time when we’re getting no offset” from other sources, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York going on to say that, unlike in the early part of the recovery, stock-market losses are eroding wealth and home prices continue to decline; that support from the government may shrink if Congress fails to extend payroll-tax cuts and unemployment benefits set to expire at the end of the year; that limited access to borrowing means Americans have few means to fund their purchases. “It’s hard to see where consumers are going to get a lot of wherewithal to sustain strong spending,” he said. “It’s certainly a concern that, rather than sluggish consumption growth, we see flat or declining consumption.”

“The painfully high unemployment rate is consistent with considerable slack or excess capacity in the economy, which tends to constrain wage growth,” said Federal Reserve Bank of Atlanta President Dennis Lockhart in a recent speech. “You are familiar with the term wage-price spiral. I don’t see any prospect of such a development in the foreseeable future, as long as unemployment remains high and longer-term inflation expectations remain well-anchored,” he said.

The worsening outlook for incomes will cause “continued pressure on home prices and on the stock market,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. Corporate sales may be hurt as demand cools, and there may be more withdrawals from retirement plans and higher use of 401(k) loans. In addition, sales at some luxury stores may be hurt because “at the margin, the upper end of the middle class will probably feel less inclined to spend extra money,” he said. Chains catering to “the lower end of the earnings totem pole,” discounters including may fare better as shoppers trade down. “Perception is reality from the standpoint of consumers and investors,” Polley said. “We need people to start feeling good about themselves.”

“The economy isn’t growing fast enough to boost job growth to increase incomes,” said Omair Sharif, an economist at RBS Securities LLC in Stamford, Connecticut. “Most workers don’t have a lot of sway in demanding higher wages unless they have very specialized skills.” Employees cannot hope for more bargaining power anytime soon, said Harry Holzer, a professor of public policy at Georgetown University in Washington and former chief economist at the Labor Department. Through August, the U.S. had recovered only about 1.89 million of the 8.75 million jobs lost as a result of the recession. “There is so much slack, it will keep earnings from rising very much,” he said. “It will take most of this decade” to repair the damage “unless there is a big spurt in hiring.”

Chris G. Christopher, senior principal economist at IHS Global Insight in Lexington, Massachusetts sums up the concensus view that: until people see their wages or the labor market get better, they will be “spending on necessities, not desires,” and that will curtail and hamper the economic growth of the nation.

*http://www.bloomberg.com/news/2011-10-02/falling-wages-threaten-u-s-rebound-as-consumers-may-retrench-on-spending.html

Related Articles:

1. U.S. Economy Won’t Collapse Any Time Soon – Here Are 5 Reasons Why

A good way to think about our country’s economy is to think of the U.S. like a boxer. We were knocked flat on our back in 2008 and have since struggled to one knee but have never got back to our feet. [As such,] those conversations that imply we might be on the verge of falling down again are rather pointless…With this much slack in the economy, it’s unlikely that any economic downturn from here will be substantial. Does that mean I think the U.S. economy can’t contract from here? No, but I would be very surprised if we were to experience another blow similar to the 2008 recession where real GDP fell 5%. [Let me explain.] Words: 538

Americans! Where’s the Outrage Regarding Your Financial Situation?

Editor — Sat, 23 Jul 2011 07:46:08 +0000

Why aren’t Americans saying: “I’m mad as hell and I won’t take it any more!”?

The mainstream media and our politicians are not telling us the truth. We are being told that we just need to accept our lower standard of living and most Americans seem willing to accept that reality because they keep sending most of the exact same bozos back to Washington D.C….[Why are they not screaming to their political "representatives" that they are as mad as hell and not willing to take it any more?] Words: 1270

So says Michael Snyder (www.TheEconomicCollapse.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Snyder goes on to say:

To make ends meet many American families are going into even more debt and more American families than ever are turning to government assistance. [In fact,] right now, more Americans than at any other point since World War II are flat broke and have lost hope. Until this changes, the frustration level in this country is going to continue to grow.

Below are 10 facts about the financial condition of American families that will blow your mind:

Only 58% have a job
Only 56% are currently covered by employer-provided health insurance
The median yearly wage is $26,261
The average household debt is $75,600
Only 5% of households have earned enough additional income to match the rise in housing costs since 1975
Families are approximately $7.7 trillion poorer than they were back in early 2007
The poorest 50% now own just 2.5% of all the wealth in the United States
Approximately 21% of all children in the United States were living below the poverty line in 2010
More than 44 million are living on food stamps, and nearly half of them are children
Close to 20% of all men between the ages of 25 and 54 do not have a job

Where in the world did all of the good jobs go? Well, the truth is that millions of them have been shipped overseas. Our politicians promised us that merging our economy with the economies of other nations where it is legal to pay slave labor wages to workers would not create more unemployment inside America. They were dead wrong – the job losses continue to get worse – and as the U.S. economy has started to slow down again we are starting to see another huge wave of layoffs all over America.

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It is not just the globalization of the economy that is destroying our jobs. The federal government bureaucracy has become so oppressive that hiring workers has become so complicated and so expensive that many small business owners want to avoid it at all cost. [Frankly,] it is amazing that anyone is still willing to hire workers in this day and age…[Indeed,] if you are a blue collar worker, you should give up hope that things are going to get better. The system has failed you – and you can stop waiting for the “good jobs” to come back. They aren’t coming back.

As our economic system continues to degenerate, Americans are going to become increasingly desperate and, sadly, desperate people do desperate things. Already we are beginning to see signs that the fabric of American society is starting to be ripped to shreds.

There is a limit to how many people we can actually put in prison. The reality is that the number of Americans in prison has nearly tripled since 1987. Our prisons are already dangerously overcrowded. As society falls apart, many communities will simply not be able to shove more people behind bars. Even with our prisons stuffed to the gills, many of our largest cities continue to be transformed into absolute hellholes. Detroit is now the 3rd most dangerous city on the entire planet and New Orleans is now the 9th most dangerous city on the entire planet. What are our leaders doing about all of this? What is going to happen if the economy gets even worse? Well, they appear to be too busy fighting with each other and cheating on their wives to do much about our problems…

This country is a complete and total mess. Tens of millions of American families are flat broke and are about to slip into poverty. Meanwhile, our politicians continue to prove that they are some of the most corrupt on the planet.

[Gus Lubin, also of www.TheEconomicCollapse.com, goes on to say in another article** that] there are many out there that still believe that America has a bright future ahead – but it is getting really hard to see why anyone could possibly believe that. While politicians gloat about our “recovery,” our poor are getting poorer, our average wages are still falling behind inflation, and social mobility is at an all-time low…

[While it is true that] if you are in the top 1%, life in America is grand [but a look at some facts about life in the United States reveal some disturbing realities:]

1. The gap between the top 0.01% and everyone else hasn’t been this big since the Roaring Twenties

This chart shows average income of the top 1% as a multiple of average income of the bottom 90% (via The Nation).

2. Half of America owns 2.5% of country’s wealth. The top 1% owns a third of it. (Source: Institute for Policy Studies)

3. Half of America owns only 0.5% of America’s stocks and bonds. The top 1% owns more than 50%!

4. The wealth gap has spread dramatically in the past 20 years!

5. The disparity in pay of the average CEO and both that of the average production worker and the Federal minimum wage has expoded over the past two decades.

6. Real average earnings have not increased in 50 years – that’s HALF A CENTURY!

7. Savings rates have declined since 1982 as Americans borrow money to keep up although they’re rising now.

8. Poor Americans have a SLIM CHANCE of rising to the upper middle class despite the myth of social mobility.

9. The wealth gap has been significantly increased by Republican tax cuts.

10. Income taxes keeps getting lower and lower for the rich.

11. America redistributes its wealth FAR LESS than other developed countries (via government transfers)

12. America’s income spread is nearly twice the OECD average.

13. The income gap is NOT growing in other countries, like France

14. Income inequality is worst in the South, South West, South East and North East.

15. Normalized to 1979, the top 1% have seen their share of America’s income more than double. The bottom 90% have seen their portion shrink. Source: Afferent Input

Conclusion

[As mentioned previously,] most Americans don’t understand what is happening because neither the mainstream media nor our politicians are telling them the truth. We are being told that we just need to accept a lower standard of living and most Americans seem willing to accept that reality because they keep sending most of the exact same bozos back to Washington D.C….

*http://theeconomiccollapseblog.com/archives/broke-10-facts-about-the-financial-condition-of-american-families-that-will-blow-your-mind

**http://www.businessinsider.com/facts-about-inequality-in-america-2011-11#ixzz1TEUUSZ9s

Related Articles:

America: The 42nd Most Unequal Country in the World! http://www.munknee.com/2011/03/america-the-42nd-most-unequal-country-in-the-world/
Are America’s Wealthy Unpatriotic? http://www.munknee.com/2011/03/in-this-time-of-economic-crisis-are-americas-wealthy-unpatriotic/
“Financial Repression” May Soon Become Our Worst Nightmare! Here’s Why http://www.munknee.com/2011/06/%e2%80%9cfinancial-repression%e2%80%9d-may-soon-become-our-worst-nightmare-heres-why/
Get Ready: Economic Hell is Coming! http://www.munknee.com/2011/06/get-ready-economic-hell-is-coming/
Americans Are Hurting And It’s Going To Get Worse – Here’s Why http://www.munknee.com/2011/02/americans-are-hurting-and-its-going-to-get-worse-much-worse-heres-why/
22 Statistics That Prove the Middle Class is Being Systematically Wiped Out of Existence in America http://www.businessinsider.com/22-statistics-that-prove-the-middle-class-is-being-systematically-wiped-out-of-existence-in-america-2010-7#83-percent-of-all-us-stocks-are-in-the-hands-of-1-percent-of-the-people-1

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Are We On the Verge of a Second Recession?

Editor — Sat, 23 Jul 2011 07:31:07 +0000

Are We Headed for a Second Recession?

Is a second recession in so short of a time in the offing? It certainly seems that way. The hope for a continued recovery has grown dim lately as many of the economic indexes are moving towards contractionary territory… There are several concerns pressing the U.S. economy and, in the words of David Rosenberg, chief economist at Gluskin Sheff, “one small shock” could send us into a second recession. [We, for our part, believe that even] another round of Quantitative Easing by the Fed…may not be enough to offset the real problems facing the U.S. economy. [Let's take a closer look.] Words: 1295

So say Caroline Corbett & Lance Roberts (www.StreettalkLive.com/financialblog/) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. The authors go on to say:

With the recent release of the Chicago Fed National Activity Index, our proprietary Economic Output Index is just one small step away from crossing the 35 mark which has always been a pre-cursor to recession.

Click for larger image

The unemployment rate remains high, housing prices are slipping into a secondary decline, consumer and business spending is slowing, while gas and food prices remain high, eating up more than 20% of consumers wages and salaries. Add on top of these factors the likelihood of a Greek debt default [see here (1) and here (2)], a slowdown in the eurozone [see here (3)], a weaker dollar [see here (4)] and Washington locked in debate over the debt ceiling [see below (5 - 10 )] — well, the list of risks far outweigh the positives. It doesn’t take an economist to figure out that any one of these factors could send us tumbling into a second recession. However, that doesn’t seem to deter Wall Street economists and main stream media, who all seem to be wearing rose colored glasses these days [see here (11)]…[who] claim this is simply a soft patch of the recovery.

David Rosenberg refutes the claim [that all is relatively well] in an interview with Bloomberg Television saying that it is not normal to have two soft patches so close together nearly two years after the recession ends – it doesn’t happen. This will be two separate recessions going on to say…that he believes that there is a 99% chance of another U.S. recession and the only reason he didn’t put it at 100% was that he needed a “margin of error”. In his most recent issue of “Breakfast with Dave” [he noted] that real disposable income, household employment, real business sales, and manufacturing production all peaked in March [and that] this type of behavior was not characteristic of the soft patch last year, and [that] this is the first sign of a looming recession.

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[T]he recovery to date in the economy has not been an organic one. With more than $5 Trillion injected into the system through various Federal interventions and stimulus, it is disappointing that we only increased GDP by a little more than $900 Billion in the last two years. That is expensive growth any way you price it and is unsustainable without further injections.

18 leading experts, not to be daunted by facts and figures, however, reported in a recent CNNMoney survey that they believe there is [only] about a 15% chance of a new recession. Of course, this is pretty much the same group of individuals who told everyone that the economic slowdown in early 2008 was just a “soft patch” as well.

Bernard Baumohl of the Economic Outlook Group believes the risks, however, are real saying [that] the fragile US recovery means the economy is much more vulnerable to geopolitical shocks and a rise in fuel prices. Since the instability in the Middle East is far from over, there are real risks for the U. S. and international economy.

Dr. Gary Shilling…also notes the threat to the economy of another drop in housing prices. There is currently an excess inventory of 2 to 2.5 million homes with only 500,000 homes being absorbed out of that inventory per year. This means that it will take at least 4 to 5 years to clear that inventory if rates stay the same. If home prices drop another 20% in order to clear the market, it will force price declines on existing homes that will move the number of underwater mortgages from the current level of 1 in 5 to more than 1 in 3. Shilling argues that the ripple effect will drive the economy into a second recession.

Robert Samuelson, in an article for the Washington Post, compares the current state of the economy to the climate of the economy during the “depression within a depression“ from 1937-1938…[and points out that it was] very similar to the economy today. Then, as now, commodity prices were rising rapidly and inflation fears were growing. Federal budget was criticized as too large and the president was perceived as anti-business. Similar complaints exist today. However, there are some significant differences between then and now. Policy reversal in 1937-1938 was much more drastic than anything being considered today. The federal deficit fell from 5.5% to .1% of GDP between 1936 and 1938. Today’s budget deficits are much larger as a share of GDP and prospective reductions are much smaller. Still, the parallels are unsettling.

Mark Thoma recently analyzed a graph of real GDP growth [see below] in an article for economitor.com in which, statistically speaking, the data suggest the definite possibility of a second recession . The graph shows a downward growth heading to below 2% GDP growth. This 2% line has been indicative of a recession in the past. Almost every drop below this line has led to a recession measuring back to 1947. The Fed, however, is hoping for a turnaround in the third quarter that could prevent us from hitting this line. Thoma believes the government needs to start taking action in order for this to happen. “Policymakers need to realize that unemployment, not the deficit, is the immediate crisis to be addressed and take action. Unfortunately for the unemployed, that’s unlikely to happen,” he stated in the article.

click to enlarge

Conclusion

We agree with Thoma that unless some initiatives are taken we will hit that 2% mark very soon and head into our second recession. Of course, all of this is barring another round of Quantitative Easing by the Fed. However, even that may not be enough to offset the real problems facing the U.S. economy.

*http://www.streettalklive.com/financial-blog/195-are-we-headed-for-a-second-recession.html

Titles and Links to Articles Referenced Above:

85% Chance Greece Will Default: Here’s Why http://www.munknee.com/2011/07/85-chance-greece-will-default-heres-why/
The U.S. and Greece are Frighteningly Similar! Here’s Why http://www.munknee.com/2011/07/the-u-s-and-greece-are-frighteningly-similar-heres-why/
Will Greece Default, the Euro Unravel and the U.S. Dollar be Saved? http://www.munknee.com/2011/06/will-greece-default-the-euro-unravel-and-the-u-s-dollar-be-saved/
“The Great Dollar Devaluation Disaster” is Only Just Beginning – and the Intended Victim is YOU! http://www.munknee.com/2011/01/the-great-dollar-devaluation-disaster-is-only-just-beginning-and-you-are-the-intended-victim/
In a Game of Debt Ceiling “Chicken” People Could Get Hurt – Seriously! http://www.munknee.com/2011/07/in-a-game-of-debt-ceiling-chicken-people-could-get-hurt-seriously/
Art Cashin: Debt Ceiling Brinkmanship Similar to How WW1 Started! http://www.munknee.com/2011/07/art-cashin-debt-ceiling-brinkmanship-similar-to-how-ww1-started/
$14,300,000,000,000 Debt Ceiling About to go Even Higher! Here’s Why http://www.munknee.com/2011/07/14300000000000-debt-ceiling-about-to-go-even-higher-heres-why/
Raising the Roof – On a Higher Debt Ceiling That Is! http://www.munknee.com/2011/05/raising-the-roof-on-a-higher-debt-ceiling-that-is/
Top Myths on the U.S. Debt-ceiling Crisis http://www.munknee.com/2011/05/top-myths-on-the-u-s-debt-ceiling-crisis/
America’s Political Process Guarantees Another Financial Crisis! http://www.munknee.com/2011/03/america%e2%80%99s-political-process-virtually-guarantees-financial-crisis-2-0/
Forget the Media Happy Talk: All is NOT as it Seems! http://www.munknee.com/2011/07/forget-the-media-happy-talk-all-is-not-as-it-seems/

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Why the Dow Could Hit 20,000 by 2014

Editor — Sun, 10 Jul 2011 07:58:11 +0000

A Solid Case for the Dow Reaching 20,000 by 2014

To move up from the current 12,600 level to 20,000 by the summer of 2014, the Dow would need to rise about 16.5% each year or about 58% in a three-year period and in the past 25 years the Dow has risen by this much on at least 13 occasions. During those times, there was only one period of sustained annual gains, when the Dow rose an average of 26% from 1995 through 1999. The key question: what would it take to justify a three-year, steady, robust gain? It all comes down to corporate profits [and the extent to which] multiple investors are willing to assign [dollars] to these profits. [Let me explain.] Words: 761

So says David Sterman (www.StreetAuthority.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Sterman goes on to say:

Right now, the S&P 500 trades for about 13 times projected 2011 profits of $103 a share and this is a reasonable number in light of very strong corporate profit margins in a time of real economic concerns. One could even argue the current multiple could expand to above the norm if the economic concerns receded and the economy started to grow at a steady 3.5% clip.

Let’s Make Some Assumptions and Do the Math

To be sure, corporate profit margins have peaked but if history is any guide, then 3.5% gross domestic product (GDP) growth would translate into 7% to 10% annual sales growth for many companies, accompanied by 15% profit growth. These are admittedly rough estimates and round numbers, but it would be in the ballpark. If profits indeed grew 15% annually, then the S&P 500′s aggregated earnings would reach $157 a share by the 2014.

Who in the world is currently reading this article along with you? Click here to find out.

Let’s also assume inflation remains largely in check and the Federal Reserve hikes rates by only 200 to 300 basis points from current levels. In this environment, investors might be willing to assign a slightly more robust multiple to the market, perhaps 15 times aggregated earnings. Apply this to the projected $157 a share, and the S&P 500 would rise to 2,500 — a roughly 75% gain during the next three years. Note, that when we looked at the prospect of the Dow hitting 20,000 before, we were talking about a 58% total gain. So Dow 20,000 is surely within reach by 2014 if the chips land the right way.

What Could Go Wrong?

1. Unemployment stays above 7%. Companies — especially those selling to consumers — would be hard-pressed to grow at a solid clip if unemployment remained at stubbornly high levels. The key swing factor in the economy involves hiring trends that would steadily reduce unemployment below 7%. This was the case in the middle of the 1990s. As companies finally expanded payrolls, consumer spending soared and the Dow posted a robust five-year run, as mentioned above.

2. Interest rates spike above 5%. In an ideal world, the economy grows at a moderate enough pace…to avoid bottleneck and pricing pressures but, in a worst-case scenario, the Fed’s extended balance sheet and the government’s ongoing borrowing needs could eventually lead to a spike in rates that would help find buyers for our debt. If inflation sharply moved up and the Fed needed to hike rates well past 5%, then there’d be no way investors could afford a slightly rich multiple for stocks. In such a scenario, “Dow 10,000″ would be the buzzword.

Conclusion

The second half of 2011 is going to determine where we are likely to be in 2014 because the economy is showing both signs of life (as evidenced by recent robust data in capital goods spending) and signs of weakness (as seen by weekly jobless claims that can’t seem to fall below the all-important 400,000 level). One of these forces will eventually win out.

If the economy is indeed creating jobs at a decent clip later this year (consistently above 200,000 a month), then it may end up on a self-sustaining growth path — and the Dow would be on its way to 20,000.

*http://www.streetauthority.com/investing-basics/why-dow-could-hit-20000-3-years-458415

Related Articles:

Dow 20,000: the Latest in Hype, Happy Talk and Irrational Exuberance http://www.munknee.com/2011/06/dow-20000-the-latest-in-hype-happy-talk-and-irrational-exuberance/
Could Dow 20,000 be Just Around the Corner? http://www.munknee.com/2011/05/could-dow-20000-be-just-around-the-corner/

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

S&P 500