Thursday , 28 March 2024

The Dow 30: How Relevant Is Its Height to Economic Health of U.S.?

“Follow the munKNEE via Facebook or Register to receive articles via our Intelligence Report newsletter (Recipients restricted to only 1,000 active subscribers)

Let’s run down the line and see what has happened to…our economy since the Investing financial marketsDow last ran above 14K and then ask ourselves the following questions:

  1. Do we actually have a time machine and have reset to 2007?
  2. Have we, instead, entered the uncharted territory of unsustainable, runaway trends the likes of which have never been observed in recorded history?
  3. How relevant is the Dow Industrials Index in all of this?

 

So writes Andy Sutton (http://www.sutton-associates.net) in edited excerpts from his original article* entitled My Two Cents – “Is It Really 2007 Again?”

 

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) 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.

 

Sutton goes on to say in further edited excerpts:

 

Employment – and the Lack Thereof

 

We all know the headline unemployment rate is a farce….What is far more instructive in analyzing the employment situation is a look at the workforce itself and comparing it to the population.

  • In November of 2007, the Labor Force Participation Rate or LFPR (according to BLS) was 66.0%. In February 2013 it is 63.5%
  • In November 2007 the workforce was 153.835 million. In February 2013 it is 155.654 million.
  • In November 2007 the number of people ‘at work’ full-time was 146.595 million compared to 143.222 million as of February 2013. Despite the fact that the workforce has grown by 1.819 million people due to population factors, there are actually 3.373 million LESS people working full-time now than were doing so in 2007.

So much for the end of the ‘Great Recession’; at least from an employment perspective.

The Dow Has Recovered – Employment Has Not!

emp_level_03082013

 

The Dow Flies While the LFPR Dies!

Even more drastic than the failure of the full-time labor market to recover is the steady drop in the LFPR. Graphically, it is much more telling than the numbers above:

Sutton 2

 

 

The above should really be no surprise given the very mainstream newsbytes about more and more Americans receiving government checks. That is exactly the type of situation that statist, socialist-leaning regimes always aim for. Before anyone gets the bright idea of accusing me of being partisan or whatever, we’ll even take this trend back to the last big Dow top around the turn of the century:

 

Sutton 3

 

…Now to the utterly disturbing. The number of multiple job holders rose by a record 340,000 in February [see chart below]. These are people who are working more than one job to make ends meet. The number of full-time jobs dropped by 77,000 and the number of part-time workers rose by 102,000. One can easily see how this becomes a quantity vs. quality issue. This is clearly another case where there is much more to the story than will be reported by the lapdog media. Once again, they are complicit in the growing national ignorance.

Sutton 4

 

 

One last thing of note just to show how little sense there is to anything. The headline unemployment number is beginning to get into the ballpark where the not-so-USFed will consider raising interest rates (the ‘target’ is 6.5%). Anytime someone even whispers about the end of QE or an increase in interest rates, the markets sell off big, yet the Dow opened up 50+ points this morning at another all-time high.

 

Debt: The Millstone Around the Neck of America – Young & Old

 

Must we really talk about debt AGAIN? Yes, we must. Why? Because it is killing us. I’m not going to focus this time on the national debt; everyone with a pulse already knows what is going on there. I will add that we shouldn’t expect it to get better anytime soon either. The government went another $253 Billion with a ‘B’ in hock during February alone….

 

However, too often we are short-sighted. We have to look out into the future and see what might be a trend there if we’re going to make any type of serious macroeconomic forecast. So this time around we’ll look at the younger folks and see where they’re at in terms of debt loads. If this doesn’t sober you, nothing will.

 

Many are accurate in portraying my own generation and the one before it as irresponsible for passing on a tremendous debt load to our kids and grandkids and they’d be correct. We are guilty as charged. However, we are doubly guilty and here’s why. At the same time we’re sticking it to them with unfunded liabilities for Social Security and Medicare, we’re also encouraging them to rack up their own debt and to do it at a young age.

 

College education in America has become something of a birthright. I’m going to tell you right here that if you plan on majoring in anything that has to do with the liberal arts, then you might as well flush your money down the toilet – and if you send your kid to college to ‘find themselves’, then you need to have your head examined. This is not the 1980s anymore. Unless you’ve got a pretty good idea of what you want to do when you get out and are reasonably sure of a job (ie: you’d better do your homework), then don’t bother. And this comes from someone with three college degrees. The big difference is they were all paid for within a year of finishing school. I could never pull a stunt like that today, and I wouldn’t even try. Let’s take a look at student loan debt:

 

Sutton 5

 

The very modest retrenchment that took place after the 2008 crisis showed a decrease in all kinds of debt across the board – except for student loans. Our kids never got the memo that the world had changed. Student loan debt nearly DOUBLED from the end of 2007 to present. This is the biggest problem that nobody is talking about. These are our future consumers and they’re coming out of the gates gimpy with broken wheels due, for the most part, to crippling debt and rotten job prospects.

 

The adults aren’t doing much better as the data below shows a trend developing back into credit card debt – the most expensive debt of all. Rates are ONLY around 13.5% on average. I guess 27 times the Fed Funds Rate is a good deal. What would these banks ever charge if the FFR went back to a modest 5%?

 

Sutton 6

 

 

Purchasing Power – Like Sand Through Our Fingers

 

It probably won’t take much convincing for most people to understand the drop in the purchasing power of their paychecks. A quick trip to the grocery store is proof enough but it isn’t just that. The ‘wealth effect’ of a bump in housing prices in select areas also puts a strain on affordability. The powers-that-be have applied all types of soothing ointments to grease the housing skids….Housing is the great Humpty Dumpty.

 

When it comes to tracking price inflation at the consumer level, forget the BLS. They have been understating price inflation for decades. Why? Because it allows the government to stick it to recipients of transfer payments like those folks on Social Security. To all the retirees out there: remember how you got no raises in your Social Security checks all those years in the mid-2000s because the government said there was ‘no inflation’? Check out this chart:

 

Sutton 7

 

 

The red line is the BLS number. The blue line is an alternate derivation produced by economist John Williams using BLS’ retired methodologies. His derivation of CPU-U from 2007-present averages close to 10% per year where the BLS number averages around 3%. Now you can figure out for yourself which number more accurately represents your personal situation. Perhaps you’re somewhere in the middle. What I can assure you is that there are many more folks closer to that blue line than the red line.

 

The big divergence started in 1993. Ironically, this is when the unemployment methodologies were also changed and around the same time that consumer debt absolutely exploded. These guys at BLS knew what was coming and jerry-rigged the methodologies to tone down joblessness, underemployment, and price inflation. So now how do you feel about the Dow regaining its 2007 level? Even if you regained every dollar from that last high, those dollars now buy considerably less than they did in 2007. How’s that wealth effect working now?

 

Conclusion

 

As I close this essay I have to ask, “Do we really have a time machine and have reset to 2007 or have we in fact entered the uncharted territory of unsustainable, runaway trends the likes of which have never been observed in recorded history? Also, just how relevant is the Dow Industrials Index in all of this?”

 

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

 

*http://www.sutton-associates.net/issues/mtc_2013/mtc_03082013.php (Copyright 2007 – Sutton & Associates, LLC – All Rights Reserved; Please feel free to distribute, copy or otherwise disseminate this information; The Centsible Investor – Subscriber’s Page (Username/Password emailed at time of subscription)

Advertisement

China Calling!

We can obtain distributors for your products there – we’re already doing it for others
Chinese market is 4x bigger than those of the U.S. and Canada combined!
MAJOR need for:
– pollution treatment/prevention equipment (water & air),
– disease detection/treatments (diabetes & cancers),
– green energy products (heating & power).
Visit Global Linkages and then contact us to discuss opportunities
We’re off to Beijing & Shanghai again this month
Contact us today

Related Articles:

1. S&P 500 Is Still Undervalued By 5.3% – Here’s Why

risk

[In spite of the Dow now being at] a record high the Risk Premium Factor (RPF) Valuation Model shows that the broader market, based on S&P 500, is still undervalued by about 5%.  [Let me explain further.] Words: 550; Charts: 1

2. Will It Be Different This Time? Will the Dow and S&P 500 Go Up, UP and Awaaay?

investing

Since the late 1800′s, the Dow has experienced three periods where it traded sideways, ranging from 13 to 17 years, [which always] resulted in upside breakouts . The S&P 500 finds itself within a few percentage points of where it was 13 years ago [so the question is “Has the time now come for the Dow and S&P 500 to once again go Up, UP and Awaaay?” Let’s take a look at some charts.] Words: 299; Charts: 2

3. Bull Market in Stocks Isn’t About to End Anytime Soon! Here’s Why

Investing financial markets

As we all know, money printing always leads to inflation. It’s just a matter of figuring out which assets get inflated. This time around gold is not the only beneficiary, stocks are, too, and I’m convinced that the chart below holds the key to the end of the bull market. Words: 475; Charts: 1

4. The Sports Illustrated Swimsuit Issue Indicator Suggests Another Year of Outperformance for the S&P 500

swimsuit 2013

The Swimsuit Issue Indicator says that U.S. equity markets perform better in years when an American appears on the cover of Sports Illustrated’s annual issue as opposed to years when a non-American appears on the cover. [What is the nationality of this year’s cover model? Can we expect returns above the norm or will we see a year of underperformance for the S&P 500 this year? Read on.] Words: 323 ; Table: 1

5. QE Could Drive S&P 500 UP 25% in 2013 & UP Another 28% in 2014 – Here’s Why

investing2

Ever since the Dow broke the 14,000 mark and the S&P broke the 1,500 mark, even in the face of a shrinking GDP print, a lot of investors and commentators have been anxious. Some are proclaiming a rocket ride to the moon as bond money now rotates into stocks….[while] others are ringing the warning bell that this may be the beginning of the end, and a correction is likely coming. I find it a bit surprising, however, that no one is talking of the single largest driver for stocks in the past 4 years – massive monetary base expansion by the Fed. (This article does just that and concludes that the S&P 500 could well see a year end number of 1872 (+25%) and, realistically, another 28% increase in 2014 to 2387 which would represent a 60% increase from today’s level.) Words: 600; Charts: 3

6. Investors, Get Fully Invested! S&P 500 On Verge of Entering Euphoria Stage of Cyclical Bull Market

investing3

[In spite of all that is seemingly wrong with the U.S. economy] I think we are on the verge of entering the euphoria stage of this cyclical bull market where traders become convinced that QE3 is a magic elexir with no unintended consequesnces. [As such,] I see a strong acceleration and a significant and sustained breakout above the S&P 500 September high of 1475. (Words: 264 + 3 charts)

7.  Start Investing In Equities – Your Future Self May Thank You. Here’s Why

investing2

As Winston Churchill once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty” and in that vain I challenge all readers to fight off the negativity, see long-term opportunity in global equity markets and, most importantly, remain invested. Your future self may thank you. Words: 732; Charts: 6

8. These 4 Indicators Say “No Stock Market Correction Coming – Yet”

Investing financial markets

While I remain cautious on stocks and the risk trade, the technical picture shows that the uptrend to be intact and the bulls should still be given the benefit of the doubt for now. At this point, any call for a correction is at best conjecture [as evidenced by the following 4 indicators]. Words: 399; Charts: 4

9. Will It Be Different This Time? Will the Dow and S&P 500 Go Up, UP and Awaaay?

investing

Since the late 1800′s, the Dow has experienced three periods where it traded sideways, ranging from 13 to 17 years, [which always] resulted in upside breakouts . The S&P 500 finds itself within a few percentage points of where it was 13 years ago [so the question is “Has the time now come for the Dow and S&P 500 to once again go Up, UP and Awaaay?” Let’s take a look at some charts.] Words: 299; Charts: 2

10. You Need to Stay in the Stock Market Despite an Impending Economic Collapse – Here’s Why

investing hold buy sell

You need to stay in markets despite an impending economic collapse. [Really?! Yes, really.] Normally such an expectation would be addressed by getting out of the way of the oncoming disaster and taking ones chips off the table [but,] in this situation, there is no place to hide. Low-risk assets, like bonds and near-cash, produce little to no return…and the threat of rising interest rates and inflation make them dangerous.  Higher risk assets are unavoidable, given current conditions. [Let me explain further.] Words: 830

11. You Can Insure Your Portfolio From Potential Capital Loss – Here’s How

investing

Most everything you’ve heard about investing from the mainstream media, your mutual fund advisor and your tax accountant is a lie. You’ve been told…that the entire point of portfolio diversification is to mitigate downside risk yet when the market experiences the inevitable decline, every sector pushes significantly lower – and your “diversified” portfolio suffers as a result, [right? Well, there IS a better way.] Hear me out. Words: 895

12. The U.S. Stock Market Is Overvalued By More Than 50%! Here’s Why

stockcrashimages-1

Key stock indices are becoming significantly overpriced. The value of the U.S. stock market stands at about 133% of GDP. The average for the past 60 years has been around 82%. By this measure, the U.S. stock market is overvalued by more than 50%! Words: 398

13. Stop! Don’t Forget Market Risk – Remember What Happened in 2000 & 2007/8.

stockcrashimages-1

Investors are more bullish now than at any time since 2002 but the current rally has not been fueled by improved prospects of actual growth and wealth creation. Instead, it’s mostly due to:

  1. investors desperate for income denied them elsewhere by central bank policies;
  2. printed stimulus cash seeking a home and
  3. sheer technical momentum

but nowhere do they seem to be considering market risk – the risk that your investment will lose value because it gets dragged down in a falling market. Words: 615

14. Insider Trading Suggests That a Market Crash Is Coming

stockcrashimages-1

What you are about to read below is startling. Every time that the market has fallen in recent years, insiders have been able to get out ahead of time… [What] is so alarming [this time round is] that corporate insiders are selling nine times as many shares as they are buying right now. In addition, some extraordinarily large bets have just been made that will only pay off if the financial markets in the U.S. crash by the end of April. So what does all of this mean? [Could it be that they] have insider knowledge that a market crash is coming? Evaluate the evidence below and decide for yourself. Words: 570

15. This False Stock Market Bubble Will Burst, Major Banks Will Fail & the Financial System Will Implode! Here’s Why

economic-train-wreck

At some point we are going to see another wave of panic hit the financial markets like we saw back in 2008.  The false stock market bubble will burst, major banks will fail and the financial system will implode.  It could unfold something like this: Words: 660

16. Ignore Wall Street Cheerleaders: Market Technicals, Fundamentals & Other Info Says Otherwise!

investing2

[In spite of what] the typical Wall Street cheerleaders, I mean strategists, are predicting, we see the equity market ever more closer to its cyclical top, miners about to retest a major bottom and hard assets with a new catalyst. [This article analyzes 9 pieces of information, complete with charts, that show what is actually going on in the marketplace at this point in time and what the short-term future holds.] Words: 930; Charts: 8

17. 5 Sound Reasons Investors Would Be Better Off On the Sidelines Than In the Market

Investing financial markets

New year festivities have continued on the stock market even as the Christmas trees have been put away. The “death of the fiscal cliff,” not horrible job numbers and supportive comments from Mario Draghi on the other side of the pond have led to bold and bullish behaviors over the last three weeks. While no one can predict the exact peak, here are five reasons you’re better off on the sidelines than in the market.

18. These Charts Suggest a Possible +/-60% Decline in the S&P 500 by 2014

Investing financial markets

J.P. Morgan Asset Management has developed a chart showing the past two cycles in the S&P 500 highlighting peak and trough valuations. At face value it is very alarming as it suggests a potential decline of somewhere in the vicinity of 60% over the next year or two and concurs with previous innovative trend analyses included in this article. Charts: 4

investing3

Based on the latest S&P 500 monthly data, [my analyses indicate that] the  market is overvalued somewhere in the range of 33% to 51%,  depending on which of 4  indicators I used. This is an increase over the previous month’s 31% to 48% range. [Let me explain the details.] Words: 475

20. Goldman Sachs’ Leading Indicators Signal Steep Market Crash Ahead

Capture(74)

Goldman Sachs reports their Global Economic Indicators (GLI) show the world has re-entered a contraction and…is predicting a market crash worse than that of the early 90′s recession and one slightly less than the sell-off at the turn of the millennium. [Below are graphs to support their contentions.] Words: 250