Weighing the Week Ahead: It's All About Jobs

Jobs are so important.  What you do is not just a source of income, it is part of your identity.  Jobs are about security, confidence, and self-esteem.

Losing your job threatens everything.  It is no surprise that most people evaluate the economy in terms of jobs.

The recession figures do not tell the entire story.  Most sources focus on net job changes, the current unemployment rate, and maybe the number of people who are under-employed.  These numbers, bad as they are, understate the magnitude of the problem.

This is why I emphasize keeping track of business dynamics.  When we finally get the actual data from state employment offices, as we did last week, we get some really solid data.  The gross job losses -- actual payroll jobs that disappeared -- were about 33 million during the year ending in June, 2009 (the last numbers we have).

Over 25% of the payroll jobs were lost during that twelve months.

While many of these jobs were reclaimed through job creation, it helps to explain why so many have been touched by the recession.  Even those who dodged the cutbacks have friends and relatives who were not so lucky.

Luck is a Factor

If you think that luck is not a factor, you are not paying attention.  Many people who have done a fine job for their entire lives have lost their jobs in this recession.  People in their 50's, with a strong career record, are among the losers.  Their prospects for new employment are uncertain at best.  Here is one way of considering the prospects of someone fired by his/her company:

Anybody who ever built an empire, or changed the world, sat where you are now. And it's *because* they sat there that they were able to do it.

Those are the words of Ryan Bingham, the hatchet-man character played by George Clooney in Up in the Air, nominated for various awards.  I liked the film and the actors.  It does have comedic moments, but the general job loss theme is very tough.  The opening scenes include actual victims of job cuts, invited to respond to Clooney with what they actually said, or wish they had said, when informed of the "downsizing."  These interviews ended with a severance packet and a request for security keys.

This week's focus will be Friday's employment situation report.   But first, let's do a review of last week.

Last Week's Action

Here is my take on the key data from last week.  I am not trying to be comprehensive, nor am I taking a viewpoint.  I will highlight what I found significant, trying to be objective.

The Good

There was a glimmer of good news.

• The testimony of Fed Chair Bernanke was well-received by Congress and the markets.  Sure, there was the usual criticism, but most seemed to be reassured.
• The GDP report was better than expected.  I see this as old data and not very important, but it did show a nice increase in technology spending by business, more than 18%.  This supports one of my theses for the year:  Businesses catching up on delayed technology purchases.
• The Chicago NAPM number, thought by many to presage the national ISM report, was very strong.

The Bad

The bad news included most of the economic data for the week.

• New home sales were the worst in 25 years.
• Existing home sales had a big drop (sending inventories higher, since these are calculated from the sales rate).
• Initial jobless claims rose again.  There is a lot of noise and some blame the weather, but I like to focus on actual data.
• The GDP gain depended heavily on changes in inventory.  This was not yet re-stocking but rather a decrease in the rate of inventory reductions.  The GDP numbers are not very helpful for those of us looking forward, and the inventory debate will go on for at least two more quarters.
• Home prices declined again, no matter which source you pick to measure.

The Ugly

The worst news of the week was the Conference Board's consumer confidence survey. The reading of 46 was more than ten points below last month.  While the survey result was not confirmed by the University of Michigan survey, it was still scary.  The Bespoke Investment Team provided some perspective with the following chart:

The ugly "runner-up" award goes to Thursday's early trading.  Whether the selling was caused by Greece or jobless claims, it was big-time selling.  As has been the recent pattern, there was buying interest.

The Week Ahead

As I noted in the introductory paragraphs, employment will be the focus.  Daily trading continues to react to the dollar, but I expect the dollar weakness=strong stocks relationship to end at some point soon.  It is not the long-term relationship.

I am not optimistic about the jobs report, but I use the ISM data as part of my forecast.  I'll write more about this in my regular preview, probably on Wednesday.

Our Trading Forecast

Our own indicators (see our regular ETF updates for an explanation) are still bearish, and that was once again our vote in the weekly Ticker Sense Blogger Sentiment Poll. Here is what we see:

• 18% (up from 11% last week) of our ETF's have positive ratings.  This is very weak, but improving.
• The median strength is -20 (up from -27 last week), very negative, but improving.
• 93%  (about the same as 95% last week) of the sectors are in the "penalty box," showing an extremely high level of risk.
• Our Index Package has a negative rating.  We own SH, PSQ, and DOG, the inverse ETF's for the S&P 500, the NASDAQ 100, and the DJIA.  We also now (as of Friday) own three other sectors, so we are neutral overall in our investment position.

A Final Insight

I get many requests to provide some specific investment thoughts in the weekly update/forecast.  It is difficult, but I'll keep trying.  Even when you have a great long-term record, the exact entry and exit points for stocks can easily be second-guessed.  Some of my best buys were not at the bottom, nor were my best sales at the top.

To understand this, you should read this fine article by Charles Kirk.  He lays it on the line, describing how difficult it is to trade effectively on a regular basis.  The TV commercials (Don't get me started!!) make it seem so easy.   Individual investors need a real commitment to do this right.

I have been pretty accurate on the dynamics of the health care debate, especially including the use of the obscure "reconciliation" process to avoid a filibuster.  The market has not always reacted to factors that seem obvious.  I am still looking for an entry point for part of my health care basket.

My main idea for this week's trading is a theme familiar to regular readers:  Time frames.  I run another sector model with a long-term horizon.  There are many attractive themes.  I also have a nice shopping list of stocks.  The world's best trading guru, Brett Steenbarger, also wrote on this theme.  Check it out!  Winning methods can have conflicting signals.

Long-term investors should have their own shopping lists.  If your horizon is longer than a month or two, you can take heart in the market resilience in the face of bad economic news, and some improving indicators.