Jul 08 Investment Advisor Take on Jobs

The monthly jobs number was released this morning and it was pretty bad with only 18,000 net new jobs added and a downward revision of last month (May) to 25,000 jobs.

The pundits with all the mainstream media outlets (what we call "financial pornography") are out with their take on the numbers. Here is what this investment advisor thinks about the data:

Keep in mind that the US economy needs about 150,000 new jobs each month just to keep employment steady. So there was no surprise that the headline unemployment number also ticked up to 9.2%.

My favorite early commentary on this report comes from Daniel Gross and the gang at the Daily Ticker. If this release were a movie or a book, it would be titled: The Ugly, the Ugly and the Ugly.

Stock Market Response

The disappointment in the market from this report is worse because the Trim-Tab and ADP numbers released earlier in the week indicated that the jobs market was healthier than that although this investment advisor has been surprised (for most of the past two weeks) with the ability of this market to shrug off really bad news.

Today, the market opened up downward with the Dow losing 130 points in the early going. Things seem to have stabilized now with a 1% loss. Oil is off 2% and gold is up more than 1%.

10 Days for the Record Books

Most informed people will agree that the US economy is growing, but at an anemic rate. With a "muddle-through" economy, persistent and high unemployment and weak consumer sentiment here in the U.S. along with a financial world deeply interconnected to the ticking time bomb of a default in the European Union (don't let the news of a new bailout fool you - Greece will default, just not today), I've been absolutely surprised by market action the past two weeks. I knew that a bounce was necessary from the lows of June 18 but the runup the past 10 trading days has been unbelievable.

What's Next?

We've been here before and we've recovered in each of the past couple of years. What about this time? Will it happen again?

In 2009 Ben Bernanke saved the day with liquidity through the first round of Quantitative Easing (QE1). Last summer when it looked like everything was falling apart again, QE2 was announced in August and the markets ran up for 6 straight months as that extra liquidity again floated all boats.

This year, the scenario looks different. There will not be a QE3 - at least not in the near future. Bernanke has already said so and there is no political will to juice the economy again - especially right now while we're staring at a debt limit ceiling that could mean a U.S. default.

My guess is that we'll get a compromise to raise the debt ceiling and there will be tax hikes and significant spending cuts in that legislation. Neither of these are good for an ailing economy. Instead of more liquidity, for once we'll have to deal with far less liquidity in the system.

That means that volatility will return to the markets. I also suspect that a downward trend will resume although I can't say when that will begin.

What You Can Do?

There has never been a more important time to sit down, review your portfolio and understand the risks to which you are exposed. I won't tell you to buy or sell anything. I reserve that advice for my investment advisor clients.

I will tell you that your portfolio (if it is like most American's) is heavily exposed to downside risk and it is in your best interests to make yourself aware of those risks VERY SOON. When we get another market setback, you will be in a much better position to handle that volatility when you know how it will or will not affect you.

If you haven't done so already, register for my weekly investment advisor emails and you will receive a free report on the basic risks with traditional equity portfolios and how you can manage those risks.

John