The Long Term Investor

Here is the other little bit of economic data today.....not that anyone will care.....and....not that this data is accurate in the slightest with all the distortions in the economy, especially the employment data.

Jobless claims: Another 223,000 individuals filed new claims last week

https://finance.yahoo.com/news/jobless-claims-feb-5-2022-221602181.html

(BOLD is my opinion OR what I consider important content)

"First-time unemployment filings came in lower in the latest weekly data, continuing a recent downward trend in jobless claims as Omicron-related pressures on the labor market begin to abate.

The Labor Department released its latest weekly jobless claims report Thursday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:

• Initial jobless claims, week ended Feb. 5: 223,000 vs. 230,000 expected and upwardly revised to 239,000
  
• Continuing claims, week ended Jan. 29: 1.621 million vs.1.615 million expected and downwardly revised to 1.621 million

Filings for unemployment insurance have fallen consistently in recent weeks after a temporary surge in mid-January to a print of nearly 300,000, the highest level since October. The rush of U.S. workers applying for benefits was attributed to disruptions from the Omicron variant of COVID-19 and adjusted workforces following the seasonal hiring increase at the end of 2021.

Ian Shepherdson, chief economist for Pantheon Macroeconomics, in a note after last week’s read anticipated claims would be unchanged in the next weekly print due to a seasonal quirk — with new cycle lows likely in mid-March, about six weeks later than expected in the absence of Omicron.

In December, before the latest virus wave curbed the labor market recovery, claims reached a half-century low of 188,000 as employers attempted to retain workers amid labor shortages. Despite edging higher in January, weekly jobless claims remain far below pandemic highs and well off this time last year when figures came in at over 800,000.

Omicron’s impact on the U.S. workforce has shown signs of easing. In an upside surprise from what economists anticipated, the main employment snapshot — the Labor Department’s monthly jobs report — showed U.S. payrolls recorded a stunning jump in January despite a record number of Americans calling in sick from work as COVID spread rapidly at the start of the year. The agency reported Friday that non-farm payrolls surged by 467,000 for the month, in a sharp upturn from 125,000 forecasted by economists in Bloomberg’s survey.

“[The report] suggested that while Omicron had a clear impact on day-to-day life in the United States, the labor market impact was less severe than expected,” Indeed economic research director Nick Bunker said. “As we have seen in the past, the economic fallout from each successive wave of the pandemic has been smaller and smaller.”

Last week, the four-week moving average for new jobless claims still rose by 15,000 to 247,000 for the week ended Jan. 29 due to the increases in claims in prior weeks. Continuing claims, which tracks filers still collecting regular state unemployment benefits, are expected to come in again at around 1.6 million.

Friday’s jobs report showed the unemployment rate ticked up slightly to 4.0%, driven by improvement in labor force participation, which rose to 62.2%, or the greatest level since March 2020. The figure suggests more Americans were re-entering the workforce, but many still remain on the sidelines.

“While total labor demand—employment plus vacancies—is roughly in line with its pre-pandemic trend, labor supply remains substantially depressed,” economists at Goldman Sachs said in a note this week, pointing to 1.7 million missing workers.

“Workers give three main reasons: they have COVID-related concerns, they have a financial cushion, or their lifestyle has changed,” Goldman Sachs said. “These explanations suggest that some people are likely to come back if virus spread falls or antiviral pills reduce health risks, and others are likely to come back once they exhaust their savings, especially now that most special pandemic fiscal transfer payments have expired. In support of this expectation, most prime-age workers who left the labor force say they intend to re-enter.”"

MY COMMENT

The total distortion of the labor and employment situation is completely due to paying people to NOT work. A perfect example of what can happen with social engineering. I have absolutely ZERO confidence in any of the employment data. things are such a mess.....in employment..... it is impossible to know what is true and what is not.

 

If this stuff can keep up for another 8 months....those of us on Social Security will be looking at another BIG cost of living increase.

 

Stocks are obviously going to open in the red today.....where we go from there who knows. Not that it matters....to anyone except for short term traders. The good news is that we are NOW starting to see states end mandates and lock-down restrictions.

 

You are very right Zukodany.........being a good company and business sometimes does not translate to a booming stock. I see that at the close today Disney was about where it was in December of 2020.

 

Sounds like you guys are in line for a good bonus....Emmett.

 

I ended in the red today. No surprise there. I also got beat by the SP500 by 0.40%. Lately it is the typical one or two steps forward and than one or two steps back.

Not that it matters....I am too busy being a general contractor to worry about the daily markets right now. After we finished our Quartzite countertops and backsplash in the kitchen....we decided to just bite the bullet and get ALL of our five year list of house projects out of the way right now and get it over with. So at the moment I am dealing with:

1. Demo and replace tile floor in laundry room.

2. Replace all fixtures and hardware in the master bath with matte-black.....two sink faucets, tub spout and handles, drain plug, overflow cover, all shower hardware and trim, trim out window, trim out around mirrors, new lights, towel bars, towel rings, toilet handle, etc, etc.

3. Extend crown molding to all areas of the house that dont have it and trim out eight windows that are currently bull-nose edges.

4. Remove the frame-less shower surround and replace all hardware with matte-black hardware and reinstall surround.

5 Install new vanity and hardware in the half bath (powder room).

6. New Quartzite countertops in the master bath.

I am not dealing with too many guys......plumber, electrician, glass company, quartzite installer, carpenter, painter, tile installer. So far it is all lining up very nicely. I should be done in about 1-2 months....depending on the time lag to get all the parts and fixtures. The vanity comes tomorrow.

I feel like I am caught up in some sort of HGTV fantasy/nightmare.

 

Since the FED is going to be starting to raise rates in the near future:

Will a Single Rate Hike Kill the Bull Market?

https://compoundadvisors.com/2022/will-a-single-rate-hike-kill-the-bull-market

(BOLD is my opinion OR what I consider important content)

"Stocks are down and the Fed is expected to hike rates for the first time in years. Many are worried that we are heading straight for a bear market.

Which begs the following question: has there ever been a 20% stock market decline in advance of or shortly after the first Fed rate hike of a cycle?

Let’s take a look back at recent history…

1) December 2015 Hike

In December 2015, we were in a bull market, and the Fed hiked rates for the first time since 2006. The move: a 0.25% increase (from 0%-0.25% to 0.25%-0.50%).

While stocks would decline in early 2016, they quickly recovered and the Fed would go on to hike rates 6 more times before the S&P 500 peaked in September 2018 (at a Fed Funds Rate of 2.00%-2.25%). The S&P 500 gained 49.6% over that time.


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2) June 2004 Hike

In June 2004, we were in a bull market, and the Fed hiked rates for the first time since 2000. The move: a 0.25% increase from 1.00% to 1.25%.

While stocks would have a minor pullback over the next two months, they quickly recovered and the Fed would go on to hike rates 16 more times before the S&P 500 peaked in October 2007. The S&P 500 gained 45.8% over that time.


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3) June 1999 Hike

In June 1999, we were in a bull market, and the Fed hiked rates for the first time since 1997. The move: a 0.25% increase to 5.00%.

Stocks would trade sideways to down over the next few months but then recovered and the Fed would hike rates 4 more times before the ultimate peak in March 2000. The S&P 500 gained 12.2% over that time while the Nasdaq 100 gained 105% (the last surge higher during the dot-com bubble was concentrated in tech stocks).


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4) February 1994 Hike

In February 1994, we were in a bull market, and the Fed hiked rates for the first time since 1989. The move: a 0.25% increase to 3.25%.

Stocks would trade sideways for the remainder of the year but would go on to have one of their greatest runs in history. The Fed would hike 7 more times (to 5.50%) and stocks would gain 179% before the S&P 500 peaked in July 1998.


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The point of looking back at history is not to say the same thing will happen today. It most certainly won’t because every time is different. Case in point: the near 0% Fed Funds Rate today (lowest ever) coupled with a 7.5% inflation rate (highest in 40 years) and 4% unemployment (well below the historical average). This is something we have never seen.


But after going through the examples of prior rate hike cycles, one should at least be open to and prepared for multiple possible outcomes. This includes the scenario (like we saw in 1994/1999/2004/2015) in which the bull market continues in spite of the first rate hike.

From a fundamental standpoint, it seems doubtful that a single rate hike off of 0% would be enough to cause an economic contraction, just as it wasn’t enough back in December 2015 (though many expressed similar concerns at the time). Even at 4 rate hikes, monetary policy would still be very easy in any historical context (real Fed Funds Rate would still be negative even if the inflation rate falls back to 2%).

I don’t know how many times the Fed will hike rates this year. Nobody does, not even the Fed, because it’s dependent on a multitude of factors (path of inflation, unemployment, markets, etc.) that are not known today.

But I do know based on history that you should actually want to see a rate hike in March. For if the Fed cannot hike rates off of 0% with a 4% unemployment rate and 7.5% inflation that means there are much bigger problems out there.

As for the notion that rate cuts are always preferable to hikes, we don’t have to go back very far to disprove this misconception. During last two major bear market, the Fed was cutting rates nearly the entire way down, and that did not prevent deep stock market declines (50+%) and recessions. If you’re still hoping that the Fed won’t hike rates this year, be careful what you wish for, because that scenario would likely mean that the economy and the markets are in a very bad place.


"

MY COMMENT

I dont think you can draw much from the past FED actions since every FED is composed of different people and a different Chair. BUT......I believe we will do just fine going forward through the many FED rate hikes that we are going to see over the next year to year and a half. Other than the week or so when the rate hike happens.....the markets will just be NORMAL.

 

Inflation and the resulting rate hikes can cut both ways......here is some of the good and the bad.

U.S. Mortgage Rates Surge to the Highest Level in More than Two Years

https://finance.yahoo.com/news/u-mortgage-rates-surge-highest-150000544.html

AND

3 upsides to high inflation

https://finance.yahoo.com/news/3-upsides-to-high-inflation-211547361.html

 

Well....tomorrow will determine the direction for this week....at least for the SP500. At the moment after the past four days the SP500 is at +0.11% for the week. We are currently at (-5.50%) year to date.

 

TravelWC......it has been a long, long time since I read any books on investing. I will let others answer that question. I would say anything you can read or video material about Warren Buffett or Peter Lynch or Jack Bogle would just about do it. I really like the great investors that are down to earth and invest with lots of common sense.

I dont listen to any podcasts.....it seems like I dont have time. Of course....you can see that I do lots of reading on the internet. At this point after 45+ years in my investing life........I have been doing the same thing for so long in the same way......so....I just continue to do my thing the same old way over, and over, and over, and over. What I do is an extension of how my family has been investing for 65-70 years.

You know....it seems so simple......but....doing something like investing in a very simple way is very difficult to do. People tend to make it way more complicated than it needs to be. I do a lot....really a lot....of driving. It gives me lots of time to think. Just doing nothing and thinking is a lost art.

 

I bet a lot of people were very surprised by the positive open today. No guarantee that it will last to the close.....and....we will no doubt....have to go through the typical mid-morning drop. BUT....so far all the big averages are in the green. This shows the.....typical....ability of the markets to shake off news about interest rate increases.

I hardly ever see anyone talk about the NEED to get interest rates back into a normal range. The rates right now are extremely ABNORMAL to the low side of the curve......really low. It will be healthy for business and the economy to get things back to normal....including....the rates.

 

Speaking of rates and indirectly inflation.

How Inflation Fears Are Shaping Sentiment
The heightened chatter over elevated inflation rates should help markets move on faster than most assume.

https://www.fisherinvestments.com/en-us/marketminder/how-inflation-fears-are-shaping-sentiment

(BOLD is my opinion OR what I consider important content)

"Inflation can take a toll, particularly for households on a fixed budget. For that reason, recently elevated readings—like Thursday’s 7.5% y/y US consumer price index rise—have many fearing for the future. Adding to the gloom, inflation has become increasingly politicized—on both sides of the aisle—making it difficult for many to weigh its market impact. That is what we focus on, so what follows isn’t an ideological or political statement, but rather, something we think all investors should keep in mind: For markets, the question isn’t about when inflation moderates, how high it peaks or how the Fed handles it. Rather, the critical issue to remember is that stocks price in all widely known information, including widely held expectations. Seen in that light (and notwithstanding Thursday’s volatility), we think the vast, vast attention paid to January’s rise should help stocks: It further saps the shock factor, likely allowing markets to move on sooner than many seem to expect.

In our experience, volatility and widespread, frightening headlines often move together—and follow a recurrent pattern. It usually goes something like this:

1. People fear thing X will happen and hurt markets.
2. Thing X actually happens.
3. Markets show some negativity, maybe even a correction (short, sharp, sentiment-driven -10% to -20% drop).
4. This creates the mentality of, “Oh that thing happened and it hurt stocks. Since it happened, we can move on.”

This isn’t a conscious realization, mind you. It is more of an extension of confirmation bias. The person fearing X happening saw X happen and markets wobbled. That is validation, even if the wobbles weren’t as big as feared earlier.

Take 2015, a rocky year amid a decade-plus bull market. Then, fears rotated around a Chinese slowdown and another Greek default. Chinese growth actually slowed! Greece defaulted for the third time in four years! The S&P 500 fell -10.9% from August 18 to 25, then floundered through September.[ii] But by October’s close, stocks had moved back near pre-correction levels. Some Chinese and Greek fears lingered—but with their ability to shock drained. People saw the thing they feared having the impact they feared and, consciously or not, realized its power was spent. Stocks repeated that very feat at yearend, when long-lingering fears of a Fed rate hike finally materialized in December. Volatility ensued, but it was over in weeks—and stocks rebounded swiftly.

We are starting to see this with inflation. Stocks’ volatility since January has pundits beating the inflation drum ever harder. Today’s -1.8% S&P 500 drop is a case in point.[iii] The 10-year Treasury yield’s rise to just over 2%—with headlines proclaiming: “Highest since 2019!”—is another prime example. People are so focused on near-term swings that they seemingly forget 2% is about where long-term rates were just before the pandemic—a low level by historical standards.

Fed-funds futures are now pricing in a 50 basis point (half percentage point) Fed rate hike in March and several more after to get prices in check. We have noted before the Fed’s inability to address supply issues behind price increases—rate hikes won’t magically multiply primary residences to rent or own, fabricate semiconductors, build cars or refine more oil. Yet pundits now claim demand is too high and must be reined in. While we think that is misguided, the hype is allowing markets to pre-price this.

With more and more people expecting a 50 basis point Fed move, it is less and less likely to matter much to markets when and if it comes. That doesn’t preclude short-term volatility when the Fed acts, but it does set up a scenario where—once again—people build up fear of a thing, the thing happens, and then the fear loses its power

Of course, fears may weigh on sentiment and spur short-term volatility, but what matters for markets longer term is how the expectations markets pre-priced square with reality. Are inflation and steep rate hikes great? No. But neither one is automatically bearish. They also aren’t catching anyone off guard. Surprises are what move markets most over time. At this point, what negative scenarios are out there that markets haven’t already sorted through."

MY COMMENT

Never underestimate the power of the financial and general media to FEAR MONGER any short term topic to death. this is happening now with rates and inflation and the yelling and screaming in the media will build to a CRESCENDO as we get closer and closer to March. It is going to be an absolute media feeding frenzy.

Meanwhile......most investors and people in general will simply ignore it all and live their lives.

 

Here is the irrelevant economic data of the day.

U.S. consumer sentiment falls to ‘stunning’ decade low as inflation expectations hit 13-year high

https://finance.yahoo.com/m/169f9d4d-b71b-38bd-9bc0-0553c9fb3c28/u-s-consumer-sentiment-falls.html

(BOLD is my opinion OR what I consider important content)

"The numbers: The University of Michigan’s gauge of consumer sentiment fell to an initial February reading of 61.7, from January’s level of 67.2, the lowest reading since October of 2011.

Economists were expecting a reading of 67, according to a Wall Street Journal survey.

Key details: Expectations for inflation over the next year rose to 5% from January’s expectation of 4.9%, the highest level since July of 2008, while inflation expectations over five years held steady at 3.1%.

Big picture: With consumer prices rising at a 40-year high of 7.5% last month, Americans remain pessimistic about their buying power, as even healthy wage gains have not kept pace with the cost of living.

What UMich said: Richard Curtin, chief economist of the survey, called February’s decline “stunning,” adding that “the recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government’s economic policies, and the least favorable long term economic outlook in a decade.”

“The impact of higher inflation on personal finances was spontaneously cited by one-third of all consumers, with nearly half of all consumers expecting declines in their inflation adjusted incomes during the year ahead,” he added. “In addition, fewer households cited rising net household wealth since the pandemic low in May 2020, largely due to the falling likelihood of stock price increases in 2022.”

Market reaction: Stocks were on the rise Friday morning, with the S&P 500 index SPX, -0.15% and the Dow Jones Industrial Average DJIA, 0.16% edging higher."

MY COMMENT

LOL.....what a meaningless poll. Yes it is simply a poll......actually nothing more than a PR tool to get the name of the University of Michigan out there into the media. Is there anything here that is predictive.....or.....for that matter important. NO.....this is just a snapshot of the media topics of the moment. TOTALLY irrelevant to investors....especially long term investors.