Saturday, February 12, 2011
Found this interesting article today courtesy of CNBC...
Market Has A Dirty Little Secret: 9 Percent Unemployment Just Fine -- "It's a taboo subject to discuss in public, but corporate executives would prefer to buy back their own stock than hire more people this year. Meanwhile, investors want unemployment to stay at elevated levels so that the Federal Reserve stays accommodative."
~ Re-read that a few times... Let it sink in...
"Goldman Sachs estimates that companies in the S&P 500 will increase spending on buybacks by 25 percent this year, far and away the biggest increase among possible capital deployments. A distant second are cash acquisitions, which should jump by 15 percent, according to Goldman. The latter could actually lead to higher unemployment as merged companies fire employees with duplicative jobs."
~ Whenever a merger occurs, the markets go Up, and the news media cheers like this will be the catalyst that brings jobs back. But notice- when two companies merge, the first course of action by a business is to decide how many jobs are expendable and slash them.
" "The power cord for the stock market runs right to the Federal Reserve, and it is their response to unemployment that motivates actions like quantitative easing," said Nicholas Colas, Chief Market Strategist at BNY ConvergEx. "Persistently high joblessness will keep them from pulling liquidity from the system. It could even push them to QE3 if things don't improve by mid-year." "
~ QE1 and QE2 did not reduce unemployment. It wasn't meant to. It is a backdoor bailout to banks and in the process an artificial way of getting the Dow back up to pre-2008 levels under the guise of trying to lower unemployment.
In simple terms it is like this: You stare at a TV set and say, if it doesn't turn itself on by itself, you are going to 'help it' by eating some cake (CE1 or 'Cake Eating 1'). The TV doesn't turn on so you say to yourself, 'well I guess more cake eating is necessary (CE2) to make the TV work'.
To your 'amazement', the TV still has not turned itself on. Now you know eating cake and turning on a TV have absolutely no connection to each other, but your goal really isn't turning your TV set on. Ultimately its about publicly justifying eating more cake. So you say to yourself, 'Hmm, this TV is stubborn- I think more Cake Eating is going to be necessary' (CE3).
"Just 36,000 jobs were added to the non-farm payrolls in January, far less than the 140,000 increase economists were expecting, according to the Labor Department a week ago. The jobless rate came in at 9 percent. Yet the market keeps going up.
" "The stock market can do fine in the face of weak employment because that's the very thing that insures continued Fed accommodation," said James Iuorio, managing director of TJM Institutional Services. "As counterintuitive as it seems, weakness in the labor market and in the housing market are providing fuel for the stock market rally." "
~ And there you have it folks
Posted by Susquehanna at Saturday, February 12, 2011