Gyroscopic Investing

I'm sure this has been discussed here ad nauseam but boy it's creepy to see such good job news get such a lukewarm reception.

As far as the PP goes, I and I'm sure many others expected that long bonds and gold would get beat up by a good report. Sadly I expected stocks to go red as well. Seems like any inkling that QE may not need be around forever lands with such a thud. Just a temporary blip no doubt, but I long for the days when good and bad news caused appropriate market reactions.

iwealth wrote: ...but I long for the days when good and bad news caused appropriate market reactions.

What days were those?

I was too busy trying to talk sense to Reub to even watch the markets today.

Did something happen?

The markets price these expectations in way before they come out. The stock market is up nearly 18% this year. So it's not like things are going poorly...

I took a look.

Nothing too surprising.  Better jobs numbers would be expected to push interest rates up a bit as money flows out of bonds and into stocks.

Gold would also be expected to weaken a little if the economy appears to be strengthening (and thus less future Fed action may be needed).

Stocks are up a little, which would be consistent with jobs growth.

It all looks about right to me.

And also, it's just one day.

AdamA wrote: What days were those?

Good point, last time I can remember was 2008. Market seemed to be reacting appropriately to the lovely news.

craigr wrote: The markets price these expectations in way before they come out. The stock market is up nearly 18% this year. So it's not like things are going poorly...

That's what I find most fascinating. An 8.2% headline UE forecast and we see 7.8 instead. Pretty substantial beat it'd appear, but a very tepid reaction. Lots of conflict between those investing in a real economic recovery vs. those investing in a primarily QE recovery.

iwealth,

I think you are accurately describing the interesting dynamic we have when the Fed is so accommodating.

It appears that the financial economy and the real economy have become extremely separated. What's interesting is that Bernanke really wants to help the real economy, but his entire toolkit revolves around juicing the financial economy.

In this environment bad news for the real economy is good news for the financial economy, because it gives Bernanke an excuse to try and juice the financial economy. If Bernanke spoiled asset markets less than he did I think you would have seen a different market reaction today.

Does any of this fascinating dynamic disrupt the long run of the PP? I don't think so. Money will flow somewhere and we will capture it. Additionally, we are the ones he is spoiling

MediumTex wrote: It all looks about right to me.

And also, it's just one day.

I agree - I did say it was no doubt a temporary blip for the PP itself.

But overall I'm just a little surprised that the report wasn't better received by market participants.

melveyr wrote: Does any of this fascinating dynamic disrupt the long run of the PP? I don't think so. Money will flow somewhere and we will capture it. Additionally, we are the ones he is spoiling

The PP has given me a level of comfort (and performance, at least since May of this year) I've desperately needed. Couldn't be happier to have found it. That said I wish I found it before the Fed started pumping. My crystal ball gets very cloudy when I try to look forward to a time with no easing. I didn't start investing until 2008, so I'm literally almost too young to remember a market without it.

iwealth wrote:That's what I find most fascinating. An 8.2% headline UE forecast and we see 7.8 instead. Pretty substantial beat it'd appear, but a very tepid reaction.

I'd say it's not substantial when you consider that these metrics are gross measures and all sorts of ways it could be manipulated to show various things. That difference is a rounding error. IMO.

I think the market is the best judge of all about these figures as they sort out the revenue, inventory, etc. data from the stocks. The market analysts often have a good feel for unemployment figures without needing the government to say what they are. I suspect they also have a ton of contacts inside these companies they can call and ask questions about hiring, firings, etc.

This news is really only surprising to retail investors. They are always the last to know. That's why I don't get involved in trading. When you own the market all the time, you get the benefit of all those analysts sorting out the data for you and it doesn't cost you a thing outside of a very small indexing fee.

"Government says 873K people found work — but reports only 114K new jobs were added"
"The number of people with part-time jobs who wanted full-time work rose 7.5 percent to 8.6 million."
" If not for all the people who have simply dropped out of the labor force, the real unemployment rate would be closer to 11%."

a few random quotes about the good jobs news that "if true" may be contributing to the lack of reaction to the new numbers..

iwealth wrote: But overall I'm just a little surprised that the report wasn't better received by market participants.

While I was getting ready to use the DVR, I noticed a chart on one of the network news channels (ABC?) showing that the labor participation rate is so low, it was at 1981 levels.  So that's probably why the muted response, although normally such "facts" are continually disregarded in bullish euphoria for headline numbers.

craigr wrote: The markets price these expectations in way before they come out. The stock market is up nearly 18% this year. So it's not like things are going poorly...

Yeah, this is yet another confounding factor that makes market timing so tricky.  You have to know to what degree that market has already expected and/or priced in what's unfolding today.

And secondly, of course, as MachineGhost pointed out, the overall labor participation rate is very low right now.  To me, this looks less like a recovery and more like being painfully dragged along the bottom.  But opinions vary!

Every day is a good day to be diversified.  :)

Edit: Here's the chart which MG posted which shows what I mean about the labor participation rate.  Look how much labor participation's been wiped out, particularly since 2007!  It's like the 80s and 90s never happened.  (And boy, don't the 70s look awful?)



Edit of the edit: Check out my post count!  "Posts: leet"  I can't mess this up.  How can I ever post again?

I suspect that that huge rise during the 70s to 90s was due in large part to women entering the workforce. So it shows us that it's clearly possible for single-earner households to exist, or at least, that it was possible. My sense is that today that's less and less common. I wonder about all those people dropping out of the labor force. Are they two-earner households becoming single-earner households? Ar they single-earner households becoming zero-earner households and going on welfare? Are they individuals going on welfare or moving back with their parents? Are they baby boomers who are retiring early on partial SS payments?

Lone Wolf wrote: Edit: Here's the chart which MG posted which shows what I mean about the labor participation rate.  Look how much labor participation's been wiped out, particularly since 2007!  It's like the 80s and 90s never happened.  (And boy, don't the 70s look awful?)



Edit of the edit: Check out my post count!  "Posts: leet"  I can't mess this up.  How can I ever post again?

Note to get picky, but when I see a chart where the Y axis is not scaled starting at 0 I immediately become suspicious. In this chart, I see it starts at a rather high arbitrary number to accentuate the point. If I'm reading it correctly it shows that Labor participation dropped from a high near 67% to about 63-64% today? I don't know, but a drop from 67% to 63% isn't that large. But the chart scale makes it look massive. If that chart started at 0 like it should, then the bump you see would barely be noticeable. Just food for thought again when you see these government numbers. Shame on BLS for putting out data in this form.

Lone Wolf wrote:Edit of the edit: Check out my post count!  "Posts: leet"  I can't mess this up.  How can I ever post again?

That spooked me when you posted it, thought we were hacked! Turns out it's an Easter Egg in the forum software when you hit 1337 posts.

I find it interesting that at a time when one of our concerns is rampant underemployment/unemployment, we also have this toxic fear of not having enough workers to take care of all the old people.

Odd combination.

moda0306 wrote: I find it interesting that at a time when one of our concerns is rampant underemployment/unemployment, we also have this toxic fear of not having enough workers to take care of all the old people.

Odd combination.

I think it goes with theme of a mismatch between people's job expectations and the job availability. We all want gadgets and robots and incredible computer software, but only tiny tiny fraction of people ever become engineers. Meanwhile, people with easy degrees in journalism and psychology and English and east Asian history are shocked to discover that they can't find work in their field. Taking care of the elderly is neither high-paying nor easy, but it's definitely important. That's what I find is one of the biggest tragedies of encouraging everyone to go to college: it compresses your sense of what you're able to do with your life and can make you feel like you wasted that time and money if you eventually take a job that's outside of your major or doesn't even require a college degree.

craigr wrote: Note to get picky, but when I see a chart where the Y axis is not scaled starting at 0 I immediately become suspicious. In this chart, I see it starts at a rather high arbitrary number to accentuate the point. If I'm reading it correctly it shows that Labor participation dropped from a high near 67% to about 63-64% today? I don't know, but a drop from 67% to 63% isn't that large. But the chart scale makes it look massive. If that chart started at 0 like it should, then the bump you see would barely be noticeable. Just food for thought again when you see these government numbers. Shame on BLS for putting out data in this form.

Oh sure, I totally get that.  I don't mean to overstate the quantity of the change.  I think it's just useful to identify the ground that we gave up from 2007 to the present.  Given that we have not yet gained it back, I think that it helps explain why this "recovery" has felt like such rough sledding.  Particularly when you compare it to the exuberant recovery of the 80s after we emerged from the Fed-induced recession.

craigr wrote: That spooked me when you posted it, thought we were hacked! Turns out it's an Easter Egg in the forum software when you hit 1337 posts.

And with this post I've screwed it up.  :)

moda0306 wrote: I find it interesting that at a time when one of our concerns is rampant underemployment/unemployment, we also have this toxic fear of not having enough workers to take care of all the old people.

Yeah, while I think that there'll be a lack of young people to fuel systems like Social Security but I am actually not concerned about a labor shortage of people to physically care for the elderly.  This could really derail this thread, but I fully expect many people in our age group to be taken care of by robots in their old age.  Seriously!

Lone Wolf wrote: ...I fully expect many people in our age group to be taken care of by robots in their old age.  Seriously!

In a way we already are. Think about how much easier it is for an elderly person to get by due to reliable home appliances, low-maintenance computer-controlled cars, mail order prescriptions, minimally invasive surgery, smartphones, credit cards, and the Internet in general. None of these are "robots" exactly, but they are all semi-autonomous technologies that accommodate mobility and health problems.

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MachineGhost wrote: [align=center][/align]

There is a lot more to this picture.

Take a look at the chart below and note how the beginning of the secular bear market for stocks in each case (i.e., Japan and the U.S.) coincided with a peak in the employment to population ratio.

In other words, as people age out of the workforce without dying it creates a cumulative drag on the whole economy.  How do you fix it?  Get better demographics, but that takes a while.

MediumTex wrote: In other words, as people age out of the workforce without dying it creates a cumulative drag on the whole economy.  How do you fix it?  Get better demographics, but that takes a while.

Is that because of lower consumer demand or because of lower business productivity?  I thought consumer spending was the be all, end all panacea for business productivity.  Something just don't smell right here.

MachineGhost wrote:

MediumTex wrote: In other words, as people age out of the workforce without dying it creates a cumulative drag on the whole economy.  How do you fix it?  Get better demographics, but that takes a while.

Is that because of lower consumer demand or because of lower business productivity?  I thought consumer spending was the be all, end all panacea for business productivity.  Something just don't smell right here.

It's both.

Pointedstick wrote: I think it goes with theme of a mismatch between people's job expectations and the job availability. We all want gadgets and robots and incredible computer software, but only tiny tiny fraction of people ever become engineers. Meanwhile, people with easy degrees in journalism and psychology and English and east Asian history are shocked to discover that they can't find work in their field. Taking care of the elderly is neither high-paying nor easy, but it's definitely important.

Our unemployment ratios spiked during the great recession. I don't think the recession coincided with an abnormal burst of liberal arts students. We had a collapse in aggregate demand. I think that can explain the unemployment situation in aggregate.

We have to be careful not to blame the unemployed for their problems and become too rampant with our individualism.

If you have 10 dogs and 9 bones buried in a field, you can tell each dog individually to work there hardest to beat the other dogs at bone digging. But to to tell all of them in aggregate to simply train harder is a fallacy of composition. There aren't enough bones.