Prague Twin

Friday, May 05, 2006

Economic Snapshot

The big news today is the April jobs report.

138,000 Non-farm jobs were added in April, much less that expected, but right about level with the three-month trend. Unemployment is at 4.7% and average hourly earnings rose .5%. The rise in average hourly earnings may be an indication that inflation is around the corner, but that is only speculation at this point. These numbers make it even more likely now that the Fed will raise rates just one more time to 5% and then pause. As a result, the dollar continues on its downward spiral, breaking $1.27 to the Euro and approaching a 12 month low.

Gold continues to gain momentum, breaking $680, but copper has finally come down a little.

Oil has dipped back under $70 a barrel.

The stock market is rallying. Both the Dow and the S&P are at now at levels not seen in over 5 years. The Dow has just broken 11,500 which is a six year high. Another 250 points would be a new record.

What is the bad news? Retailers laid off 36,000 workers, indicating that consumer spending may finally starting to soften. Housing continues to slow.

The market is very hot right now. There are indications of inflation around the corner, and the fear is that if the Fed stops raising rates too soon, inflation could become a problem.

Just plain wierd: transportation stocks are hitting record highs despite $70 oil.

In my view:

What we are seeing is a continuation of the trend that was started with the cuts in capital gains taxes. All this free money floating around has to be invested, which is why the stock market is going up, and gold is going up at the same time. This pace is simply not sustainable.


  • Too bad for the average Joe that the Democrats in the House and Senate wont budge on even a tiny portion of S.S. being linked to the market. How much longer will they be able to sucker the poor and uneducated with their sacred cows?

    Funny thing is, its my understanding that members of congress are all ready allowed to defer at least a portion of their S.S. taxes into private retirement accounts.

    By Anonymous Arch Stanton, at 11:15 PM  

  • This is absolutely true, they do. They also get lifetime medical paid for by the taxpayers. Of course, this is too good for the Average Joe. No, he is much better off in the free-market insurance system.

    As logical as linking S.S. to the market seems, the whole idea of S.S. is to have a saftey net in the event of a crash. It was the crash of '29 that led to the creation of S.S. To put that money back into the market, in my view, is the ultimate hypocricy. In the event of a crash, when people need the money the most, there would be less to go around.

    Now would be a GREAT time, when the market is swollen. Everyone could invest, give the market one last boost, and then be exposed to correction.

    If you remember, the last time people were talking about this seriously was during the .com bubble. (Had it been done then... ouch.)

    It is typical of collective thinking that when the stock market is way up, talk of investing S.S. money comes around. Then, when a big correction occurs, the talk dies. But this is just the opposite of what should happen (if it is to be done.) In reality, it should be started when the market is at the bottom of its cycle (like a couple years back when it dipped under 8,000). That would leave a lot of potential up-side, and could help trigger a reversal.

    But no, if it happens it will be at a time like this when the collective "logic" says, "Hey, the stock market is going off. I had invested my S.S. two years ago, I'd be doing really well. Time to invest."

    Lemmings. You will see, if the Dow breaks 12,000 you will start to hear the call again. Then when it comes down, and it might make sense to actually do it, people will say, "See, if we had, we'd be screwed now. Bad idea."

    Mark my words. Oh, I guess I just I just did!

    By Blogger Praguetwin, at 10:38 AM  

  • But as with most people on the left you demagogue the issue and lead people to believe that we are talking about total privatization when we are not at all. We are talking about a small percentage, which could be put into a narrowly curtailed investment portfolio. For gods sake man, even the ā€œIā€ bonds that I have amassed over the years are going to out perform the return on my S.S. dollars by about two fold and you can bet your bottom dollar that if we get to the point where Government bonds fail, it will have only been preceded by the total evisceration of S.S.

    Look, I'll make it simple for all to understand.

    Of those reading this who have a 401k (assuming you have it well divested and not all rolled into Co. stock etc.) and have paid into S.S. ask yourself this question:

    Into which have I paid more & from which will I receive more.

    Its not rocket science.

    This is not a hard thing to understand if we are willing to sacrifice our sacred cows.

    By Anonymous Arch Stanton, at 6:49 AM  

  • Yes,

    So long as there is not a crash, you may be right.

    I'm talking about in the event of a crash. Stay tuned, you may get to see it.

    By Blogger Praguetwin, at 11:23 AM  

  • I've been warned about a "correction" for nearly the bulk of my adult life now and it seems unlikely that this generations "will-to-doom" crowd is going to be any more correct than the last one.

    As you have noted the last crash was in 29, this of course means that if we had started at that point with a small divestiture of SS funds into private accounts, a full two generations would have retired by now, and we would not be in the SS mess that we are today.

    By Anonymous Arch Stanton, at 5:00 PM  

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