Market Outlook for the Week of December 5th AKA Please Take Me Up On My Four-Year Bet
I am willing to make a bet with you.
In four years, the unemployment rate will be much higher than the 4.6% reported today by the Department of Labor which is the lowest number in a decade.
The jobless rate may decline more initially thanks to deficit financed government reflationary programs.
However, the US will fall into a deep recession within the next three years, triggered by high inflation, rocketing interest rates, and a strong US dollar.
And while growth will rise next year and in the following year, it will be posting negative numbers by 2020. The overall net growth in the economy over the full four years will probably come in at zero.
And where will the job losses be the greatest? In the industrial rust belt states of Pennsylvania, Michigan and Indiana.
So, there is your new investment strategy.
Rape, pillage, and plunder now, but don?t forget to find a chair when the music stops playing. The big money will be made on the short side down the road.
You may have been a long-term investor until now. From here on, you have to trade or die.
Yes, my Golden Age scenario for the 2020s is still intact. But the demographic wave that will drive it doesn?t start for five more years.
The November Nonfarm Payroll Report came in dead on expectations at 178,000. The U-6 long-term structural unemployment rate also hit an eight-year low at 9.3%.
Hourly earnings fell by 0.1%.
Professional and business services jumped by 63,000, health care by 28,000, and construction by 19,000. Retail jobs declined by 8,000.
The ongoing seven-year economic recovery continues.
Of course, by the time you read this, the outcome of the Italian elections on Sunday will be known.
The country is voting on constitutional reform which may grant more power to their lower parliamentary house. Heaven knows they need it. Italy has seen 63 governments since 1945.
If reform fails, Prime Minster Matteo Renzi will resign and the Euro (FXE) will crash. If it wins, the Euro and European stock markets will rally, especially the banks.
With one of the most difficult markets in history in the rear view mirror, a lot of traders will start to wind down their activities early this year.
The stock market has gone about as far as it can on the few hints of economic policy we have received so far from the future Trump administration.
Investors won?t be able to make any major moves until they get their capital allocations and sector weightings for the New Year. So the Trump bump has pretty much run its course.
The only event to trade off of for the rest of 2016 will be the Federal Reserve meeting on December 13-14. Will it be a 25 basis point snugging now, or will Janet go for the full 50 basis points?
I expect markets to trade in narrow ranges until then.
As for the coming week?s data releases:
Monday, December 5th at 9:45 AM EST, we get the PMI Services Index.
On Tuesday, December 6th at 10:00 AM EST, we get a new update on October Factory Orders.
On Wednesday, December 7th at 10:00 EST, the Labor Department?s October JOLTS report is released, showing us the changes in job openings. This is a deep lagging report so I don?t pay it much attention.
At 10:30 AM the EIA Petroleum Status Report will give us updated inventory numbers. Will oil peak out here? Or does it have a few more dollars to run?
Thursday, December 8th, we learn the Weekly Jobless Claims at 8:30 AM EST.
On Friday, December 9th, we learn December Consumer Sentiment which will almost certainly show an uptick, now that the presidential election is over.
Keep in mind that virtually all economic indicators will be useless for the next two months, because they will only reflect spending and investment conditions prior to the November 8th presidential election and will be for a world that no longer exists.
