Paper Chase: The Fed, The Weather and The Poor
74,000 jobs were created in December, the smallest monthly gain in 3 years. The unemployment rate has fallen to 6.7%, but the participation rate fell to 62.8% the lowest since 1978. I believe December’s unemployment Data released is inconsequential and will probably be revised upwards. The weather was most likely a factor for the low number, but the economy had been creating 200k jobs per month and I expect that to continue.
The labor force participation rate has fallen three points since the Great Recession began in 2008. 2 of these points can be attributed to baby boomers retiring. The other percentage point is attributed directly to discouraged workers which we talked about last time.
Janet Yellen is the fed chair, making her the most powerful person in finance. The Fed seems destined to scale back their asset purchases. The Fed will taper 10-15 billion dollars a month and wind QE 3 down unless job growth accelerates to 250k or slows down to 150k jobs per month. This coincides with many data points showing a positive economy.
Earnings should be alright though the 4th quarter is always filled with anomalies. 2014 should provide more clarity for companies earnings wise, Look for industrials, technologies and aerospace defense stocks to have positive earnings reports. Energy and materials require pricing power that isn’t there for them yet.
The underlying economy is improving, and risk favors the upside and not the downside. 2013 was an abnormal year because of the pace of gains of the market with little to no anxiety. 2014 should be a normal year and not a 30% gain. Corrections are normal and we have forgotten about them. There are dollar cost averaging (The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.) and buying opportunities for the market even if a correction is due.
War on Poverty: 50 Years Later
Numbering at 50 million, there are still too many poor people. The poverty reduction impact has been successful as 40 million people out rose out of poverty last year, and there is less misery (bread lines, etc.) than there was before 1964. Still, there is no more opportunity for those at the bottom. There must be a renewed emphasis on the personal transformation for the impoverished via faith, family, community and work (precursors of success and happiness). Relief (welfare programs) and opportunity (education reform) are obviously important but secondary. Entrepreneurship that helps rich people is terrible for the poor. Starting a landscaping or hair braiding business is unaffordable.
On the other hand, the role of massive market failures, the housing bubble, and the financial crash are holding back the prospects of the poor. The social safety net is a must. Marco Rubio’s speech on poverty is indicative of a focus of the new GOP that fights for people instead of against things. While the GOP is traditionally known for advocating cutting the debt and deficit in the interest of shrinking government, their budgets and ideas don’t necessarily match wanting to help poor people however. For example, in his speech, Marco Rubio called for block granting the safety net (giving a fixed amount to states for them to deal with), completely takes away the countercyclical ability of the safety net to ratchet up in a recession. This would actually increase poverty.
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