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osborta (99.92)

An Employment Spiral Upward?

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February 05, 2011 – Comments (4) | RELATED TICKERS: GE

This year (2011), the oldest Baby Boomers (those 79 Million people born between 1946 and 1964 (http://geography.about.com/od/populationgeography/a/babyboom.htm) turn 65.

Recently, the unemployment rate dropped to 9.0% with only 36k new jobs created and people were asking "Why?!?".  I have an answer and it is concerning, but in a good way.

I think the recent upturn in the Stock Market was the beginning of a positive spiral that may impact us for years to come.  The cycle looks something like this:

1)  The stock Market goes up.
2)  More Baby-Boomers can now afford to retire, and drop out of the workforce.
3)  This causes unemployment rates to drop significantly!
4)  High employment rates cause the stock market to go up (and back to #1).

We could see a return to "Irrational exuberance", but I hope we don't.  What we MAY well see, however, is P/E's returning to historic, if not above-historic levels - so we might see P/E ratios in the 20-25 range become more common (as I write this, GE's forward P/E is in the 12's).

My advice (it is free, but you get what you pay for) . . . Watch for "panic buying" as opportunities to sell covered calls, and buy the dips with your covered call proceeds. 

I think we see Dow 14,000 again by the end of 2011.  That can be bad news - conservatives will face an uphill battle trying to convince Americans that Socialism is bad, especially with low unemployment rates and a high stock market.  But it IS.  If they win that battle for the hearts and souls of men, the upsurge will last longer than if they lose and our Socialism experiment gets a 4-year extension.

It will be easy to tell if I am right - ask your older working friends - those 50-something or 60-something Baby Boomers- if they are thinking about retiring in the next few years and whether the stock market runup will play a part in that decision.  Then watch unemployment rates drop inexplicably, while perhaps few if any net jobs are added to U.S. Payrolls.

And party like it's 1999 (because it will be very similar, IMO)!!!!

4 Comments – Post Your Own

#1) On February 05, 2011 at 8:20 PM, bigcat1969 (96.98) wrote:

Actually the numbers seem to say that while employment to population numbers are declining less quickly (0.2%), empoyment to persons in the potential work force numbers are dropping like a rock (0.7).  The only thing I can come up with is that baby boomers are coming back into the work force at a high rate since I don't think there is a baby boom effect from 16 years ago driving up the potential work force numbers from the other direction.  Also the 9.0% is a figment of counting, 99ers and others drop of the roles after a certain point and just aren't counted, kind of like the bums on the street aren't counted.  Unemployment should fall month after month as roughly 5% 16+ become completely unemployable and are never counted again.

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#2) On February 06, 2011 at 11:27 AM, OneLegged (< 20) wrote:

1)  We do not have "Socialism".  We may have some socialized services such as police, fire departments, schools etc., but we do not have Socialism

 

2)  "I think we see Dow 14,000 again by the end of 2011.  That can be bad news - conservatives will face an uphill battle trying to convince Americans that Socialism is bad, especially with low unemployment rates and a high stock market......"

 

Do you REALLY see excessively low unemployment as being an issue in 2011?  If you sincerely believe this I have some ocean front property in Kansas you have just got to take a look at.

 

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#3) On February 07, 2011 at 8:28 AM, osborta (99.92) wrote:

OneLegged - if you really believe we don't have Socialism in the U.S., then now I understand why you bought the "ocean front" property in Kansas you're now trying to pawn off on me.  :-)

 And I didn't say "excessively low unemployment" - until we stop extending unemployment benefits to 99 weeks, we will have relatively high unemployment - I would argue that even 9.0% is pretty low, after you remove from the ranks those who are taking full advantage of largesse.  Oh, but wait, that would only happen in a "Socialist" situation, right?

 But as that 9.0% winds down to 6-7%, we'll see the impact.  Just my humble opinion, of course.  You're welcome to disagree.

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#4) On February 07, 2011 at 9:07 AM, russiangambit (29.96) wrote:

>  I would argue that even 9.0% is pretty low, after you remove from the ranks those who are taking full advantage of largesse.  Oh, but wait, that would only happen in a "Socialist" situation, right?

The unemployement benefits have little to do with socialism and more to do with keeping hungry masses off the streets. Hungry unemployed people always want to smash something or blame somebody ( like rich folks). This is not socialism. This is "bread and cricuses" approach of the romans.

U-6 is somewhere at 16%, labor force participation is around 60%, 40 mil. on food stamps these are bad numbers. US defnitely has a structural unemployement issue. Why even argue about it?

That doesn't mean stock market can't float higher on the hot money ballon, until it pops.

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