October 13, 2003

Stocks on a Roll, Employment on the Rocks

The story below from Reuters tells one half the story: stocks on a roll in anticipation of a jobless recovery. NEW YORK (Reuters) - U.S. stocks surged to fresh 16-month highs on Monday after mobile phone maker Motorola Inc. MOT.N delivered better-than-expected results and an upbeat sales forecast, reinforcing investors' faith that corporate America will deliver strong earnings reports this week. "The fail-safe for this market is to recognize that the economic recovery is continuing and it is especially beneficial to profits," said Milton Ezrati, senior economic strategist at money manager Lord Abbett & Co. "Absent other news, or something to worry about, it rises." The blue-chip Dow Jones industrial average .DJI was up 92.89 points, or 0.96 percent, at 9,767.57 at midday. The broader Standard & Poor's 500 Index .SPX added 8.93 points, or 0.86 percent, at 1,046.99. The technology-laced Nasdaq Composite Index .IXIC was up 18.12 points, or 0.95 percent, at 1,933.43. That marked fresh 16-month highs for the Dow and S&P 500, and a 19-month high for the Nasdaq. And then there's this back-page story from Fed governor Moscow on what it's going to take to get the economy going. No mention of how this will happen....unless the structural change that's caused the loss of so many American jobs suddenly reverses and American labor gets dramatically cheaper (which isn't exactly good for income.) NEW YORK (Reuters) - The U.S. economy needs to grow quickly for an extended period of time to make inroads into the unemployment rate, Federal Reserve Bank of Chicago President Michael Moskow said on Monday. "We have got to grow above potential for a significant period of time ... so we can continue on that long-term sustainable trend and reduce the unemployment rate," Moskow said in a television interview with CNBC. He said trend growth was around 3.25 percent, and noted the economy has been growing below that pace for three years now. Let's see, three years of below-average growth. Either this is a trend due for a reversal, or a trend that's just getting started. This is a replay of the same thing I followed last week: asset inflation vs. income deflation. Income growth stagnates while the job market tanks. Stocks respond by reaching new highs. Something has to give, and eventually it will be stocks. Which ones first? Tomorrow I'll take a look under the hood and debut some new trading ideas. Incidentallyl, yes...I've been a bit jocular lately. But it's not because this isn't a serious investment moment. It is. And it will be important to get your money lined up in a position where you can avoid the big dangers and benefit if we're right about our big themes. But Sea Biscuit is an excellent movie, I started another Chesterton book (Everlasting Man), the Cote du Rhone was especially good at lunch, along with the chicken and spinach.


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