It's Funny How We Get The Perfect Job Number

Discussion in 'Trading' started by inthemoneystock, Jan 7, 2011.

  1. Earlier this week on January 5th, 2011 the payroll processing company ADP reported that the U.S. economy had added 297,000 jobs. The economists went wild raising the expectations of today's government non-farm payroll report to over 200,000 jobs. However, today the job report was released at 8:30 am EST and the U.S. Labor Department only reported a headline number of 103,000. This is quite a disappointment for all those who thought the economy was adding much more jobs as the ADP report suggested.

    It is important to note that all of these reports cannot be trusted. Even in modern times with all the wonderful technology in the world it seems that the readings when it comes to economic data should be taken with a grain of salt. All that really matters is if the Federal Reserve Bank will continue with it's U.S. Treasury purchases called QE-2. As long the central bank continues to create capital reserves by buying bonds and keeps the fed funds rate at zero percent the economy will inflate overall. That has been seen throughout history.

    Investors should just look at when the former Federal Reserve Bank Chairman, Alan Greenspan, lowered the fed funds rates(overnight lending rate to large major banks) to 1.00 percent in 2002. The economy inflated higher for five straight years. However, once interest rates began to increase the economy had already created one of the biggest bubbles in recent times. That was obviously the housing and credit bubble of 2007-2008. We can only wonder how bad this bubble will be that is being created now?

    The Federal Reserve Bank tells us that there is no inflation. However, the economies in Asia are trying to fight inflation. If this is a global economy how could one part of the world have inflation and the other part have no inflation? It is simply because of the labor market and the fuzzy math that is used by the economists. When a country has high unemployment there is never signs of inflation. However, if one looks at the price of copper, gold, silver, gasoline, oil, or food they will easily see that there is inflation. Leading commodity stocks such as Freeport McMoRan Copper & Gold Inc.(NYSE:FCX), Southern Copper Corp.(NYSE:SCCO), Silver Wheaton Corp.(NYSE:SLW), and many others are trading at or near all time highs.

    You see today's weaker than expected job number gives the Federal Reserve an excuse to say that we need to continue their quantitative easing program. Remember quantitative easing is the catalyst for the rally as traders and investors continue to buy the dip. If today's government job report would have been near 300,000 new jobs the U.S. Dollar would have spiked along with higher U.S. Treasury yields. This would have caused a major sell off. Therefore, you can see how a not so good or even a disappointing job number can be good for the stock market. It's simply amazing how this all works.

    Nicholas Santiago