Re: Thoughts on The Economy

On May 11, 4:35 pm, Alan Lichtenstein <a...@xxxxxxx> wrote:
mg wrote:
On May 9, 12:20 pm, Alan Lichtenstein <a...@xxxxxxx> wrote:

The WSJ has with some regularity, articles on why the market is doing so
well when durable goods orders are down, the housing market has slowed,
the price of oil is going up and we have the sub-prime draw. Corporate
earnings are hitting sky high figures, and unemployment is relatively
constant and things that should follow don't.

Most analysts seem to think that the labor factor is most significant,
yet one wonders why we aren't seeing greater unemployment with the
housing sector going south( well maybe, just some decline ) and the
economy slowing. I tend to think that there is an increase in
unemployment, but it isn't reflected in the statistics, because those
who are being laid off are illegal aliens, who don't file for benefits.
Given that, could it be that the illegal aliens are actually doing us
a service by not increasing unemployment and keeping investor confidence
in the market high?

Perhaps some of our resident 'economists' can comment.

I've never subscribed to the idea of trying to analyze underlying
fundamentals or investor sentiment, etc. I've always preferred to
simply follow the momentum. However, if you go to MSN's charting
utility and compare the performance of the EFA with the S&P 500,
you'll see that foreign stocks have been going nuts for the last 4 1/2
years or so.

Since January 2003 the IShares MSCI EAFE is up about 140% while the
S&P500 is "only" up about 65%. According to the talking heads on CNBC
much of the gains in the U.S. stock market are due to the fact that
American corporations sell a lot of stuff overseas.

I would also guess that it has something to do with the fall of the
dollar against the EURO. In October 2000 the EURO was only 83 cents.
Now it's at about $1.36. The cheaper dollar, of course, makes our
products cheaper in Europe.

My question, and perhaps I didn't articulate it properly, is that we
aren't seeing larger increases in unemployment in a declining economy
that we would expect when the economy slows. Unemployment should be
greater than it is, yet not only has the employment rate remained
relatively steady, but we are even seeing increases in wages due to
competition for labor.

I opined that the figures don't reflect the accurate data, as I would
opine that many who were laid off in the decline of housing are illegal
aliens, who don't file for benefits. Consequently consumer confidence(
and spending is high ) so the market remains high, as earnings remain high.

Could it be that this is a positive aspect of illegal immigration?

It might just be the natural skeptic in me, but like you I tend to be
suspicious of the government numbers both on unemployment and
inflation. Illegal immigration could be one factor. Something else I
can think of is the effect of the disappearance of unions. In years
gone by, many union workers would get layed off from the local
manufacturing plant and take a long vacation and draw unemployment for
3 or 4 months until they were called back. Sometimes these factory
workers also got supplemental unemployment benefits from their
employer. I know in another life when I worked at a steel plant, I
used to get layed off in the winter and draw unemployment and "SUB"
and my GI bill to go to school on.

Now days when someone gets layed off, it actually means they're fired
and they go out and find a another job, or maybe two, whether they're
illegal or not, or they retire like I did when I got fired during the
high-tech bust.

Since I don't completely trust the unemployment numbers, what I tend
to do from the point of view of stock market analysis is look at
retail sales. Here's a news clip:

"April Retail Sales Went From Worse To Wretched
by Sarah Mahoney, Friday, May 11, 2007 5:00 AM ET

EVERYONE WAS EXPECTING APRIL SALES data to disappoint. After all,
Easter fell in March this year. It was too chilly in much of the
country, which hurt sales of spring apparel. Gas prices are up again.
And some retailers, including Target Corp., had even issued mid-month
warnings that sales were falling short of expectations. Still, not
many had predicted that lousy would actually translate to wretched.

While Wal-Mart Stores' nosedive of 4.6% in comparable-store sales is
the most stunning, declines were widespread among most mass marketers,
and even hot stores stumbled. Target's sales fell 6.1%, for example--
and Kohl's, 10.5%.

Results in the teen retail category, one of the strongest mall
performers, were exceptionally gruesome. American Eagle, for example,
which had been looking for a modest gain, turned in sales that were
down 10%, and at Abercrombie & Fitch, the decline was 15%. At
Aeropostale, sales fell 14%. And if an overall of plunge of 16% wasn't
bad enough at the Gap, same-store sales at its Old Navy fell a
breathtaking 20%."
http://publications.mediapost.com/index.cfm?fuseaction=Articles.showArticleHomePage&art_aid=60180

I've found that nothing is very simple when analyzing the stock
market. There's definitely a disconnect now days between main street
and wall street. In addition, we're breaking new ground with the China
relationship. I tend to doubt if economists have figured the situation
out yet. We keep borrowing money and they keep loaning it to us and
their products help to keep inflation down. Then there's the strong EU
economy and the fall of the dollar, like I mentioned. And there's also
the fact that the stock market doesn't always behave rationally.

Looking at illegals (and China) from an economic point of view, "where
you stand probably depends a lot on where you sit". From my point of
view, as a retiree, they're both very good, but I personally wouldn't
want to be looking for a job right now.


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