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Tuesday, August 16, 2022

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Non-Farm Friday – Is America Working?

209,000 jobs.

That's pretty good, only 183,000 new jobs were expected and June was revised up by 9,000 more jobs (231,000) with unemployment now down to 4.3%.  More importantly, the Civilian Labor Force is growing, now about 160,500,000 (of which, about 7M are unemployed).  Average weekly earnings are up to $909.42 from $884.42 last July so up $25 (2.8%) but let's call it $100 per month and $1,200 per year more times 153.5M workers is $184Bn more Dollars in the economy this year but last year we only had 151.5M workers so 2M workers making 52x $909.42 ($47,290) is $94.6Bn new Dollars so, overall, let's say the working economy is up about $300Bn or 1.5% of our GDP.

That's not hard math, any economist can do it.  Any analyst can do it but, where you do need some kind of Quantum Mechanics is to try to explain how $300Bn of new salary money (most of which went to the top 10%) translates into the kind of buying power that would send the US markets $10Tn higher – that's 30:1 leverage!  

Of course, that makes sense as the market multiples on earnings have gone up considerably along with expectations but where I feel we're running ahead of reality is by looking forward and even assuming we add $600Bn of wages in the next 12 months – we're still miles behind what would be needed to support this bullish premise.  Also, consider that $600Bn more wages would be a 5.6% increase, which would then put cost pressure on businesses (until the robots are ready) and that would drag the economy.

So it's hard to paint a more enthusiastic picture than the one that's already been painted because, as noted by Calvin, "Alexander contemplated his victories and he wept, because there were no more Worlds to conquer."  What will we do for an encore when we only have 7M people left who are unemployed?  At this pace, in 3 years, they will all have jobs and we will have 0% unemployment.  What is the World the market expects down the road to justify a 20% improvement in 9 months?

The market is still benefitting from a benificent Fed and a lack of alternatives to invest in but, eventually, the Fed will reverse their stance and get serious about raising rates and reducing their balance sheet and that will also CAUSE the alternatives (bonds, cash, debt) to become more attractive investment alternatives to the markets.  In our Long-Term Portfolio we have the bulk of our money at work in companies that have benefitted from the rally but it would be foolish to think we're never going to have another pullback – that's something we need to be prepared for.

In yesterday's post we discussed a new DXD hedge and today, in our Live Member Chat Room, we will go over our portfolio hedges in the Short-Term Portfolio as well as the Options Opportunity Portfolio, which has its 2-year anniversary on Tuesday (8th) and we should be hitting that mark with over 200% in gains to protect! 

Have a great weekend, 

– Phil

 

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Winter in Cordóba, Argentina – 80F and sunny! It's only about 40F in the morning but I could get used to this winter weather!

BRK/B

At June 30, 2017, our book value had increased by 6.2% since yearend 2016 to $182,816 per Class A equivalent share. Insurance float (the net liabilities we assume under insurance contracts) at June 30, 2017 was approximately $107 billion, an increase of approximately $16 billion since yearend 2016.

This puts the B share BV at $122. The putative floor price is now $146 (120% of BV)

Shares were down a bit AH on Friday to $177 after the earnings release. 

Price to BV is now 1.45X. This metric has historically ranged from 1.2 to 1.6. 

 TEVA – the co is trying to divest certain assets and is said to have attracted interest from firms such as Fresenius, Mylan, Novartis, and PE companies – Bloomberg  

quiet board todsy

TEVA down again premarket. Unreal 

Teva Pharmaceutical Industries (NYSE:TEVA) downgraded to Underweight with a $16 (22% downside risk) price target by Morgan Stanley. Downgraded to Market Perform with a $26 (26% upside) price target by Bank of Jerusalem. Shares are down 5% premarket on robust volume.

Phil are you still using 49.20 as a significant support resistance line for CL?

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