Sure, I'm jumping the gun a little, but I suspect in the weeks ahead economists will begin forecasting a percentage point drop in joblessness by the end of this year. Granted, that number is nothing to celebrate, but at least it is moving in the right direction.
For investors, however, that slow decline in unemployment does have a silver lining. You can count on the Federal Reserve to keep short-term rates at historic lows and keep QE II going until hiring accelerates. That means stock prices are going higher and Treasury bonds lower.
As I wrote last week, the conflict in Egypt is a sideshow, although it did get gold and silver off their proverbial backs. Dusting off my technical charts, I believe a bottom in gold at $1,300 a ounce or there about is reasonable. We almost hit that level ($1,318 a ounce) a week ago.
Silver also dropped to the $26.50 range and has risen every day since then. From the price action, it appears that the corrective phase of precious metals is just about over. Buyers take note that oftentimes, commodities will tend to re-test their lows; so if you are buying here save a little cash in the event these metals re-test.
Egypt has also caused oil to spike to my price target of $100/bbl.Six of the world’s ten most-used oil markers are now in triple digits. Crude oil futures for March delivery, the marker most often used in the U.S. media is still "only" $89-$90 a barrel so we still have a little room on the upside before I become cautious on oil in the short term.
Last quarter's earnings season is winding down and once again there were more beats than misses. The latest batch of economic numbers (if sustainable, and I think they are) indicates that the present quarter should see an acceleration in earnings overall. U.S. chain store sales jumped 4.2 percent in January, despite the horrendous weather. The auto manufacturers are generating such strong profits (a 17 percent rise in January) that suppliers, lenders and dealerships are beginning to feel new life in their own financial performance after a two year hiatus. That trickle-down effect should impact America's Main Street very soon.
On the global front, it's a similar picture with 15 of 24 of the world's major economies registering a surge in manufacturing. Factories throughout the U.S., Asia and Europe are experiencing growth, but it is also leading to higher commodity prices and therefore inflation. China and other developing countries have complained that U.S. policies (specifically the $600 billion QEII) are the root cause of these price increases. Federal Reserve Chairman Ben Bernanke denies that and instead blames any inflationary pressures on the runaway growth among emerging market economies.
Bottom line: every country in the world is playing the emerging market game, exporting their way back to prosperity. Those countries that have traditionally had that field to themselves suddenly find themselves in competition with the big boys. They can bluster, complain, even make veiled threats, but given the realities, they need us as much as we need them.
We had another big week in the markets as the averages rebounded from the Egypt scare, although all of the gains came on Monday and Tuesday. This year seems to be shaping up like the last, where most of each month's gains occurred on the first day or two of the month. In 2010, Mondays were especially kind to investors, but we will have to see if that trend persists again this year.
I'm bullish, although readers should expect pull backs at any time. Some of them may be quite hefty but that won't derail what I see as a continued upward bias in all the averages with industrials, commodities and technology leading the pack for now.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at firstname.lastname@example.org. Visit www.afewdollarsmore.com for more of Bill's insights.
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Dear Mr Schmick,
At my age, 59, I want to both grow and protect my brokerage accounts.Some see a long deflationary period ahead for the US. You appear to think the FED is willing and able to reflate and return the US to more average growth rates. Is a strategy of quality dividend paying stocks advisable at this time? Are boomers and younger folk likely to show a new interest in dividends? Will the dividend return to it's original place in the equity world? Will more companies start paying dividends? Is the dividend a good investment if the FED is successful? If buy and hold is no longer wise at my age (or any age), how does one manage a portfolio of dividend paying stocks?
Thank you for your time, Michael
All of your questions are right on the mark and deserve more space than this comment box will allow. I will address your questions in a column this coming week. Thanks for the idea. I'm sure there are thousands of investors asking these same questions.