Lighten Up Francis
Feb 05, 2012
The job market continues to show signs of improvement, however so slight, and once again highlights the resiliency of the American market.
But let’s not get crazy. The unemployment rate is still over 8% with a disturbing 13 million people still looking for work. January’s job additions number is nice to see indeed, but at just 243,000 jobs is well short of anything to get wound up about. So to steal a line from the classic movie Stripes, lighten up Francis – there’s no reason to get excited here.
Yet the Dow Jones Industrial Average continues its march towards irrational exuberance. In such a market condition, above-average portfolios demonstrate supernatural strength, as depicted by the 15-51 Indicator in the below chart.
Steep rises in stock market valuations increase the probability of future volatility and severe "flash crash" potentials. They signify economic balloons, which as we know, always bust at some future and unfortunate time.
Sure it’s easy to get caught up in the employment numbers. But have we already forgotten 4th quarter GDP numbers – and in fact, the entire 2011 résumé. What warrants the recent strong move in the Dow?
That’s why it’s easy to be successful with investment. "The market" gives you plenty of opportunities to capitalize on current market conditions and reset your asset allocations well in advance of stock market corrections – unless, of course, you buy into mass stock market hype and speculation.
For instance, it’s easy to think now that America is out of the woods and therefore a great time to invest. Hey, the Dow’s at 12,800 and employment is rebounding. Things must be great, right? Heck, if you believe that then you probably bought into the Dow’s all-time high of 14,100, which occurred just one year before the entire financial industry collapsed in the fall of 2008. Don’t get sucked into that same kind of hype.
If unemployment was recovering then so would the real estate market. But that hasn’t happened. Why? Because the Market is still suffering. Don’t get blindsided by the hype. The chart above clearly shows a stock market over-exaggeration of current market circumstance. It’s a make believe run built on speculative misconceptions. That’s it.
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