The U.S. administration's characterization of a U.S. economic recovery is, in my not so humble opinion, a fallacy. As I have stated in the past, there is no such thing as a "jobless recovery." An unemployed consumer does not consume, and the producers of those unconsumed products will be next to lay off people. I continue to warn, however, that should the weekly first time unemployment number show a decline, it will no doubt be the result of corporations having no one else to lay off without closing their doors; it will not be a sign of labor improvement.
The jobs supposedly created last month of 54,000 or so against the weekly first time unemployment number of 400,000 plus and called "an improvement" by the administration makes no sense to anyone, certainly not me. Analysts had expected job gains of 170,000 and, once again, were wrong. The jobless rate ticked up to 9.1%. That rate is not truly reflective of the actual jobs picture as many people have had to accept jobs paying much less than the jobs they lost. Another group has left the jobs market entirely and the real unemployment rate is probably closer to 20%. I repeat my "suggestion" to analysts of some time ago, "better to keep ones mouth shut and be considered ignorant than to open it and remove all doubt."
Investors should beware of additional economic shocks from overseas and the U.S. as well. I have long felt any positive reports and assessments emanating from the U.S. administration were created to appease the investing…and voting public. Remember the old statement by President Abraham Lincoln that "you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time." Another of my favorites is by P.T. Barnum who once stated, "there is a sucker born every minute." Bear that in mind when assessing your investment choices or listening to the "voice on the phone" recommending a hot stock to buy. You will never get a prospect call from a broker with a great stock to short.
Now for some actual information…
Interest Rates: September treasury bonds closed at 12508, up 12 points as the negatively construed U.S. economic data prompted the usual rush from equities to the relative safety of treasuries. Factory orders were reportedly the lowest in years. The net gains in jobs of only 54,000 against estimates of 170,000 was also disconcerting. The U.S. President continues to suggest the economy and the job situation is recovering. A flow of positive statements cannot be verified by the actual data but is what the public wants to hear. Unfortunately not all members of the public are ignorant enough to believe him. The fact remains, the U.S. economy has faltered, never saw the "daylight" of an actual recovery, and remains a grave concern to us. The U.S. Federal Reserve has to make the decision as to whether to retain the "monetary easing policy" or the reality that rates cannot go lower and the next step will be a rate increase if only to stabilize the deteriorating dollar. See my currency comment. We like buying puts on treasuries since the "direction of least resistance" for yields is up and the prices down. Selling calls can be useful but only to well capitalized accounts.
Stock Indices: The Dow Jones industrials closed at 12,151.26, down 97.29 or 0.79%, but had traded as low as 12,104.03 on a composite basis. The S&P 500 closed at 1,300.18, down 12.78, or 0.97%, and just barely above the technically important 1,300 level. The Nasdaq closed at 2,732.78, down 40.53 or 1.46%. For the week the major averages closed at their worst levels in over two months, all closing at over 2.3% for the week. We continue to believe the U.S. economy is faltering and that prices for corporate entities, which has been gaining in recent weeks, will continue to decline if not simply by virtue of the weak jobs market which impacts consumer spending. Global economies are also a dominant factor in investor psychology and with dramatic problems within the Eurozone countries, specifically Greece, Portugal, Spain and Italy, the impact will continue to be felt in the marketplace. I once again strongly recommend the implementation of hedging strategies for those with large equity portfolios.