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Late Jobs Report Let Peace Reign

Don't feel pressured to buy in this overheated environment


I’ve got a suggestion.  Why don’t we abolish the government’s monthly employment report?  The release for September showed 148,000 nonfarm jobs created, well below economists’ forecasts (183,000).  But it didn’t matter a whit for stocks.  The S&P 500 index closed at another all-time high.  Bond yields sank to a three-month low, with the benchmark 10-year Treasury settling at 2.51%.

All this market activity took place in quiet, orderly fashion — a welcome contrast to the pandemonium that often accompanies the jobs report.  Why the difference?  Why, of course:  The release was delayed 18 days, thanks to the shutdown!

Investors don’t need the monthly jobs number.  It’s one of the most inaccurate statistics the government puts out anyway, susceptible to heavy revision, and it only gives trigger-happy traders an excuse to unleash their most infantile impulses.  Abolish it, I say, and save the taxpayers some money!

Back to stocks.  I’m delighted to see the S&P so quickly approaching 1800 by year-end.  (Tuesday’s close was 1754.67.)  However, the market’s meteoric rise in 2013 — and especially in the past two weeks — presents us with a mixed blessing.

Not only are the blue chip indexes quite expensive now by historical standards, but I’m detecting a fair amount of speculative froth — the kind that typically signals a major market top in the making.

Click to Enlarge
Take a few moments to study this chart.  It plots the net credit balances of NYSE investors versus the S&P 500.  (Note that the S&P scale is inverted to show the tight correlation between the two series.)

When the market is low, investors are afraid to speculate.  They hold more cash in their accounts than they owe to brokers in the form of margin loans.  (Green zone on the graph.)

We’re in just the opposite situation today.  Margin loans exceed cash (red zone) by a wider spread than at the primary market top in 2007, and the “cash deficit” is rapidly approaching the level it reached in February 2000, just before the Internet bubble collapsed.

I don’t like this picture.  It says Bernanke has let the crazies loose — the wild gamblers who drove share prices way too high in the last two cycles and subsequently brought the roof down on everybody.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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