Lear Capital: Gold Sending Smoke Signals

 
on February 04 2013 9:34 AM
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Today, non farm payroll numbers came in, showing that 157,000 jobs were created in January.  Yet, the unemployment rate rose to 7.9 percent from 7.8 percent.  Over the last 4 years, 4 million jobs have been created and the unemployment rate has risen from 7.8 percent to 7.9 percent. When did “not working” become a career?

Then, this morning, all the talk is about why the Dow is headed for 14,000 even 15,000 and beyond.  That’s a tough one to let swirl around my brain.  How is this good news?   Apparently, it’s not today’s news that matters, it’s the screw up in reporting of jobs data all the way back to November.  November payrolls were revised up from 161,000 to 247,000 while December was revised up from 155,000 to 196,000.  Funny how they caught both mistakes on the same day January payroll data was released.

The immediate reaction of the Dow, to the addition of 127,000 jobs past, was to rise above the highly anticipated 14,000 level. If that’s really the reason stocks rallied today, sometime soon, traders will awake from their senior moment and say, “Hey wait a minute! We just found 127,000 more jobs from months back and 157,000 jobs today… but the unemployment rate still went up?”  Even more curious is how, in November, the 157,000 jobs added, caused the unemployment rate to fall from 7.8 to 7.7 percent, the lowest level in 4 years. Now, we discover more jobs and the unemployment rate went up?  Go figure!

I am sure this will either be ignored or explained 7 ways to Tuesday.  To all that I say, @AHHBullTweet!  Here’s reality.  Over the last 4 years the labor force participation rate has shrunk by 2.1 percent.  That’s over 6 million people off the working rolls.  Comprised of those whose unemployment benefits have expired, others who have retired and still others who have given up the search for a job, you can only reach one conclusion.  Real unemployment is much higher than 7.9 percent.

Can we really expect new record highs in the Dow?  Generally, good news for the Dow is bad news for gold.  Savvy investors own gold as a hedge against market failure.  A condition that can be positive for both gold and stocks would be inflation.  The Fed prints money and both stocks and gold can move higher on the news.

Now to the question.  Did both gold and stocks move higher during Friday trading because of great jobs data?   See the smoke signals off in the distance?  Gold is signalling that bad jobs data means more money printing ahead.  The market is seeing the signs and is likely responding to that and not the great old news on jobs. Personally, I believe inflation and higher interest rates are just around the corner.  But, that’s just how I read the smoke signals.  How do you read them?

Copyright Lear Capital All rights reserved.

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