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Unemployment High, Stocks Rise
#1
Well stocks aren't doing too bad. But unemployment is still high. According to the linked CNN article, some folks think that high unemployment will signal to investors that more stimulus is on the way.

http://money.cnn.com/2010/10/08/markets/...1&iref=BN1

Quote:"The economy's sluggishness also increases the odds of the Fed pumping more money into the financial system, which is viewed as a positive sign among some investors, because it adds liquidity to the system," Tuz said

He expects the market to continue moving higher, in part on speculation about Fed action. Stocks could also gain some traction if third-quarter financial results start coming out stronger than expected.

In my opinion, stocks are higher because now is the best time to replace labor, with technology and increase the productivity of the remaining labor force. Stock are higher because large public firms have adjusted to a lower level of consumer demand, and have cut labor costs more than enough to compensate for lower demand.

In my opinion, 9 to 10% unemployment will remain for the coming years, while firms continue to improve the bottom line.

As crappy as it sounds, this is the new economy. I could be wrong. In fact, I hope I'm wrong.
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#2
Maybe this is why?

Maybe they're reading the political tea leaves and expect the elections to cause a waning of the deliberate economic sabotage caused by the president and his cabal in congress.
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#3
Pixiest Wrote:Maybe this is why?

Maybe they're reading the political tea leaves and expect the elections to cause a waning of the deliberate economic sabotage caused by the president and his cabal in congress.

I'm almost positive that this is the reason. Remember, the market generally moves, based upon 'perceived' events, not actual ones. This exact thing happened with the 1929 Crash. It was all about Smoot-Hawley, as it wound it's way up the legislative food chain. The closer this prohibitive tariff bill reached passage/signature, the further downward the market dropped. It was not one big crash as has been portrayed, but a series of drops, over a period of months. And all this was Before Hoover signed the bill.

That is what is going on now. The market is anticipating the ouster of the Jackasses, because they see divided government ahead. Business loves divided government, because predatory legislation rarely get passed, and they are not penalized for taking advantage of the market.

Note: I generally consider myself pretty much an Austrian, but I am a Hayek follower, not a Rothbard disciple. In this instance, I would stake a body part on Wanniski's take here. Markets are great indicators of future events, because it is the job of investors to reach out and anticipate events. And clearly Smoot-Hawley was one monumental drag on the world business universe. And make no mistake Hoover's Progressive ideology was known by Wall Street, and taken into consideration. ''

Here is Wanniski's take on the Crash

Quote:Normally I would not have a lesson on Memorial Day weekend, but decided to at least make use of the space to run an article I wrote for The Wall Street Journal editorial page of October 28, 1977. In May of 1977, I had discovered the cause of the 1929 stock market crash, which to that point had been attributed to unknown causes that suddenly burst a speculative bubble. To this day, my thesis has been largely ignored by academic economists, who prefer the “bubble” thesis because the various demand-side schools have been built around the notion that the financial market can become “irrational” at times. If the market can have “irrational expectations,” then it becomes the task of government and the economists who advise government on how to manage the national economy.

The Keynesians do this by manipulating taxation and spending. The monetarists do this by manipulating the money supply. Even the present-day Austrian economists who decry the dominance of the state in managing our lives still hold to the view advanced by the late Murray Rothbard that the Federal Reserve inflated the supply of credit in the 1920’s, which led to the bubble and Crash. It has long been my hope that younger economists would, in accepting the logic of my thesis on what really happened, would be able to guide policymaking in the opposite direction. By this I mean gradually reducing the manipulative role of government by simplifying monetary and fiscal policies along classical, supply-side lines. The federal tax codes now contain more than 7 million words. There are more than 5000 different rates of tariff. And because so many demand-side economists blamed the Crash on the gold standard for preventing the Fed from inflating the economy out of the Depression, an acceptance of my thesis would help academics see the wisdom of giving the efficient market the gold venue instead of relying upon the judgments of a dozen men and women at the central bank on how much money to supply from one day to the next.

The complete version of my thesis is contained in Chapter Seven of my book, The Way the World Works, published in April 1978. Here is the newspaper version. The brief introduction was written by Robert L. Bartley, then the editor of the WSJ editorial page:

The Crash of '29 -- A New View”, by Jude Wanniski
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#4
There is some speculation that the Fed is manipulating the market by buying up stock futures.
Different eyes see different things. Different hearts beat on different strings.
But there are times for you and me when all such things agree.
-Geddy Lee, Rush.
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#5
a lot more people made to understand that freedom is nothing without securities and certainties.
"You know, Paul, Reagan proved that deficits don't matter." Dick Cheney
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#6
quadrat Wrote:a lot more people made to understand that freedom is nothing without securities and certainties.

Funny, that reminds me of the saying "Arbeit macht frei".
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#7
How so John?
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#8
and for those of us who don't speak Hun, what does that mean?
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#9
"Work will make you free". Or "Work will set you free". The ultimate security. Wink1
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#10
Oh jeez.. you're right.
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#11
Armadillo Wrote:There is some speculation that the Fed is manipulating the market by buying up stock futures.

other sources on that?
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#12
Actually, the Fed is doing what all good Keynesians recommend: print money and inflate their way out of debt. It never, never, never, works. You would think all they would have to do is just look at Germany in the 1920s and see how that doesn't work.

The problem is that Keynesians believe the State can best work wonders, by controling the economy, through monetary policy, which heavily favours Fascism(think high regulation and control). Again, Fascism is nothing more than watered down socialism, ie a "Third Way", which is still Collectivist ideology.

Anyway, we are at the head of a Huge inflationary period, where the Fed prints money, commodities steadily go up in price, and finished goods, which come from commodities, follow suit.

It's sheer madness, and only a good Leftist could think of such lunacy. But since Keynesians are in control of the academic halls of learning, Wall Street, and the bureaucracy, all these venues will have to be over-turned before sanity returns to the county's economy well-being.

In other words, Get Rid Of Them, by Hook, or By Crook. If this means taking them out to sea, and dumping them overboard, than so be it. They have to go first.
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#13
The market is doing well because corporate profits are improving.

Nothing weird about it.

The problem isn't the market,it is that corporate profits have rebounded,but,they have failed to re hire workers at all.

Generally,it happens almost simultaneously,this time the corps are staying put with what they have so far.

BTW,concerning Pixie's comment. Most investors don't care about government policies anymore.

Back during FDR's days,when the state would raise top end rates,it really harmed the wealth creation of our wealthy genre and thus the economy.

Not anymore. Wealth has made it's way into both parties,neither party will harm corporations,for evidence note Obama is rapidly giving waivers to large corporations on ObamaCare and if need be they'll raise taxes from us and transfer it to them.

That's what cap&trade is all about. ObamaCare takes from us way more than corps for example. Our monthly rates go up,not the profits go down.

So,investors know this anymore,politics doesn't change their investment view so much,corporations will do well with either party at the expense always of small businesses and the regular Joe's. They all feed at the same trough.
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#14
Palladin Wrote:The market is doing well because corporate profits are improving.

Nothing weird about it.

The problem isn't the market,it is that corporate profits have rebounded,but,they have failed to re hire workers at all.

Generally,it happens almost simultaneously,this time the corps are staying put with what they have so far.

This is what I'm trying to say. Large firms are performing well with trimmed labor costs. Worker productivity is up and firms are keeping up with consumers even with smaller payrolls.

All of this talk about markets responding to this or that - well that is usually good for short run bumps or dips. This is something different. This is a trend.
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#15
John L Wrote:Anyway, we are at the head of a Huge inflationary period, where the Fed prints money, commodities steadily go up in price, and finished goods, which come from commodities, follow suit.
Returning tax rates to 1990's levels as Obama intends would reduce inflation and restore stability.

Quote:It's sheer madness, and only a good Leftist could think of such lunacy. But since Keynesians are in control of the academic halls of learning, Wall Street, and the bureaucracy, all these venues will have to be over-turned before sanity returns to the county's economy well-being.
Only Keynesians present a viable solution to these crises! Public spending is necessary in this situation to prevent unemployment from escalating. The private sector is not generating jobs, so naturally the government must intervene. Considering how many desperate people depend on the government, your hostility towards Keynesian policy seems irresponsible.
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#16
Gommi Wrote:
John L Wrote:Anyway, we are at the head of a Huge inflationary period, where the Fed prints money, commodities steadily go up in price, and finished goods, which come from commodities, follow suit.
Returning tax rates to 1990's levels as Obama intends would reduce inflation and restore stability.

Quote:It's sheer madness, and only a good Leftist could think of such lunacy. But since Keynesians are in control of the academic halls of learning, Wall Street, and the bureaucracy, all these venues will have to be over-turned before sanity returns to the county's economy well-being.
Only Keynesians present a viable solution to these crises! Public spending is necessary in this situation to prevent unemployment from escalating. The private sector is not generating jobs, so naturally the government must intervene. Considering how many desperate people depend on the government, your hostility towards Keynesian policy seems irresponsible.

First of all restoring higher taxes will not keep down inflation. You are trying to mix a monetary problem with fiscal punishment. The Fed is printing money and it is irresponsible. Typical Keynesian thinking.

Now, for someone who knows so little about economics, you are obviously drinking the Kool-Aid that is being dispensed by the Left, in order to bolster their propensity of "tax and spend". It never works.

The only way we are going to get back to any sanity is to return to Classical Economic thinking. Time to bring back Says Law, and turn all this 'demand side' thinking around.
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#17
Gommi Wrote:[quote="John L"]
Only Keynesians present a viable solution to these crises! Public spending is necessary in this situation to prevent unemployment from escalating. The private sector is not generating jobs, so naturally the government must intervene. Considering how many desperate people depend on the government, your hostility towards Keynesian policy seems irresponsible.
exactly. taxes must rise above 1990's levels because profits are rising, but the private sector does not come up to its responsibilities towards the society by creating work and sharing wealth. therefore, force them to contribute a fair share by taxes.
"You know, Paul, Reagan proved that deficits don't matter." Dick Cheney
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#18
Gommi Wrote:
John L Wrote:Anyway, we are at the head of a Huge inflationary period, where the Fed prints money, commodities steadily go up in price, and finished goods, which come from commodities, follow suit.
Returning tax rates to 1990's levels as Obama intends would reduce inflation and restore stability.

Quote:It's sheer madness, and only a good Leftist could think of such lunacy. But since Keynesians are in control of the academic halls of learning, Wall Street, and the bureaucracy, all these venues will have to be over-turned before sanity returns to the county's economy well-being.
Only Keynesians present a viable solution to these crises! Public spending is necessary in this situation to prevent unemployment from escalating. The private sector is not generating jobs, so naturally the government must intervene. Considering how many desperate people depend on the government, your hostility towards Keynesian policy seems irresponsible.

In Keynesian theory, raising taxes only helps keep down inflation if the collector of said taxes keeps the money out of the system. In other words, the government would have to refrain from spending it - very unlikely.

But if you forgetting that there are two causes of price inflation - one is demand related, the other is supply related. Push tax rates higher on firms, and you could inadvertantly cause cost-push inflation while trying to reduce demand-pull inflation.

All of this being said, the price inflation that is likely to occur in the future would be the product of monetary inflation. The Fed has pumped a lot money into the banking system by buying a bunch of financial instruments that it might not be able to sell back to the public. I'm afraid the Fed might have tied its hands a little.
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#19
Amadillo Wrote:There is some speculation that the Fed is manipulating the market by buying up stock futures.
No that's BS. Or wishfull thinking, it depends.

Brooklyn Wrote:In Keynesian theory, raising taxes only helps keep down inflation if the collector of said taxes keeps the money out of the system. In other words, the government would have to refrain from spending it
Exactely. But the goal is never to do so, the goal of taxes is to redistribute, which creates inflation.
The more taxes, the more inflations if the money is re-spent. Because more taxes means also that thinks cost more.

About the stosk market,
As Palladin said, it recovers because corporate profits recover and this was partly unexpected.
The fact that a lot of poeple are not re-employed is because industries have adapted to this situation and are able to make profits in this environement.

There are 4 trillions at banks and at corporations, waiting to be invested. Somehow jobs will have to be created with this money but they didn't figured out yet what jobs to create.
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#20
Nor do they know how much these jobs will cost them in terms of health insurance. Further, they have no idea how much more in taxes they will be paying next year.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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