Most articles I read in 2011 were talking about a possible bear market and how volatility will make investors go crazy. At least, they were right about one thing; volatility is making people crazy š. However, these are articles are terribly wrong when they predict the apocalypse. I know that catastrophe sells more than being right but stillā¦ sometimes I wonder what people look at before publishing their articles.
Bearish Vs Bullish
So are you bearish or bullish? No wait! donāt answer right awayā¦ just wait until you read the following. Do you remember when your mom used to come in your bedroom at night because you were frightened to death because the Boogeyman was hiding in your closet or under your bed?
Do you remember what she used to do when she found you drenched in sweat and scared like hell?
She was probably doing the same thing as mine: Turn on the light, open the door and LOOK AT FACTS
There were no monsters in your closet ready to jump on you to eat you aliveā¦ and there are no bear markets coming to eat your investments either!
Newspapers are entertaining but the facts remain
If you are wondering where to look for an economic recovery, there are 5 indicators that will lead you to the answer. Thank God, these indicators are relatively easy to find and are published on a monthly basis most of the time. Iām going to review them with you and show you that we are heading toward a bull market (I know, Iām a bit stubborn sometimes).
Employment Creation
If you want to know if the economy is heading in the right direction, the very first thing to look at is the employment status in your country. While we are far from an ideal situation, we can see that there is an interesting trend since we went from 57,000 jobs created in August to 200,000 in December:
The more jobs created, the more people will work, earn money andā¦ spend!
Unemployment Claims
While creating jobs, you better not lay off others at the same time, right? So the second indicator to follow is the number of applications for unemployment. While the results from the first week of January wasnāt too great (399,000 claims), we see a trend of staying under 400,000 since November. The 4 week moving average is now down to 382,000. Considering that unemployment claims are historically higher during the Holidays, we should see lower numbers by the end of January.
Unemployment Rate
Great news is to see the unemployment rate moving down since August. We finally cracked the psychological mark of 9% in November to show even lower numbers in December (8.5%). We still have to take into consideration that there is always a āhiddenā number of people that have quit searching for jobs and are not part of the unemployment rate calculation. However, this data combined with job creation on the rise and the applications for unemployment decreasing, we can see that we are heading in the right direction:
New Housing Construction
Prior to the 2007-2008 crisis, the number of new home construction starts were at a record level of 2,000,000 per month. Yup, you read it right: 2M new houses every month were started in the US. This number had dropped dramatically in 2008 and it is slowly going back up. To have a āhealthyā market, we should have around 1,000,000 new constructions every month. We are now getting closer to this number with the month of December showing 685,000 new homes:
Consumption
If we have more employed people and more new houses, this obviously leads to more consumption. And this is exactly what we see in the market with an increase in the level of consumption from Q1 to Q2 (9,375G$ to 9,380G$). Here again, itās not an incredible increase but since all indicators are pointing in the same direction, I have a feeling that we will see a rise of the confidence of the stock market in 2012…
On top of thatā¦
Did you know that most companies are making more money than they were prior to 2008?
Did you know that most companies have more liquidity than they had prior to 2008?
Did you know that most companies havenāt reached their stock price prior to 2008?
For all those reasons, Iām bullliiiiisssshhhhh!!!!!
If you think like me, here are a few places where to find stock picking ideas
If you want to know which stocks are on an uptrend, INO is producing a top 50 trending stock list by using technical analysis. Check it out here!
Iāve also compiled the 2012 Best Dividend Stocks in a eBook (check it out here)
This book was based on 2 bigger lists:
Best US Dividend Stocks for 2012
Best Canadian Dividend Stocks for 2012
And you can also check out our Dividend Growth Index results.
Ā
And you, are you bullish or bearish this year?
Ken Faulkenberry
I’m bullish on quality dividend paying stocks because of low interest rates, great balance sheets, and demographics. I’m bearish on the general market because of high valuations, deflationary pressures, and unbelievalbe event risk (particularly Europe) in 2012. I just posted my long term view and analysis of risk this morning at:
http://blog.arborinvestmentplanner.com/2012/01/long-term-view-and-analyisis-of-risk-how-it-affects-your-2012-asset-allocation
Ken Faulkenberry
sorry
http://blog.arborinvestmentplanner.com/2012/01/long-term-view-and-analysis-of-risk-how-it-affects-your-2012-asset-allocation
retirebyforty
I’m bullish in the long term, but I think 2012 will be another tepid year. There are just too many problems all over the globe. There are still a lot of foreclosures in inventory as well right? I guess if new housing starts are looking better, then who knows…
Dan
Hey Mike,
You discuss consumerism but you mention debt to earnings and where they sit for the North American population. I know Canadian’s debt/earnings ratio is very poor and at some point we won’t be able to spend what we don’t have. Again, I haven’t read the reports detailing that figure in America but it certainly should be a big concern for investors going forward.
Cheers,
Dan
Mike
Hey Dan,
you are bringing a good point! The scary part for Canadians is that we have now a worse saving rate than Americans. Since 2008, Americans started to save more money in order to pay down their debts. Since Canadians weren’t not hit by a housing crash, they keep using their home as a ATM. This is why the Government restricted financing rules since then. Hopefully it will be enough to put Canadian on the right path!
PharmacistInvestor
Like you I am bullish on the market going forward and strongly considering leveraging into good dividend stocks with growth potential. That being said, it will be a slow and bumpy ride up over the next couple of years.
In terms of employment numbers, I would assume the Christmas holidays lead to that huge spike. Interesting to see what January numbers are in 2012 (and historically).