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Overview of Friday's Employment Report Results

ByCumberland Advisors
AuthorDavid Kotok
Published 03/09/2013, 11:46 PM
Updated 05/14/2017, 06:45 AM
IMOB
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Payroll data shows that the economy continues to recover. The pace of growth may be picking up, given the 200,000-plus non-farm payroll number.

As we have been saying for a long time, the power of zero-interest-rate policies takes effect slowly in stimulating a growing economy. However, that stimulative effect does accelerate and eventually becomes stronger.

At the same time, housing prices are now rising in over 40 states. (They were falling in over 40 states only four years ago.) We have been writing about positive wealth effects coming from a rising stock market. Each $100 of increased stock market value translates into approximately $1 of consumption. We have also noted that rising housing wealth has tripled the stimulative effect of rising stock prices. In the US a mere $100 in rising home values translates into approximately $3 of additional consumption.

That said, a 7.7 percent unemployment rate is still a long way from the Federal Reserve’s target of a 6 or 6.5 percent unemployment rate. And the inflation rate lingers below the Federal Reserve’s stated threshold. Given these realities, the Federal Reserve will remain on course: interest rates will remain low, and they will provide the second-derivative fuel of rising asset prices.

Zero interest rates worldwide are stimulative to rising asset prices (stocks, precious metals, collectibles, and real estate). In a relative sense anything can go up in price when the cost of money is zero.

We remain bullish. We have been fully invested throughout this stock market rally. FOR TODAY, we remain so. We want to emphasize to readers our use of the words “for today.”

BY David R. Kotok

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