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 😉. However, these are articles are terribly wrong when they predict the apocalypse. I know that catastrophe sells more than being right but still… sometimes I wonder what people look at before publishing their articles.
Bearish Vs Bullish
So are you bearish or bullish? No wait! don’t answer right away… 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 alive… 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. I’m going to review them with you and show you that we are heading toward a bull market (I know, I’m a bit stubborn sometimes).
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 and… spend!
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 wasn’t 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.
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 “hidden” 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 “healthy” 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:
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, it’s 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 that…
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 haven’t reached their stock price prior to 2008?
For all those reasons, I’m bullliiiiisssshhhhh!!!!!
If you think like me, here are a few places where to find stock picking ideas
This book was based on 2 bigger lists:
And you can also check out our Dividend Growth Index results.
And you, are you bullish or bearish this year?