The Job Numbers Report, Making Money Off It

By Michael Lombardi, MBA

While all eyes this morning will be on the U.S. employment numbers, investors are looking at the wrong job numbers. It’s common sense that, as the U.S. economy improves and as U.S. corporations improve earnings, there will be more hires. It’s also a fact that the job numbers are skewed, because so many Americans have given up looking for work.

In my years of analyzing the economy, I’ve never found a way for investors to make money from the ups or down of the unemployment numbers. Sure, these numbers can help us see if the economy is improving or deteriorating, but how do you make money from them?

I don’t think we can make money from the U.S. job numbers report, but we can make money form the job numbers report of another country.

As we all know, several euro countries experienced credit and debt problems last year. This led to a drop in the value of the euro, a corresponding rise in the value of the U.S. dollar and the recent opportunity provided to investors in the gold market.

I have long been a fan of the Canadian dollar and I have often written how Americans can make money off the rise in the value of the Canadian dollar vs. the American dollar. This morning, while the world was fixated, waiting for the U.S. unemployment numbers to be released, Statistics Canada reported that the jobless rate in Canada at the end of 2010 came in at 7.6%.

In 2010, the Canadian economy added 368,500 jobs. In 2010, Canada recouped all the jobs lost during the recession of 2009! What other Western country has pulled off this feat? Only Canada.

The Canadian S&P/TSX Composite ended 2010 with its biggest two-year advance since 1980. In fact, the S&P/TSX Composite is up 50% in the period from January 1, 2009, to December 31, 2010.

And the Canadian dollar has rallied against the greenback. In January of 2009, it took $1.27 Canadian to buy $1.00 American. Today, the Canadian dollar is worth more than the U.S. dollar. It takes $1.01 American this morning to buy $1.00 Canadian. Only the Bank of Canada had the courage to raise interest rates twice in 2010.

As the U.S. dollar continues to weaken, saddled with the ever-increasing debt backing the greenback, the Canadian dollar will continue to shine. For the past three to four years, I’ve been urging American investors to buy U.S. stocks on Canadian stock exchanges so that they may also enjoy the currency appreciation of the Canadian dollar. This will continue to be a great strategy for investors in 2011.

Michael’s Personal Notes:

The perfect storm could be brewing for the economy and the stock market and I want my readers to tread carefully in the first few months of 2011.

According to an analyst earnings consensus report compiled by Bloomberg, the S&P 500 stocks saw their earnings grow 20% in the last quarter of 2010. If this estimate proves correct, S&P 500 companies are about to report their best fourth-quarter earnings results in about 10 years.

I believe that the sharp rise in corporate earnings has long been discounted by the stock market. In fact, that’s what the bear market rally since March of 2009 has all been about: the stock market reacting to higher future corporate earnings.

In 2011, the scenario is much different. Those that were bearish on stocks in 2009 and 2010 are now turning bullish (remember, the stock market always delivers the opposite of what is expected of it), interest rates will rise this year, and companies will face higher costs.

The bottom line is that we will not see a jump in corporate earnings in 2011 like we did on 2010. The easy money in the stock market has already been made.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this final trading day of the first week of 2011 up 1.03% for the year. I’m of the opinion that the bear market rally that started on March 9, 2009, is still alive and well and some more immediate-term gains are possible from the market.

However, on Wednesday, I flashed a “caution” short-term signal for the market, as our sentiment indicators show too many investors and advisors turning bullish on the stock market—which is negative for stocks. Interest rates have also been rising with the bellwether 10-year U.S. Treasury yielding 3.4% this morning. In October of 2010, the 10-year Treasury was yielding 2.4%, a 41% jump in long-term yields in less than four months despite what the Fed is doing with QE2!

Immediate-term stocks could move higher, but I’m turning bearish on the short to medium term for stocks.

What He Said:

“Many of today’s consumers have purchased properties with very little down payment. They’ve been enticed by nothing-down, interest-only, second and third mortgages. Bottom line: the lower-interest-rate environment sucked consumers into the housing market big-time. And that will eventually cause us all problems.” Michael Lombardi in PROFIT CONFIDENTIAL, June 22, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

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