Everyone makes everything too complicated (including me!).
However, when it comes to the stock market — given that everything can be great guns one moment, then absolute doom the next — I like to keep a few big levers in mind for sanity purposes.
For anyone reading my blog, you know I think the price of oil is the mother of all levers.
I used to think unemployment was pretty important, too.
But now I’m not so sure.
It certainly seems reasonable to think fewer employed means less spending.
But, then, why are corporate revenues up?
I mean, I can understand why corporate profits are up… most people would say it had to do with the belt-tightening of the last few years… that is, the very thing that has contributed to the large unemployment rate.
But, maybe "cutting the fat" — cutting out the least productive and contributing employees, which reduces expenses and increases profits — means corporations can better take care of their other 95% of employees that still have their jobs.
I think this may get overlooked in unemployment discussions: The vast majority of folks still have jobs… and are now working for even stronger companies.
And, as we know, a well-cared for (well paid?) employee usually continues spending.
Indeed, this is why I’m so obsessed that oil behaves itself. Unemployment hasn’t stopped revenue growth… but we know higher oil prices — which translates into higher prices for absolutely everything we buy — did.
Said another way: If you asked 20 people what they would rather have happen: The least competent among you will be terminated — a 1-in-20 (5%) layoff (or the equivalent of the U.S. going from 5 to 10% unemployment) — OR, you can save that person’s job by agreeing that the price of everything you buy will go up just like in early 2009…
… almost everyone — except for the bottom 2-3 employees that know they don’t really pull their weight — would say, "I don’t want $5 gas or $5 milk or $5 potato chips again! I’m willing to take a 1 in 20 chance that I’m not the least competent person in the room."
That’s why — in general and anecdotally — unemployment going from 5 to 10% doesn’t hurt anywhere nearly as bad as the price of oil spiking.
The corporate earnings — and revenue growth — we’re seeing now… vs. earnings and revenues plummeting in late 2008/early 2009… are the proof.
Always the take-away: As long as oil behaves itself, things should keep stepping along.
UPDATE: James Althucher of Formula Capital just did a Tech Ticker piece stating personal consumer expenditures were at an all-time high… and household debt obligations down to 1995 levels… so his belief is — despite unemployment — people still have money to spend. In fact, he goes on to say most recoveries are jobless recoveries.
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