We've now officially started May. I've been predicting for a few weeks now that the next two weeks or so will see the end of this bear market rally. Actually, technically this rally has been over since about April 9th; as you can see on the chart below, since then the markets have moved mostly horizontally. You can also tell this from how the 15, 45 and 150 day moving averages are all converging to a single value around 875, the current S&P value. If this were a trace on a hospital display we'd be yelling "Flatline! I need a crash cart in here!"
We're being told these days that the worst is behind us, we're moving upwards now. At this instant, here's a list of headlines on Reuters news service:
UAW officials insist that in spite of owning a majority stake in Chrysler and being the single largest investor in GM (projected), they will still be uncompromised in their representation of workers and retirees, as the stock will actually be owned by UAW retirement trust funds, not directly by the UAW. Somehow I find this completely unconvincing, and I expect the executives at Ford do too.
US unemployment is now up to a record 13M and climbing. Interestingly, simultaneously there are a bit over 3M jobs unfilled. There is a terrific mismatch between unemployed people and available jobs. There are three major reasons for this: • few want to move right now as they can't sell their house. The Census Bureau reported on April 22 that the percentage of the population that moved last year was the lowest since record keeping began in 1948. Home-owners, the Census found, were only one-fifth as likely to move as renters. The result is pockets of persistently severe unemployment. • Secondly, most of the unfilled jobs are for people with degrees or advanced training: nurses, doctors, CPAs, lawyers (particularly bankruptcy), lab workers, engineers. Most of the unemployed have no such training. This foretells a major problem we're facing: as we slowly pull out of this recession, these low-skill people will remain substantially unemployable, and the unemployment statistics will remain stubbornly high for a long time, putting pressure on Obama to do something. At the same time a bidding war for the relatively few qualified employees will only feed inflation. • Finally, the increase in unemployment benefits and the unwillingness of people to move down the ladder a step or two means many jobs paying between $6.50 and $14 per hour go unfilled. In time, if we allow it, many of these jobs will be filled by illegal immigrants instead of citizens: $6.50 per hour is several steps up the ladder for them.
Children born into poverty in this country have a bit less than a 50% chance of graduating from high school, which gives them very poor job prospects. Unfortunately, as any teacher will tell you, the number one deciding factor in a child's education prospects is how his parents value education, and few people living in poverty are educated or drive their children to be educated.
Another major factor in education is a 75 year breeding experiment that has been ongoing in the US. Our college systems select for the best and brightest, and their students nearly always wind up marrying other college graduates. The result is that our population is becoming bifurcated into a group of the top 20% or so who are bright, well educated and well compensated, and another group in the bottom 60% or so who are dull, poorly educated, and have low wages and sporadic employment. The PC view in this country is that we're all the same under the skin and IQ is meaningless, so therefore the children with two low-wage undereducated parents need only access to the best books and teachers and they will all wind up going to Princeton. Unfortunately the statistics are clear and exactly the opposite: two parents with poor educations and low wages essentially never produce a good college prospect, no matter how much money you throw at their children. Meanwhile "No child left behind" in practice means "No child gets ahead." Our public schools are failing to educate our children born in poverty and are also failing to educate our top students.
The cherry on this little sundae is that we've cracked down on work visas given to foreign graduates of our colleges, so we're driving away precisely the people we need to fill the available jobs. Meanwhile, Washington continues to look for a chance to grant amnesty to the 13M or so illegals in this country, many of whom are illiterate even in their native tongue.