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Clif Droke

Clif Droke

Clif Droke is the editor of the two times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock…

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Where Will Job Growth Come From?

"Where will job growth in the U.S. come from" That's a question everyone is asking right now. After all, the current employment situation is one of the major hot-button issues right now, especially in the face of the presidential election and the unemployment level is of great concern to all. So how will all those lost jobs be restored and from sector are they likely to reappear?

Let's begin our examination of this question by agreeing on this: the U.S. economy's demise is NOT right around the corner. If that were the case we wouldn't have seen that spectacular across-the-board rise in asset prices beginning in 2003. That equities/commodities/real estate bull market was a response to humongous amounts of liquidity being pumped into the system. To see a similar phenomenon you'd have to go back to the 1930s just after the depths of the Great Depression. Then, as now, stocks and commodities rallied for almost six years before finally peaking. And even the though economy was still relatively depressed, by 1933 the worst of the Depression had ended and the economy slowly mounted a recovery heading into the 1940s.

Back then, the Fed was still in its infancy and hadn't yet fully learned the art and science of preventing an all-out economic collapse of the fiat-based monetary system. But that was then and this is now. The Fed has perfected the game of financial "musical chairs" almost to a science and they have tricks up their sleeves that we're not even aware of. But the massive amounts of money that have been injected into the financial system over the past year will assure an economic rebound in the coming 12-18 months. This in turn will mean a corresponding rebound in employment.

The economic naysayers contend that China and other overseas economies are in the driver's seat and hold all the cards when it comes to the U.S. economy, but let's not forget who built up these overseas economies: the United States! China in particular was allowed to emerge from poverty to a burgeoning industrial economy for the sole purpose of creating a new market for the U.S., as they manufacture industrial goods for us and we in turn provide services and concentrate mainly on technological development. If the U.S. economy collapses, then so too does the Chinese "economic miracle." Therefore there is a huge vested interest on the part of government, banking interests, and multinationals at making sure the U.S. economy stays afloat, and that means the employment situation will not be permitted to get way out of hand. What many fail to realize is that if the U.S. sinks, then so does the rest of the world, including the emerging economies.

Job growth in the U.S. in the next 1-2 years is likely to come mainly from the technology sector. This is what the charts say. Notice, for instance, the long-term chart of the NASDAQ Composite index below relative to its 10/20/30-month moving averages. That's a potentially bullish turnaround pattern with the 20-month MA about to cross above the 30-month MA. When this happens it will confirm that the tech sector is in the process of a major turnaround that will lift tech stock prices higher and allow the NASDAQ to retrace some of its losses from the past few years. This emerging turnaround is also reflective of a boom in the depressed technology broad market in the U.S. And this is where job growth will likely be focused in the next 1-2 years.

Remember those heady days of the late 1990s when Internet start-ups were everywhere and tech companies ruled the market? Northern Virginia came up as the "Silicon Valley of the East" with dozens of big, modern glass buildings coming up seemingly overnight. By the time the building was completed the NASDAQ market had peaked and the infamous "tech wreck" was underway, leaving soaring vacancy rates among these buildings and of course throwing untold numbers of tech and Internet companies into bankruptcy. This is really where the jobs loss trend began (although often ignored by pundits).

The 2003 broad market rally was described by the financial press as the "jobless recovery," but what they failed to see is that the market always precedes a turnaround in the job numbers by as much as 12-18 months. And even though the current employment figures still don't show any major improvement (though some minor improvement is already being seen), the market is absolutely certain that jobs will reappear at some point in the foreseeable future. You can count on it!

Many gold bugs like to hang their hats on the jobless situation in making the case for a higher gold price in the coming years. But what they fail to consider is that if there are no jobs and the economy slips into depression, then there is no basis for a gold bull market since no one can afford to buy gold. The fact that gold, along with other commodities, has risen in price these past two years is mainly a response to the growth of the emerging economies, as well as an increase in commercial and speculative demand, and these factors are predicated on an overall buoyant economic environment. Without the world's chief economic engine -- the United States -- there is no basis for a long-term bull market in commodities. Gold bulls who argue for "economic collapse now!" are unwittingly putting the knife to the throat of their own bullish scenario for gold. Without general and continued strength in the economy (global and domestic), there is absolutely no basis for a continued long-term bull market in gold prices.

The gold market responds to inflation in the money supply, making it easy for everyone who wants it to be able to purchase gold. This is another reason why jobs growth will be forthcoming in the next 1-2 years: an accommodative monetary policy on the part of the Fed. This easy money policy will ensure that economic growth continues unabated over the next few years, and this will be a major catalyst for business expansion and growth. To quote my colleague Donald Rowe, editor of the Wall Street Digest, "This will be very favorable for the creation of new wealth and for bringing the economy to top-speed performance. Employment will strengthen in this environment as more workers, brought back to wages and more jobs now outsourced to foreign workers, return to the United States to help fuel our economic growth."

The fears currently being expressed over the failure of the jobless rate to recover are completely overblown in my opinion. In fact, this is just the type of "wall of worry" the market needs to keep climbing higher in the next few years. And a rising market can only mean one thing -- economic recovery and jobs growth will eventually follow, just like they always do.

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