- Written by Duncan
Stocks continue to dive on news of the latest job growth report from the Department of Labor. It reports that the jobs are not coming back as expected, and in fact if you take out census hiring, there was no job growth at all. Private sector hiring has practically dried up. The economic crisis in Europe continues to push the Euro into a decline of biblcal proportions on concerns about fiscal troubles. All this has lead to an increase in the rate of suicides by investors.
All over Europe, there are debt problems, such as in Spain, Portugal and Greece, and now Hungary after its government telegraphed worrying signals about its finances. These days if you are running a small to mid sized country in Europe, you can expect to be in trouble soon. Even if your own country is doing ok, the fact that all european countries are economically linked to neighbors via trade and a common currency means that you cannot survive alone.
"It is like that 70's video game frogger, except they keep removing the logs and there is no more room left," said Wolfgang Schäuble, German finance minister. "I just wish that the economy wasn't so bad, and everyone could just go back to work."
Even if you don't play the classic video game, you can understand the frustration going on in Europe. It seems like countries are locked in a death spiral that could end with a global economic meltdown. Imagine you're sky diving and your friend's parachute is not working. He grabs hold of you in an attempt to save himself, but pulls you towards your death too. Then you grab hold of another friend, and so on. You have a whole bunch of parachutists plummeting to their death, all panicing and trying to help themselves at the expense of the whole group. Perhaps Europe needs to consider letting go of their common currency before it is too late!
The Labor Department’s monthly report showed that private sector job growth was considerably weaker than expected. President Obama said "There are going to be ups and downs." This is clearly one of the downs he was talking about. The May figures suggest a job market wheezing like a tired old man that has climbed up 5 floors of stairs, only to find that he has another 15 floors to go. At some point he has to wonder if it is worth even continuing, or maybe he should wait in the stair well and hope someone will come and rescue him?
Many economists expressed worry about the shape of a future constrained by a bad European economy and slow consumer spending in the United States. One economist suggested the shape was like an oval shape, but his collegues immediately denounced him as insane. However, there is a general feeling of hopelessness, that the only remaining jobs out there are as a census worker, and those are only temporary.
Meanwhile, many private investors are getting burned. Each month the economy hits a new low, and various stocks look like a bargain buy. Hoards of private investors who were sitting on the fence, sweep down and buy up these bargains, only to have the market drop even further the following month. With no end in sight, many investors have lost what little remained of their retirement nest eggs. They were hoping to ride the economy up as it recovered, and come out better than when it started.
But that seems like a pipe dream. With more publicly traded companies are filing for bankruptcy each month than any point in history, the value of their stock hits zero. Some lucky companies do a reverse stock split to keep from being delisted on the stock exchange. And don't even think about trying to sell your shares in BP, as the disaster in the Gulf of Mexico threatens to destroy not only the company, but all ocean life in the area.
So it is not uncommon to read in the obituaries, of increasing numbers of investors who have lost their shirts and decided that life was not worth living any more. The most popular form of suicide is with a firearm, which correlates with the increase in firearms licences in various states. Second most common form is some kind of poisoning, although death is not as certain as a bullet to the head.
If you are an investor sitting on the fence, the best approach is to sit it out for a while. Keep your portfolio in cash or something like gold, which continues to be a safe investment. If you are into options, consider buying a put or selling a call, which has the best chance of making money in a bear market. Have your gun ready, since options can multiply your gains or losses by a factor of about 10. At that rate, you can expect to be pulling the trigger even sooner.