Friday, December 5, 2008

Unemployment - The Good, The Bad & The Silver Lining?

Well, we anticipated a lousy unemployment number this morning and we got it. The new figures, released by the Labor Department, showed the employment market deteriorating faster than expected as we lost 533,000 non-farm positions. As a result, the unemployment rate increased from 6.5% to 6.7%. The number may seem alarming to some, but not to Mike Darda, Chief Economist of MKM Partners who made an appearance on CNBC's Fast Money yesterday. He expected the number to surpass 500,000 and was spot on. Kudos to Mike.

All is not lost though. Remember, bad news isn't permanent. Things will get better at some point. As a leading indicator, the capital markets will look ahead and price equities accordingly. Yes, you can make the argument things weren't expected to be this bad and maybe there is some more pain ahead. But, you can also make the case that a 40% decrease in the US Equity markets in 2008 has indeed factored in the current turmoil. Capital markets will show signs of life long before the economy turns.

As a Financial Advisor, I often walk a fine line between being proactive with clients in both a factual and informative manner. Being truthful is the best medicine and thus being forthright is always the 'high road'. Allowing clients emotions to enter the picture though can be complicated and cloud decision making process. Rational as opposed to emotional decisions should always prevail.

The monumental structural changes to our economy do have a silver lining though. In many regards, we're reverting back to how business should have been conducted in recent years. Toss in some common sense as well and we have the following:
  1. Don't borrow what you can't afford.
  2. Spending and saving should have boundaries (i.e. live within your means).
  3. New leadership has emerged in Washington.
  4. World leaders are working together.
  5. Valuations are getting very attractive (bonds/stocks/real estate & commodities).

Thus, all is not lost and some good will come from this debacle. When bad news gets a positive reaction from the stock market, we'll know good things are coming. Some of these silver linings are started to take hold and will shape a brighter future.

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