Street Capitalist: Event Driven Value Investments

Last week we saw the release of the employment numbers, on a month over month basis, they exceeded expectations and the market exhibited jubilation. However, when we alter this data, to go from month-to-month, to YoY, we see a different trend. One of the reasons that I prefer YoY is that it reduces the noise, these numbers are often heavily revised and seasonality tends to influence the numbers. When we look YoY, seasonality and noise is reduced, we can see a longer term trend of where things are going.

Here’s the employment numbers, graphed YoY:

What’s interesting to not here is that the numbers are trending downward. This is extremely important! Employment is what fuels the checks of Americans, allowing them to go into our economy and spend their money. A reduction in employment leads to a reduction in personal consumption. I’ve addressed my long term views on consumption before, that I believe it will decline to a positive but sub-par level. The same seems to be happening with employment, which should give us slower growth in the economy.

We also saw the release of the import price data yesterday. These continued to display one of my older beliefs, that inflationary problems in China would carry over to the US. Again, import prices from China rose(YoY 1.6%), but as a whole import prices rose.

Below is the graph, YoY:

Overall, it’s my view that we’re going to see a slower economy than what we had last year. Some people are saying that the credit market problems are over, but if you read the Wall Street Journal’s story The United States of Subprime, you might decide that there’s still room for trouble.

Trades

The CAD/USD is at a record high right now, having only touched this level 30 years ago in 1976 (Coincidentially, Canadian unemployment has fallen to a record level of 5.9%, its lowest since 1979). One of the issues with Canada is that the CAD is driven based on the movements of commodities and the US economy. The negativity towards the US pushed oil to record levels, which seems to have propelled the CAD upward as well. At the same time though, we’re also seeing positive news releases for the US economy (although long-term these do not seem to be the case) which also fuels the CAD’s bullish move since a positive US economy would be able to consume more Canadian goods. Canada’s economy is strong, commodities still have some room to grow over the long term, and the United States’ demand for Canadian exports should remain stable over the next year. This makes me feel like the CAD/USD still has room to rise.