Based on the moving average, today's age 25-54 cohort would require 2.9 million additional people in the labor force to match its interim peak participation rate in 2008 and 4.2 million to match the peak rate around the turn of the century. This is unchanged from the previous month.
Why are so many more labor force participants needed for a complete LFPR recovery? When the economy is moving at full speed, as in the late 1990s, jobs are abundant, which encourages the population on the workforce sidelines to join the ranks of the employed. Today's economy doesn't offer that sort of encouragement.DYI Comments: Stocks are highly correlated to prosperity, however as the chart above depicts has been anything close to prosperity. What happened? 1.) Central bank intervention. 2.) Geopolitics control of oil prices. 3.) Demographic induced savings.
Central bank intervention: The Fed's along with the major central banks have flooded the world with excess reserves to deal with the world wide down turn of 2008/2009 driving down interest rates to sub atomic low levels. The chase is on for yield, so much so market participants are willing to borrow heavily to purchase stocks or bonds at a higher yield. The amount of margin debt is sky high.
Geopolitics control of oil prices. In a nut shell Saudi Arabia became tired of their member nations who were always cheating on their quotas and to deal with American fracking. The Saudis have decided to pump oil at maximum rate driving down the price in order to increase their market share from the other OPEC members(and none members as well) and at the same time put the U.S. fracker's out of business(at least for a few years).
The U.S. State Department became the Saudis cheerleaders as an opportunity to play brinkmanship with Russia in their decades long pursuit of shattering this huge country by two thirds allowing western nations through their multinationals to extract her natural resources as the spoils of economic warfare.
So.....
When the price of oil drops this acts as a tax deduction through western societies plus their respective central banks will be very aggressive without causing consumer goods/services price inflation. To put it simply: The reflation trade for assets is on(stocks, bonds, real estate).
Demographic induced savings: There are approximately 120 million Boomers of 1st world countries and for those who are able to save/invest are aggressively saving large percentage portions of their paychecks. This is NOT greed it is DESPERATION as the majority are underfunded for retirement. The kids are out of the house and in many cases out of college(along with the tuition bills) so they can and will save. Typical savings rates of 25% to 40% is normal for this group. Again for those who can save. This has the effect of dropping interest rates combined with central bank intervention, you end up with sub atomic low rates.
Conclusion: This is why the U.S. market has soared despite any real move towards prosperity. These three conditions of rate intervention, oil prices, and savings are not forever but will be transitory. In the end Mr. Market will have his due relining asset valuation with the real level of U.S. economic performance.
DYI's expectations is a 45% to 60% drop in this market. With valuations at these lofty levels a drop of that magnitude would be "run of the mill" "garden variety" drop. The question of course is when? We all know, is that we don't know.
While everyone else is losing their heads don't go and lose yours.
THE GREAT WAIT CONTINUES
Updated Monthly
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 12/1/15
DYI
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