Oil Pushes Higher

Few numbers have been released with as much fanfare and anticipation as last Friday’s Nonfarm Payrolls number. Is it any wonder that the number was pretty good? Are we surprised that economists across the board are hailing the addition of 162,000 jobs in March as definitive evidence that the economic recovery is picking up steam?    

Employment increased at the fastest rate since March 2007. And it wasn’t all Census workers, either. Government hiring accounted for 39,000 workers. That means private companies hired 123,000 people.    

Employment numbers will continue to look good, as Census hiring will continue into June. But we’re going to need to see continued solid growth from private sector employment.    

According to Bloomberg, transportation and warehousing companies added 7,800. And healthcare and social services payrolls grew by 37,000.   

But hourly earnings fell. And the number of temporary workers grew. Also, the number of unemployed who have been looking for work for over 27 weeks grew to 44%.The report didn’t break these numbers down, but it would be reasonable to assume that many of the “long-term unemployed” are construction workers who have been unable to find work since the housing bubble burst.  

 Even with an economic rebound and improvement to the housing market, it’s going to be a long time before home construction gets anywhere close to 2004-2006 levels. Homebuilding at that time was supported by artificial “bubble” demand. It was a growth illusion that affected not only home construction, but also mortgage lending and the bond market.     

This is important to remember because it suggests that a reduction in the unemployment rate to pre-crisis levels can’t be achieved by a return to the pre-crisis economy. New jobs will have to come from new sectors of the economy.    

Bond yields were also up on the improved employment number. This will raise mortgage costs and give the housing market another headwind.   

That’s one of the difficulties of this improving economy. The Fed has been dong its level best to keep interest rates low. And it will certainly be loathe any raise in interest rates, at least for a few months as it gauges the effect of ending its mortgage-backed asset purchases.    

These purchases have been a major source of liquidity for the economy. It will take some time to see how the market reacts to their removal.    

Oil prices have been on an absolute tear over the last two weeks. Today, oil is pushing above $85 a barrel. And yet many investors still believe the move based in a relatively weak U.S. dollar and not fundamentals.    

We’ll see if they still believe as oil moves into the $90 level.    

The top-performing oil stock in the Energy World Profits portfolio is now sporting 79% gains. A double is right around the corner. We recently bought two other small Oil & Gas exploration companies that have 20%-30% gains coming in the near future as oil continues to move higher.    

I continue to believe that oil and energy stocks are among the best investments you can make for the short and long term.    

Finally, it looks as though China might actually bend to U.S. pressure to let the yuan move higher. If it happens, it would be a remarkable development, as China is not prone to acquiescing. In fact, it tends to get more stubborn in the face of political or economic pressure.    

If the yuan were allowed to strengthen, it would seem logical that the U.S. would weaken. But I can imagine a case where the dollar might actually strengthen on the assumption that U.S. exports would be more competitive and provide a bigger boost for the economy.