Stocks were slightly lower last week as the troubles in Europe, Asia (Japan & North Korea) dovetailed with a really lousy employment report here at home on Friday.
As the charts above illustrate the Dow Jones Industrial Average was flat due to the defensive nature of many of its components, while the growth oriented NASDAQ Composite fell nearly 2% as unrealistic estimates of global growth are being reined in.
The Markets & Economy
Somehow the pundits, every spring for the fourth year in a row, have convinced themselves that the economy really is this time on its way back to “normal”. Each year including 2013 this has turned out to be incorrect. The excitement then is replaced by disappointment and bewilderment as the rosy economic view just doesn’t pan out.
The problem is most likely in faulty seasonal adjustments and in the non-stop attempts by the financial and national media to cheerlead an economy which is barely growing – even with the stimulus of trillion dollar deficits and near-zero percent borrowing costs for government and corporations.
As we have discussed many times, this has proven wonderful for stock investors, but not so much if you are looking for a job in this Country or elsewhere in the world where the news is much grimmer.
For our part, the report last Friday that the economy created just 88 thousand non-farm payroll jobs was a real wake-up call. The unemployment rate of 7.6% fell as once again the number of people looking for a job decreased with the participation rate falling to the levels of the Carter era. This decline in the participation rate, if simply adjusted to more normal historical levels, actually shows a much worse unemployment picture (see graph below). Today’s rate would be approaching 12% if people were counted statistically as they have been in the past.
Even worse, this morning there is a scathing article in the Wall Street Journal describing the dimensions of the problem our federal government is facing by the growing rolls of people on disability (see chart below).
The number of people now on disability is nine million or 5.4% of the civilian labor force between the ages of 25 and 64. The cost is now above 210 billion dollars to the federal government and rising. Importantly, the article points out that once into the program few people leave.
This is just one very expensive place where people are hiding out while the economy creates few opportunities. The dependency/addiction to federal money is blight upon our society. When you add in the 48 million people on food stamps, and the number collecting 99 weeks of unemployment benefits, you can see that our economy simply cannot grow with rising percentages of the population no longer producing.
While the Obama administration can continue to push for tax increases on the few, the evidence is piling up that this does not create a growing economy. Accordingly, do not expect the economy to improve dramatically in 2013. In fact, I believe that the first quarter will be the best quarter of reported GDP growth.
What to Expect This Week
Most pundits believe last month’s numbers were an aberration. This view will change over time. The latest from the Economic Cycle Research Institute continues to show a rolling over in progress. No boom and no collapse (see chart below).
Earnings season for the first quarter will begin today and I expect pretty good numbers, but we shall see what guidance looks like.
Quite a bit of economic news is due this week as well, but when all is said and done the slowdown will persist into the second quarter and stocks will be sensitive to reduced growth expectations.
Finally, it is worth noting that for investors this news is not bad. Gone is the talk of just one week ago of when the Fed might change policy. That was a pipe dream. In place of it, just look at the Bank of Japan which now has a formally announced policy of depreciating its currency (auto makers beware) and printing money with abandon. Thus fiat money will be put into circulation and it will need a home. US stocks and other assets are looking like a good bet in this environment.
SYMBOL: BIIB
Shares of Biogen Idec have been trading higher since Tecfidera was approved by the FDA. This is the first easy-to-take pill for multiple sclerosis, and the research data has been very encouraging for patients. The drug is recommended to be taken twice a day by patients, and it should be available within the next several days.
As we have stated before, this drug has driven the share price higher over the past couple of years, and this approval validates the drug’s efficiency. Wall Street expects the Company will reach $3.25 billion in annual sales for this drug by 2017. Also we look for the drug to take at least 20 percent of market share by the end of this year. Data also shows Tecfidera will reduce the patients annual relapse rate by 50 percent when taken twice a day.
Biogen has been one of the best performing stocks in the S&P 500, and we expect the positive trend to continue. The Company still has a strong backlog of new drugs, and we believe investors will start to show more interest in the name. Biogen is not sensitive to economic conditions so sales should explode throughout the course of the year. We are raising our price target to $250 within the next 18 months.
Three-Month Chart
SYMBOL: BA
On Friday Boeing concluded its test flights for the 787, and by all accounts the trip was a positive. The battery issues that we have talked about earlier seem to be behind the Company. We look for the aircraft to be back in the air within the next few weeks. Also, we expect more orders to be hitting the tape shortly.
This encouraging news has fueled the share price over the past two weeks, and Boeing is currently trading at 52-week highs. We believe the news of the 787 will continue to improve, and expect shipments to resume in the near future. Not one airline has cancelled orders for the 787, which shows how important this plane is to the future of their business. We look for the positive momentum to continue, which should push the shares to $100 by the end of this year.
Three-Month Chart
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