By Michael Foster
If youaEURtmre like most people, youaEURtmre wondering one thing right now: can stocks keep soaring following DecemberaEURtms nosediveaEUR"even after spiking 8% in January?
The answer? Absolutely.
To get at why IaEURtmm so sure, weaEURtmll first go a couple steps further than headline-driven aEURoefirst-levelaEUR investors do. Then IaEURtmll give you a way you could double (or more) your rebound gains thanks to a terrific closed-end fund ( CEF ) yielding 7.2%aEUR"and aEURoespring loadedaEUR for 35% returns this year.
The Ignored Connection Between Jobs and Stocks
To get at whataEURtms in store for the markets in 2019, we have to go back to 2009 and zero in on one thing: jobs. Because the crisis back then triggered a lost decade that only ended in 2017, when the unemployment rate finally got back to pre-crisis levels.
Then something strange happenedaEUR"unemployment kept falling. In January, payroll data rose to one of the highest levels ever, blowing away even the rosiest estimates.
In such a job market, inflation seems like a sure thing. After all, when everyone who wants a job can get one and more jobs are created every day, employers will need to pay higher wages to keep the workers they have. And consumers will open their wallets, confident theyaEURtmll be earning more. But weaEURtmre not seeing that:
Inflation Defies Expectations
This has stumped many economists, because itaEURtms normally a given that lower unemployment stokes inflation. But thereaEURtms a simple explanation for whataEURtms happening today, and it comes back to folks who are unwillingly out of the workforce.
HereaEURtms what I mean: the government measures unemployment by looking at what percentage of people are in the labor force, then looking at what percentage of those people donaEURtmt have jobs. But people can choose to be in or out of the labor force at any given timeaEUR"and plenty of people have made an exit in the last decade:
US Workforce ShrinksaEUR"Till Now
For much of the 2010s, the unemployment rate wasnaEURtmt falling because more people were getting jobsaEUR"it was falling because more people gave up on getting jobs. But workforce numbers flat-lined since 2015 and began rising in late 2018. In short, Americans whoaEURtmd thrown up their hands are getting back in the game.
That means inflation could be a risk in the future, when all those who left the labor force have come back, but weaEURtmre a long way from that.
In sheer numbers, think of it this way: 66% of 306 million people were in the labor force in 2007. ThataEURtms 202 million men and women. WeaEURtmre now down to 63.2% of 327.16 million, or 206.8 million people. Another way to think about it: in the last 12 years, our labor force is up just 1.6% while our population is up 6.9%.
This is unsustainable: America needs more workers to keep up with its bigger population.
aEURoeA Rare Time When You Can Buy Stocks at a DiscountaEUR
This all means the market recovery will likely continue, because thereaEURtms too much demand for workersaEUR"and workers have too much money to spendaEUR"to cause a market hiccup. Better still, weaEURtmre at a rare time when you can buy stocks at a discountaEUR"and an even bigger discount is on the table for us, thanks to closed-end funds (CEFs) .
Let me explain.
CEFs slipped in 2018, only to start recovering in early 2019:
CEFs Tumble aEUR