By Kris Sayce, editor, Casey Daily Dispatch
The headlines say it all…
“U.S. job openings hit eight-month high, skills mismatch emerging” – Reuters
“Labor shortage in the United States becoming an increasingly dire issue” – Global Risk Insights
Oh dear. It’s not looking good. But there’s more…
“Construction worker shortage weighs on hot U.S. housing market” – Reuters
“The looming U.S. labor shortage” – MarketWatch
“America’s Growing Labor Shortage” – The Wall Street Journal
Trouble ahead, right? The economy and markets are doomed.
Not so fast.
Those headlines don’t tell the full story. Because there’s one thing we haven’t mentioned. We’ll explain more below…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our cast of in-house investing experts, Dave Forest and John Pangere. And from the founder of our business, Doug Casey.
Today, we continue to look for signs that this bull market will end… and just as important, the signs that don’t really mean anything… yet.
In our sights is one of the biggest stories of the year – the labor shortage. And whether it really does tell us anything about the direction of the economy and markets.
It’s the Same Old Story
Even if the headlines we listed at the top of today’s letter aren’t familiar to you, the message is. The U.S. is suffering from a big labor shortage, which means trouble for businesses, and trouble for the economy.
Your editor doesn’t have a crystal ball. So we can’t claim to have a perfect vision of the future. But what we can say is that investors should take scary headlines like those above with a proverbial grain of salt.
For a start, the headlines above are all from 2012-2017. There were many more like them during that time.
Yet, over the same timeframe, U.S. GDP grew from $16.2 trillion in 2012 to $19.5 trillion in 2017… to $21.4 trillion in 2019.
The S&P 500 grew from 1,258 at the beginning of 2012 to 2,251 at the beginning of 2017… to 3,234 at the end of 2019… just before the COVID-19 crash.
Yesterday, the S&P 500 closed at 4,701. And by the end of this year, Goldman Sachs expects U.S. GDP to be back roughly to where it was at the 2019 peak.
Now, none of this is to suggest that problems don’t happen. And we certainly don’t suggest you ignore major economic and market events.
But as we’ve noted in previous essays, it’s also important you don’t let news like this scare you out of the market. Because just as those news headlines littered the market from 2012-2017, they litter the market today, too.
Perfect Time for Dave’s Investing Mantra
Here, we’ll show you:
“If the labor shortage continues, the US economy won’t be able to recover” – CNN
“No end in sight for labor shortages as U.S. companies fight high costs” – Reuters
The important thing to remember is that today’s so-called labor shortage isn’t because the economy is running at full speed… or that everyone capable of working has a job.
One of the big reasons for the labor shortage is that many people are choosing not to work… or they’re being more selective… or they’ve benefited from federal and state unemployment assistance during the pandemic.
In the case of the latter, they haven’t needed to work.
But odds are that all these factors will change in the next few months as more Americans re-enter the workforce. We expect that to happen as the cost of living continues to rise.
Remember that the Federal Reserve has said it’s comfortable for inflation to stay above 2% for the foreseeable future.
That means you shouldn’t expect to see interest rates rise significantly, either. And as we know, two things move markets – earnings and interest rates.
So in short…
As long as folks gradually move back to the workforce (the civilian participation rate has increased from a pandemic low of 60.2% to 61.6% today. It was 63.3% before the pandemic)…
As long as companies continue to grow earnings (82% of S&P 500 companies have beat earnings estimates)…
And as long as interest rates stay relatively low (rates are up from the pandemic low, but are only just back to the bottom of the range from 2012-2019)…
Then we expect asset prices to continue to rise. That means, investors have no real choice other than to stay invested.
Look, we understand it can be a nervous time. Stock prices are at a record high. And so are many other asset prices.
But that’s why we always recommend investing in a way that gives you the best opportunity to maximize gains without taking unnecessary risks.
As colleague Dave Forest says, “Our mantra is unlimited upside, capped downside.”
In today’s market, where you may feel cautious or even a little scared, the “uncapped upside, limited downside” message is just about the best advice you can get.
And at Casey Research, we’ll continue to explore the best ideas to help you make the most of that advice, and to help you put Dave’s mantra into practice.
Editor, Casey Daily Dispatch
P.S. “Unlimited upside, capped downside” – if there were one type of investment that encapsulated that approach, it would be Dave’s favorite asset class – warrants.
It’s a subject we’ve covered in a lot of detail recently. But we know that a lot of investors still aren’t familiar with them. That’s why Dave and his team went to the effort of creating an entire warrants “training series.” Dave goes into detail explaining exactly how they work, the profit potential, and why you don’t need to risk a lot to take part.
It’s a terrific series. We recommend checking out how to access the series here, right now.