Worst Labor Force Participation Since 1979 Bolsters Low Vol ETF Appeal

 | Apr 07, 2013 12:34AM ET

I genuinely expected the primary media outlets to spin the 7.6% unemployment rate as cause for celebration. Instead, many finally chose to explain the reality behind employment in America; that is, the number of potential employees in the labor force is at 63.3% — the lowest percentage of workers in the workforce since 1979.

Psychologically, it may feel better to hear that the unemployment rate is at its lowest level in 4 years. However, when 500,000 Americans stop working, cease looking for employment and are no longer accounted for in the official data, the creation of a mere 88,000 jobs will distort the true picture. In fact, I cannot recall a greater disconnect between one unemployment stat that trumpets sterling success (i.e., U-2 at 7.6%) and another that reflects dismal deterioration (i.e., labor force participation at 63.3%).

Is the country really getting its collective act together? Has the jobs outlook brightened such that things are dramatically better than 4 years earlier… and trending in a positive direction? Or Is the employment picture the worst that it has been in nearly 34 years… and trending in a negative direction?

For weeks, I’ve been harping on the idea that investors should be raising cash and/or rotating to more defensive equities in non-cyclical segments. Examples include:

1. April 1, 2013. stop-limit loss orders on new purchases. Equally important, when you sell a high risk asset, you do not need to rotate immediately into a lower risk asset. You can wait in cash for corrective activity to give you the entry point that you desire.

For example, if you have sold your exposure in PowerShares NASDAQ QQQ Trust (QQQ), you do not need to immediately rotate into one of the many “faves” I have discussed. Unless you already have an ample cash buffer, it makes sense to wait for the desired asset to come to your price point, whether it is WisdomTree Equity Income (DHS), iShares U.S. Minimum Volatility (USMV) or GlobalX Super DIvidend (SDIV). The latter (SDIV) is near a 50-day support and could provide a reasonable entry point for those with cash on hand.