Wednesday, February 17, 2010

The Nov Jobs report, Dec 11, 2009


A reporter interviewing A.J. Muste, who during the Vietnam War stood in front of the White House night after night with a candle, one rainy night asked,Mr. Muste, do you really think you are going to change the policies of this country by standing out here alone at night with a candle? Muste replied, Oh, I don't do it to change the country, I do it so the country won't change me. - Andrea Ayvazian

The Government's report appears to be suspect. Jim Rogers openly states that all government statistics are blatant lies.  Our belief is that the numbers are manipulated but the degree and depth of the manipulation is increasingly and becoming more open.

ADP conducts are much broader based and more in-depth survey and this survey is based on hard facts. They reported private pay roll losses of 169,000 for November.  The monster Job employment index which measures on line job demand also dropped. These two reports completely dispute the sudden drop in unemployment from 10.2 to 10% and also make one question the government’s claims that only 11,000 jobs were shed in Nov.  To make matters worse, the government revised the Oct numbers to 111,000 from 190,000 and September’s numbers were revised to 139,000 from 219,000.   Why did it take them almost 3 months to get the facts straight and then how could they be off by such a wide margin?  Something is not quite right.   Now economists are using these readjusted numbers to paint a rosier picture.

If one examines the number of long term unemployed individuals one finds that their numbers are growing. This number grew by 293,000 pushing the total to over 6 million.  Anyone looking for a job for over 27 weeks or more falls under this category.  According to the New York Times, the unofficial employment rate is 17.5%

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982. This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time. Full Story

A jobless recovery is not one that is sustainable, especially if the stimulus for that recovery was based on borrowed dollars. It would have been okay if the government was running a massive surplus like China and then used its surplus to stimulate a recovery.  Making matters worse is that this money was used to bail out the same institutions that caused this problem in the 1st place. In China this money has been deployed to build new roads, bridges, etc.; essentially, the money is being used to build up China’s infrastructure, and at the same time it provides thousands of jobs. China wins on both fronts while we sink deeper into the hole.

ADP and the monster Job employment index are based on hard numbers. These numbers are not fudged. ADP is the largest Pay roll company in the US and Monster is the largest on-line employment agency.   Markets are rallying higher on these dubious numbers. Traders have to be very cautious going forward for as we have repeatedly stated all is not well here. There are so many warning signs in the air and just because the markets are not pulling back immediately does not mean the long term outlook is positive. To put things into perspective, it has been estimated that, even if the economy added between 125,000 to 150,000 jobs a month, unemployment rate would most likely remain above 10% until about 2015.  Note we were very bullish on the markets when everyone was bearish and issued targets of 10,500 on the Dow back in Feb 09, almost a month before the markets bottomed, when all the experts were predicting that the Dow was going to crash and burn.  Now that everyone is jumping on the bandwagon, we feel that at the very least individuals should start taking money of the table and wait for a pullback before opening up new positions. 

Once the news starts to get better the focus will be on whether the Feds are going to raise interest rates or not.  Thus believe it or not a string of good news could actually be the event that throws a monkey wrench into this rally.  The markets have climbed a wall or worry so far, and thus they are not too far from the “plunging down a cliff of Joy" syndrome. 

Unlike the precious metal's sector which has actually been driven up, for the most part, by higher demand, the Dow has put in 11 new highs on mediocre to terrible volume. If all was well, the volume should have been surging to new highs too. Instead the opposite has occurred; during the first phase of the move (6469 to roughly 9000), the markets closed in the black on several occasions on volume of over 9 billion shares. The Dow has put in 11 new highs and 13 new intra day highs and not once has the volume surged past the 7 billion mark. We think this is a very telling sign indeed.  While a very strong pull back (if it were to occur) in precious metals and the commodities sector in general can be viewed as a very good long term buying opportunity, the same case could not be made for the Dow and for stocks that are not part of the commodities sector.

If one looks at the 30 year bond yield one will notice that it has been rising, even thought the Fed has kept short term rates at close to zero percent. The Feds do not have the power to determine long term rates; long term rates are determined by the markets. A rising rate environment generally favours commodities, and in the long run at the rate this government is printing money, hyperinflation could indeed become a reality.  An inflationary environment is very bullish for commodities, so one can only imagine the huge upward price swings this sector will experience in a hyperinflationary environment.  

None of this info is being provided to generate fear. Fear is a useless emotion that prevents one from analysing the info in a logical manner; an informed investor is usually a prepared investor. 

In seeking wisdom thou art wise; in imagining that thou hast attained it, thou art a fool. - Rabbi Ben Azai

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