The Bespoke 50

bespokeinvest.com - Sat, 2012-03-17 15:14

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James Grant Says Bond Market Is "Bubble of Modern Banking, a Desert of Value; Gold a Reciprocal Faith in Bernanke"; Time for an "Office of Unintended Consequences?"

James Grant, publisher of Grant's Interest Rate Observer, talks about Federal Reserve monetary policy, the bond market and investment strategy. Grant, speaking with Deirdre Bolton on Bloomberg Television's "Money Moves," also discusses the Chinese economy.



Link if video does not play: Bond Market 'Desert of Value'

Select Interview Quotes

Grant: The Fed seem bent on suppressing this most elegant thing we have called a price mechanism, the movement of price that determines all manner of things in a market economy. Yet the Fed seems bound and determined to superimpose its will in place of the price mechanism. Take the bond market for example, the Fed has hammered down yields directly and indirectly and in response people are throwing money at things like high-yield or junk bonds. These are the prices the Fed wants, but are they the right prices? No not necessarily.

Deirdre Bolton: How is a bond investor to deal with this current environment? You are calling actually for a bear market in bonds, am I correct?.

Grant: I have forever. So I am no help there. But it seems to me a bond investor is almost better off in cash. If you were to go out 10 years in a US treasury security you earn yield of approximate 2%. To remain in cash and be flexible you sacrifice those 2%. The bond market is a desert of value.

Deirdre Bolton: What does this mean for gold?

Grant: The price of gold is the reciprocal of the world's faith in the deeds and words of the likes of Ben Bernanke. The world over, central banks are printing money as it has never been printed before. The European Central Bank has increased the size of its balance sheet  at the annual rate of 89%. It's amazing. The Fed is far behind at only 15%. The Bank of England 67% over the past few months. These are rates of increases in the production of paper currencies we have never seen in the modern  age. It takes no effort at all. They simply tap the computer screen.

Time for an "Office of Unintended Consequences?"


Grant proposes the Fed start an "Office of Unintended Consequences" to study all the things that go wrong with Fed policy.

I believe Grant is speaking tongue-in-cheek. We certainly do not need such an office. Instead, we need to abolish the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Where Will the Jobs Come From?

John Mauldin - Sat, 2012-03-17 11:22

Getting Back to Full Employment
Who’s Participating in Employment?
4 Million New Jobs a Month!
Where Will the Jobs Come From?
Stockholm, Paris, San Francisco, and New York

"Six years into our global data collection effort, we may have already found the single most searing, clarifying, helpful, world-altering fact.

"What the whole world wants is a good job.

"This is one of the most important dsicoveries Gallup has ever made. At the very least, it needs to be considered in every policy, every law, every social initiative. All leaders – policy makers and lawmakers, presidents and prime ministers, parents, judges, priests, pastors, imams, teachers, managers and CEOs – need to consider it every day in everything they do.

"That is as simple and as straightforward an explanation of the data as I can give. Whether you and I were walking down the street in Khartoum, Cairo, Berlin, Lima, Los Angeles, Baghdad, or Istanbul, we would discover that the single most dominant thought on most people's minds is about having a job.

"Humans used to desire love, money, food, shelter, safety, peace and freedom more than anything else. The last 30 years have changed us. Now people want to have a good job. This changes everything for world leaders. Everything they do –from waging war to building societies – will need to be in the context of the need for a good job."

- From The Coming Jobs War, by Jim Clifton, Chairman and CEO of Gallup

Each month investors and politicians in countries all over the world obsess over the release of the monthly employment numbers. Even though these numbers are likely to be revised significantly from the original release, the markets can't help responding to the variations from the expected number. Why the focus on numbers that are likely to be proven wrong in the coming years? Because the single most important factor in the direction of an economy is employment. Consumer spending, personal income, tax revenue, corporate profits, and a host of other variables all swing on rising and falling employment.

This week we begin a series of letters on employment. I have been researching the topic more than usual for the book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the entire employment issue. We will look at why employment is so critical. How are jobs created and what policies can be adopted to help foster more jobs? Should the US try and keep jobs that are going overseas, or develop whole new industries? Who exactly is the competition globally for jobs?

We will find that billions of jobs will disappear in the coming decades and even more will be created. There are today some 1.2 billion good jobs, but 1.8 billion people want them. Over the next 30 years the world economy will double and then almost double again. Where will the new jobs be and who will get them? What should you and you children be doing today to be sure that you have jobs in the future?

In order to try to answer these questions, we will start with a general view of the employment situation in the US. What has it looked like in the past and where is it going? Today, we will look at the direction of employment in the US and then focus on both what employment is likely to be in the next few years as well as the dynamics of the labor market. There is a lot to cover. (This letter might print a little longer, as there will be lots of charts.)

Getting Back to Full Employment

The headline unemployment rate is 8.3%, down from 10% only a couple years ago. But ten years ago it was less than half that, and at the beginning of the last decade it was less than 4%. 60 years ago it was less than 3%! Employment is a very volatile number, and as we have seen, it can rise substantially before and during a recession. The first graph we will look at is the unemployment rate, from the FRED database created by the St. Louis Federal Reserve.

Notice how much unemployment fell after the recession that followed World War II, during the '60s, and then in the Reagan and Clinton years. What kept it from rising in the last decade less than after almost any previous recession, and what caused it to rise more following the recent recession than in any since WWII? We'll look at that later, but for now let's just get the lay of the land.

The last few months have seen good overall employment growth. January was revised up by 61,000 to 284,000 jobs created and February was 227,000. If we could keep that up it would mean 3 million new jobs this year. How likely is that to happen? Let's look back over the last 20 years for evidence. The next table is from the Bureau of Labor Statistics (BLS) web site, a treasure trove of employment data. Then I will sum up the monthly numbers for you in the next table.

[Hundreds of thousands of jobs]

Notice that about half of the time in the 1990s we saw growth in the neighborhood of 3 million annual jobs. We only went above 2 million in three years this last decade, and the rise over 2 million in those years was entirely due to construction jobs, which have since plummeted by 25%. Does anyone expect construction to supply such growth in the next few years?

Then look at employment growth month by month and notice that putting together a long string of 250,000 new jobs a month has not been easy in the last 13 years. You can get 3-4 months with solid job growth … which is then followed by a falloff in job growth. For instance, in 2010 the entire year's growth of 1 million jobs came in just three months. And last year two months (February and March) saw almost 500,000 jobs and half the year's growth.

The 1990s were the years of growth in all sorts of technology areas, and a resulting strong economy.

How long will it take us to get back to 4% unemployment? First, let's look at how many jobs we have lost.

We lost 10 million jobs peak to trough in the last recession. We are still down 7 million jobs from the high-water mark. But it is actually worse than that, because we need 125,000 new jobs each month just to keep up with population growth. That is 1.5 million jobs a year. IF we grew at 3 million jobs a year, it would still take over 4 years (until some time in 2016) to get back to the level of unemployment (4.5%) that we saw in 2007.

It will be even tougher in coming years, as we are watching government jobs fall steadily by around 15,000 each month, rather than adding 10,000 or so each month. Government jobs are down around 500,000 over the last three years. That is a big swing.

Who's Participating in Employment?

Thearticipation rate is the number of people who either have a job or are looking for one, as a percentage of the total population. Students and retirees, for example, are not considered as participating in the labor force. Nor are people on disability payments who are not looking for a job. Some 25% of the people who lost jobs since 2008 have applied for and received government disability checks. As an aside, we normally think of disability as something physical (back pain, etc.), but since 2008 43% of those getting approved for disability cited psychological reasons like stress. A rising percentage of them are white-collar workers. This is now costing us over $200 billion a year, which is almost 10% of total federal revenues. (I get it that individual people get very small checks, but there are now 10 million people on disability. And less than 1% a year either give up or lose their disability payments.)

The last month saw an increase in the civilian labor force (the people who are counted as either employed or looking for a job) by 476,000, which is a healthy rise. Most saw it as a positive sign that people had better expectations of finding a job and were therefore looking. And that is a good part of the reason. But remember that you have to have been looking for a job within the last four weeks to be counted as unemployed. We are now seeing an increasing number of people coming to the end of their employment benefits, which were extended to 99 weeks. There were over 100,000 more people who were no longer getting benefits in just one week in February. There is clear research and evidence that losing your benefits can be a real motivator to start looking for a job!

And that is one of the reasons (as I have written for years) that bringing the unemployment rate down is harder than merely adding jobs. Those who are not considered to be in the labor force will either be motivated to look for a job because of improved conditions or be forced to look for a job because their benefits run out. Either way, the participation rate rises, which means you need at least as many new jobs as new people entering the labor force, just to keep the unemployment level even.

I point out the mountain we face in getting back to a reasonable unemployment level, not to be negative but to highlight the importance of job creation. The engine of job growth in the US is small business and new business. If we want to see rising employment, we need to be figuring out how to create more entrepreneurs. Roadblocks need to be removed. The amount of paperwork (and the cost!) required to hire just one new employee can be daunting for a small business. All those reports don't just magically fill themselves out. It takes time and money away from core business efforts to prepare them.

There are areas where new jobs will be created. The US has the opportunity to become energy self-sufficient by the end of the decade. That effort can create hundreds of thousands of direct jobs, with hundreds of thousands more created to service the people who are doing them. And those are jobs that pay well. We will explore various new industries that can supply jobs in the US (and in other countries as well).

4 Million New Jobs a Month!

Now let's turn to something that I find encouraging. If I told you that there were 4 million new jobs created in January, most readers would want to know what I was drinking. But that is the reality we find in another report by the BLS, called the JOLTS report or Job Openings and Labor Turnover Survey. It comes out each month and reports on just what it says.

In January there were actually 4.1 million new hires in the US, according to the JOLTS report. Of course there were also 3.9 million "separations." Separations can be voluntary (called quits), as in a person leaving a job to either go to or look for another job. Or they can be involuntary, as in layoffs and discharges. The quits rate can serve as a measure of workers' willingness or ability to change jobs. It will surprise no one that quits are down by 1/3 in the last few years as fewer people quit without a job in hand. But layoffs are also down by a third from 2009, which is a clear sign of improvement in the job market.

And that brings us to the job openings. The good news is that job openings are up 50% from the bottom in 2009, but still off by 1 million jobs from 2007. The bad news is there is still only about 1 job for over 3 people who are looking.

What that says is that the labor market in the US is still very dynamic and fluid, even with the high unemployment level. When 3% of the labor force changes jobs in any one month, that means there are companies hiring somewhere. And while 3% may sound high, the rate has been over 4% in the last ten years. And when 1.5% of the labor force voluntarily quits, that means they are either retiring or expect to find a new job.

The BLS has an item in its monthly labor report (the establishment survey) called the birth-death ratio. This is basically a number they use to estimate the number of net new businesses created each month. In times of rising employment, the survey of businesses misses new businesses (as a new business is obviously not on the call list). In some years, especially after a recession finishes, those new businesses can account for a large part of net new job creation.

But if we go back to the unemployment rate (the first chart in this letter), you have to ask yourself, why are we not creating new jobs like we did in the past? Why has job growth been sluggish for over a decade, especially if you take out the construction jobs in the middle of the last decade? Doing so makes job growth last decade look particularly bad in comparison with other recoveries in the previous 20 years (before 2000).

In coming letters we will look at what I think might be some of the reasons. But for now we will close with a quote from Jim Clifton, who I quoted at the beginning on the importance of creating jobs. Clifton and the Gallup organization have been surveying people about their jobs for decades, and Jim has been consulting on employment for at least that long. I find his book, The Coming Jobs War, to be very readable (and provocative) and to offer a lot of good ideas. I recommend it.

Where Will the Jobs Come From?

I came across this quote from an interview Jim did with Forbes, when he was asked the question, "What obstacles do leaders have when trying to create more jobs?"

"There are no real obstacles. Just wrong thinking, bad assumptions. When you build strategies and policies on wrong assumptions, the more you execute, the worse you make everything, which is what we are doing now. There are three wrong assumptions that cause all the current job creation attempts to not work.

1. "Innovation is not scarce. Entrepreneurship is scarce. We are spending billions and wasting years of conversations on innovation and it isn't paying off. Great business people are more valuable and rarer than great ideas.

2. "America has about six million active businesses. Ninety-nine percent of them are small businesses. An incalculably huge mistake leaders are making now is spending time, money, strategies, and especially policies for those who need 'help' getting a job. A useful way to look at any citizen is this, 'Can she herself create jobs or does she need a job created for her?' We are spending all our time on the cart and doing little or nothing on the horse. We have our assumptions and futurism that backward. 'The horse (small and medium business) stopped, so we fix the cart (jobs).' If we change all our strategies and policies to favor the job creators (small and medium businesses) the horse and cart will get moving again. We have our compassion right, but the logic is staggeringly stupid.

3. "It is wrong thinking to imagine that Washington has solutions. Job creation is a city problem. There is great variation in job creation by city in the United States. San Francisco and the greater Valley keep pumping away while Detroit isn't. Austin's cart works while Albany's doesn't. Cities need to look inwardly and say, 'What can I do to create great economic energy, to bring new customers for all existing companies and start-ups?'"

We will follow up on those thoughts in coming weeks.

Stockholm, Paris, San Francisco, and New York

I am off on Monday to Stockholm to speak at a conference for Swedbank, and then on to Paris for the weekend, to be with friends, attend the Global Interdependence Center conference on central banking, and enjoy one of the most beautiful cities in the world. It has been some time since I have been to the Louvre, and I hope to be able to enjoy a few of the exhibits. Then back for a week before I head for San Francisco for the Life Extension Conference and to meet with Pat Cox and other friends, and then on to New York, where I will speak Tuesday afternoon at the Bloomberg conference room for Investorside, a nonprofit group of independent trade research providers.

The Strategic Investment Conference I hold each year in California (along with my partners, the team at Altegris Investments) is sold out. We got a much larger venue this year but still sold out earlier than we ever have. I did tell you that we would, and sorry if you wanted to go.

I will also be speaking at the Casey Research Conference ("Recovery Reality Check"), near Miami April 26-29. There is a decided natural resource theme as well as more general investment topics, and quite a good line-up of speakers. You can learn more at http://www.caseyresearch.com/2012-spring-summit?ppref=JMD439EA0312A.

It is time to hit the send button. The Chinese translators are waiting and they have a deadline approaching quickly, as they must get into print in the Hong Kong Economic Journal on Monday morning. It is a darned quick turnaround and they have yet to miss a beat, although I am somewhat late from time to time. Have a great week.

Your thinking about where his kids will work analyst,

John Mauldin

John@FrontlineThoughts.com

Spanish Banks Account for 47% of ECB Credit in February; Spain's Real Debt to GDP Ratio is 110% Not Reported 68%; Spain Will Implode. It's a Wonder it Hasn't Already

Spain's weight in the eurozone economy is roughly 14%. Yet Spanish Banks Account for Nearly Half of ECB Credit in February. Vial Google translate ...
Spanish banks in February captured almost half of the credit granted by the European Central Bank (ECB), before the drought through the wholesale market funding. As reported on Wednesday the Bank of Spain, the use of the entities to the extraordinary liquidity window of the body that presides Mario Draghi reached half the 152,400 million euros, equivalent to 47% of total outstanding debt to return to ECB for all banks in the Eurosystem.

Both the percentage and the total volume of borrowed money account for two-time highs, exceeding by far the weight of Spain in the European sector, 14%.

Furthermore, for the future, the figure will rise, as these data do not reflect the impact of the second extraordinary auction to three years of the ECB, on February 29 which dealt with 529,000 billion from 800 banks.

Public debt has grown by 21% on bank balance sheets in December 2011 compared to 2010, "which shows that liquidity in the ECB does not reach the economy."

Juan Luis Garcia Alejo, Inversis Management director, said "There is no doubt that institutions take advantage of LTRO money to earn net interest income by investing in debt."Spain's Real Debt to GDP Ratio is 110% Not Reported 68%

While noting that Spanish banks are betting heavily on the success of the LTRO, please note strong evidence that Spain's debt-to-GDP ratio is wildly understated because it does not include regional debt, nor does it include government guaranteed bank debt and other miscellaneous items.

Please consider these snips from The Fool's Game: Unraveling Europe's Epic Ponzi Pyramid of Lies by Zero Hedge.
If we just take the newest figures for Spain, which were released this morning, we find an admitted sovereign debt of $732Bn and a touted debt to GDP ratio of 68.5% which is up 10.7% from last year.

In a report issued on 2/29/12 and apparently ignored by everyone including the ratings agencies, Eurostat reports that Spain has total sovereign guarantees of “other debt” which is 7.5% of their total GDP which would total around another $72.2 billion in uncounted debt. Then if we consider [all] the “known” debt we find:

  • Admitted Sovereign Debt ................. $732 Billion
  • Admitted Regional Debt ................... $183 Billion
  • Admitted Bank Guaranteed Debt ..... $103 Billion
  • Admitted Other Guaranteed Debt .... $72 Billion
  • Total Admitted Debt ......................... $1.09 Trillion
  • A More Accurate Debt to GDP Ratio ....... 113.2%

In the same Eurostat report, by the way, of 2/29/12 we also find that Belgium’s sovereign guarantee of “other debt” is 21.3% of their GDP, for Italy it is 3.6% of their GDP and for Portugal the number is 7.7% of their GDP. This does not include any guarantees of bank debt which would also have to be added in to the totals to reflect some sort of accurate fiscal picture. Consequently, as investors, we are not in some murky place but smack dab in a carefully engineered plan of outright Fraud where we are given manipulated and inaccurate numbers in the hopes that we will fund based upon them.Spain Will Implode

Not only are published GDP figures a lie, so are published debt figures. The result is a complete farce in debt-to-GDP accounting.

Meanwhile Spanish banks continue to plow into leveraged debt on their own bonds, with Spanish unemployment over 23%, with youth unemployment of 49%, with widening regional debt problems, with massive unrecognized housing sector losses, and with more austerity measures coming that will exacerbate all of the previously mentioned problems!

This Ponzi scheme cannot last, which means it won't. Spain will implode. Indeed, it's a wonder it hasn't already.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Gold in Euros, Sterling Drops to 10-Week Low as India Raises Import Duties, US Inflation “Rears Its Head” as Gas Prices Surge

TheDailyGold - Fri, 2012-03-16 21:34

London Gold Market Report
from Ben Traynor
BullionVault
Friday 16 March 2012, 09:15 EDT

Gold in Euros, Sterling Drops to 10-Week Low as India Raises Import Duties, US Inflation “Rears Its Head” as Gas Prices Surge

THE SPOT MARKET gold price dropped to $1641 an ounce shortly after US market open – a 4.4% fall on the week – as stocks and commodities were broadly flat, with stock markets looking set for a weekly gain by Friday lunchtime in London.

On the currency markets, the Pound and Euro both rallied against the Dollar following the release of the latest US inflation data, while over in India the government announced it is to double its duty on gold imports as a percentage of the gold price.

Silver prices fell to $32.14 per ounce – a 6.3% loss for the week as we headed towards the weekend.

“Gold still appears to be taking a hit,” says a report from German refiner Heraeus.

“If it is to escape the downward trend in the short term, it will have to overcome the price resistance at $1726 per ounce…only then will it begin moving up again.”

“Near-term resistance ,” add technical analysts at bullion bank Scotia Mocatta, “is at the 200 day moving average, currently at $1682…key resistance is at $1716, last week’s high.”

The gold price in Euros fell to a 10-Week Low at €40,266 per kilo (€1252 per ounce) on Friday. Sterling gold prices also hit their lowest levels in 10 weeks, dropping to £1041 per ounce.

Both currencies jumped against the Dollar immediately following the release of US consumer price index inflation data. The seasonally-adjusted CPI rose 0.4% in February, its biggest rise for 10 months, while the unadjusted annual rate held at 2.9%, according to the Bureau of Labor Statistics.

“Inflation is rearing its head,” says Bill Gross, head of the world’s largest bond fund Pimco.

“We’re seeing that in oil prices and other commodities, and we’re seeing it in the numbers.”

The BLS says 80% of the monthly rise is accounted for by higher gasoline prices. Gas prices rose 6% last month, compared to 0.9% in January and the biggest jump since December 2010, following recent gains on the oil futures market.

Britain and the US meantime look set to co-operate on releasing strategic oil reserves, Reuters reports.

“This has to be discussed broadly,” Britain’s prime minister David Cameron, who has been on an official visit to the US this week, said on Thursday.

“It’s something worth looking at.”

The Brussels-headquartered Society for Worldwide Interbank Financial Telecommunication (SWIFT), the world’s major international messaging service for financial transactions, is to cut services to Iran’s financial institutions effective from tomorrow.

“Disconnecting banks is an extraordinary and unprecedented step for SWIFT,” said chief executive Lazaro Campos yesterday.

“It is a direct result of international and multilateral action to intensify financial sanctions against Iran.”

Over in India, the world’s largest gold consumer last year, the government announced Friday that it is doubling the import duty on gold from 2% to 4%. This follows a similar increase in India’s gold import duty back in January.

The duty hike “will reduce demand for gold significantly” reckons Bombay Bullion Association president  Prithviraj Kothari. Kothari forecasts that gold demand in India could drop by 30% this year, the Wall Street Journal reports.

“Today’s duty increase will dampen Indian demand,” agrees UBS precious metals strategist Edel Tully.

“The Indian market will wait for lower prices and there is also the risk that this duty hike will lead to increased smuggling.”

India set a record last year when it imported 969 tonnes of gold bullion.

“One of the primary drivers of the current account deficit has been the growth of almost 50% in imports of gold and other precious metals in the first three quarters of this year,” said Indian finance minister Pranab Mukherjee, who was announcing next year’s budget.

There are also potential signs that gold imports to China, the world’s second largest gold market, are starting to concern authorities.

China’s National Bureau of Statistics meantime has revealed that officials in the northern city of Hejin reported “seriously untrue” economic data last year, newswire Bloomberg reports.

Here in the UK, chancellor George Osborne is considering cutting the top rate of income tax from 50p to 45p in next week’s Budget, according to press reports.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


Today’s Winners and Losers

TheDailyGold - Fri, 2012-03-16 21:23
GDX fell by -0.42% while GDXJ fell  by -0.82% and SIL fell by -1.04%

Here are today’s best performing Silver and Gold stocks:


Gold Rollercoaster Likely to Go Up

TheDailyGold - Fri, 2012-03-16 20:25


Based on the March 16th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

The roller coaster metaphor we used two weeks ago after the $90 flash crash in the price of gold seems appropriate this week as well. It must be tough out there for precious metals investors. Wednesday gold futures tumbled again. April-delivery gold fell $51.30, or three per cent, to settle at $1,642.90 an ounce, the lowest gold settlement price in more than eight weeks. The dollar strengthened and traders reacted to the U.S. Federal Reserve’s rate decision and policy statement in the previous session, which buried any hopes for now of more monetary easing in the short term. Investors have been hoping that the Fed would take action again to spur the economy. The last round of quantitative easing, known as QE2, weakened the US dollar and sent gold prices sharply higher. After the market closed Tuesday, the Fed’s upbeat comments about the US labor market dimmed hopes of further stimulus. Also Tuesday afternoon J.P. Morgan announced it had passed the government’s stress testing and was declaring a dividend as well as paying back a big chunk of government loans. Most of the largest U.S. banks passed their annual stress test, underscoring the recovery of the U.S. financial sector. The U.S. dollar index traded higher Wednesday, hitting a fresh seven-week high, also bearish for the precious metals markets. Year to date, gold is still up 5 percent.


Sunshine Profits subscribers should have a much less queasy stomach. A day before the flash crash we sent out a Market Alert to stay out of the speculative long-term positions saving them from the gut-wrenching drop. And when we sent out another Market Alert with a buy signal on March 6th it was with a caveat – to be prepared emotionally for the scenario in which metals move temporarily lower for a few days and then form a bottom. We believe the price action of the past few days could be that the final bottom for this decline has already been reached, or, is very, very close to it.

Gold’s sharp move lower will most likely spark demand from emerging markets such as India and China as buyers will come in lured by lower prices.

Interestingly, platinum out-performed gold and maintained a premium over gold for the first time since September, reverting back to the “norm” where historically (for the past 20 years) platinum trades higher than gold. Happily, we had previously suggested you to switch part of your holdings from gold to platinum.


To see if gold will be able to catch up, let’s move to the technical part of today’s essay. We start with the USD Index chart (charts courtesy by http://stockcharts.com.)


Our first chart this week is the very long-term USD Index chart. There have been some slight changes this week as the index level has touched the horizontal red line in our chart created by the early 2011 and 2012 highs. Prices then reversed and no breakout above this level was seen.

Concerning the long-term declining resistance line, prices have moved just above it but the breakout is not yet truly in. Prices would have to close the week and hold above this line for two more weeks for this breakout to be confirmed. Overall, the situation remains mixed here.

In the short-term USD Index chart, a correction is seen to the highest Fibonacci retracement level of the previous decline. It appears that a top is about to form. Prices could move a bit higher, though any significant increase seems unlikely, and the 2012 high will probably not be reached. Perhaps some sideways trading and then some declines will precede the next cyclical turning point, which is about two weeks away.

The Correlation Matrix is a tool, which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. The correlation between the general stock market and precious metals now appears to be negative to neutral, and this is generally not the case, especially given the past three months.


The general stock market simply does not appear too important for gold, silver and the gold and silver mining stocks. However, it does seem to matter for platinum, which has performed relatively well compared to the other metals.


The strong negative correlations between the USD Index and the precious metals continue. The implications appear bullish for the medium term and somewhat unclear for the short term.


The medium term implications remain in line with our overall view on the precious metals sector as expressed in our essay on a possible rally in gold. We wrote then (March 14th, 2012):


(…) while it is not yet certain that the final bottom is in, it seems rather unimportant because gold’s price does not seem likely to decline much further and could actually move much higher very soon. The risk of being out of the market outweighs the risk of being in.


This week we have also received an interesting question from one of our Subscribers and would like to comment on it.


Q: Regardless of the self-similarity patterns [that we’re described in the previous essay] (which is not the most scientific tool out there), is there any chance that we currently see the beginning of the situation similar to what was seen in Sep-Dec 2011?

Additionally, what about the price seasonality? March-April is generally weak for the precious metals… Maybe the predicted rally will materialize so sooner than in April-May – during metal’s stronger months?

A: Naturally, self-similar patterns (just like any other chart pattern) are not scientific at all (but we are working on “making them scientific”, stay tuned) as they are not (as Karl Popper indicated) falsifiable. They are subjective and very much analyst-dependent and detecting these patterns is somewhere between art and science. However, that’s not the most important thing here. The most important thing in our view is simply that they work and are extremely useful as they provide both: price and time projections that – if previous patterns are really aligned – play out very well.

Is there any chance that gold will move even lower like in Dec 2011? Of course – there are no sure bets. However, at this time we view the chance of moving higher from here is much bigger than the chance of a continuation of the decline.

Seasonality – a picture can tell a thousand words, so let’s take a look.

Please focus on the shape of the red line vs. dates instead of the prices on the vertical axis’ legend (technical glitch).  While it is true that March is generally a weak month for metals, please note that the weakness is concentrated in the first half of the month and this impacts the whole March-April period. In fact, April is moderately favorable month.

The most interesting part is that according to the True Seasonal (taking into account options’ and futures’ expirations as well as simple seasonalities) pattern, the bottom was likely to be seen on March 14th… Precisely when gold appears to have reached the bottom. Please note that the quality of projection measure on the chart is quite high for this date, meaning that the probability of bottom being in close to this date is high.

Summing up, the situation in the USD Index is unclear for the short term and bearish for the medium term. This translates into a bullish environment for gold for the medium term and the True Seasonal patterns confirm that.


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www.SunshineProfits.com

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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

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S&P 500 Higher or Lower?

bespokeinvest.com - Fri, 2012-03-16 16:12

The S&P 500 made a new bull market high this week and also crossed above the 1,400 level.  As mentioned earlier, the index is now off to its 8th best start to a year going all the way back to 1928.  So where do we go from here?  Please take part in our poll below which asks whether the S&P 500 will be higher or lower than its current level one month from now.  We'll report back with the results before the open on Monday.  Thanks for participating and have a great weekend!

Will the S&P 500 be higher or lower than its current level one month from now?HigherLower  Free polls from Pollhost.com

Gallup Struggles to Explain BLS Jobs Data

The latest BLS jobs report and the latest Gallup survey on jobs and unemployment are so out of line, that Gallup has commented on it in followup article Unemployment Numbers Suggest U.S. Economic Boom, or Not
A careful look at the government's unadjusted household unemployment data shows a stunning 740,000 jobs added to the economy in February -- three times the 227,000 reported based on the establishment payroll survey.



If this is economic reality, then the underlying economy must be growing much faster than most Americans currently believe. If the U.S. economy is surging, and jobs increased at the rate of three-quarters of a million last month, why haven't we heard a lot more about it? And, given a rapidly expanding economy, how can Gallup's nearly 30,000 random interviews with Americans across the nation show a significant increase in the unemployment rate?

This morning on CNBC, there was discussion about how the increase in payroll survey jobs is hard to reconcile with economists' growth estimates for the U.S. economy. If the payroll jobs numbers are right, then the economy is growing faster than estimated, or maybe, productivity is plunging. Of course, if there are questions about how we reconcile payroll jobs with other economic data, making economic sense of the household survey surge in jobs is even more difficult. Gallup Reports Large Jump in Unemployment to 9.1%, Underemployment to 19.1%

I talked about this on March 8 in Gallup Reports Large Jump in Unemployment to 9.1%, Underemployment to 19.1%
U.S. unemployment, as measured by Gallup without seasonal adjustment, increased to 9.1% in February from 8.6% in January and 8.5% in December.



The 0.5-percentage-point increase in February compared with January is the largest such month-to-month change Gallup has recorded in its not-seasonally adjusted measure since December 2010, when the rate rose 0.8 points to 9.6% from 8.8% in November. A year ago, Gallup recorded a February increase of 0.4 percentage points, to 10.3% from 9.9% in January 2011.



Gallup's U.S. underemployment measure, which combines the percentage of workers who are unemployed and the percentage working part time but wanting full-time work, increased to 19.1% in February from 18.7% in January. This is an improvement from the 19.9% of February 2011.Unemployment Rate Not Seasonally Adjusted



Except for the years 2008-2009, and recessions in general, seasonally unadjusted unemployment rate tends to peak in January. Thus it will be interesting to watch Gallup's numbers for the next few months to see if there is a definite change in trend.

As it stands now, I do not believe BLS numbers, and neither so it seems, does Gallup.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Bank and Broker Default Risk Still Elevated

bespokeinvest.com - Fri, 2012-03-16 14:39

During the financial crisis, we created our Bank and Broker CDS (credit default swap) Index that measures default risk for the major financial companies around the world.  We've continued to track the index, however, and below is a chart showing the index compared to the S&P 500 Financial sector.  Since peaking in late 2011, our Bank and Broker CDS Index has pulled back roughly 40%, and it's currently right near ten month lows.

But even though default risk for the financials is down quite a bit over the last few months, it's still elevated compared to where it has traded in the past when financial stocks were at similar levels.  Below is a chart of our Bank and Broker CDS Index going back to 2007.  The red dots indicate points in which the S&P 500 Financial sector was within a point of where it is currently trading.  As shown, default risk was much lower at every other point.  So while the financial stocks have been performing well recently, credit traders appear to still have their doubts.

‘Management’ vs. Prediction

TheDailyGold - Fri, 2012-03-16 14:36
My ears start to bleed when I hear someone who has staked a claim to the mantle of guruhood definitively state something – especially in the realm of technical analysis – as if they have used esoteric and mystical methods in service to divination of answers yet to come, and then put it out there as if it is anything more than an educated guess.

It is not ‘the answer’.  It is just a guess based on the guru’s best methods.  His followers want to feel as if someone is in control and the guru is only too happy to provide this unattainable aspect of the asset markets… CONTROL.

The trick for our dear guru is when he is inevitably wrong and must backtrack.  Some just issue alarmingly bearish analysis and then when perceived to be on the wrong track, issue alarmingly bullish stuff, creating a bipolar sort of experience for whipsawed followers.

Others hold the line, expecting that their calls will be right one day if given enough time.  ‘Everybody’s losing money, after all’ was something that I heard throughout the ‘resource stock’ sector last year.

Well no, everybody was not losing money.  People managing markets in service to risk management (as opposed to ego) did just fine.

Anyway, this post goes up after I looked at my account and shook my head almost in disbelief that the speculative portfolio is still +7% for 2012.  This despite my continued bullishness on gold and yes the gold stock sector.  I almost feel that as a gold stock bull, I should be fearful and racked with pain instead of opportunistic as I do now.  But my own methods saved me from this ignominy.  I find control through knowing I do not have control and thus, effectively manage.

I have received emails from NFTRH subscribers saying things like “just sitting and waiting to…” and “I am 70% cash and looking to…” that let me know I am doing my simple job, which is to analyze the markets to the best of my ability, illustrate the risks and opportunities and manage week to week within a bigger picture framework.  I have had to make adjustments many times because I am just a human, who knows nothing more about what markets will do than the next human (well, the next human with extensive market experience, anyway) knows.

Nobody knows what is going to happen in the markets.  Nobody, especially those that make a handsome living pretending that they have some sort of secret contraption into which they peer to divine the answers.  It is all about grunt work and management.  Have a plan and plan to be right, but when risks increase that the course is wrong, GET RIGHT immediately.  No if’s, and’s or but’s.

‘Management’ wins, because it adjusts as needed.  Really, the way many people go about markets is pretty immature.  There is long tradition of ‘stock tips’ and lust for an inside scoop.  This ‘scoop’ generally does not exist however, unless you are a ‘too big (or too crooked) to fail bank’ being spoon fed by the Federal Reserve and the citizens of the USA.

Regular grunts need to do the grunt work.  Hard work and a sound psychological framework will allow you to manage through anything.  I’ll have to do a post on psychology sometime* as well, because having the psych element nailed down is key to the all-important taming of bias, which keeps people from adjusting as needed, which keeps people from effectively managing the markets.

You see?

* Reference this previous post, which ties in effective management with the effort to maintain a sound ‘psych’ profile in the face of dynamic events.

http://www.biiwii.blogspot.com
http://www.biiwii.com
http://www.biiwii.com/NFTRH/subscribe.htm


Best Starts to the Year

bespokeinvest.com - Fri, 2012-03-16 13:27

Today is the 52nd trading day of the year, and the S&P 500 is currently up 11.71% over this time period.  Throughout the entire history of the S&P 500 going back to 1928, this is the 8th best start to a year after 52 trading days.  

Below we highlight all years in which the S&P 500 has been up at least 5% through the first 52 trading days of the year.  For each of these years, we also highlight the index's change for the remainder of the year.  There are 30 years shown, and the index continued higher for the remainder of the year 24 out of 30 times.

Real Hourly Earnings Decline in February

Earnings are up a fraction of a percent in February, but the CPI is up four times as much. The result is "real" earnings are down once again, having peaked in October 2010.
Real average hourly earnings for all employees fell 0.3 percent from January 2012 to February 2012, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. A 0.1 percent increase in the average hourly earnings was more than offset by a 0.4 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings fell 0.3 percent over the month due to the decline in the real average hourly earnings combined with an unchanged workweek. Since reaching a peak in October 2010, real average weekly earnings has fallen 1.2 percent.

Real average hourly earnings fell 1.1 percent, seasonally adjusted, from February 2011 to February 2012. The decrease in real average hourly earnings combined with a 0.6 percent increase in average weekly hours resulted in a 0.4 percent decrease in real average weekly earnings during this period. Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Wall Street Pimps and Whores Story Extends Far Beyond Goldman Sachs: Merrill Lynch, Citigroup, Bank of America, Morgan Stanley, All Guilty

Much has been written these past few days about allegations of impropriety at Goldman Sachs. For example, I commented on the Parasitic Behavior of Goldman to Its Clients.

Some defended Goldman, however, there really is no defense. Worse yet, the problem goes far beyond Goldman to Merrill Lynch, Citigroup, Bank of America, Morgan Stanley, and for that matter everywhere else one looks.

I will get into specifics in a bit, but first consider an email from Timothy who writes
Hello Mish,

I just had to comment on your post. My dad lost 100’s of thousands in GM bonds. He was a 30 year client of Merrill Lynch.

His portfolio is always 100% invested.  That’s the Wall Street psychology.

Timothy Yes Timothy, that is the philosophy because it benefits Wall Street, not the client. Moreover, I am not surprised in the least by the pimping of GM.

Underwriters get paid to pimp garbage. They do not care what fools, pension plans, or widows on their last dime they sucker in. All they are concerned with is pimping the bond, pimping the IPO, and pimping whatever "trading" portfolio the corporation has to whatever suckers they can find.

Moral Bankruptcy of Wall Street

Flashback Aug 5, 2008.

Please consider General Motors and the Intellectual and Moral Bankruptcy of Wall Street by by Karen De Coster and Eric Englund on Lew Rockwell.
On June 25, 2007, Wall Street powerhouse Morgan Stanley put out a “buy” recommendation with respect to General Motors' common stock. Robert Barry, Morgan Stanley's star analyst, proclaimed a 52-week target price of $42 per share. Less than five months later, on November 7, 2007, Wall Street analysts were stunned by General Motors' staggering third-quarter (9/30/07) loss of $39 billion — one of the largest bookkeeping losses in history, which was mostly related to the writedown of deferred tax assets.

Fifty-three weeks after Morgan Stanley's buy recommendation, GM's stock hit a 54-year low of $9.98 per share — on July 2, 2008, after Merrill Lynch's recommendation had gone from a “buy” to “underperform” (i.e., sell) on that day. In one sweeping move overnight, Merrill Lynch analyst John Murphy cut his target price on GM by a whopping 75%, reducing the target price from $28 to $7. So how is it that GM suddenly went from respectability to mediocrity — in one analyst's mind — overnight? In fact, why did it take until July 2008 to concede that GM was on life support? Wall Street, belatedly, is willing to acknowledge the fact that General Motors is teetering on the verge of bankruptcy.

Accordingly, key questions come to the forefront. How did any stock analyst, worth his salt, get blindsided by the aforementioned $38.3 billion writedown of deferred tax assets? Are Wall Street's Ivy League-educated MBAs able to comprehend advanced accounting and finance? Has rigorous security analysis, on Wall Street, been supplanted by self-serving cheerleading and inane platitudes with the objective of transferring wealth from the masses to the Wall Street elites?

For Wall Street analysts to claim “surprise” at GM's massive deferred tax asset writedown, during fiscal year 2007, and to finally discuss (in mid-2008) General Motors' financial condition in terms of a possible bankruptcy, indicate that low-level fluff is easily passed on to Main Street “investors” under the guise of serious analysis.

The point here is that GM is so unprofitable that its top-level management realized they had to come clean and write down the value of its deferred tax assets because it became completely unpredictable as to when the company would actually return to making a profit, and thus use that tax asset against any future tax liability it incurs.

So, just how savvy are some of Wall Street's best and brightest analysts? Nine days before GM's deferred tax asset writedown bombshell, UBS upgraded its rating of GM to a “buy.” On September 13, 2007, Citigroup initiated coverage and issued a buy recommendation. Other Wall Street heavyweights, in 2007, that had weighed in with “upgraded” opinions of GM included Banc of America Securities, Goldman Sachs, J.P. Morgan, Lehman Brothers, and Deutsche Securities. One must heed Graham and Dodd's words as to what purpose is behind a securities analyst's recommendation. But then again, Wall Street analysts long ago abandoned their roles of providing independent expertise, and instead turned to selling their firm's investment banking services.Blatant Fraud, Not Rampant Stupidity

I invite you to read the rest of that damning exposé because there is plenty more to the story. Moreover, the story goes far beyond what is credible for a simple "stupidity" explanation.

Unfortunately, the pimping of GM stocks and bonds when GM was clearly headed towards bankruptcy is exactly the kind of "semi-soft fraud" that no one can prove.

A Word on Conflict of Interest and Bias

I am biased. So is John Hussman; So is Barry Ritholtz; So is Marc Faber; So is Jim Chanos; So is everyone else. We all are. It's impossible to not be biased by something.

However, no one in the above group gets paid to underwrite securities.  No one in the above group to the best of my knowledge gets paid commissions on transactions.

Therein lies the rub. Wall Street pimps and whores have no fiduciary responsibility to clients but they do have a vested interest to peddle compete garbage to anyone and everyone.

For that reason, I am strongly in favor of  a "hard" wall between giving investment advice and offering securities to trade. Clearly the "soft promise" by Wall Street that "we won't do it" is insufficient.

Some may suggest this goes against my Libertarian principles. I disagree. No Libertarian should be against laws that preserve property rights and no Libertarian should be against laws designed for the explicit purpose of preventing fraud.

Interestingly, independent investment advisors such as myself  do have a hard legal requirement of fiduciary responsibility.

However, Wall Street pimps and whores do not have a legal requirement for fiduciary responsibility. Instead they duck and hide under "suitability" clauses.

That does not mean I will always be right, and indeed I guarantee you in advance I won't be. However, I will guarantee you that I will not recommend anything I do not believe to be in the best interest of clients.

GM bonds, rating agency garbage, IPO mania, Beat-the-Street hype, and "Strong Buy" hysteria while insiders unload and firms actually bet against advice given to clients are proof of the pudding.

The fraud and the greed speaks for itself.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


What’s next for gold?

TheDailyGold - Thu, 2012-03-15 23:30
What’s next for gold?

The past month or so has caused those who invest in gold bullion a small amount of concern. The gold price has dropped to below $1700, after some significant gains since January. Whilst the fundamentals for gold investment remain stronger than ever, Dominic Frisby has written a useful, and reassuring, analysis on the gold and silver price in the short term.

I’m not unduly worried about the gold price.

But when I saw it had dropped $40 yesterday from $1,700 an ounce to almost $1,660 in the space of just a few hours, I’ll admit a concerned eyebrow was raised.

So I suppose a bit of hand-holding is in order today – even if it’s only my own.

Gold may not see fresh highs for at least another year

Let me start by re-visiting my forecast of several months back. By my reckoning, we wouldn’t see new highs in gold for at least another year, ie not before autumn 2012, if not later.

I based this forecast on a simple, repeating pattern that gold makes when it gets ahead of itself. In the chart below, you can see gold’s action since 2001. It’s plotted on a logarithmic chart, as the pattern is clearer that way. (A logarithmic chart measures percentage gain on the y-axis as opposed to an arithmetic chart which measures price. So on a logarithmic chart, a move from 200 to 400 looks the same as 400 to 800 and so on).

You can see what a lovely consistent ascent it’s been.

But even within this steady uptrend there are times when it’s got a little ahead of itself and then pulled back, as I’ve indicated in yellow on the chart. One example is in early 2003, another is in May 2006, another February 2008, and of course the same thing happened again in September 2011.

Each time it’s done so, it’s had a nasty fall, followed by a period of consolidation and digestion. And the more it’s got ahead of itself, the bigger the fall and the longer the subsequent consolidation phase. I’m thinking in particular about the 18 months or so that followed the highs of May 2006 and February 2008.

On both occasions it was well over a year before gold made new highs. I believe we’re in just such a period now. The high gold made last September at $1,920 was a typical example of gold going too far too fast. Now we have the consequent period of digestion.

So that’s how I’m interpreting the big picture.

Gold measured in sterling is far less smooth

Out of interest, I present to you now the same chart, but of gold measured in pounds. The graceful ascendency is gone. This chart is hiccuping its way higher in steady, annual burps.

The inverse of this chart – which shows just how much the pound has fallen against gold – has the look of a geriatric stumbling blindly to his coffin.

The short-term outlook for gold

Now let’s zoom in and take a look at the nearer term. Here is a one-year chart of gold.

My famed 144-day moving average (blue line) has now become resistance, unfortunately. I see good support in the $1,550 zone, where I have drawn the light blue band. And I see resistance at $1,800 where I have drawn the red band.

These will be, I suspect, the two lines in the sand for the time being, probably until the autumn. Of course, these are just guesses – I know no more than you.

But again, staring at the chart and guessing, I suggest a retest of at least $1,600 looks to be on the cards before gold’s normal, upwardly-mobile business can resume. But such a re-test, should it occur, would give a nice symmetry to the chart and add to that decent-looking base at $1,550.

Could the miners finally start to outperform?

As for silver, I see a similar picture with strong support at $26, but resistance at $38. Silver does seem to be displaying some relative strength, which is positive.

Also on the positive side of things, I am seeing some buying coming in to the junior resource sector. This is probably because of broader stock market strength, but I’m hoping we’re in the early stages of one of those periods when the stocks outperform the metals. Not before time, that’s all I can say.

I’ve just come back from the PDAC in Toronto, which is the world’s biggest mining conference. I must have spoken to over a hundred different companies while I was there. I’ll be publishing my notes from the conference, as well as my pick of the PDAC in a new report, so watch this space.


Today’s Winners and Losers

TheDailyGold - Thu, 2012-03-15 23:17
GDX is unchanged  while GDXJ gained by 1.27% and SIL gained by 0.56%

Here are today’s best performing Silver and Gold stocks:


California Tax Revenues Plunge; Businesses Exit "Taxifornia" in Droves; Piecing Together the Jobs-Picture Puzzle

California Tax Revenue Plunges

Inquiring minds have noticed a huge plunge in California Tax Revenue for the month of February compared to February 2011.



That is a 22.55% plunge in spite of the fact that this February was a leap year adding a day to the calendar.

Madeline Schnapp, at TrimTabs Investment Research sent me a quick note regarding that plunge a few days ago.

Madeline writes...
Hello Mish

I came across this little tidbit from the February report from the Comptroller's office of the State of CA.

In Feb 2012 income tax receipts are down $328 million y-o-y, or 16.5%. Ouch!

What about retail sales taxes? CA had a "temporary" sales tax hike of one cent that expired last July. Adjust the data to reflect that change, it looks like sales taxes in February are $400 million y-o-y +/-, a decline of about 12.4%. Double ouch!

That doesn't sound like robust growth to me.

Something About the Economy Doesn't Add Up

In Piecing Together the Jobs-Picture Puzzle, Jon Hilsenrath at The Wall Street Journal wonders "How can an economy that is growing so slowly produce such big declines in unemployment?"
Something about the U.S. economy isn't adding up.

At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen.

Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate.

How can an economy that is growing so slowly produce such big declines in unemployment?Trimtabs thinks the problem lies in the heavily massaged BLS employment data and the highly suspect BEA personal income data.

That said, withholding tax data is also messy and not a perfect measure either, but no matter what I do with the data, I can't get to 200,000+ jobs unless a huge percentage of the workforce is suddenly working for McDonalds

Best,

Madeline Schnapp
Director, Macroeconomic Research
TrimTabs Investment ResearchMany Explanations for the Unemployment Puzzle

There are many explanations for the "miracle drop" in unemployment.

  1. Disability Fraud: Disability Fraud Holds Down Unemployment Rate; Jobless Disability Claims Hit Record $200B in January
  2. Exploding growth in student loans and middle-aged job hopefuls returning to school: Consumer Credit "Demolishes Expectations" Really? No Not Really! The "Non-Bounce" in Non-Revolving Credit
  3. Involuntary Retirement: Boomers of retirement age that still want and need a job have involuntarily retired to collect social security because unemployment benefts rans out and they have no other source of income.

Divergence with Gallup

Those three things piece together the "unemployment puzzle" nicely except for one thing. Gallup polls do not agree as noted in Gallup Reports Large Jump in Unemployment to 9.1%, Underemployment to 19.1%.
U.S. unemployment, as measured by Gallup without seasonal adjustment, increased to 9.1% in February from 8.6% in January and 8.5% in December.



The 0.5-percentage-point increase in February compared with January is the largest such month-to-month change Gallup has recorded in its not-seasonally adjusted measure since December 2010, when the rate rose 0.8 points to 9.6% from 8.8% in November. So, is the BLS carefully massaging the data, or are their seasonal adjustments simply that far out of line with reality, tax collections, and common sense?

Businesses Exit California in Droves

Madeline and I are not the only ones who noticed the plunge in California. Chriss W. Street on Beitbart discusses the California Exodus behind the drop. Street has the reason: Businesses fed up with high taxes have fled the state.
California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event.

The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.

Derisively referred to as “Taxifornia” by the independent Pacific Research Institute, California wins the booby prize for the highest personal income taxes in the nation and higher sales tax rates than all but four other states. Though Californians benefit from Proposition 13 restrictions on how much their property tax can increase in one year, the state still has the worst state tax burden in the U.S.

Spectrum Locations Consultants recorded 254 California companies moved some or all of their work and jobs out of state in 2011, 26% more than in 2010 and five times as many as in 2009. According SLC President, Joe Vranich: the “top ten reasons companies are leaving California: 1) Poor rankings in surveys 2) More adversarial toward business 3) Uncontrollable public spending 4) Unfriendly business climate 5) Provable savings elsewhere 6) Most expensive business locations 7) Unfriendly legal environment for business 8) Worst regulatory burden 9) Severe tax treatment 10) Unprecedented energy costs.

Vranich considers California the worst state in the nation to locate a business and Los Angeles is considered the worst city to start a business. Leaving Los Angeles for another surrounding county can save businesses 20% of costs. Leaving the state for Texas can save up to 40% of costs. This probably explains why California lost 120,000 jobs last year and Texas gained 130,000 jobs.

California Governor Jerry Brown’s answer to the State’s failing economy and crumbling tax revenue is to place a $6 billion tax increase initiative on the ballot to support K-12 public schools. He promises to only “temporarily” raise personal income rates by 25% on any of the rich folk who haven’t already left.Taxed to Death

If Brown continues to suck up to the public unions responsible for the mess California is in, expect still more businesses to leave, expect the unemployment rate to rise, and expect a continued plunge in revenue.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


My Interview with Kerry Lutz

TheDailyGold - Thu, 2012-03-15 17:10

Jordan Roy-Byrne of TheDailyGold.com believes the existing gold and silver stock indexes, such as the HUI or the GDX, are not giving an accurate picture of where metals stocks are really heading. They’re highly weighted towards the major producers who have been underperforming for years. As a result, the good performers’ results have not been accurately reflected or recognized. Jordan doesn’t necessarily attribute their under-performance to manipulation but rather sees the market asserting its fundamentals.

This is a reflection of the phase of the bull metals market. Consolidations can last for several years and valuations can vary. However, you should remember to look at technicals and sentiments. A lot of breakouts in the sector tend to be false. Gold has bottomed so many times in the last couple of years, on the day where it appeared to make a technical breakdown. We are undeniably seeing a very difficult market, and according to Jordan, we are within 2 weeks of a very important bottom. You have to wait for things to reach an over-sold point, these are the times when you want to buy and take advantage of the manipulations. Once the markets get extremely oversold, the manipulators buy to help themselves. You want to be on the correct side of this, so DON’T FREAK OUT and sell!

 


NY vs Philly Fed

bespokeinvest.com - Thu, 2012-03-15 16:56

With New York and Pennsylvania sharing about 400 miles of border with each other, one would expect that the monthly New York and Philadelphia Fed reports would show similar scenarios regarding activity.  To check this, we compared the different aspects of each report to see where they were similar and where they differed.  As shown in the charts, the General Business Conditions for both NY and Philadelphia have consistently tracked each other and continue to do so.  For the most part, this has also been the case with each of the subcomponents.  However, in this months report we did see what could be the beginning of some minor divergences.  

With respect to Delivery Times, this month we saw a notable increase in the NY survey, while the Philadelphia survey declined.  We also saw similar divergences between Prices Paid and Average Workweek.  Only time will tell whether or not these divergences are one month blips or the beginning of a trend, but they bear watching.

Philly Fed Also Surpasses Expectations

bespokeinvest.com - Thu, 2012-03-15 15:37

Given their close proximity to each other on a geographical basis, it shouldn't be too much of a surprise that like the NY Fed report, this morning's release of the Philly Fed came in better than expected.  The strongest component of this morning's report was prices paid, followed by prices received.  On a positive note for employment, the percentage of companies seeing an increase in their headcount was the third highest subcomponent of the monthly survey.  Continue reading...


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