US Employment

Is the USA really creating new jobs? Is the US unemployment rate really 5%? Is any of this believable?

Here are the facts, according to the US Bureau of Labor Statistics - not seasonally adjusted.

The USA had 147,190,000 employed persons in December of 2014. There were 149,703,000 employed persons a year later, for a net gain of about 2.8 million employed persons. The claimed unemployment rate, not seasonally adjusted is 4.8%.

But Wait!  

In November, 2015, there were 149,766,000 employed persons, versus 149,703,000 the next month, implying that the USA actually LOST 63,000 jobs in one month! The headline for the news release for the jobs report for November, 2015, which was released in December, 2015, said, "Total nonfarm payroll employment increased by 211,000 in November, and the unemployment rate was unchanged at 5.0%."  It is not clear how 63,000 fewer actual jobs in December miraculously became 211,000 more jobs. Maybe it was the weather?

But wait! There is more! 

The total US labour force was 155,521,000 in December, 2014, and grew to 157,245,000 a year later, for an increase of about 1.7 million last year.  But we just saw above that the numbers from the US Bureau of Labor Statistics indicate that there were 2.8 million new jobs created last year.  

Get it? 1.7 million is smaller than 2.8 million - apparently, there were 1.1 million more new workers than the total number of new persons in the workforce last year! No, this doesn't make any sense.

What does stand out from these reports is that, of an available working population of about 252 million, about 95 million are not in the workforce at all.  Even deducting tens of millions of people who cannot work owing to, for example, disabilities and staying home with children, there is no way that equates to a 5% unemployment rate.

The swindle continues!

Oil...Buy NOW!!

It is time to to go long on oil.

For over a year, OPEC and Western frackers and others have been vying for market share of the world's oil market, with both of them losing tens of billions of dollars producing and selling oil into a market that is only paying a fraction of their costs. OPEC is about to capitulate, by curbing supply to force prices up and save themselves at least for now. In the longer run, we are looking at the dawn of the age of cheap oil, at least compared to what we have been used to over the last decade.

Look at what happened only 8 years ago.


The price of oil rose to over $140 a barrel in the summer of 2008, only to collapse to well below $40 a barrel five months later.  All that was needed to drive the price up again to $80 a barrel within a year, and to over $120 a barrel by the end of 2010, was a fractional cut in production by OPEC. See here for how a 5% cut in production by OPEC reversed the last price slide, illustrating how a small cut in oil supply will drive a very big price appreciation in oil.

http://www.nytimes.com/2009/01/26/business/worldbusiness/26opec.html?_r=0

OPEC knows that this time the stakes are bigger. If they cut production, they will lose market share to the frackers and others in the long term. But their medium term prospects are too bleak to accept without some sort of a policy response. What are those medium term prospects? At present prices, some OPEC countries are already bordering on bankruptcy, and even Saudi Arabia could be out of money by 2020 (See immediately below). This would spell massive internal turmoil in these countries where the political classes have bought loyalty with oil money for decades.

http://www.news.com.au/finance/economy/world-economy/imf-predicts-saudi-arabias-cash-reserves-will-deplete-in-five-years/news-story/6cbff89b30916056744ed541c35d97fa

OPEC has way more to lose from this battle than their opponents do. They have been fighting it out to protect market share with below cost oil for over a year, and they will not continue to do this for much longer. With 600,000 barrels of Iranian oil about to flood the market, the time is ripe for OPEC to get together for one last massive manipulation of the world's most manipulated commodity (except for Gold?).

OPEC is not supposed to meet again until June, but Venezuela is clamouring for a meeting as soon as possible, and Iraq has been offering to  arrange a meeting to smooth relations between Iran and Saudi Arabia. If these countries meet for ANY reason, it will only be about cutting the supply of oil to world's markets to drive up the price. In fact, I suspect that they will meet in secret to get this done, as they will not want to advertise this manipulation to their opponents.

In short, continuing to think that the price of oil will stay low is the same as thinking that Saudi Arabia, Venezuela, Russia, Iran, Iraq and others are comfortable with the prospects of national bankruptcy within the next very few years. Of course, they will not stand pat and let this happen if they can possibly prevent it. The price is going up again...soon.

A Positive Post on the US Economy!!

I've been accused of being all about doom and gloom. I think I just call things as I see them...I'm probably wrong! Here is a positive economic post to try to right the balance. The focus, as always, is on the economy that matters the most.

What is going well?

1. Employment Growth: The USA has created millions of jobs in the last few years. In 2015, the economy created a net 2.5 million new jobs. These are not the heavily manipulated seasonally adjusted figures ("Manipulated" I say?  If you take the seasonally adjusted numbers out of the most recent US jobs report, the net new jobs created in December was not the headline figure of 292,000, but only 11,000!)

In December 2014, there were about 147,200,000 employed people in the USA.  Last month there were 149,700,000 employed persons. There is no question tat the USA is finally creating a significant number of jobs after the recovery took almost four years to get started. The jobs are mostly second-rate, but that is a separate issue.  With 3 - 4 more years like this, the USA will make significant inroads into the 45 million people who are now living on Food Stamps (NB - in 2008, there were 28 million people living on Food Stamps in the USA. This number rose through the recovery to 46.5 million in 2012, and to higher than 47 million in 2013, but has finally eased back by about 2 million to just over 45 million today.)

Personal Debt Levels: The Americans have been paying off personal debt for the last five years. From a high of about 130% of net income in 2009, US personal debt is now down to about 105% of net income. This is in stark contrast to the Canadian situation, and has much to do with the fact that the Canadian housing bubble has yet to burst. American consumers are much better position to participate in a recovery than they were five years ago.



Personal Savings Rates: In 2008, Americans were saving about 2.8% of their net income.  Today they save about 5.5%, in spite of the lowest interest rates in history, and a concerted effort on the part of the US Federal Reserve to discourage this saving.  Increased savings coupled with debt repayment has put the average American in a much better financial situation five years after the recession than they were in 2009.

Productivity: While it has been negative from time to time since 2009, and while its growth has slowed, US productivity, which with population growth is the long term indicator of economic growth, is still growing. Americans have been and continue to be the most productive people on Earth. Constantly growing US productivity strongly suggests much better days ahead for the US economy. There are significant challenges here, but the story is still positive.


Federal Budget Deficit: The American financial house is getting back in order, largely because the USA has stopped fighting wars in Afghanistan and Iraq, reducing the number of military personnel deployed from over 200,000, to about 20,000.  From a deficit of almost $1.5 Trillion in 2009, the US budget deficit is now about $450 Billion. If Obama had been willing to force some tax increases and cut spending, I think he could have left a balanced budget as a significant personal legacy. The USA is now much better positioned to respond to another crisis than it was in 2009.



The next post will outline the policies that can be implemented TODAY that will have a very significant positive impact on the US economy, putting millions or people back to work while raising real income levels that have not really gone In in 25 years, and also causing some inflation so as to make Federal Reserve policy relevant and effective again. Stay tuned.

See!  I'm not all doom and gloom after all!!

US Inflation???

Over the last year, import prices for goods coming into the USA are down 8.2%. Prices for goods exported from the USA are down 6.5%. The drop in import prices has not been this severe since just before the Great Recession in 2008.  The drop in export prices is a record....these prices have not dropped this much since records were first kept in 1989. This is not all the fault of oil. Prices for finished goods and consumer goods are also lower.

This all suggests that the USA will soon see a serious bout of deflation - the type of thing you see in economic depressions. It suggests that a new recession is imminent, if it hasn't already begun. If true, this will hopefully last only the first three months of the year, which is what happened in 2014 and 2015.

The US Fed will raise interest rates again. They will be raising them when we are starting to see very significant deflationary pressures in the USA. Having badly mismanaged monetary policy since the Great Recession, they are out of options. Raising rates now will only make this worse.

Yes, this is all glum. A more positive post will follow focussing on US jobs growth, and personal debt levels, which are both good news stories. But I'm not getting back into the equities and bond markets again any time soon.

Why I Will Win Powerball!!!!

I don't have a ticket.  It doesn't matter.

Just last night, I was watching tv, and an alligator walked into my livingroom.

Then a herd of elephants roamed in.

I reached for a gold club to beat them off, and lightning struck.  I was OK.

The odds of this happening, given that I live in Canada, where there are no alligators or elephants, are one in 292.2 million.

Don't buy a ticket.  You're wasting your money.  I collect my prize tomorrow.



Plus...



Plus...



Equals...

Watch This...

https://www.youtube.com/watch?v=7nuzT3rchPU

If you still have your money in stocks and bonds after watching this shocking admission, you can't say you were not warned.

Desperate Measures and the Logic of Crowds

China's stock market collapsed again yesterday, until the stock market, at the behest of the government, intervened to stop the slide.  Today we have learned that that government-controlled entities have been directed to buy stock, while major shareholders, officers and directors of companies will continue to be barred from selling.

Six month ago, these people were barred from selling their shares in order to prevent the CSI 300 index from sliding even more than the 30% drop it had experienced in the six weeks before that. The ban was due to expire on January 8th, and in anticipation of a mass bail-out by persons who had been banned from selling for the previous half-year, investors did the logical thing, and sold in advance of the expected decline. The result was a 7% drop in the CSI 300 index in a few short hours, dragging markets down world-wide.

China's economy is slowing, and may actually be in recession. Industrial production has declined for almost half a year. The massive real estate bubble there is imploding. The government devalued the Yuan last summer, and took further measures to reduce the value of the Yuan again yesterday, obviously in the hopes of sparking growth. It is way too little, way too late.

China cannot experience a recession, as this could put the Chinese Communist Party's control of the country in jeopardy.  Nonetheless, a recession is either already here, or is looming, with the potential to throw tens of millions of people out of work, and cost millions more their life savings. China's political system has no way to deal with this type of crisis, because, unlike in the democracies, there is no legitimate avenue for debate and dissent to channel the anger and desperation that will come from all of this. 

A tyranny on the ropes is a dangerous thing.  The most obvious response of the Chinese Communists may be a military adventure in the South China Sea to stir nationalism, and deflect from internal economic woes. Let's hope that cooler heads prevail.

Predictions, Predictions!

Welcome to the end of 2015!  2016 will evolve as follows, in no particular order...

Sports:

Superbowl - Patriots.

Stanley Cup - The Leafs and Canadiens will make the playoffs, but Ottawa will not.  The winner will be the Chicago Black Hawks, again, cementing their dynasty.

Grey Cup - Ottawa RedBlacks.

World Series - The Blue Jays will win 88 games, but will come third in the AL East and not make the playoffs. The Cubs will beat the Red Sox in six games to win the World Series. Hell will freeze over.

Commodities:

Oil - Will slowly rise to $40 a barrel in the first part of the year, then rise sharply to $75 a barrel by the end of the year as countries like Saudi Arabia tighten supply to cause a price rise and stave off bankruptcy. There is a tug of war going on now between the US fracking industry and OPEC. OPEC will blink, and oil prices wiil rise.

Gold - Will dip early in the year in response to rising interest rates and currency appreciation in the USA to just under $1,000 an ounce, but will rise sharply starting near the end of the Summer in response to world economic turmoil to over $1,200 an ounce.

Copper - The world's economic canary in the coal mine will drop below $2.00 a pound, which is lower than it was during the recent Great Recession, implying that that recession is either back, or never really ended.

Economies:

World - The world will flirt with recession, with growth no higher than 1.5 - 2% as the USA and China stumble, and recession takes hold in Japan.  It will slowly sink in that the Great Recession never really ended, and that massive monetary and fiscal stimulus has only postponed its effects.

US - There will be a significant economic decline in the first quarter of 2016, mirroring what happened in the last two years, followed by very slow growth in subsequent quarters. Overall, expect about 1% growth in the USA next year, and an unemployment rate that rises slightly. Business profits will be flat, causing significant turmoil in the stock markets. The USA will flirt with deflation, and the housing market will decline.

Canada - The housing bubble will start to collapse in Toronto and Vancouver as new rules regarding investments over $500 K start to take hold, and the era of free money appears to come to a close. The collapsing bubble will throw tens of thousands of construction workers and real estate-related employees out of work, causing a significant spike in the unemployment rate to over 8%. The federal deficit will top $20 billion, and Ontario will face a significant debt ratings downgrade.  Unlike in the USA, Canada will experience some inflation.

China - It will become obvious that China has not really been experiencing economic growth for at least a few years as demonstrations start to erupt over economic conditions, such as collapsing house prices, and mass firings that have not been reported.  The government will shoot people.

Markets - Stock markets worldwide will end the year down a minimum of 10% as the tremendous volatility that we witnessed in 2015 continues, and investors get used to the end of free money in the USA and the start of the era of zero growth (which actually started five years ago).  Fear and Greed have been fighting it out in the markets all through 2015 - Fear will win in 2016.  At one point, markets will be down 25%.

International Politics:

ISIS - The caliphate in Iraq will collapse later in the year as its income is squeezed because of Russian attacks against oil tanker convoys that are their financial life-blood, and the Sunnis throw them out hoping to set up their own separate state in North Western Iraq.  Russia's successful war on ISIS, coupled with its surprise punishment of "rogue soldiers" as part of its response to the destruction of Flight MH-17, will be the genesis of a new rapprochement with the West.

Europe - The united continent will stagger from debt crisis to debt crisis, with countries like Spain and Portugal, and even Belgium joining Greece in questioning the policy of perpetual austerity. Britain will vote to stay in the Eurozone, but the British referendum will do significant damage to the EU by exposing its very tenuous underpinnings - basically, limited German money paying for loyalty, where everyone is in it for whatever they can get.  Europe will look more like a temporary and optional experiment, where it is actually supposed to look like a permanent solution to 2000 years of continental division. Refugees will continue to swamp the continent, exposing the scourge of European nationalism just under the surface like at no time since WW2.

Asia - There will be a military confrontation in the South China Sea between China and Japan/The Philippines/Vietnam/South Korea over the building of new islands there by China for the purpose of claiming ownership of the entire region.  The subtle purpose of this will be the deflect the attention of Chinese citizens from a seriously deteriorating economic situation.  There will be no resolution to the dispute which will continue to simmer.

USA - Hillary Clinton will become President of the USA.  Her administration will be known as the most divisive since the days of the Industrial North versus the Antebellum South.  She will be a one-term president, after which a new political party will emerge in the United States uniting hitherto independents against the now clearly bought-off Republicans and Democrats.

Saudi Arabia - The alliance of the West with Saudi Arabia will break down as the  economic war between the frackers in the USA versus OPEC supersedes the War on Terror. The Saudis will turn to China.

National Politics:

Federal - There will be a referendum on democratic reform....in 2017.  Recall, Ranked Voting, and Elected Senate will win.

Drugs - There will be a strong movement to decriminalise all drugs, after legalizing Pot.

Foreign Real Estate - There will be anew requirement to report foreign purchases of real estate.

Other - No comment.

Crime:

Banksters - World bankers will be caught widely manipulating the requirement that they hold certain minimum reserves to insure against runs on the banks.

Terror - There will be more terror attacks in the West....many more plots will be foiled.

USA - There will be more mass murders in the USA...gun laws will not be significantly changed.

Rates - Overall crime rates will continue to decline everywhere in the West as the various populations age.