To All iPass Employees/Consultants:
Yesterday, the World Health Organization (WHO) raised the swine influenza pandemic alert to Phase 5, signaling a significant increase in the risk of a global epidemic.
Our first concern is for the safety of our employees. While no cases of swine flu have been reported at iPass, within the office environment you are encouraged to use appropriate precautionary measures, including: regularly wash your hands for at least 20 seconds (alcohol-based hand sanitizers are also effective), proper cough etiquette (cough into your elbow and not your hands) and avoid touching your eyes, nose and mouth as germs spread that way. We encourage all employees to monitor their personal health and seek medical evaluation should you have any flu-like symptoms. If you get sick, please stay home and limit contact with others and seek medical attention as appropriate.
iPass will continue to monitor the guidance of the Centers for Disease Control and Prevention (CDC), the WHO and other appropriate agencies and will keep you informed.
For additional information:
World Health Organization
http://www.who.int/en/
==============================================================
IMF Gold Power Grab
Thursday, April 30, 2009
Wednesday, April 29, 2009
"Be not deceived, God is not mocked. Whatever a man sows, he shall also reap."
Dear Options Traders,
China's not buying Treasuries -- they're buying gold... Australia "well positioned" to exit the crisis... United Kingdom getting ahead of the pack... United States -- the bubble gum corollary... Eurozone: a crisis of credibility... and more!
Welcome to this week's edition of the wrap-up, where you get the economic news in perspective, and measures to profit and protect yourself. Our boat is ready to sail, the wind is up, so let's lift anchor and start cutting through the swells.
We’ll begin with one of my favorite analogies. Actually, it's not mine; St. Paul wrote it first.
"Be not deceived, God is not mocked. Whatever a man sows, he shall also reap."
It's as plain as day to those who will see it. As spring has sprung in our little corner of the world, it is time to put in the garden. I got it turned under yesterday, and the soil was soft and warm. I'm very partial to fresh tomatoes, green beans, squash and peppers. But this year, I also put in some asparagus. But it doesn't matter what I plant -- the harvest has a certain number of laws that are always true.
First, what I plant is what I am going to harvest.
I cannot plant green beans and watch for peas to come up. I can't plant lima beans and expect tomatoes. Whatever I plant, that's what I'm gonna get. So I better make sure I'm planting what I want.
The second law of the harvest states that whatever I plant, I'm going to harvest in multiple. I don’t expect to plant one bean and get one bean in return. I expect to plant a bean, then get a bush, then harvest 50-60 bean pods from that bush. Inside each pod may be five individual beans. In essence, I should expect a large return on my planting.
St. Paul says this is true of all of life. And it is especially true in economics and fiscal policy. We will harvest what we sow. And we'll get a lot more of it than what we started with. Just keep that in mind for now, and I'll draw it all together by the time we're finished.
From the Orient last week, we had some interesting news and a sea change. The Chinese, upon whom we have long cast our hopes of producing cheap, little things that we could not afford to buy, are changing their game plan. Up until now, we would buy their doodads, and in return they would buy our Treasuries. Now it seems something a little more glittery, and a lot more stable, has caught their eye.
While we have been ooohhhing and aaahhhing at their widgets, they have been buying a little bit of gold. Six hundred tonnes, actually. They have increased their gold reserves roughly 75% in the last six years -- or 100 tonnes per year. In amassing their hoard, they have quietly moved into fifth place among the gold-holding nations of the world.
As of the end of last year, the United States was still leading the gold holders with 8,133.5 tonnes. So all in all, the Chinese are not even close our holdings -- but they are "movin' on up"! By the way, Germany, the International Monetary Fund and France fill in positions 2, 3 and 4.
At the same time, China is reportedly also about to release its second round of stimulus, which will be centered on the country’s infrastructure. So it is time to really start watching the countries that will bring the necessary raw materials to China’s markets.
Of course, the first country that pops into my mind on that front is Australia. And the Australians seem to realize it, too. Officials there stated this week that they are "well positioned" to emerge from the present crises. They are, of course, among the higher yielders presently, and their commodity position will help ensure their strength going forward. More on that in a bit.
As we head closer to home, we have just more bad news pouring out of the United Kingdom, the United States and the Eurozone.
Britain’s Chancellor of the Exchequer, Alistair Darling, announced last week the biggest budget deficit in the United Kingdom since World War II. Now, when a person or a family has a deficit — that is, more bills to pay than they have money — the solution is fairly straightforward. They have to get a job, get a better job, get a second job, get their wife a job or hire out their kids. In other words, you have to generate more income. As a rule, you generate more income by more work.
The problem that the United Kingdom now faces is that many of its people are out of work. There are 2.1 million unemployed, the highest rate in 12 years.
Without workers working, how do you pay off a debt or fund a deficit? If it were you or me, we might have a yard sale. Or we might decide to give up that extra car -- reduce the associated expense and get a capital return on the sale. At any rate, we would try to sell something that would generate money to pay our shortfall. Or we could borrow and hope for better days ahead.
Governments take the latter two choices and meld them together to create bonds. The bond represents a debt, but the government can sell them like an asset. In the United Kingdom, they are called gilts. Gotta sell 'em. Gotta raise more money. The question is, what happens if people or institutions lose faith in the bonds? What will that mean for the sterling? And when they cannot sell enough to meet the shortfall, what then?
While we're on that question, let's ask the same thing about the U.S. dollar. Yes, the United States has more than twice the gold reserves of our second nearest competitor, and 8 times the reserves of China. But when the United States is selling bonds like there is no tomorrow to finance our debt, the amount of gold becomes only a secondary consideration.
As has been warned for some time now, the Treasury is inflating a new bubble. And this is as simple to understand as a girl chewing bubblegum. All her bubbles inflate nicely. All the kids around her laugh as she blows each one bigger than the next. But when the big one explodes, and the little girl gets it caught in her hair, suddenly it's not so fun anymore.
The only thing more unsightly is to see a bearded man who blows a bubble and has it pop all over his facial hair. First of all, a grown man ought to know better, so nobody has any real pity on him. Second of all, he should probably take up a more manly habit, like chewing tobacco or something. At any rate, no matter how you measure the manliness of Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner, they both should know better.
Here comes my mantra: Read a history book. Then read a math book. Even a little, bubblegum-blowing girl in pigtails knows you can't spend your way into making money.
This week the Treasury is auctioning off an additional $100 billion in T-bills: $40 billion of the two-year, $35 billion of the five-year and $26 billion of the seven-year. Here's the $100 billion question: Will the Treasury have to raise the rates on these in order to sell them? Will they be scarfed up as in days gone by? Or will potential buyers see the shine begin to fade from U.S. debt? This is where the rubber meets the road, folks. Is it the beginning of the end? Only time will tell.
However, in the short term, which seems to be the only horizon of modern investors, the swine flu may have pulled the Treasury's bacon out of the fire, if you will pardon the pun. As uncertainty rises around the word "pandemic,” money has flocked back to the dollar. I have a conspiracy theorist friend who enjoys the program "24.” His theory is that the current deadly flu bug has been bio-engineered to be released in concurrence with the latest Treasury sale. May not be true, but I think it has the makings of a great book... or maybe even a "24" episode!
Speaking of revolutionary tactics, Tuesday was National Petition Delivery Day for the National Taxpayers Union and The Campaign for Liberty (C4L), Ron Paul's organization. They are delivering hundreds of thousands of petitions to Capitol Hill to push for HR 1207, Dr. Pauls' legislation to audit the Federal Reserve. Go, Ron, go! They were aiming for 100 co-sponsors of the bill. As of yesterday they had 91. Somebody is getting a whiff of the political change in the winds...
As we talk of all this Treasury selling, it is worthwhile to see where we stand in terms of our debt count. France’s is predicted to rise to 8% of GDP this year. The United Kingdom will see a rise to 10%. The United States, a rise to 13%. However, if we take a look at all publicly held debt in the United States, we stand at 40.8% of our GDP. If you think of it this way, it's kind of helpful. If your income is $50,000 a year, and all your debt is $20,000 (including mortgage, cars, school loans and credit cards), you'd probably say that's not too bad. But what if your interest was rising and your income was falling?
Essentially, that's exactly what is happening to the United States. On top of which, they are spending way more than $50,000 per year. So now your accountant comes to you and says there is no end in sight to this cycle. Your interest is adding to your debt. Your income is falling and you are borrowing more every year. If he said that your total debt would rise to 82.5% of your income over the next 10 years, would you be worried?
If you are like many Americans, probably not.
If you are like the majority of home-owning Americans under 50 years of age -- definitely not!
Your mortgage is probably twice the size of your income now, and it seems manageable. But it isn't manageable if you become unemployed, or under-employed, or if you have to take a salary reduction. This is what's happening in major currency countries all around the globe. Income (as measured by GDP) is falling. Interest is growing, and nations are borrowing to keep up with exploding social costs.
Also of note last week here in the United States was the reversal in durable goods orders. They were down -0.8%. Pretty bad, huh? Not if you're Wall Street. The expectation was for a negative figure twice that amount. So... the people rejoiced! Stocks re-inflated, and that has carried over this week to consumer confidence. It came in yesterday morning at 39.2, versus the March figure of 26.9. And the people rejoiced... again!
A very similar phenomenon just occurred in Germany from the Eurozone. After six weeks of stocks climbing in a rebound, investor sentiment rose dramatically. It was up to 13 from a -3.5 reading in March. A turnaround of over 16 points! So if the world is going to hell in a hand basket... what gives?
In reality, most sentiment indexes are worthless now. Markets still place a great amount of weight on them, but they belong to an old paradigm that is passing. The fundamental analysis of sentiment and confidence indexes was that the better people felt about the economy, the more they would spend. The better they felt about the market, the more they would invest. But it's different now. People are all spent out. Their credit cards are maxed. Their incomes are dropping. Their home equity lines of credit are being cancelled and reduced. They have no savings to spend.
So it doesn't matter if consumer confidence and business sentiment were to shoot to 1 million. It doesn't matter if everybody feels great. If there's no money to be spent, then all the hoopla over sentiment and confidence is wasted. There is no one to drive demand. So while the markets still rejoice when such indexes are up, before long we will come to see that such figures have very little meaning.
It's rather like what the European Central Bank says. The Eurozone is beginning to suffer from a real credibility crises.
They were the last to recognize the great deflation. Their poor economic foresight had them raising rates in July 2007, when the rest of the world was falling. Few, if any, pieces of poor economic forecasting have ever been worse than that.
The United States had been dropping rates for a year, and the ECB still refused to see what was going on. They failed to accurately predict their own exposure to U.S.-related credit problems. The last 12 months have seen them go from paragons of stalwart anti-inflationism to the verge of 1% rates and the consideration of qualitative easing.
It is thus important to watch what they do and not what they say. But as of now, the political tensions and divisions are hampering any collective ability to address the crisis. Which is one reason why I look for more euro weakness ahead. And in a last admission of failure, they have begun talks on "non-standard monetary policy.” More info to come in May. But it doesn't look good…
So how is all this involved with planting and harvesting?
The bottom line is this: What is true of an individual is true multiplied times over for a nation. What we sow, we shall reap, and a lot more of it than what we started with.
While nations race to devalue their currencies, they are planting the seeds of a future harvest. And we will reap what we sow -- a more devalued currency. Only in multiplied form. How does a nation like Zimbabwe, the bread basket of Africa, with nominal inflation rates equal to those in developed countries, end up with an inflation rate that is beyond comprehension? They're reaping what they sowed.
How will the United States, United Kingdom and Eurozone go from deflation to devaluation? By reaping what we sow. The fix is in. The game is afoot. The clock is ticking, and the bomb is being loaded with more explosives.
What to do...
Actually, it isn't that hard to figure out. Value will always go where it is well treated. When currency is devalued, the value flows into something else. It flows into what is being purchased. And as our friend Alan Knuckman of Resource Trader Alert says, it all comes back to commodities. People will still need to buy oil. They will still want gold and silver. They will still want food. Even a man with a devalued currency has to eat. So does his family. Look for prices to rise in these goods and the countries that produce them efficiently. This is why we will remain long the Aussie, and oscillate on the others as they show some profit opportunity. While our long-range forecast for the dollar, sterling, euro and yen are down... they will still offer opportunities on both sides of the trade in the meantime. But longer term, we wait to see who breaks first, and where the great run will begin. We know it will. For what a nation sows, it will reap.
China's not buying Treasuries -- they're buying gold... Australia "well positioned" to exit the crisis... United Kingdom getting ahead of the pack... United States -- the bubble gum corollary... Eurozone: a crisis of credibility... and more!
Welcome to this week's edition of the wrap-up, where you get the economic news in perspective, and measures to profit and protect yourself. Our boat is ready to sail, the wind is up, so let's lift anchor and start cutting through the swells.
We’ll begin with one of my favorite analogies. Actually, it's not mine; St. Paul wrote it first.
"Be not deceived, God is not mocked. Whatever a man sows, he shall also reap."
It's as plain as day to those who will see it. As spring has sprung in our little corner of the world, it is time to put in the garden. I got it turned under yesterday, and the soil was soft and warm. I'm very partial to fresh tomatoes, green beans, squash and peppers. But this year, I also put in some asparagus. But it doesn't matter what I plant -- the harvest has a certain number of laws that are always true.
First, what I plant is what I am going to harvest.
I cannot plant green beans and watch for peas to come up. I can't plant lima beans and expect tomatoes. Whatever I plant, that's what I'm gonna get. So I better make sure I'm planting what I want.
The second law of the harvest states that whatever I plant, I'm going to harvest in multiple. I don’t expect to plant one bean and get one bean in return. I expect to plant a bean, then get a bush, then harvest 50-60 bean pods from that bush. Inside each pod may be five individual beans. In essence, I should expect a large return on my planting.
St. Paul says this is true of all of life. And it is especially true in economics and fiscal policy. We will harvest what we sow. And we'll get a lot more of it than what we started with. Just keep that in mind for now, and I'll draw it all together by the time we're finished.
From the Orient last week, we had some interesting news and a sea change. The Chinese, upon whom we have long cast our hopes of producing cheap, little things that we could not afford to buy, are changing their game plan. Up until now, we would buy their doodads, and in return they would buy our Treasuries. Now it seems something a little more glittery, and a lot more stable, has caught their eye.
While we have been ooohhhing and aaahhhing at their widgets, they have been buying a little bit of gold. Six hundred tonnes, actually. They have increased their gold reserves roughly 75% in the last six years -- or 100 tonnes per year. In amassing their hoard, they have quietly moved into fifth place among the gold-holding nations of the world.
As of the end of last year, the United States was still leading the gold holders with 8,133.5 tonnes. So all in all, the Chinese are not even close our holdings -- but they are "movin' on up"! By the way, Germany, the International Monetary Fund and France fill in positions 2, 3 and 4.
At the same time, China is reportedly also about to release its second round of stimulus, which will be centered on the country’s infrastructure. So it is time to really start watching the countries that will bring the necessary raw materials to China’s markets.
Of course, the first country that pops into my mind on that front is Australia. And the Australians seem to realize it, too. Officials there stated this week that they are "well positioned" to emerge from the present crises. They are, of course, among the higher yielders presently, and their commodity position will help ensure their strength going forward. More on that in a bit.
As we head closer to home, we have just more bad news pouring out of the United Kingdom, the United States and the Eurozone.
Britain’s Chancellor of the Exchequer, Alistair Darling, announced last week the biggest budget deficit in the United Kingdom since World War II. Now, when a person or a family has a deficit — that is, more bills to pay than they have money — the solution is fairly straightforward. They have to get a job, get a better job, get a second job, get their wife a job or hire out their kids. In other words, you have to generate more income. As a rule, you generate more income by more work.
The problem that the United Kingdom now faces is that many of its people are out of work. There are 2.1 million unemployed, the highest rate in 12 years.
Without workers working, how do you pay off a debt or fund a deficit? If it were you or me, we might have a yard sale. Or we might decide to give up that extra car -- reduce the associated expense and get a capital return on the sale. At any rate, we would try to sell something that would generate money to pay our shortfall. Or we could borrow and hope for better days ahead.
Governments take the latter two choices and meld them together to create bonds. The bond represents a debt, but the government can sell them like an asset. In the United Kingdom, they are called gilts. Gotta sell 'em. Gotta raise more money. The question is, what happens if people or institutions lose faith in the bonds? What will that mean for the sterling? And when they cannot sell enough to meet the shortfall, what then?
While we're on that question, let's ask the same thing about the U.S. dollar. Yes, the United States has more than twice the gold reserves of our second nearest competitor, and 8 times the reserves of China. But when the United States is selling bonds like there is no tomorrow to finance our debt, the amount of gold becomes only a secondary consideration.
As has been warned for some time now, the Treasury is inflating a new bubble. And this is as simple to understand as a girl chewing bubblegum. All her bubbles inflate nicely. All the kids around her laugh as she blows each one bigger than the next. But when the big one explodes, and the little girl gets it caught in her hair, suddenly it's not so fun anymore.
The only thing more unsightly is to see a bearded man who blows a bubble and has it pop all over his facial hair. First of all, a grown man ought to know better, so nobody has any real pity on him. Second of all, he should probably take up a more manly habit, like chewing tobacco or something. At any rate, no matter how you measure the manliness of Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner, they both should know better.
Here comes my mantra: Read a history book. Then read a math book. Even a little, bubblegum-blowing girl in pigtails knows you can't spend your way into making money.
This week the Treasury is auctioning off an additional $100 billion in T-bills: $40 billion of the two-year, $35 billion of the five-year and $26 billion of the seven-year. Here's the $100 billion question: Will the Treasury have to raise the rates on these in order to sell them? Will they be scarfed up as in days gone by? Or will potential buyers see the shine begin to fade from U.S. debt? This is where the rubber meets the road, folks. Is it the beginning of the end? Only time will tell.
However, in the short term, which seems to be the only horizon of modern investors, the swine flu may have pulled the Treasury's bacon out of the fire, if you will pardon the pun. As uncertainty rises around the word "pandemic,” money has flocked back to the dollar. I have a conspiracy theorist friend who enjoys the program "24.” His theory is that the current deadly flu bug has been bio-engineered to be released in concurrence with the latest Treasury sale. May not be true, but I think it has the makings of a great book... or maybe even a "24" episode!
Speaking of revolutionary tactics, Tuesday was National Petition Delivery Day for the National Taxpayers Union and The Campaign for Liberty (C4L), Ron Paul's organization. They are delivering hundreds of thousands of petitions to Capitol Hill to push for HR 1207, Dr. Pauls' legislation to audit the Federal Reserve. Go, Ron, go! They were aiming for 100 co-sponsors of the bill. As of yesterday they had 91. Somebody is getting a whiff of the political change in the winds...
As we talk of all this Treasury selling, it is worthwhile to see where we stand in terms of our debt count. France’s is predicted to rise to 8% of GDP this year. The United Kingdom will see a rise to 10%. The United States, a rise to 13%. However, if we take a look at all publicly held debt in the United States, we stand at 40.8% of our GDP. If you think of it this way, it's kind of helpful. If your income is $50,000 a year, and all your debt is $20,000 (including mortgage, cars, school loans and credit cards), you'd probably say that's not too bad. But what if your interest was rising and your income was falling?
Essentially, that's exactly what is happening to the United States. On top of which, they are spending way more than $50,000 per year. So now your accountant comes to you and says there is no end in sight to this cycle. Your interest is adding to your debt. Your income is falling and you are borrowing more every year. If he said that your total debt would rise to 82.5% of your income over the next 10 years, would you be worried?
If you are like many Americans, probably not.
If you are like the majority of home-owning Americans under 50 years of age -- definitely not!
Your mortgage is probably twice the size of your income now, and it seems manageable. But it isn't manageable if you become unemployed, or under-employed, or if you have to take a salary reduction. This is what's happening in major currency countries all around the globe. Income (as measured by GDP) is falling. Interest is growing, and nations are borrowing to keep up with exploding social costs.
Also of note last week here in the United States was the reversal in durable goods orders. They were down -0.8%. Pretty bad, huh? Not if you're Wall Street. The expectation was for a negative figure twice that amount. So... the people rejoiced! Stocks re-inflated, and that has carried over this week to consumer confidence. It came in yesterday morning at 39.2, versus the March figure of 26.9. And the people rejoiced... again!
A very similar phenomenon just occurred in Germany from the Eurozone. After six weeks of stocks climbing in a rebound, investor sentiment rose dramatically. It was up to 13 from a -3.5 reading in March. A turnaround of over 16 points! So if the world is going to hell in a hand basket... what gives?
In reality, most sentiment indexes are worthless now. Markets still place a great amount of weight on them, but they belong to an old paradigm that is passing. The fundamental analysis of sentiment and confidence indexes was that the better people felt about the economy, the more they would spend. The better they felt about the market, the more they would invest. But it's different now. People are all spent out. Their credit cards are maxed. Their incomes are dropping. Their home equity lines of credit are being cancelled and reduced. They have no savings to spend.
So it doesn't matter if consumer confidence and business sentiment were to shoot to 1 million. It doesn't matter if everybody feels great. If there's no money to be spent, then all the hoopla over sentiment and confidence is wasted. There is no one to drive demand. So while the markets still rejoice when such indexes are up, before long we will come to see that such figures have very little meaning.
It's rather like what the European Central Bank says. The Eurozone is beginning to suffer from a real credibility crises.
They were the last to recognize the great deflation. Their poor economic foresight had them raising rates in July 2007, when the rest of the world was falling. Few, if any, pieces of poor economic forecasting have ever been worse than that.
The United States had been dropping rates for a year, and the ECB still refused to see what was going on. They failed to accurately predict their own exposure to U.S.-related credit problems. The last 12 months have seen them go from paragons of stalwart anti-inflationism to the verge of 1% rates and the consideration of qualitative easing.
It is thus important to watch what they do and not what they say. But as of now, the political tensions and divisions are hampering any collective ability to address the crisis. Which is one reason why I look for more euro weakness ahead. And in a last admission of failure, they have begun talks on "non-standard monetary policy.” More info to come in May. But it doesn't look good…
So how is all this involved with planting and harvesting?
The bottom line is this: What is true of an individual is true multiplied times over for a nation. What we sow, we shall reap, and a lot more of it than what we started with.
While nations race to devalue their currencies, they are planting the seeds of a future harvest. And we will reap what we sow -- a more devalued currency. Only in multiplied form. How does a nation like Zimbabwe, the bread basket of Africa, with nominal inflation rates equal to those in developed countries, end up with an inflation rate that is beyond comprehension? They're reaping what they sowed.
How will the United States, United Kingdom and Eurozone go from deflation to devaluation? By reaping what we sow. The fix is in. The game is afoot. The clock is ticking, and the bomb is being loaded with more explosives.
What to do...
Actually, it isn't that hard to figure out. Value will always go where it is well treated. When currency is devalued, the value flows into something else. It flows into what is being purchased. And as our friend Alan Knuckman of Resource Trader Alert says, it all comes back to commodities. People will still need to buy oil. They will still want gold and silver. They will still want food. Even a man with a devalued currency has to eat. So does his family. Look for prices to rise in these goods and the countries that produce them efficiently. This is why we will remain long the Aussie, and oscillate on the others as they show some profit opportunity. While our long-range forecast for the dollar, sterling, euro and yen are down... they will still offer opportunities on both sides of the trade in the meantime. But longer term, we wait to see who breaks first, and where the great run will begin. We know it will. For what a nation sows, it will reap.
Tuesday, April 7, 2009
Depression from Depression?
Reprint courtesy Agora Financial Reserve's Master FX Trader Options
WORK, UNEMPLOYMENT AND DEPRESSION
Last week the Bureau of Labor Statistics (BLS) released its jobs report for March. While the numbers were not out of line with expectations, we do need to repeat some well-worn caveats. Those who have been trading for a while are well aware of these, some may not be.
Government numbers are rarely what they seem. As my brother always says about the news, we know they're lying to us, we're just not always sure when or how much!
The expected number of job losses was 660,000. The headline number came in at 663,000. So far -- so good. Right? Right. But that's where the good news ends.
You see, 663,000 was just, in typical government fashion, the optimistic, sugar-coated version of the truth. It is a number commonly referred to as U-3. And it leaves a lot of stuff out.
For instance, imagine you’ve been unemployed for nearly a year now — and believe me, a lot of people have been. Imagine applying for job after job and being turned away. You’d get pretty tired of it, wouldn’t you? Maybe you’d even give up hope and stop looking.
Well, when you do, the magicians at the BLS declare that you’re no longer unemployed. But not because they step in to give you a cushy new job… but because you’re now considered a “discouraged worker.”
The BLS doesn’t include discouraged workers in its main unemployment numbers. Yet they don't just disappear. Even if they let their house go into default, they still need a place to live. Even if they are dining at a local soup kitchen or food pantry, they still have to eat.
U-3 also does not include the number of job seekers who have lost full time employment in a career position and have been forced to settle for part time work. So suppose you lost a six-figure job and are now working get a low hourly wage from Wal-mart a few hours a week. As far the BLS is concerned, you’re not unemployed — even if your earnings may make you feel like it.
Having fun yet? Because we’re still not done…
U-3 also does not include the monstrous revisions that the BLS has been making for prior months numbers. January’s revisions mark SIX STRAIGHT MONTHS of upwardly revised figures — done in such a manner that only those looking for them would see. Since it's not the "headline" figure, it gets little to no press. Additionally, five of the last six monthly revisions have been larger than the "acceptable margin of error" that the BLS maintains for itself of 5%!
The government has a less popularized figure of unemployment called U-6. It includes the discouraged workers, and those who have setled for part time work.
Now get this...the latest figure on U-6-- a mind blowing 15.6%! That is a full 80% more unemployment than what is fed to us by way of the headline number.
John Williams of ShadowStats, has estimated that number at 19.8%. This is critical, folks.
That’s because March marks 52 weeks from the time that the real downturn began last April. Unemployment benefits extend for up to 59 weeks. So in just over a month, these people are out of luck.
No one is sure how many people are in this boat. But even the most optimistic math reveals a grim picture.
Last April, there were officially 7.6 million people looking for work. Let's say 90% of them found jobs (although that is hardly likely). That leaves a staggering 700,000 people without a source of income next month. Nothing to spend in our consumer economy. And what little they had has now dried up.
Now multiply that over every month. So 700,000 more in May, then June, then July. Raise that to 950,000 in August. The numbers just keep climbing from there. Last month we reached 13.2 million people out of work. Of those, 25% (3.2 million) have been unemployed for six months or more.
When all of these people who have been aided along by their unemployment benefits come to the end of their rainbow and find no pot of gold, you better watch out. Things could turn really ugly in a hurry.
I point all this out for two reasons. One, so that you have a decent idea of what is really happening. And two, so that all of the misinformation out there can be put through some sensible filters and found to be nothing more than the Pollyanna-style foolishness it really is.
For instance, I recently read an economist who essentially believe all of the people running around shouting that the "sky is falling" are just absolutely uninformed. He said that the current job loss figures mean nothing, unless they are compared to the concurrent rise in the work force. Even now, he said, we are not approaching anywhere near the unemployment damage done in the 70s and 80s.
But here's the rub: with a nearly 90% rise in the work force since the 70s, we would need a 90% increase in the headline numbers from last month to make them parallel. Unless my math is wrong, the U-6 number is 85% of the U-3. The truth is, these numbers ARE bad, no matter how you slice and dice them. We are facing tidal wave of people with very little income.
PRICE DISCOVERY AND THE FUTURE OF CAPITALISM
On another note from last week, the Financial Accounting Standards Board (FASB), an "independent" agency that governs accounting, bowed to pressure from Washington to "reform" (read: corrupt) its accounting practices. (So much for independence...)
You have probably heard something about the abandoning of the "mark-to-market" practice of accounting, in favor of a new and improved "mark-to-model" means of accounting.
What's the difference... and why did Wall Street respond with glee? Well here it is.
With mark-to-market accounting, portfolio mangers had to list the value of their assets as what they could be sold at on the open market. This was a problem in the current environment. Since banks and fund mangers were holding assets that were falling in value, they were having trouble collaterizing these assets for loans or to list them for a profitable resale.
Their argument was that these bonds and mortgages were just as valuable as before. The only problem is that nobody wants them, so now they have to drop their price in order to make them saleable or to use them for collateral.
After all, most mortgages are not in arrears or in default. Therefore, we assume they will be paid in full. There is no need to mark them down as toxic assets or to market them with fire sale and distressed prices. If a man had a $750,000 mortgage, he still pays that to keep his house. So even if the "market value" fell to $400,000, he would still be paying off the old mortgage.
At first glance, it may sound like a reasonable assumption. But these days, it just doesn’t reflect reality. For instance, what if the man loses his job? Fifteen months ago, that was no real concern to anyone. Now there's a 1 in 5 chance it could be you. Or what if he just gets tired of paying $750,000 for a $400,000 house. Maybe he would just walk away and think about renting for awhile. After all, it's happening all over the country.
Thanks to the new rules, none of that matters. It takes a $400,000 house and says it is worth $750,000. And with that change, risk assessment goes right out the window.
To see what I mean, consider the bond market. Today a ten-year bond on GM can be purchased for 10 cents on the dollar, or at a 90% discount. Why? Because GM is on the brink of bankruptcy, and most investors realize that the risk of GM defaulting on its bonds in the next 10 years is almost 100%. So the bonds are price accordingly.
But if mark-to-model were in effect, things would be a different story. GE is still in business, and they have not yet defaulted on a debt payment. With this kind of thinking, the bond would be priced around 90 cents on the dollar.
This is the problem with the mark-to-model accounting plan.. It takes a 10-cent bond and says it is worth 90 cents. There is no risk or reality to the pricing mechanism. But since it appears that the collateral is worth far more than it was this time two weeks ago, the bank is worth more, its status is greater and its ability to borrow is greater. Welcome to Mr. Roger's "Land of Make-believe."
All these things will continue to weaken the foundation of an already crumbling dollar. It cannot stand like this forever, or even very long. It is true, we still serve as the world's reserve currency. But the dollar's days are numbered. Before very long we will know what that number is...
--------------------------------------------------------------------------------
Has God been surprised? Has he been blindsided? Does this make him drop his jaw in shock? Nothing is beyond his knowledge or out of his control so have no fear.
“Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.”- Philippians 4:6-7
WORK, UNEMPLOYMENT AND DEPRESSION
Last week the Bureau of Labor Statistics (BLS) released its jobs report for March. While the numbers were not out of line with expectations, we do need to repeat some well-worn caveats. Those who have been trading for a while are well aware of these, some may not be.
Government numbers are rarely what they seem. As my brother always says about the news, we know they're lying to us, we're just not always sure when or how much!
The expected number of job losses was 660,000. The headline number came in at 663,000. So far -- so good. Right? Right. But that's where the good news ends.
You see, 663,000 was just, in typical government fashion, the optimistic, sugar-coated version of the truth. It is a number commonly referred to as U-3. And it leaves a lot of stuff out.
For instance, imagine you’ve been unemployed for nearly a year now — and believe me, a lot of people have been. Imagine applying for job after job and being turned away. You’d get pretty tired of it, wouldn’t you? Maybe you’d even give up hope and stop looking.
Well, when you do, the magicians at the BLS declare that you’re no longer unemployed. But not because they step in to give you a cushy new job… but because you’re now considered a “discouraged worker.”
The BLS doesn’t include discouraged workers in its main unemployment numbers. Yet they don't just disappear. Even if they let their house go into default, they still need a place to live. Even if they are dining at a local soup kitchen or food pantry, they still have to eat.
U-3 also does not include the number of job seekers who have lost full time employment in a career position and have been forced to settle for part time work. So suppose you lost a six-figure job and are now working get a low hourly wage from Wal-mart a few hours a week. As far the BLS is concerned, you’re not unemployed — even if your earnings may make you feel like it.
Having fun yet? Because we’re still not done…
U-3 also does not include the monstrous revisions that the BLS has been making for prior months numbers. January’s revisions mark SIX STRAIGHT MONTHS of upwardly revised figures — done in such a manner that only those looking for them would see. Since it's not the "headline" figure, it gets little to no press. Additionally, five of the last six monthly revisions have been larger than the "acceptable margin of error" that the BLS maintains for itself of 5%!
The government has a less popularized figure of unemployment called U-6. It includes the discouraged workers, and those who have setled for part time work.
Now get this...the latest figure on U-6-- a mind blowing 15.6%! That is a full 80% more unemployment than what is fed to us by way of the headline number.
John Williams of ShadowStats, has estimated that number at 19.8%. This is critical, folks.
That’s because March marks 52 weeks from the time that the real downturn began last April. Unemployment benefits extend for up to 59 weeks. So in just over a month, these people are out of luck.
No one is sure how many people are in this boat. But even the most optimistic math reveals a grim picture.
Last April, there were officially 7.6 million people looking for work. Let's say 90% of them found jobs (although that is hardly likely). That leaves a staggering 700,000 people without a source of income next month. Nothing to spend in our consumer economy. And what little they had has now dried up.
Now multiply that over every month. So 700,000 more in May, then June, then July. Raise that to 950,000 in August. The numbers just keep climbing from there. Last month we reached 13.2 million people out of work. Of those, 25% (3.2 million) have been unemployed for six months or more.
When all of these people who have been aided along by their unemployment benefits come to the end of their rainbow and find no pot of gold, you better watch out. Things could turn really ugly in a hurry.
I point all this out for two reasons. One, so that you have a decent idea of what is really happening. And two, so that all of the misinformation out there can be put through some sensible filters and found to be nothing more than the Pollyanna-style foolishness it really is.
For instance, I recently read an economist who essentially believe all of the people running around shouting that the "sky is falling" are just absolutely uninformed. He said that the current job loss figures mean nothing, unless they are compared to the concurrent rise in the work force. Even now, he said, we are not approaching anywhere near the unemployment damage done in the 70s and 80s.
But here's the rub: with a nearly 90% rise in the work force since the 70s, we would need a 90% increase in the headline numbers from last month to make them parallel. Unless my math is wrong, the U-6 number is 85% of the U-3. The truth is, these numbers ARE bad, no matter how you slice and dice them. We are facing tidal wave of people with very little income.
PRICE DISCOVERY AND THE FUTURE OF CAPITALISM
On another note from last week, the Financial Accounting Standards Board (FASB), an "independent" agency that governs accounting, bowed to pressure from Washington to "reform" (read: corrupt) its accounting practices. (So much for independence...)
You have probably heard something about the abandoning of the "mark-to-market" practice of accounting, in favor of a new and improved "mark-to-model" means of accounting.
What's the difference... and why did Wall Street respond with glee? Well here it is.
With mark-to-market accounting, portfolio mangers had to list the value of their assets as what they could be sold at on the open market. This was a problem in the current environment. Since banks and fund mangers were holding assets that were falling in value, they were having trouble collaterizing these assets for loans or to list them for a profitable resale.
Their argument was that these bonds and mortgages were just as valuable as before. The only problem is that nobody wants them, so now they have to drop their price in order to make them saleable or to use them for collateral.
After all, most mortgages are not in arrears or in default. Therefore, we assume they will be paid in full. There is no need to mark them down as toxic assets or to market them with fire sale and distressed prices. If a man had a $750,000 mortgage, he still pays that to keep his house. So even if the "market value" fell to $400,000, he would still be paying off the old mortgage.
At first glance, it may sound like a reasonable assumption. But these days, it just doesn’t reflect reality. For instance, what if the man loses his job? Fifteen months ago, that was no real concern to anyone. Now there's a 1 in 5 chance it could be you. Or what if he just gets tired of paying $750,000 for a $400,000 house. Maybe he would just walk away and think about renting for awhile. After all, it's happening all over the country.
Thanks to the new rules, none of that matters. It takes a $400,000 house and says it is worth $750,000. And with that change, risk assessment goes right out the window.
To see what I mean, consider the bond market. Today a ten-year bond on GM can be purchased for 10 cents on the dollar, or at a 90% discount. Why? Because GM is on the brink of bankruptcy, and most investors realize that the risk of GM defaulting on its bonds in the next 10 years is almost 100%. So the bonds are price accordingly.
But if mark-to-model were in effect, things would be a different story. GE is still in business, and they have not yet defaulted on a debt payment. With this kind of thinking, the bond would be priced around 90 cents on the dollar.
This is the problem with the mark-to-model accounting plan.. It takes a 10-cent bond and says it is worth 90 cents. There is no risk or reality to the pricing mechanism. But since it appears that the collateral is worth far more than it was this time two weeks ago, the bank is worth more, its status is greater and its ability to borrow is greater. Welcome to Mr. Roger's "Land of Make-believe."
All these things will continue to weaken the foundation of an already crumbling dollar. It cannot stand like this forever, or even very long. It is true, we still serve as the world's reserve currency. But the dollar's days are numbered. Before very long we will know what that number is...
--------------------------------------------------------------------------------
Has God been surprised? Has he been blindsided? Does this make him drop his jaw in shock? Nothing is beyond his knowledge or out of his control so have no fear.
“Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.”- Philippians 4:6-7
Today's passage is from the New International Version.
Listen to this chapter Audio is taken from the Listener's Audio Bible narrated by Max McLean.
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