Saturday, January 09, 2010

The Drop in Unemployment that is NOT

There was quite a bit in the news last about a drop in unemployment. This was a convenient fiction. It got some people some good publicity and others a bump up in their stock portfolio. The economy continues to shed jobs, although at a slowing rate. Worse news is that we continue to shed manufacturing jobs (although at a slowing rate). We can make unlimited gains in all other sectors, and if we don't gain manufacturing jobs, we will never prosper. Understanding that the population continues to grow, even if the economy were shedding zero jobs, the number of unemployed would continue to rise.

Unemployment remains steady?

Why? It merely means this recession has gone on long enough that a lot of people are dropping off of the back side of the safety net. They are no longer counted. I said, a couple of months ago, that there is about 7 percent unemployment unaccounted for in the official numbers. That "uncounted" unemployment is slowly rising towards 8%, and from what I have read, it may pass 8% this month. This problem may be further masked by a temporary hiring of over a million temporary government workers for the census, the first half of 2010.

When the economy really does improve, many of the formerly fully employed will find themselves scratching for crumbs while working one or two part time or temporary jobs. Real improvement at all levels of our society is not yet even in sight. Bloomberg had a good article in early November that exposes our long term outlook. Look for the phrases "risk of deflation"
and the phrase "Treasuries are still worth buying"

The "W" I thought I saw a few months ago in the economic outlook, now looks it may be just pause in the downward spiral of our national economic health. Economists are still looking for the second dip in what they would call a "double dip recession" (As an historical note, the Great Depression was a triple dip) It is impossible to say at this point, but remember, when looking at these charts, our population is increasing by about 1% per year, so a level line indicates a downward trend.

We are still looking forwards to a sharp increase in inflation. It may still be a year or two away, but it will be almost impossible to avoid. Hopefully improvements in the employment situation will happen at the same time. Those improvements are not likely to come first.

Those who are still thinking of investing in Gold? I don't think so. The window of opportunity came and went a year ago. I currently don't see it happening again for quite some time. Gold today should be around $930 an ounce. The rest is run up from excess demand (that means bubble). Currently I am beginning to look into the idea of Rare Earth Minerals. This would be futile on an individual basis, but could be possible for a corporation (think "bank," but holding minerals instead of cash).

Gas and Oil Rising

Gasoline this winter is dropped, about 20 cents or so off of its peak last summer, But don't get used to it. It will rise again, peaking around 50 cents higher than last summer. The reason for these fluctuations (and keep in mind there is several months lag between oil prices and "gas at the pump" prices) is a dip and then recovery in oil prices. Complicating this, and maybe exacerbating the run up in prices,. is the falling value of the dollar, and the coming inflationary period. Gas could easily increase by another dollar between May 1st of this year and May 1st of next year.

Oil, bouncing back from a catastrophic fall in 2008, will likely resume its climb to $100 a barrel and beyond. The good news is that means it will be worth enough to pump some of it right here at home. Unfortunately, we don't have an infinite supply of it. China is importing and using a steadily increasing amount, and unlike US, they have a pretty good grip on how to handle the supply and demand on a national level. If we are smart, we will invest heavily in coal fired power plants, nuclear, and natural gas. If we are mislead by the Global Warming Crowd (which we now know to be a hoax) , we may foolishly think solar, wind, other alternative fuels and conservation will fix everything. Those things will be useful, but they will not do the job by themselves for at least a hundred years.

Articles of interest:

U.S. Homeowners Lost $5.9 Trillion Since 2006 Peak (Bloomberg Dec 9)
Banks Take Losses on Short Sales as Foreclosures Soar (Bloomberg Dec 4)
Household Net Worth in U.S. Increases by $2.67 Trillion (Bloomberg Dec 10)
[for a substantial portion of that look above at foreclosures]

Gold Isn’t the Best Protection Against Inflation (Dec. 8 Bloomberg)
Quote: "Economic chaos? The dollar crumbling? Central banks printing money like crazy? Probably the only real surprise about the surge in gold prices over the last few months is that it took so long to arrive. "

With unemployment passing 10 percent and millions of jobs gone for good, the recession is taking a brutal human toll. Quote: "they receive temporary state and federal unemployment benefits—which for most workers total about 60 percent of their former pay. But unless Congress extends them, unemployment benefits run out after 26 weeks" Nov 19

Reuters Blogger James Penthokoukis
Gluskin Sheff economist David Rosenberg, formerly of Merrill Lynch, thinks the unemployment rate is going to at least 12 percent, maybe even 13 percent. Optimists, Rosenberg explains, underestimate the incredible damage done to the labor market during this downturn. And even before this downturn, the economy was not generating jobs in huge numbers. If he is right, all political bets are off. I think the Democrats could lose the House and effective control of the Senate. I think you would also be talking about the rise of third party and perhaps a challenger to Obama in 2012.

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