Friday, October 08, 2010

BAD NEWS about the economy

Payrolls Decline

It appears private sector payrolls increased by a paltry 11,000 jobs last month, and an increase of 180,000 average for each and every month is what is necessary just to sustain the economy. Worse, manufacturing sector shrank by 6,000 after declining by 27,000 last month. While both the private sector and manufacturing have added jobs this year, the socialists who control the government have managed to keep the numbers below the amount needed to sustain the nation's economy.

The Bond Market

Interest rates on 2 year and 5 year T-Bills are at an all time low. Gold and silver prices are at record highs, gas and oil prices are moving up. The value of the dollar in the world markets has taken a dive. These things reflect a lot of big and smart investors are moving out of the main economy and into "safe" holdings, or investing in overseas "emerging markets." Especially, banks are getting themselves under cover.

And that means they expect things to get bad. Really bad. I fully expect next year to show even poorer jobs growth and I expect inflation. Both are due to massive the government spending in the past two years, as government attempted to get the economy moving forward. Most of that spending has been to try to increase consumer spending, a move that I have said was ill advised, from the beginning.

What Really Matters

In the end, there are only a couple of economic indicators that really matter. How much people are getting paid, and what it costs for them to live. That is why my economics column repeats itself so much about jobs and inflation. More jobs means more pay, less jobs means less pay. And inflation eats away at both what people get paid, and eats away at their savings.

The American Jobs Machine is Broken. And it has been for years. A century ago, men who owned American businesses and the manufacturing base were interested in building an empire. Now the "owners" are traders and only interested in "what can I get right now." The "instant gratification" generation became the stockholders of today, and they are only interested in profit taking, and luxurious living. Am I talking about the richest of the rich? No. Today's stockholders are middle class and working class people who fancy themselves to be "money smart" because they have some money "invested" in some mutual funds, or because they spend some time doing trades on web sites like e-trade or scottrade or td ameritrade.

Taxes Important

Taxes are one of the most important headwinds in this economy. A month ago, reports of Congress and the Obama administration allowing the Bush era tax cuts to continue buoyed the economic indicators by 10 to 20%. As the purported tax breaks the administration promised to business slowly evaporated and got pushed into political wrangling, the medium and long range indicators all began showing signs that the economy will get worse, not better in 2011.

Gurus of the bond market agree with me. Anywhere from 4 to 12 months after the bond market begins a slide, according to them, the economy takes a plunge. And the bond market peaked in April 2010. In addition, the Baltic dry index (one of the best indicators of global trade
in physical goods) went negative beginning is July.(look at the green line on the fourth chart.)

I am no Market Player.

I do have to admit, I am not good enough at this to be an investment broker or trader. I completely blew it on gold, never expecting it to continue to climb steadily for this long. Had I invested in gold ANYTIME in the past from 2 to 20 years ago, I would have made money by now. And the gold market is likely to stay bullish (follow the link and look at the bottom of the page, for a 27 Aug 201 entry) for the foreseeable future. Still, if the absolute worst happens, it will be kinda hard to trade gold for anything near what it is worth. I am thinking copper might be a good commodity to keep on hand for an end of the world scenario. I dismissed it in the past, because at $6000 a ton, it would be a bit bulky. But a ton will fit in a box the size of a refrigerator. It is not a great money maker, but the price mimics the price of oil, to some degree, and it is hard to store $6000 (2300 gallons) worth of oil. And some metals market enthusiasts are thinking along similar lines.

For a historical perspective on how this is all playing out,
check out the book:

The Forgotten Man: A New History of the Great Depression
Authors website:

Excerpt from a review:

Its duration and depth made the Depression "Great," and Shlaes, a prominent conservative economics journalist, considers why a decade of government intervention ameliorated but never tamed it. With vitality uncommon for an economics history, Shlaes chronicles the projects of Herbert Hoover and Franklin Roosevelt as well as these projects' effect on those who paid for them. Reminding readers that the reputedly do-nothing Hoover pulled hard on the fiscal levers (raising tariffs, increasing government spending), Shlaes nevertheless emphasizes that his enthusiasm for intervention paled against the ebullient FDR's glee in experimentation. She focuses closely on the influence of his fabled Brain Trust, her narrative shifting among Raymond Moley, Rexford Tugwell, and other prominent New Dealers. Businesses that litigated their resistance to New Deal regulations attract Shlaes' attention, as do individuals who coped with the despair of the 1930s through self-help, such as Alcoholics Anonymous co-founder Bill Wilson. The book culminates in the rise of Wendell Willkie, and Shlaes' accent on personalities is an appealing avenue into her skeptical critique of the New Deal. Gilbert Taylor

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