This Week in Barrons – 8-4-2013
No Growth, No Jobs = Market at Record High?
The Labor Department reported that the economy added 162,000 jobs in July, after adding 188,000 in June.
- Of those 162,000 jobs, 54,000 were ‘fake’ (added by the Bureau of Labor Statistics as a result of the Birth/Death model), and virtually all of the remaining jobs (103,000) were part-time jobs.
- The unemployment rate fell to 7.4%, largely because 240,000 adults left the work force and stopped looking for work. And adding in discouraged adults and part-timers that want full-time employment, the unemployment rate becomes 14.0%.
- Inflation adjusted wages are falling, and income inequality is rising.
- For all of 2013, we have created 953,000 jobs, BUT 731,000 of them have been part-time jobs. Companies are cutting full time workers and hiring part-time workers in order to avoid Obama’s health care plan. Unfortunately, part-time workers can't buy cars or houses.
- For all of 2013, we have created 24,000 manufacturing jobs, but have created 247,000 waitress, waiter and bartender positions.
- For all of 2013, business ENTREPRENEURSHIP is at it’s weakest point EVER = fewest businesses started on record!
- Food stamps, Obama phones, and welfare are at an all time high. 20% of all Americans get some form of Government handout!
With that as a backdrop, is any of this QE-Taper friendly?
History shows us that 4 years into the Reagan recovery (a much deeper recession than Obama inherited) – GDP growth was 5.1% per year – and job creation was quite robust. Under Obama – our job creation is abysmal, and (even with a complete re-calculation of the GDP rate) our present GDP growth rate is a mere 1.7%.
What about the DOW and the S&P? Over the years, ‘the powers that be’ have manipulated virtually every number. Considering the DOW and the S&P: whenever a company begins to fade, and ‘look bad’ on the index, they ‘reconfigure’ the index. They toss out the losers and add in the new winners, so that it always looks like the index is strong. There is only 1 company that has continued to be in the DOW for more than 50 years, all of the others have gone by the wayside. But re-jiggering the index (replacing ‘laggards’ with ‘hot stocks’) doesn’t mean that our economy is any stronger.
What about unemployment? Over the years (especially the Clinton and Obama years) if they didn't like the rising unemployment rate, they'd simply change the way it was calculated. That is why we have the 6 separate measures of unemployment, U1 through U6. Back in the early 80's the way we reported unemployment INCLUDED those that couldn't find work, those that were frustrated for lack of work, and those that were woefully underemployed. Those ‘real’ numbers are too ugly for the current administration – so we changed the rules. Now the discouraged, frustrated, and under-employed are EXCLUDED from the current reading.
What about inflation? Any ‘real person’ that has to buy groceries, gasoline, education, medical treatments, insurance, an automobile, a movie ticket knows that inflation is soaring. But inflation puts a black mark on the current administration – especially after making a pledge to keep it under 2%. Therefore, their current inflation calculation EXCLUDES food and energy. Recently they also do (what is termed) a hedonic adjustment – which takes into account a product’s characteristics. For example: your new computer may cost $100 more, but it is twice as fast; therefore, increasing productivity and lowering cost. So, despite the computer costing $100 more to buy, after hedonic indexing, it is reported as ‘cheaper’ than last year.
What about GDP? Just this month we introduced a new way of measuring GDP. This will have one of the most profound impacts on readings over the last 75 years. What they're doing now is including ‘ESTIMATED VALUE’ into the GDP mix. The new GDP calculation includes recognized expenditures by business, government, and nonprofit institutions on RESEARCH and DEVELOPMENT as fixed investments. This has never been done before, and for good reason. Art (for example), was previously recorded at cost ($17 worth of canvas and paint), but is now being recorded at market value. R&D expenses were never included – just the sale of the products and services that can OUT of R&D. Depending upon the estimator, the GDP changes could result in increase of over 3% per year. Because the new calculation was used for Q2, and the first half only totaled 1.3% per 6 months; does that mean that the real GDP calculation (done the old way) would have been a NEGATIVE -0.2% (i.e. – denoting a recession)?
Honestly, more rapid growth requires importing less and exporting more. Dealing with the $540 billion trade deficit requires drilling for more oil offshore and in Alaska and substantively addressing China and Japan's undervalued currencies and other protectionist policies. Obama has flat out refused to even discuss proposals from liberal and conservative economists alike on these issues. Healthy growth also requires sound stewardship at the Fed – not a chairman bent on inflating the country out of its problems or inclined to support left-wing causes aligned with those hostile to business. The current administration's anti-business regulatory policies and rhetoric are creating a crisis of confidence in the business community. More jobs require trimming back on tax increases, and more realistic and less-ideological trade, energy and regulatory policies.
As everyone knows, the stock market has been on a tear for years now, and all of it on the heels of The Ben Bernanke (and his band of merry Fed heads) printing trillions out of thin air. They have put a floor under the market that simply cannot fail.
For weeks now we've been told that in September they're going to ‘taper off’ the amount of QE they are employing. That has everyone worried and rightfully so. If the only reason the market is up, is because of QE, cutting it would be ‘bad’ for the market. I know this may sound ludicrous, but the economy is fading. We've had stimulus, QE-1, QE-2, and QE-3, but after 5 full years and trillions of injected dollars later, we're shouldn’t be rejoicing over a 1.3% GDP rate for the first half of 2013.
If I'm right, not only will there be NO TAPER, as the months go on, but they will start dropping hints about increasing the amount of ‘monetary accommodation’ they will employ. Right now The Ben Bernanke is printing and distributing $85B a month. I can see that going to $100B between now and March of 2014. If that happens, I expect gold, silver and stocks to all move higher. But it will be the stock market that moves the most at first – because it is the ONLY element that is under the FED’s direct control. The FED can’t create jobs, or economic strength, but they can keep buying stocks and futures.
During the last couple days we learned a lot of things.
- Mortgage applications fell 3.7% for the week; and are now down 58.8% for the year.
- Home ownership is at an 18 year low.
- If you add up all the companies that have reported globally, you’ll find that 60% of them were negative.
- We learned that the first quarter GDP was revised from 1.9, to just 1.1%.
- With the largest re-jiggering to the GDP calculation methodology, the best they could come up with was a 1.7% reading for Q2. Are you kidding me? 1.7% was the best they could do, even after revising all the numbers back to 1929.
As for the market itself, keep an eye on the S&P 1,700 level. We’ve had a couple days over 1,700 – questionable closes indeed – but still over 1,700. If we remain over that, we could be in for a nice ride higher. So watch that level, and don't let it head fake you.
In terms of precious metals – I promised some thinking on gold and silver a week back.
Some will take what I'm saying, and think that they should shun the precious metals and just buy stocks. That is NOT true. What I’m saying is to buy stocks, then take the profits from them and use those proceeds to buy more gold and silver. There's a big problem at the end of the yellow brick road. At some point the velocity of money will spike higher and (in a very short period of time) we could go from our usual 8% inflation to over 25% (hyper-inflation). That would be the ‘end game’ and force the elites to finally admit they couldn't fix things by printing and just let it all crash.
So, don't ignore the PM's. Gold and silver will be set free; it’s simply a matter of time. We're seeing trouble in the bullion banks; we're seeing very shady things happening in the futures pits. These are all desperation moves. But no Ponzi scheme lasts forever, and suppression tactics won't either.
In terms of Gold and Silver specifically, we can judge extreme trader sentiment by looking at the Commitment of Traders (COT) report for gold. The COT report shows the real bets of futures traders. When traders all believe something, the opposite usually happens. Right now, the COT for gold is coming off extreme bearish levels. The last time futures traders were even close to being this bearish was 2008. After traders hit that extreme level of bearishness, gold jumped 71% in 13 months. This time around, gold prices have already jumped… up over $100 an ounce – or 10% – since their recent bottom in June. That’s put the trend in the gold bulls’ favor.
Dennis Gartmen told CNBC: “People won’t like to hear me say this, but the trend in gold is up, and it will continue to be up until it stops being up. That’s the only thing I’ve learned in 40 years of doing this in the business. And certainly, I think the lows that were made three weeks ago will stand for a fairly long period of time.” Dennis isn’t making a multiyear prediction, but as a trader – with a short-term perspective – he believes the low in gold occurred in June. Gold is coming off extreme levels of bearish sentiment. And it continues to rally. You can easily trade it with the big gold fund (GLD). It’s tough to say how much higher gold could go. But the last time it was this hated, it rose 71% in 13 months.
This week we purchased 3M (MMM) and Terex Corp (TEX). We are up very nicely on FB (about 50%) and JNJ, but were stopped out flat on: BTU and ACI (after being up).
My current short-term holds are:
- FB – in at 25.61 (currently 38.05) – took ½ off the table - stop at 36.00,
- JNJ – in at 89.00 (currently 94.26) - stop at 92.75,
- MMM at 117.31 (currently 117.76) - stop at entry,
- TEX at 30.00 (currently 30.66) – stop at entry,
- SLW – in at 21.64 (currently 22.11) – stop at entry
- FCX – in at 28.47 (currently 29.23) – stop at entry
- SIL – in at 24.51 (currently 13.00) – no stop
- GLD (ETF for Gold) – in at 158.28, (currently 126.71) – no stop ($1,310.60 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 19.19) – no stop ($19.90 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there! a
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