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.
The Market:
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.
Tips:
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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