Monday, January 11, 2010

Counting Chickens Before They Hatch

As sad as Friday's non-farm payrolls report was for American's economic recovery hopes, they were hugely amusing for Precious Metals market participants and US Dollar bears. The US Dollar "rally" that was ignited by last month's surprising non-farm payroll report was stopped dead in it's tracks when the economy failed to "create" jobs in December as anticipated. Instead of creating jobs, the economy lost another 85,ooo jobs in December. That, according to US Government statistics. Little mentioned was another measurement of jobs, the household survey, which showed a 589,000-job drop in employment in December. Couple that with the little talked about continuing rise in the number of Americans receiving "long-term" jobless benefits, and talk about economic recovery and a Dollar rally becomes laughable.

The Great American Job Destruction isn't over quite yet
The long-awaited end of the Great American Job Destruction of 2008 and 2009 did not arrive in December, as some forecasters hoped it might, as the Bureau of Labor Statistics reported another 85,000-job decline in nonfarm payroll employment this morning. The BLS did revise November's payroll number, initially estimated at -11,000, up to +4,000—marking the first month of job gains since December 2007. But (a) +4,000 is statistically equivalent to no change at all and (b) they can always revise it back down again. In fact, there's going to be a big "benchmark revision" of the payroll data next month that will change all the numbers going back to April 2008.

Beyond that, the general picture—of a job market that's not exactly getting better, but has emerged from its free-fall and may start getting modestly better soon—isn't changed much by this report. The unemployment rate, which is the product of a different survey than the payroll number, stayed steady at 10.0%. But the rest of the survey of 60,000 households that produced that steady unemployment rate was far less encouraging. It showed a 589,000-job drop in employment—adjusted for a seasonal factors, as are all the numbers cited in this post—in December; it was only because the number of people reported as "not in labor force" grew by 843,000 that the rate held steady. The broadest unemployment measure, U-6, which tries to account for those who want jobs but have been too discouraged to look lately, came in at 17.3% in December, up from 17.2% the month before. (The household survey results tend to be pretty volatile, which is why markets usually focus more on the payroll numbers.)

Financial TV pundits are trying to hang their hat on the revised November payrolls number that somehow shows a net "increase" in jobs by 4000. Not only statistically irrelevant, but purely the result of the ever increasing number of "government jobs" being created. The US government has gone from Lender of Last Resort to Buyer of Last Resort and now to Employer of Last Resort?

Government Jobs Have Overtaken Goods-Producing Jobs
Why don't we just put everyone in the United States on the federal government payroll and call it a day?" counters Rep. Jerry Lewis, R-Calif.

With the US manufacturing base now clearly destroyed, how can the government expect to foster an economic recovery without the wealth creation afforded by a strong manufacturing base? At the height of equity markets going into the economic collapse of 2008, 60% of S&P 500 profits came from the banking/finance industry. This statistic alone should worry every American. The nations wealth is now more dependent on pushing paper than it is on selling manufactured goods. America is in for a whole heap of hurt before it digs herself out of this US Government inflicted economic morass.

With 70% of the US GDP dependent on American consumers spending habits, little reported news that consumer borrowing has plummeted further does not lend much hope towards an economic recovery anytime soon. It is important to note that the strong "growth" America supposedly created in the 25 years prior to the "meltdown" was directly the result of pyramiding debt to a level that has now become unsustainable. With Americans either shunning more debt, or unable to add to their debt mountain, further prospects for growth in America appear dim.

Consumer borrowing falls sharply in November
WASHINGTON (AP) -- Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amounts on records going back nearly seven decades.

The dramatic declines raised new worries about whether consumers will cut back further on spending, making it harder for the economy to mount a sustained rebound.

The Federal Reserve said Friday that total borrowing dropped by $17.5 billion in November, a much bigger decline than the $5 billion decrease economists had expected.

Shrinking U.S. Labor Force Keeps Unemployment Rate From Rising
Jan. 9 (Bloomberg) -- An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December, economists said.

Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, according to economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York.

“The actual unemployment rate is higher than shown by the official numbers,” Bandholz said yesterday after a Labor Department report released in Washington showed the economy unexpectedly lost 85,000 jobs in December while the jobless rate was unchanged.

About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, the Labor Department report showed. The share of the population in the labor force last month fell to the lowest level in 24 years.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- rose to 17.3 percent in December from 17.2 percent.

The number of discouraged workers, those not looking for work because they believe none is available, climbed to 929,000 last month, the most since records began in 1994.

I'm STILL trying to understand how an unemployed worker that is NOT looking for waork is not counted as unemployed. Fascinating...

One More Nail in the Coffin of the Gold Bears
By Peter Degraaf,
“The State is that great fiction by which everyone tries to live at the expense of everyone else.” ….. Frederic Bastiat.

The bullish case for gold continues to build. The old adage ‘more dollars chasing fewer goods’ is particularly apt for gold.

Politicians have no conception of the amount of dollars that make up a trillion. Most of them have never even run a candy store! The vast majority have never had to ‘meet a payroll.’

In order for the US dollar to stage a rally from here, the dollar bulls are going to have to do battle with the commercial traders who have a vested interest in holding the line, and are capable (as in the past), to cause the dollar to fall. Fundamentally, the FED is not able to support the dollar with higher interest rate.

As long as gold stays above the rising 200 week moving average, the increase is 18% per year. That’s better than money in the bank – much better!

Gold predictably reacted positively to the poor payrolls numbers Friday. What was very interesting was the way the Gold market overnight going into the jobs number anticipated the usual hit on Gold when the jobs numbers are released. Were the Asians trying to front run the Gold Cartel, or was the Gold Cartel bringing the price of Gold down via the Asian markets because they had "inside information" that the jobs number was going to suck much more than anticipated with the plan to cover on the news?

The US Dollar fell out of the plane carrying it higher the past month without a parachute as the poor jobs number printed at 8:30AM est Friday. It's decent accelerated as the Asian markets reopened Sunday evening. Gold gapped thru resistance at 1150 on the Asian market open and accelerated swiftly as the hopes of a continued US Dollar rally in the New Year faded quickly.

The CRIMEX goons stepped in front of Gold at exactly 9AM est with Gold hitting 1161. The US Treasury has $84 BILLION in new bonds to auction this week, Gold cannot be allowed to advance when the Treasury needs investors to buy their bonds as a safe haven from the perils of economic bombast. That, and the US Government is flat broke.

Research has begun to reveal that Gold, and Precious Metals in general, tend to face convincing headwinds during periods of US Treasury Bond auctions. The Treasury has auctions scheduled for today, Tuesday, Wednesday, and Thursday. Efforts are sure to be made by the Fed to buoy the Dollar this week in the hopes of pressuring Gold and "create" demand for treasuries. That is quite a tall order for the ever manipulative Fed. Friday's jobs report should prove a large obstacle to the Feds intentions here. At best they should be happy with a stalemate.

There is also the very large gap at the open of the Gold markets in Asia this week that must be respected. Gold opened up last night $17 over last Friday's NY close. This gap is gigantic. Immediate follow thru to the upside will be necessary or it is likely this gap may prove to be a bit exhaustive on the short-term charts and need to be filled before Gold moves higher from here. If follow thru higher is forthcoming, this gap will be considered a breakaway gap and prices should be expected to race quickly higher and torture the Feds efforts to aid the Treasury in their bond auctions this week.

Overhead resistance in Gold lies at 1168. Near support is at 1150, with breakout support resting now at 1137...old resistance now new support.

Silver this morning continued to race higher and take Gold with it. Silver is looking at blue sky here with regards to a return to a recent high at 19.44. Near support in Silver lies at 18.42, and below that support at 18.10.