Summer Jobs, Billionaires, Steel Prices, The Dollar, and More!

by Addison Wiggin & Ian Mathias

  • Worst summer for jobs since the tech bust
  • Dan Denning on why the dollar rally might “still have legs”
  • The rising growth of millionaires outside the U.S.… 112 preteens who are probably richer than you
  • U.S. can’t lower steel prices, decides to sue China
  • American auto industry falls further… why insiders say a bottom is in place

If you have a job, congratulations. You’ve just survived the worst summer since the tech bust.

U.S. job cuts jumped 12% year over year in August. The summer total reached 377,325 firings, says the latest from headhunters Challenger, Gray & Christmas — the worst summer since 2002.

Challenger tallies total job cuts this year at 667,996, up 28% from the first eight months of 2007.

Total employment in the private sector fell 33,000 jobs in August, reports ADP this morning. We care to mention ADP’s measure only because it was worse than expected and casts an even darker shadow on tomorrow’s Labor Dept. employment report.

The government is expected to report a loss of over 75,000 jobs tomorrow. We’ll let you know what it says.

By the way — as proof of how out of sync these reports are — we did a little cocktail napkin math this morning. From January-July, the government said the private sector lost about 93,000 jobs a month, on average. ADP’s “same” measure says the sector added, on average, about 9,400 jobs a month. Factor in the huge margins of error in both reports, and… well… you can draw your own conclusions.

“Economic activity has been slow in most districts,” reports the Fed’s latest Beige Book, dutifully repeating the obvious, only in a much harder-to-read and dull format. Consumer spending was also “slow.” There’s a general “pullback in hiring” across the States. And “upward price pressures remained significant” practically everywhere. Wow, thanks, guys… that really clears everything up.

Contrary to the Fed’s report, the U.S. service sector is back in a state of growth. The Institute for Supply Management gave the “nonmanufacturing” sectors a score of 50.6 this morning. Rising about a point from July, the sector now barely scores above 50, the ISM’s threshold between contraction and growth. The service industry accounts for about 75% of U.S. GDP, so we’d say August’s score is a step in the right direction.

The U.S. dollar rally took a breather overnight. The dollar index remains near its high, around 78, but this morning we notice some new cracks in the facade.

“The uncertainty surrounding this outlook for [eurozone] economic activity is particularly high,” noted European Central Bank head Jean-Claude Trichet today. Trichet kept the ECB’s rates the same, at 4.25%, a seven-year high. Despite his growth warning, Trichet stressed that inflation was still the focus of ECB policy. In fact, he went out of his way to note that “upside risks to price stability prevail.”

But such is the first time Trichet has seemed perturbed by growth risks. Coupled with his lowering of eurozone GDP forecasts for the rest of the year, Trichet’s comments put a sudden halt to the dollar’s relentless gain.

“The dollar rally might still have some legs,” warns Dan Denning, “especially if you keep seeing increased political risks in Asian markets (Japan, Thailand, Indonesia). We had lunch with an old colleague yesterday who said it looked like shades of 1998 and the currency crisis, but with a few variations.

“Today, U.S. federal finances are not nearly so rosy. The government is going to run an annual deficit of nearly half a trillion dollars. But still, in the game of global fiat currency competitive devaluation, other countries are following what the Fed began last year.

“The stronger dollar will put a lid on oil and gold, and probably deal a few more kicks to the mining companies and the morale of resource investors. We wouldn’t be foolhardy and average down. But you should still keep a careful list of good resource projects with excellent mineral deposits. And then try to buy them on sale.”

Like the dollar, gold is at a standstill today. In fact, it’s been trading tightly between $800-810 most of the week.

Major market indexes were boring yesterday, too. The Dow and S&P finished basically unchanged, and the Nasdaq shed 0.6%.

Looking over the trading action, we were a bit dismayed to see bond insurer Ambac rally 22% yesterday. The state of Wisconsin gave Ambac regulatory approval to insure some of its muni bonds. Only in this market can a company’s stock price increase by a fourth when it is given permission to resume operations. Oy.

Oil — for once — is lying low today. Light sweet crude goes for yesterday’s price, $109.

Over 100 Russian children now stand to inherit $1 billion or more. That’s never happened before.

According to the Russian business magazine Finans, heirs of billion-dollar fortunes have risen 60% in the last year alone, from 70 to 112 lucky youngsters. At the top of the pile are Marina and Pyotr Deripaska, heirs to their father Oleg’s humble aluminum business. They’re worth $20 billion — each.

“Asia now churns out millionaires at a world-besting pace,” adds Chris Mayer, citing a study by Merrill Lynch and Capgemini. “Last year, the number of millionaires rose 22% in India and 20% in China. In terms of private wealth creation, Asia is home to five of the 10 fastest-growing markets.

“Asia has 2.8 million millionaires, third after North America, with 3.3 million millionaires, and Europe, with 3.1 million millionaires. In terms of the combined wealth of these millionaires, the study puts Asia third, at $9.5 trillion, behind North America and Europe again, at $11.7 trillion and 10.6 trillion, respectively. But Asia’s group is the fastest growing and is really not far behind.”

For all of Chris’ thoughts on Eastern wealth creation, check out today’s Rude Awakening. For actionable advice, you need to check out Chris’ royalty program. He just reopened the program to new applicants last night… learn about this opportunity, here.

Also, in the Far East — get this — the U.S. is threatening to sue China over steel prices. It’s a complicated affair, but it sounds like I.O.U.S.A. is peeved with China’s export quotas and raw mineral taxes. According to U.S. litigators, China artificially deflates domestic prices and inflates global prices with excessive subsidies and trade barriers.

In a world where men and women are truly free, that’d be fine. But such a vile act of protecting your nation’s economic growth is outlawed by the World Trade Organization, of which China and the U.S. are members.

And why would the U.S. be willing to sue for cheaper steel? For starters, our auto industry is in the crapper.

U.S. auto sales fell 15% last month, year over year. At an annual rate of 13.7 million sales, this will go down as the slowest August since 1998. The recent decline in gas prices proved to be no reprieve for vendors of gas-guzzling trucks and SUVs. Sales of large vehicles fell even further, by 24%.

But don’t sweat it. “We are very encouraged,” says GM’s V.P. Mark LaNeve. There is “a somewhat improving condition out there,” added Ellen Hughes-Cromwick, Ford’s chief economist. You see, August sales rose 10% from July’s 16-year low. That must have been a bottom!

And for whatever it’s worth, Nissan was the only major manufacturer to see sales increase in August. They were up 13%.

“If you want to look at a country that got it right,” says a reader, “with health care, retirement/social security, housing employment, immigration and education, look at Singapore. Too often, we fail to look at how the rest of the world deals with social issues.

“I believe we are the last democratic industrial nation without universal health care. In some ways, we have it because those uninsured still get services at everyone else’s expense.

“There are many untold ways to control cost in health care. Look again at what other countries do. No country can afford everything for everybody. It’s high time we got practical and made the decisions other countries have already made. Look at the Oregon plan. It is good example of providing what society can afford.

“It has been a bad habit of Americans to expect government to be everything to everybody. Time for a little accountability across the board. Asking Americans to be accountable just doesn’t get many votes, though, does it?”

“I live in Minneapolis, just about where you were partying,” writes a reader, responding to Tuesday’s issue . “I was in the Ron Paul parade on Sunday. I was a volunteer for the RNC, and on our way there Monday morning, I saw the attack of the masses on the delegates and the media. They were screaming to the media that they were anarchists, but also something else I could not understand.

“There were people all over, attacking houses, breaking the windows of buses with people inside, destroying the wheels of cars and buses and destroying private property. I saw people with guns, wearing masks and throwing Molotov cocktails and some kind of gas to the police and the delegates. The police lost control.

“Of course, the Star Tribune of Minneapolis avoids printing most details. I suppose they do not want the bad press about the animals that live here. Some of delegates and we the volunteers were really afraid.

“I see rage here every day. I see a lot of violence in the streets, but it is different when it is a mob, when people with criminal instincts have the license to prey on people who have a different way of seeing things. Yesterday, I realized that we are not living in a democracy, but in a lunatic sphere somewhere in the universe where the lunatic members of this place have a right to prey and do anything they want to. Where is the democracy? Where is the right of a person to believe in something? What I saw yesterday is only a small example of what is going to come.”

“This photo” adds a reader, “is a world-famous diner called Mickey’s, in downtown St. Paul. This diner has been featured in several movies, including The Mighty Ducks.

”The protesters seem to be getting out of hand, as it were…”

The 5: After the screening of I.O.U.S.A ., David, Patrick and I worked on the 55-minute cut that will appear on PBS in January. We were in a little room in the basement just outside the theatre.

When we came out to make our way to the airport, the organizers of the film festival were aghast. “What were you doing in there?” they asked.

Apparently, there was a bomb threat, and the entire building had been evacuated. An hour before that, the square around the building, which also hosted MSNBC’s outdoor studio, looked a lot like the picture above.

Oy.

Addison Wiggin
The 5 Min. Forecast

rspertzel

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