American Jobs, Two Coming Crises, Silver Advice, Angelo Mozilo and More!

by Addison Wiggin & Ian Mathias

  • Monthly jobs report way better than expected… has the employment scene bottomed?
  • Uncle Sam strikes back: Mozilo, Pandit now targets of investigation and scrutiny
  • Some “clear signs” that silver is set to rise
  • Plus, two more big budget crises yet to unfold


  First Friday of the month… let’s talk jobs.

The U.S. economy shed “only” 345,000 jobs in May, the Labor Department said this morning. We forecast Wednesday that today’s employment gauge would beat expectations, but wow… this number smashed the Street’s guess of 520,000. Last month’s loss is the smallest since it all hit the fan last September.

May’s number establishes a trend for 2009, too. The jobs scene is far from rosy, but at least it doesn’t seem to be getting worse… not yet anyway.

So “Buy, buy, buy!” as they say in Cramerica, right? U.S. index futures jumped on the news and the Dow and S&P 500 opened up 1%. And if you aren’t the type to be bothered by the fine print, we suggest you slam the buy button too.

  But the details of today’s jobs report aren’t quite as rosy as the headline number. The unemployment rate rose to 9.4%, notably higher than the expected 9.2%. In other words, the unemployed are not being rehired. While the rate of firings cooled off, the bread line is just getting longer and longer. 9.4% is the highest rate since 1983.

And it’s funny how the dark science of charting works. The chart above would lead you to believe the jobs scene has bottomed… but does this one inspire the same confidence?

More disturbing details:

  • Over 6 million people have lost their job since the recession officially began in December 2007
  • The “long-term unemployed” — those out of work for six months or more — now exceed a record 4 million. Many of these “discouraged” people are not counted toward the official unemployment rate
  • 9.1 million people are working part time because they can’t find a full-time gig — also not counted as officially unemployed.

  We don’t mean to rain on this parade. 345,000 lost jobs is certainly better than the half a million firings that have sadly become a monthly routine. But it sure ain’t a good number. Try to maintain some sense of perspective… this time last year, we reported a “horrid” job loss of 49,000 for the month of May, a number nasty enough to push the Dow down over 3%. 345,000 firings back then would have had CNBC correspondents recreating Lord of the Flies.

So today, forgive us for not dancing in the streets. For more on this matter, look here.

  On the brighter side, looks like Angelo Mozilo might get what he deserves.

Assume the position, Mr. Subprime

The SEC announced a civil suit against Mozilo yesterday. The former Countrywide CEO will be slapped with securities fraud and insider trading charges. Investigators cite private e-mails from Mozilo, in which he called his new brand of mortgages “poison,” suggesting that Countrywide was “flying blind” — all while publicly talking up his biz as a lender of the highest standard. We can’t really blame him for selling $140 million worth of Countrywide stock, but evidently, the SEC also takes issue with the timing and methodology in which he sold it… another nail in his coffin.

Good riddance to Mozilo. We wish him the very worst. And if the SEC is declaring open season on corporate misrepresentation, we can think of a few old friends likely renewing their passports this morning: Fuld, Cayne and Thain, to name a few.

  The FDIC is attempting a CEO shake-up of its own. Rumor has it that chairwoman Sheila Bair is pushing for the resignation of Vikram Pandit, Citigroup’s head honcho. Bair claims that Pandit is simply unsuited for the job… he’s got a background in the very investment banking model that got Wall Street into this mess, and Bair supposedly wants someone with consumer lending experience.

Between FDIC-backed debt issuance and cash infusions from the Treasury, the U.S. government has provided Citi with nearly $85 billion in assistance. Evidently, that’s enough money to buy Uncle Sam a say in who runs the show. We object to the whole premise of this shake-up — it’s a slippery slope of the highest order. But we hate to admit it… Bair’s got a point.

  The dollar got a healthy bump this morning after the jobs report. The dollar index hopped almost a full point within minutes of the announcement, to a two-week high of 80.3.

In real-world terms, that’s a 2 cent slash on the euro, now at $1.40. The jobs report took another 2 cents from the pound, which has been suffering all week from political and fiscal instability. It’s down to $1.59 as we write. At 97, the yen is a bit weaker too.

  Crude oil is up. Less lost jobs likely means more burnt oil. Thus, the front-month contract rose as high as $70 a barrel this morning.

You know this drill… as the dollar and U.S. outlook perks up, gold is on its way down. The spot price fell $20 this morning, to $960 an ounce.

  Gold bulls take note: Northwestern Mutual, the third largest life insurer in the U.S., is using gold to secure its long-term fiscal position. According to Bloomberg, the company has already bought about $400 million worth of the shiny stuff.

“Gold just seems to make sense; it’s a store of value,” said CEO Ed Zore. “The downside risk is limited, but the upside is large. We have stocks in our portfolio that lost 95%. But gold “is not going down to $90.”

Do you have adequate exposure to gold and gold stocks? If you’re not sure, definitely check out Byron King’s latest report on the matter. Since some of the miners he recommends are small and thinly traded, we’re only distributing about 350 more copies. When they’re gone, they’re gone for good… so get yours now, right here.

  “For those with an inclination toward silver,” notes Casey Research’s Jeff Clark, “our research points to clear signs that silver is increasingly being viewed as a store of value, and not just as an industrial metal.”

Mr. Clark passed on this table as evidence: a comparison of metal performance from October of last year through the end of March — the worst of the credit crisis as we know it.

“If silver were viewed solely as an industrial metal,” continues Jeff, “the price would be off sharply.

“This doesn’t mean we think silver or silver stocks can’t go temporarily lower from here, but rather that the demand for silver as a store of value metal will be growing.

“Bottom line: Whether we’re served debilitating deflation or insidious inflation, holding gold (and silver), along with an appropriate allocation of precious metals stocks, offers us both a fort for protection and a canon for profit. Buying physical gold and silver as safe-harbor assets is for many investors a no-brainer at this point.

For more from Jeff, be sure to check out the latest issue of Whiskey & Gunpowder.

  Elsewhere in the world of commodities, we note that China’s biggest investment ever in a Western company collapsed this morning. Rio Tinto, the British/Aussie mining giant, bailed on its deal with Chinalco, China’s state-owned aluminum biz. Instead of solving its fiscal woes by getting into bed with China, Rio Tinto said it would rather turn to BHP Billiton, its biggest rival. Rio will raise about $20 billion through new stock issuance and a joint venture with BHP… should be interesting.

China will have to settle for its 9% stake in Rio… for now.

  Back in the U.S., the next chapter in the credit crunch: At least 31 states have overestimated 2009 personal income tax revenue, said a report from the National Conference of State Legislatures yesterday. 25 states have botched projections for all three tax revenue sources: corporate, sales and personal income.

So when the collective $102 billion state budget gap comes due next month (the end of the fiscal year for most states), there’s strong evidence suggesting that most states will come up even shorter than they expected. Awesome.

  Hey look, another budget crisis: “The U.S. Highway Trust Fund,” reports Frank Holmes, “will need an additional $7 billion by August to finance projects already promised to states and keep the fund from going bankrupt.

“The HTF is the primary source of funding for road and bridge projects across the United States. It is funded through gasoline taxes and special taxes, mostly on heavy-use vehicles like trucks. This means that HTF relies on highway use for its funding. Traffic volume, however, has been generally trending downward since before the credit crisis began, according to federal statistics.

“This isn’t the first time the HTF has been on the edge of solvency. Just last September, Congress approved a special $8 billion rescue to keep it from going broke. And more bailouts are possible. The federal gas tax has been 18.4 cents per gallon since 1993, but chances are slim that it would be raised anytime soon, given the struggling economy.

“One alternative would be to unlock stimulus funds sent out to the states. As it stands now, these funds can’t be used to cover state highway budget shortfalls. A longer-term solution recommended by congressional panels is a mileage-based tax system under which the distance a vehicle travels is calculated using a GPS-like tracker. This would be a complex and costly solution that would take a decade or more to put in place.”

GPS trackers to determine how much we owe Uncle Sam? It’s a brave new world. Frank will be one of many speakers at this year’s Investment Symposium that can help guide you through it… details here.

 “The reason Americans live no longer than those of other nations,” writes a reader responding to yesterday’s inbox, “has nothing to do with illegal immigrants and all the diseases that they bring into this country’ and everything to do with the insane amount of dollars being spent on advertising a completely ridiculous and unhealthy lifestyle — fast food, fast cars, fast lifestyle, bigger everything; which all amounts to massive stress loads on our bodies, minds and wallets, which amounts to shorter life span. The out-of-control legal system is just another product of a country gone wild with greed and ambition.

“Quit blaming everyone else for the problems sprouted on your own home soil. I sure am content to be in Canada, where life is generally more relaxed and healthy.”

The 5: You had us until the Canada part. Exhibit A: poutine. Exhibit B: Calgary.

“It’s useful to know,” adds another reader, “that a number of European countries, and Japan to a considerable extent, subsidize health care. They also limit by law what doctors and drug companies may charge for their goods and services. The point about our legal system, that lawyers run up medical costs via lawsuits, is well taken. But perhaps, it’s our government/corporate health care system that cozily limits our choices that runs up the price.

“A good friend, a surgeon, has retired to Uruguay. Why? Because, among other reasons — ‘Health care, which is mostly private, is both better and considerably cheaper here than in the U.S.’ Free markets do work. The Europeans and the Japanese pay more than is apparent through taxes and inflation. In fact, health care pricing seems eminently fair. In Uruguay, it appears, they pay for health care — the rest of us pay for government.”

Have a great weekend,

Ian Mathias

The 5 Min. Forecast

P.S. Sick of fiddling with stocks? Check out our latest special report: The Anti-Stock Market… it’s a great way to find profits outside of the traditional investment world.



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