Dave Gonigam – May 4, 2012
- The day the statisticians couldn’t deliver: Key unemployment metric falls to a level last seen when Ali fought his final bout
- Crude drops below $100… but remains a drag on economic growth: How China will adjust, Uncle Sam will react and your 401(k) will be in peril
- A land of vast mineral riches, but what’s the best way to profit? Chris Mayer prepares for his next overseas adventure
- The rabble start catching onto one of our best-kept secrets… Readers suggest unique distribution channels for Addison’s documentary… Instant access to a selection of Bill Bonner’s favorite essays… and more!
For the last two days, the S&P 500 clung to the 1,400 level by some very close-cut fingernails. This morning, the index lost its grip. At last check, 1,375 is in jeopardy.
Traders weren’t expecting much from the Bureau of Labor Statistics’ April jobs report. In the event, the report delivered even less.
The BLS statisticians could conjure only 115,000 new jobs last month. Not even enough to keep up with population growth.
“The Street” — by which we mean a few dozen economists polled by Bloomberg — was looking for 165,000.
Meanwhile, the U3 unemployment rate fell a bit, to 8.1%. The U6 measure — which includes people who’ve given up looking for work and part-timers who want to work full time — held steady at 14.5%
So what gives? How can there be so few new jobs and the unemployment rate still falls? Because nearly 600,000 people dropped out of the labor force last month. They no longer figure into the denominator of the unemployment rate.
Indeed, so many people exited the workforce last month that the chart-meisters at the St. Louis Fed were momentarily confounded.
The total number of Americans counted as “not in labor force” — that includes little kids, the elderly, the wino on the street corner — topped 88 million, exceeding the upper limits of the existing chart. It was quickly adjusted to reflect the new reality. We’ve helpfully highlighted the adjustment for you in yellow…
True, the number will always climb as the population grows… but the percentage of the working-age population not in the labor force fell last month to 63.6%.
Not only is that a new post-bubble low: The number is now its lowest since December 1981… when Britney Spears was born, Muhammad Ali lost his final fight and Warren Beatty inflicted Reds upon unsuspecting moviegoers.
linked with Warren Beatty [photo by Romina060693].
That was also the dawn of the era when the Bureau of Labor Statistics began fiddling with the criteria for the U3 unemployment rate. Calculated the way it was back in the day — and as John Williams at Shadowstats.com still does — the number ticked up last month to 22.3%.
If the unemployment numbers delivered a wicked Ali right hook to stocks, crude’s been knocked out.
“Fresh concern over energy demand in the world’s biggest crude-consuming nation,” as the AFP wire service puts it, has sent a barrel of West Texas Intermediate down more than 4%, to $98.19. It’s the first time WTI has dipped below $100 in three months.
Interestingly, Brent crude — the benchmark price for most of the world — is proving less sensitive to the U.S. figures. It’s down only 2.5%, to $113.27.
Indeed, Brent has held above $100 since February of last year… which prompts the following question: “What happens when the world’s most-important source of energy becomes unaffordable?”
The question is posed by former CIBC World Markets chief economist Jeff Rubin… who proceeds to answer, “Economic growth has downshifted into a much lower gear nearly everywhere you look.”
And he goes on to raise several more disturbing questions.
“Even China and India, the global economy’s principal engines of growth, can’t escape the toll exacted by high energy prices. When policymakers in Beijing tried to sustain double-digit economic growth, food and energy inflation quickly slammed on the brakes. The economies of China and India will soon struggle to grow at half the torrid pace of recent years.”
“In a world where distance costs money, China will increasingly look to its own 1.3 billion consumers to drive economic growth,” Mr. Rubin goes on. “If China decides to focus on tapping the potential of its huge domestic market, rather than supplying cheap goods to faraway Wal-Marts, the economic balance of power will tilt decidedly eastward.”
“What happens if the People’s Bank of China then decides that buying U.S. Treasuries is no longer a necessity? U.S. taxpayers, for one, don’t want to find out. They’ll be left footing the bill for Washington’s budget deficit — currently at $1.25 trillion.”
That’s when the mother of all financial bubbles really does pop. But what does that mean for you, exactly?
Addison is teasing out one surprising implication for the next issue of Apogee Advisory. If you worry about whether the government might confiscate your 401(k) or IRA accounts, you can’t afford to miss it: He’ll identify two warning signs that will be your cue to run for the exits. Not a subscriber yet? Sign up here to make sure you receive the issue next week.
Oil isn’t the only commodity getting pummeled by the unemployment figures today. The broad CRB commodity index has sunk to its lowest level all year, at 296.
The one exception in the commodity complex: precious metals.
As happened last Friday when the GDP number disappointed, traders are perhaps sensing the Fed will soon react by doing something reckless. Thus, gold is still on its feet at $1,640.
Silver has survived its latest brush with $30, currently $30.19.
Copper prices have tumbled 30 cents this week. At last check, the bid is $3.74 per pound.
Despite this big move, Abe Cofnas’ mock trade of the week is still good. As long as copper closes the day above $3.695… this suggested move would deliver an 8.6% gain.
Not bad for four days. And it would mean nine winners in the last 10 weeks. Want to play Abe’s trades for real? Learn more about this one-of-a-kind service at this link.
“Peruvians have mashed something together that looks like it will hold up — at least for now,” writes the globe-trotting Chris Mayer, who’s boning up in preparation for his next trip.
Peru has had three currency “do-overs” since 1863, he tells us. “This is when a country scraps an old currency entirely after its government renders it nearly worthless with ceaseless money printing. In its place, it creates a new one.”
The most recent is the nuevo sol, which dates to 1991. “In 2000,” says Chris, “it took 3.5 nuevos soles to buy a U.S. dollar. Today, it takes only about 2.6 nuevos soles. In recent years, it continues to strengthen.”
Chalk that up to the nation’s resource wealth in the midst of a commodity bull market. “The mining riches are no secret, though. Big miners are all over Peru. And it has some homegrown champions as well. An example is Buenaventura, a $10 billion enterprise that trades on the NYSE.”
“In my experiences from Mongolia to Colombia, the best opportunities in these situations often come not from mining, but from owning real estate first of all, and also simple consumer businesses and the stock exchange (if you can). I’ll be more interested in what I discover along these lines.”
You can follow along with Chris’ entry-level newsletter Capital & Crisis — which you can get right now for a steal… and we’ll ship you a free copy of his new book World Right Side Up. “It is a thoroughly researched, carefully crafted book with a host of investing ideas,” writes Brenda Jubin in a review at Seeking Alpha. “I thoroughly enjoyed it. ”
Right now, you can get the book and a year of issues for a price lower than many readers have paid for the issues alone. Seriously. Act here.
“Curious world travelers are gradually starting to seek out this formerly menacing place,” reads an article this week that demonstrates how mainstream Nicaragua is fast becoming.
“It’s no surprise,” writes Fox News producer Ruth Ravve, “as word spreads about the miles of white sandy beaches, rain forests and mountains that have become a major draw for hikers and climbers. Unique geologic rock formations left by volcanic eruptions of the past have become sought-out tourist attractions.”
In introducing the country to folks whose knowledge of the place is confined to decades-old headlines, the cliches are hard to avoid: “Where were the gun-toting, camouflage-wearing rebels I remember seeing on grainy television news footage years ago?” Ms. Ravve writes.
We know the feeling well: “If you’ve been reading The 5 and have wondered about what’s going on down there in the land of Ollie North and the Sandinistas,” Addison wrote in February, “you owe it to yourself to come down and check out our project.”
We’d like to present you the opportunity to do so later this year… and at the same time educate yourself about diversifying your portfolio offshore: We’re organizing the second Rancho Santana Sessions.
The first Sessions back in March were an intimate gathering of 30 people eager to learn how to legally and safely park a portion of their assets overseas… all in the stunning setting of Nicaragua’s “Pacific frontier.”
We’ve just set the dates for the next Sessions: Dec. 5-9, 2012. Watch this space as the details start coming together…
“Great idea” says the first of several emails on our suggestion yesterday that Addison’s documentary Risk! be presented on the Internet as a 10-part series.
“The idea of a 10-part series is GRRRRReat,” writes another, channeling Tony the Tiger. “I have been reading The 5 since its inception, and I really enjoy it to the max. This is the first time I have written in, but I feel it’s a worthwhile cause.”
“Excellent way,” writes a third, “to get the story of the treasure hunters out into the universe. I know I would thereby get to see it!”
“One part or 10 parts,” says a fourth, “either way, just do it.”
“Wouldn’t releasing Addison’s Risk! on the Agora website be severely limiting its exposure?” another inquires. “If you want the most eyeballs to view it, consider prime time (that’s TV). Maybe even RT.com. PBS? Naw, no thinking person watches PBS anymore.”
“Louis CK has developed a great way to deliver his stand-up special— instead of giving control to Comedy Central or HBO, as has been the norm, he produced it and put it on the Web. You get to download it for $5.
“He uses the honor system — he just asks people not to copy it, sell it or give it away. He’s printing money with this method. Feel free to copy it. I think your subscribers would happily pay $5 to have a copy of your documentary.”
The 5: Thanks to all for the feedback… and the encouragement! The distribution concept is still in a germinating stage… We’ll keep you abreast of new developments here in The 5.
“Of course, it is only fitting that The Scream sold in **this** specific economic environment,” a reader writes after yesterday’s musings. “If my recollection of that useless university art history class serves me right, Munch’s drawing is of some worker bee in Peoria after he found out Jon Corzine had ‘lost’ his life savings.”
“Happy birthday!!!” reads our final correspondence of the day. “I am reading The 5 since Day 1. It is part of my libertarian community base. Or should I say, part of my Common Sense Community?
“Thanks for everything!”
The 5: It’s our privilege to serve; we couldn’t do it without you.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. “This book might inspire us to think and act more like we should,” writes Laissez Faire Books executive editor Jeffrey Tucker of this week’s selection for the Laissez Faire Club.
It is The Idea of America — the collection of essays thoughtfully chosen by Agora, Inc. founder Bill Bonner and Pierre Lemieux.
“This volume,” says Jeffrey, “is very different from the thousands of other collections that seek to present a picture of the American civic order by reference to classic writings. This is all the stuff you have never read, the material suppressed by those who conflate the nation with the state.”
Every member of the Laissez Faire Club will receive an e-book edition of The Idea of America today. If you’re not yet a club member, you can start your weekend with a small act of subversion and sign up for a host of benefits that space simply doesn’t allow listing here. More from Jeffrey about the book… and the benefits of club membership… at this link.