Jobs, the Fed… and Gold

December 19, 2012

  • “Capital spending” takes a dive… unemployment spike sure to follow…
  • ZIRP to infinity and beyond!… PRO trading on the law of unintended consequences…
  • Gold and silver get whacked… buy! buy! buy!… multiple reasons why…
  • FedEx delivers bad news for transports… German DAX gets a boost!….
  • Polls portend the failure of democracy… the Ayatollah gets an FB page (heh)… down with foreign aid… and more!

  We interrupt the Santa Claus rally in the stock market with this foreboding announcement: The businesses responsible for nearly all “job creation” in the U.S. economy are pulling in the reins.

As the unemployment rate is key to several factors, not least of which are Fed policy and the long-term price of gold, today we take a closer look…

  Last week, we noticed the “Small Business Optimism Index” issued by the National Federation of Independent Business (NFIB) sank to its lowest level since June 2009 — the end of the “official” recession.

However, we concede the NFIB has a partisan reputation.

So… this morning, we find corroborating evidence from the granddaddy of public opinion pollsters, Gallup.

  Every month since mid-2003, Wells Fargo has commissioned Gallup to survey hundreds of small-business owners about their capital spending plans for the next 12 months.

The most recent survey — conducted the week after the election — “found them the most pessimistic they have been since the third quarter of 2010,” says Gallup chief economist Dennis Jacobe.

“Capital spending is by its nature relatively long-term,” Mr. Jacobe continues. “As a result, capital spending plans tend to be something business owners can defer when operating conditions are difficult.”

Small businesses — especially startups — are the fount of new jobs. In a study spanning 1977-2005, the Kauffman Foundation found new firms add an average of 3 million jobs a year… while existing ones shed 1 million.

According to the Bureau of Labor Statistics (BLS), that net 2 million number has held up fairly well over the last 12 months — they reckon new firms added about 2.64 million jobs in the better part of 2012.

If new firms are delaying capital spending projects… neither are they likely to hire new employees. There’s no need.

  Four years ago, the day before Election Day in 2008, we noted “the data point to watch [for whomever occupies the White House] will be unemployment. The real danger economically, socially or politically speaking in the ’30s was loads of young men without jobs.”

Unemployment leapt up to 25% in a very short amount of time between the stock market bust in 1929 and 1934… the end of the official recession:

Now, five years after the start of the “official” 2007-09 recession, the real unemployment rate as charted by John Williams at Shadow Government Statistics remains stuck at 22.9%:

We might have been treated to a statistical reprieve during the campaign this year. We watched U-3 unemployment miraculously drop to 7.8%. But our forecast remains: As long as the quants can keep their grubby mitts off the figures, we expect unemployment to lurch its way back toward 10% before this time next year.

  Still historical comparisons and real-world modern statistics are boooo-ring if you’re a Fed policymaker.

Much more useful to them is that aforementioned number of 2.64 million jobs that came into existence over the last 12 months. Indeed, that number might hold the key to the Federal Reserve’s newest gambit — tying interest rate policy to the unemployment rate.

Recall last week that Mr. Bernanke said the Fed would continue to keep interest rates near zero until U-3 unemployment fell to 6.5%. A moment he expects to occur around mid-2015.


The Hamilton Project, an arm of the Brookings Institution, helps us with the logic here:

Sure enough, at the pace of the last 12 months — 220,000 per month, or 2.64 million a year — the magic number would arrive in… mid-2015.

Of course, if the small business survey is any indication, that pace might slow… and the top bar on the chart would come into play.

Zero interest rate policy till 2018!

So… unless we get a rip-roaring recovery out of nowhere next year, you can expect negative real interest rates — that is, below-zero rates after taking inflation into account — for at least 2½ more years.

Maybe five.

100  Negative real rates are a key driver of the gold price. Until they head back into positive territory, gold’s long-term trajectory remains upward — yesterday’s sell-off notwithstanding.

During trading in New York yesterday, gold sank to nearly $1,660 before staging a weak recovery. This morning, the bid is $1,666.

The sell-off occurred “amid no major, fresh fundamental news to move prices so sharply,” our friends at Kitco observed. Perhaps traders were merely taking profits to plow them into Santa’s fat belly on Wall Street.

100  “I don’t really think that gold’s current market price or recent behavior have anything useful to do with gold’s value here,” wrote our friend Chris Martenson of Crash Course fame last weekend.

“Some entity,” he goes on, “has been selling literally thousands and thousands of gold contracts into the thinly traded overnight markets so rapidly that we have to use millisecond charting to see it for what it is.

“The interesting part of this story,” he goes on, “is that this has been the most sustained, intensive and yet ineffective gold selling that I have yet seen. In the past, such bear raids, as they are called, would have resulted in a sharply lower gold price. Right now, that has not yet really happened.

“I am wondering if a big up move is not right around the corner for gold. I can tell you that if even one-fourth of the recent quantitative easing effort were announced five years ago, markets would have exploded and gold would have absolutely launched.”

  Silver dropped to $31.18 yesterday, too. If you’re tracking the Midas metal’s less famous cousin, you can be forgiven for thinking it’s 2008 again — the price has been beaten down, but the actual metal is hard to come by.

The U.S. Mint has informed its network of dealers that inventory of 2012-dated Silver Eagles has been cleaned out… and the 2013 model won’t be available for order until Jan. 7. “This leaves a three-week void for the Mint’s most popular bullion offering,” Coin Update points out.

Silver Eagle sales to date this year total 33,742,500 — considerably less than last year’s record of nearly 40 million. Gold Eagle sales total 715,000 ounces so far in 2012 — the weakest pace since 2007.

[Ed. Note: Our friends at First Federal have already secured access to the coveted “first releases” portion of the Mint’s 2013 Silver Eagle issue. These beauties will be ready for shipment to your door as soon as they’re minted and certified MS70 by independent grading firm NGC. Get yours here.]

  Stocks are opening the day flat. The Dow is holding on to its gains from yesterday’s rally at 13,350. Or as the broker dude who appears daily on the big a.m. news/talk station here in Baltimore was keen to remind us this morning, “less than 300 points off its high this year!”

“I’m sick of complaining about it,” says Greg Guenthner, “but all of this fiscal cliff noise is drowning out some important market data you should be watching…

“For example, did you know that several European markets are breaking out right now? Just look at the German DAX. After its fifth-straight month in the green, the index is testing its 2011 highs. Even Asian and emerging market indexes are pushing sharply higher this month…

“It’s not your fault if you hadn’t noticed some of these breakouts. The fact of the matter is only market technicians are talking about price action these days. Everyone else is attempting to trade the news — and they’re failing miserably.”

  FedEx delivered an earnings “miss” this morning — a bad sign for the broader economy when you consider the company moves everything from pharmaceuticals to electronics to financial documents.

Second-quarter earnings came in at $1.39 a share. The “expert consensus” was counting on $1.41.

FedEx’s customers have been forsaking overnight delivery for cheaper ground and freight rates. “While volumes are up,” says The Wall Street Journal, “shippers are paying FedEx less to fly goods, yet it doesn’t cost FedEx any less to fly the planes.”

[Ed. Note: Platinum-level Members of the Agora Financial Reserve can scroll down to learn how exactly to play the squeeze on FedEx’s margins for maximum profit. That’s today’s installment of The 5 Min. Forecast PRO — our new “sixth minute” that aims to deliver daily guidance to more directly profit from the analysis you see in The 5.

While we’re still in the beta-test stage for The 5 PRO, it will be available only to members of our platinum-level Reserve. If you’re not yet a member, you can use your credits based on your existing subscriptions to upgrade your account. Call John Wilkinson at 866-361-7662 for a comprehensive review of your available credits.]

  “This is a world-changing discovery that will make investors very wealthy,” asserts our breakthrough technology analyst Patrick Cox, “and the data will confirm what I’ve said from the beginning.”

Patrick is back with an update on one of the “nutraceutical” products that’s been on his radar the last two years. It’s already a proven performer in reducing the CRP levels associated with many diseases of aging, especially heart disease.

Now researchers at Johns Hopkins here in Baltimore are conducting a human thyroid trial. In light of published animal studies and testimonials from people already taking the product, Patrick is convinced the human trials will be a smashing success.

“One of the aspects of nutraceuticals that make them so unique as investments is that we have so much preclinical trial information on which to judge the company,” Patrick says.

For the time being, the FDA considers these products dietary supplements… so they don’t have to run the FDA’s regulatory gauntlet.

  Still, “nutraceuticals can go through clinical trials just as drugs do,” Patrick says, assuring their safety. “Those results are, of course, the gold standard in terms of scientific and industry acceptance as well as a necessary precondition for big licensing or buyout deals.

“Before clinical trials, however, people can freely use these naturally occurring therapeutic phytochemicals. As a result, we can make far more informed predictions about the outcome of nutraceutical trials than we can with most drug trials.”

[Ed. note: The product that’s the focus of the Hopkins study gets raves from people who take it for a host of maladies — including everyday aches and pains.

“The benefits are so amazing and life-changing. I feel 20 years younger!” says a reviewer at Amazon.

“I was a total skeptic about its effectiveness, the placebo effect, etc.,” adds another. “All I can say is that it worked for me right from the start.”

Patrick is convinced the product can extend human life span… and still make early investors a small pile to play with during that extended time!

SPECIAL OFFER: For access to Patrick’s research — and a substantial 60% discount off a subscription to his high-end advisory Breakthrough Technology Alert follow this link. But please be aware this particular offer expires Thursday at midnight.]

  Iran’s economy might be tanking with 70%-per-month hyperinflation but the Supreme Leader has found time to set up a Facebook account. Ayatollah Ali Khamenei launched the account earlier this month.

“While there are several other Facebook pages already devoted to Khamenei,” Reuters reports, “the new one… appeared to be officially authorized, rather than merely the work of admirers.”

Not much there yet — a picture of the young Khamenei alongside his mentor and predecessor Ayatollah Khomeini, in the early 1960s.

We savor the irony: Facebook was banned in Iran during the failed “Green Revolution” of 2009. It’s still routinely blocked but according to Reuters “commonly used by millions of Iranians who use special software to get around the ban.”

  “Talk about dumb-ass polls!” a reader writes of the fiscal cliff sideshow in Monday’s episode. “Is it any surprise that the majority polled would favor increasing taxes for anyone but themselves?

“This is just an illustration of why democracies will eventually fail.”

The 5: Maybe you could post your comment on Khamenei’s Facebook page. He’d appreciate it, no doubt, and share with friends.

  “How much of our federal budget is sent away as foreign aid?” a reader inquires. “No one ever seems to address this factor and who are the big recipients. If we cut foreign aid, could it help balance the budget?”

The 5: Not much. Foreign aid works out to $13 billion, or 0.4% of the federal budget. “Waste, fraud and abuse” don’t amount to much either… $87 billion, 2.35%. Cutting foreign aid and eliminating all abuses in the system would only trim the annual deficit by 8.3%, leaving $1.1 trillion in the hole. If balancing the budget is your goal, you’ll have to look higher up the food chain.


Addison Wiggin
The 5 Min. Forecast

P.S. Financials have been on fire of late; XLF, the financial sector ETF, has jumped 4.4% since Thanksgiving.

Readers of Options Hotline were able to take that modest move and turn it into a 61% gain by the time Steve Sarnoff recommended closing out the position yesterday. Not bad for a little over three weeks, eh?

Don’t feel bad if you missed out; as Steve is fond of saying, “There’s always opportunity in options.” You can be on board for the next opportunity right here.


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