May 3, 2013
- An ill omen for the rest of 2013 and beyond: one nasty detail buried in today’s unemployment report, and what’s behind it
- “Valuations are cheap, and bad behavior is on the mend”: a beaten-down sector worth another look
- Good news if you’ve been holding on to junior gold miners (You did hold on, right?)
- Bitcoin vs. the IRS… mailbag takes an unexpectedly apocalyptic turn… what the heck is the “Rustenburg Effect”?… and more!
Gee, that was close.Fire broke out overnight at the Labor Department headquarters in Washington — mere hours before the release of the breathlessly anticipated monthly jobs report. How would CNBC fill the time without it?
“The fire started in a fourth-floor cubicle and it triggered the water sprinklers,” reports The Wall Street Journal, “leading to water damage from the fourth floor down in one wing of the building.”
“The six-story structure is made of steel and limestone,” according to Wikipedia. Like most Nixon-era architecture around the nation’s capital, it’s in the neo-Soviet style…
…and most appropriate for a place where statisticians torture the economic numbers with at least as much aplomb as Brezhnev’s bunch.
Most of the department’s staff were told not to come in… but the jobs report still went out on time at 8:30 a.m. EDT. Hallelujah!
On the surface, it was a sunny report: 165,000 new jobs in April, a bit more than needed to keep pace with population growth. The U-3 unemployment rate dipped to 7.5%, the lowest since December 2008.
Back in the real world, unemployment measured the way it was during the Carter administration — and the way John Williams at Shadow Government Statistics measures it today — ticked up to 23%. That’s an all-time high.
But even in the official numbers, there’s a fly in the ointment: average workweek. This figure ticked down from 34.6 hours to 34.4.
“I understand there are costs to health care reform,” says Tara Sievers, “but it is surely not the intent of the law for employees to lose hours.”
Ms. Sievers works part time for the city of Long Beach, Calif. She’s one of 1,600 part-timers whose workweek has been shaved to 27 hours or less… thanks to the law whose name carries an ever-increasing burden of irony — the Affordable Care Act.
“The law requires large employers offering health insurance to include part-time employees working 30 hours a week or more,” explains the Los Angeles Times. “But rather than provide health care to more workers, a growing number of employers are cutting back employee hours instead.”
Like the city of Long Beach. It’s slashing payroll hours to avoid new benefits costing up to $2 million next year.
“Big restaurant chains, retailers and movie theaters are starting to trim employee hours,” the paper goes on. “Even colleges are reducing courses for part-time professors to keep their hours down and avoid paying for their health premiums.”
Research from the University of California shows as many as 2.3 million workers nationwide are at risk of losing hours thanks to the new law — which will do nothing to bring this number down…
The City of Long Beach is hardly alone. The Commonwealth of Virginia is doing the same. So is the Regal movie theater chain.
“That will be a widespread strategy,” Dede Kennedy-Simington of Polenzani Benefits tells the Times. “Employers will be making sure their payroll system can flag when part-time workers are getting close to the cap they set.”
Not that the Street gives a fig this morning.
The mere appearance of a jobs number that was “better than expected” has driven several major indexes to all-time intraday highs — including the Dow, above 15,000.
Precious metals, in contrast, sit where they did about 24 hours ago — gold at $1,471, silver at $24.28.
“These short sellers’ dream has been shattered by buyers of physical gold worldwide,” the South China Morning Post reports, “such as Chinese mothers, who seized the opportunity to buy cheap gold.”
The Chinese gold bonanza narrative is gathering pace… this time with some interesting figures to ponder.
“On Thursday,” MarketWatch writes, “the Shanghai Daily reported on a ‘Voice of China’ radio program that claimed Chinese housewives are propping up gold prices. The program said those women reportedly spent 100 billion yuan ($16 billion) over the past two weeks, buying up 300 tons of gold and helping keep prices steady at around $1,468 an ounce.”
Also, as Mineweb points out, the 300 tons purchased “represents more than 10% of annual global mined gold production purchased in a two-week period alone. That figure is staggering.”
“Putting it all into perspective nicely,” MarketWatch goes on, “blogger Max Keiser notes that while Chinese housewives were out scooping up gold, Americans sold $16.6 billion worth in the first four months of the year” by dumping the GLD ETF.
That is, every ounce of paper gold dumped by an American has effectively ended up in the hands of a Chinese housewife.
“We don’t care about the wild swings in global gold prices,” Gu Jiahui of Shanghai sums up the Chinese sentiment to the South China Morning Post. “If the banks keep short selling gold, we will keep buying more. I have more faith in gold than the yuan.”
Gold stocks are staging a modest rally this morning. The HUI index is up 1% to nearly 280. Better than the 257 notched on April 16, but still down more than 35% year to date.
“Gold mining companies have done a poor job of creating value for shareholders,” says our Dan Amoss, acknowledging the obvious.
Recently, Evy Hambro, the manager of BlackRock’s $2.5 billion Gold & General fund, lashed out at the sector. According to the Financial Times, he told a London audience that gold miners “had been ‘carefree’ financing their expansion by issuing shares over the past decade of booming gold prices. As a result, profitability per share had fallen, hurting long-term shareholders.”
“This idea is hardly novel,” Dan points out. “It has been on investors’ minds for a few years — a period in which the gold mining stocks have taken a savage beating.
“Now, as the media pile on with backward-looking critiques,” Dan continues, “valuations are cheap and bad behavior is on the mend.”
“Relative to gold bullion prices, mining stocks are near generational lows. Executives are showing renewed operating and capital cost discipline.” And they’re showing shareholders a little respect — starting to pay dividends or raising existing ones. Might as well get paid to wait while the gold price gets its sea legs back.
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Take heart if you own beaten-down-and-left-for-dead junior shares: “Insider buying on the TMX Venture exchange is near a record high,” says the Toronto Globe and Mail.
The “Venture indicator” put out by INK Research is at 715%. “That means there are more than seven stocks listed on the exchange with insider buying for every one seeing selling,” the paper explains.
“Such a high level of buying interest among officers and directors within their own businesses in the resource sector has correctly foreshadowed a recovery in share prices in the past.”
Indeed, the index set a record of 735% in late October 2008 — only weeks before the junior market hit bottom and started to recover.
It was just a matter of time. The IRS is eyeing Bitcoin.
Admittedly it’s still speculation right now, but play along here: Whether you’re aware of it or not, the IRS already treats barter transactions as taxable events. How would Bitcoin be any different?
“Income is income, whether you get it in cash or in kind,” tax attorney Robert W. Wood writes at Forbes. “Bitcoin may be accepted as currency and may not be easy to trace, but so are trades and barters. When you barter or swap one item for another, both parties have tax consequences.”
All of a sudden, Uncle Sam doesn’t mind Bitcoin so much… Heh.
Wood suggests the IRS is likely to follow the cues of the Treasury Department’s Financial Crime Enforcement Network (FinCEN). As noted here a month ago, FinCEN is offering regulatory “guidance” for digital currency.
Since then, the Bitcoin exchanges BitMe, BTC Buy and Bitfloor have all suspended activity because of compliance issues. Chalk one up for the bureaucrats.
It stands to reason: Just because Bitcoin is decentralized and outside of a political jurisdiction doesn’t mean the taxman will be discouraged from trying to take a bite out of it.
Heck, D.C.’s busybodies probably like the challenge. But they’re probably more of a nuisance than a real threat. So the great Bitcoin experiment continues.
If you still are confused by the virtual currency, don’t worry. We brought together experts on the subject to create what we call The Bitcoin Bible. It nicely lays out everything you need to know. If you haven’t gotten your copy yet, what are you waiting for?
“It is no surprise to me,” writes one of our regulars, “that the physical gold market is the king. Paper will always fail. In the short term, the speculators can trade the paper, but Main Street will determine the price.
“The paper exchanges evolved as a forward in the future marketing system for producers and manufacturers to stabilize their price. Agriculture products are a prime example. A farmer/rancher/producer would lock in his price by contracting at a price he was happy to sell at in the future — eliminating price risk. And a manufacturer would buy at the forward price, setting up his cost of production in the future. The speculators came to the game to provide liquidity to the market.
“The problem I see today in all forms of derivatives is the speculators, the big players, have completely f****d up the market. If you are a producer or a manufacturer — unless you are the really big guys like ConAgra — you can no longer use the commodities exchanges, as they are all rigged by the big speculators trading commodities thousands of times larger than the actual, real
supply of the commodity itself.
“The paper market in all commodities — soft, hard, precious, currency, mortgages — is all unbelievably leveraged to hundreds of times the actual commodity.
“And with the whole world globally at the mercy of the central banks, big hedge funds and investment banks, all over-leveraged, someday the system will break. Just like Lehman, Bear Stearns and MF Global, it will become time to pay the piper worldwide.
“Let’s see, I need a reloading press and a lot of brass; a grainery full of wheat, corn, oats and sugar; a paid-for piece of property, of course, for the grain bins and garden; a really good well or river access; a bit of timber; and a big ol’ windmill. A bit of gold and silver. And a community of people who still value hard work and freedom, and a lot of productive skills.”
The 5: Sounds a lot like the “resilient communities” that Global Guerrillas blogger John Robb is working on.
“Gold is not the safety net that everyone thinks that it is,” writes a reader who seems to be thinking along similar lines.
“The weather is cooler than normal now, and that is going to hurt crop production. Better grow as much of your own as you can this year. Next year will very likely be even colder, with even less crop production. Next year, I will let my garden rest and wait till the ‘cold’ is over. But in 2015, the weather should go back to a normal growing cycle, or more normal. Atmospheric research indicates this.
“Hey, Monsanto can come up with all kinds of doofus GMO seeds. And just as they figure what is going on with the weather, it will return to normal. Plus, what is going to happen when that toxic lot of muck in the ocean hits the U.S. coastline? Will it and the weather damage all the nut and date crops on the west coast? Will it stop the big farms in California that produce all the fresh veggies through the winter? Or will congress pass another law overriding the FDA again and say that the new level of radiation (will depend on how toxic it is) is not toxic.
“Forget gold. It will not buy food when there is no food to buy. Buy food. If I had only three cans of beans in my pantry and someone offered me $6,000 worth of gold for a can of food, I would say that I do not have any. Cannot eat gold.”
The 5: Gosh, and people call us gloom-and-doomers…
Have a good weekend (or try to, anyway),
Dave Gonigam
The 5 Min. Forecast
P.S. As you read today’s episode, two governments halfway around the world are conspiring to corner an $11 billion market.
Truth be told, these two governments are merely reacting to events beyond their own control — a phenomenon our research team is calling the “Rustenburg Effect.”
There’s nothing you or I can do to alter this train of events… but if you follow these nations’ cues ahead of the crowd… you could double your money.
We’re organizing an exclusive briefing next week to clue you into this niche opportunity. Learn how to take part by clicking here.