February 7, 2014
- What, me worry? The market goes all Alfred E. Neuman on the jobless figures
- Boomer retirements? The 5 busts a persistent unemployment myth
- With the market recovering, another way to view the emerging-market mess
- Gold and the dollar — kissin’ cousins?
- Progress against a heartbreaking disease… Friday golden eye candy… stalling the Internet Apocalypse… and more!
If bad news was good news in 2013, it’s no news this year.
Last year, every time a lousy economic number came out, stocks rallied on the theory the Federal Reserve would continue to mash the monetary gas pedal.
For the second time this year, the Bureau of Labor Statistics delivered a disappointing job number. And for the second time this year, traders are taking it in stride.
The statisticians could conjure only 113,000 new jobs for January. The unemployment rate ticked down to 6.6%.
Three years ago, we were a lonely voice pointing out the unemployment rate was falling because people were throwing up their hands and dropping out of the workforce. Now it’s common knowledge. The media continue to report the number only out of habit, not because it means anything.
And what of the two numbers the statisticians can’t game?
The employment-to-population ratio rose slightly. Ditto the labor force participation rate — the percentage of the working-age population in the labor force. But in the scheme of things, there’s not much to write home about…
A meme has begun to infest the financial blogosphere: To wit, the drop in the labor force participation rate (LFPR — the blue line) is driven by demographics. We have an aging population. The baby boom generation is heading into retirement. It’s not as bad as it looks.
There’s just one little problem with this argument.
We’re in debt to Capital & Crisis editor Chris Mayer, who passed along a research note from Daniel Alpert of Westwood Capital.
“One would expect,” writes Mr. Alpert, “that if the LFPR were declining so precipitously because more people were retiring ‘voluntarily’ that the employment/population ratio (EPR) for the 55 years and older category of employees would be declining as well. Not only has it not done so, but the EPR for workers aged 55 and older was, on average, higher in 2013 than it was during the Great Recession and any other time prior thereto.
“Older Americans are hanging onto their jobs for dear life,” Mr. Alpert concludes. One generally does not become a Wal-Mart greeter in his 60s or 70s to “stay active.”
Another way to look at it: At year-end 2013, the U.S. had 118.5 million full-time workers and 26 million part-time workers.
“In other words,” writes economist and blogger L. Randall Wray, “just 37.5% of the residents of the USA are working full time to support the other 62.5%.”
One more way to look at it — the real-world unemployment rate maintained by John Williams at Shadow Government Statistics.
If you’re a veteran reader, please indulge us a moment to bring newer folks up to speed: Mr. Williams calculates the unemployment rate the way it was in the 1970s, before the politicians started monkeying around with it. He takes the unemployment rate you see on the news… then he adds all the part-timers who want to work full time… and then he adds all the people who gave up looking for work.
The number is 23.2% — down barely from the all-time record of 23.4% three months ago.
But as we say, the Street is taking it in stride: The major indexes are adding to their gains from yesterday, which were the strongest all year. The S&P is up a half percent, to 1,783
“If you were looking for more downside action in stocks, yesterday’s action should have changed your mind,” writes our Greg Guenthner — echoing Jonas Elmerraji’s analysis in this space yesterday. Wednesday marked a decisive bounce off trend line support for the sixth time in a year.
“The stock market has flown to great heights, despite this lousy economy and lack of jobs,” says the aforementioned Chris Mayer. Once again, as he often reminds us, the economy is not the stock market.
“Still, I think the vast number of unemployed contributes to the idea that inflation isn’t going to be a problem anytime soon, despite the federal deficit and the Fed’s zero interest rate policy. (I use the term ‘inflation’ here as the man on the street uses it: generally rising prices.)”
Perhaps the best-looking-house-in-a-bad-neighborhood thesis is kicking in again.
“Many of the emerging and transitioning economies around the globe face mounting troubles,” says our income specialist Neil George. “And nations are tightening money to bolster their currencies.
“But maybe that’s not so bad after all. Simply put, as investors and traders get nervous about what’s going on beyond the United States, it only makes the U.S. markets look like a whole lot less risky place to park money.
“And all of that cash coming in is doing wonders to bring down bond yields. In fact, Treasuries, corporate bonds and even muni bonds have been seeing falling yields — meaning lower borrowing costs for all in the United States.”
Sure enough, the yield on a 10-year Treasury note has climbed down from nearly 3% a month ago to 2.66% this morning.
“That’s not to say investors’ fears are overblown,” Neil adds, “or that it’s time to start buying the big-name stocks. Fighting the tape is not my idea of great financial advice.
“Instead, I say, why mess with the stock market at all? There are plenty of other ways to keep cash coming into your portfolio even as traders tremble on the stock exchange floors.”
This brings us to the “napkin strategy” we mentioned in an email yesterday. Neil’s premium subscribers use it to pull down tens of thousands of dollars every year. You don’t have to buy stocks or bonds or options or any other investment to make it happen, either. Neil walks you through his “perpetual income system” at this link.
Researchers are reporting progress in the fight against Duchenne muscular dystrophy.
We first wrote about it last summer — the debilitating disease caused by a genetic defect that renders its victims, nearly all males, unable to walk by age 12. Few survive past 30.
Results are coming in from Phase 2 trials of a promising treatment: “We now have more than two years’ worth of data,” says Technology Profits Confidential editor Ray Blanco. “The 12 boys that are taking the drug would normally all be in steep muscular decline. Many, if not all, probably would be in wheelchairs by now. But the drug appears to be slowing or halting the symptoms of their disease.”
Traders have bid up the share price recently, anticipating early FDA approval. “DMD, especially in this young population, is a very sensitive issue, and DMD advocate organizations have been exerting a great deal of pressure for the FDA to do something fast.”
Gold gyrated wildly around the time the job report was released this morning but has settled for the moment at $1,264.
“Relationships between precious metals and other markets seem to be changing,” says GoldMoney’s Alasdair Macleod, “with established market trends being broken.
“Unusually, both gold and the dollar have been strong at the same time, which must have hurt some of the hedge funds. Strongest of all has been the yen, as carry trades have been unwound in all the uncertainty. Borrowing low-cost yen to buy high-yielding securities has been common practice, and these trades have come unstuck, hence the short-covering of yen.”
And now for your Friday pleasure, some golden eye candy…
Click on the image above to take in a brilliantly executed demonstration of what different amounts of gold look like. It starts small, with less than an ounce… and works its way up to all the gold in the world put together in a single block. Enjoy.
“I’m curious if The 5 (or any of the readership) has any further details,” a reader writes with the subject line “Internet Apocalypse?”
He includes an email from a group called Avaaz that declares, “The U.S. and the EU are on the verge of giving rich corporations the right to control what we all see on the Internet.”
“The details aren’t there,” says the reader, “but if there’s a need for keeping governments and their cronies out, I’d like learn more (if there’s more to be learned).”
The 5: Our best guess is that it refers to the Trans-Pacific Partnership, a “free trade” agreement we’ve mentioned now and then. Actually, only five of the TPP’s 29 chapters deal with trade. The rest cover everything from draconian copyright enforcement to draconian capital controls.
The text of the treaty is classified, but WikiLeaks published a full draft of the agreement’s intellectual-property chapter in November. As the good folks at the Electronic Frontier Foundation summarize, “From locking in excessive copyright term limits to further entrenching failed policies that give legal teeth to digital rights management (DRM) tools, the TPP text we’ve seen today reflects a terrible but unsurprising truth: An agreement negotiated in near-total secrecy, including corporations but excluding the public, comes out as an anti-user wish list of industry-friendly policies.”
The good news is that TPP is in trouble. The president is pushing Congress for authority to “fast track” the agreement. That would mean Congress could only vote the treaty up or down — no amendments.
Last week, Senate Majority Leader Harry Reid shot down fast track, insinuating he’d refuse to bring it up for a vote.
Still, it’s not the last word on the subject. We’re keeping an ear to the ground…
“I remember a time,” a reader muses, “when doctors had to compete with each other for your business, but that was before Medicare came along.
“During most of my working life at a large and respected electronics corporation, I had what I think is the best situation. There was a $200 deductible for each person and a $500 family deductible. My doctor never asked if I had insurance. I mailed the receipt for his services to my insurance company and got paid back, usually by the time the credit card bill was due. The way I see it, we need to get back to that system.
“This is my idea of how to fix the current situation:
- Get the feds completely out of the medical care business. That means scrap Medicare, Medicaid and the ACA.
- Require that insurance companies publish a 4-digit decimal on all of their stationary that is equal to claims paid divided by premiums collected.
- Require that doctors, clinics, etc., provide to the public a schedule of charges for each procedure that they do.
“These three things will get the cost of health care back down to something reasonable. JMHO.”
The 5: You’ve unwittingly illustrated our point that there’s no hope in promulgating political solutions. There are too many vested interests that want to keep prices opaque.
No offense, but in the time it took you to write that email, you could have started taking a basic but critical step to insulate yourself from Obamacare’s worst effects. We describe it in detail here.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Speaking of Obamacare, we see AOL says it needed to scrape together $7.1 million to help meet its rising health insurance costs this year.
So it’s changing the rules on its 401(k) match: Rather than kicking in a steady amount every two weeks, the company will pay it in a lump sum at year end. You leave the company before year end? No match for you.
The good news — if that’s what you can call it — comes back to that three-word loophole to Obamacare we keep mentioning. One of its advantages is the ability to shelter a nice little chunk of your income from the tax man — just like a 401(k). Read on…