- If the job market still feels lousy, here’s why
- The chart that argues against a December rate hike
- The plan to confiscate the world’s largest gold stash
- A beaten-up sector shows signs of life
- The banks’ free pass in the TPP “trade agreement”… the story not being told about a “near record” art auction… beware Volkswagen’s holiday gifts… and more!
There’s another debate tonight.
[Heavy sigh. Googling when the Iowa caucuses are. Not till Feb. 1? For crying out loud, didn’t they used to be in January!? Checking that time-and-date website — how many days till Iowa now? Aw, crap, 84!]
This fourth tiff among the Republican presidential candidates, we’re promised, will be different. Moderator Maria Bartiromo says to date, voters still don’t have a fix on how the candidates plan to shore up the job market. It’s “the most important issue on voters’ minds.”
Wait a minute — what’s to discuss? Didn’t the Bureau of Labor Statistics deliver a “blowout” jobs report last Friday? Isn’t the U-3 unemployment rate back to early 2008 levels? Heck, even the more-comprehensive U-6 unemployment rate has retreated to its average during the Bush years.
“No, it wasn’t a ‘blowout’ jobs report,” says David Stockman, the former White House budget director and the newest member of our growing editorial team.
No one holds a candle to David when it comes to analyzing any report with numbers in it. And so it goes with the job numbers.
For David, the health of the labor market is all about breadwinner jobs. “At the time the U.S. economy peaked in December 2007,” he wrote in his book The Great Deformation, “there were 71.8 million ‘breadwinner’ jobs in construction, manufacturing, white-collar professions, government and full-time private services. These jobs… on average paid about $50,000 per year — just enough to support a family.”
Fast-forward to last Friday’s jobs report, which David pulls apart in his Contra Corner e-letter: “The U.S. economy still has 2% fewer breadwinner jobs than it did 94 months ago at the pre-crisis peak in December 2007.”
Indeed, it’s worse — because the all-time the peak in breadwinner jobs came not in December 2007 but at the end of the dot-com bubble.
And so it goes with the October jobs report: “The reported number of high-pay, high-productivity jobs in mining, energy and manufacturing declined by 4,000,” David writes, “while the count of low-pay, part-time waiters and bartenders soared by 41,000.”
Strictly speaking, the “leisure and hospitality” category isn’t just waiters and barkeeps. “It also includes bellhops, hotel maids, parking attendants, hot dog vendors, stadium maintenance crews and the rest of the lodging and entertainment complex,” David allows.
“These are all worthy and necessary endeavors, but they are mostly gigs, not jobs.
“During October, the average workweek in leisure and hospitality was just 26.3 hours. As a purely mathematical matter, this means that a significant proportion of the job count in this category likely involved less than 20 hours per week of paid work.”
It gets worse — for those 41,000 new leisure and hospitality jobs might be only a statistical invention, not flesh-and-blood people collecting a paycheck, however meager.
David explains the snake oil in the comprehensive analysis he’s posted at Contra Corner. You can read it right here. And if you like what you see, sign up on the right-hand side of the page to get Contra Corner in your email every day. It’s free.
The major U.S. stock indexes are adding to yesterday’s losses. Blue chips are holding up best, the Dow down a quarter percent as we write, at 17,686. The S&P 500 rests at 2,075.
Not that hot money is flooding into other asset classes. Bond yields are generally steady, the 10-year Treasury at 2.33%. Gold tried to rally overnight, but as we check our screens has retreated to $1,087.
The dollar keeps on climbing, though — knocking the euro below $1.07 for the first time in seven months. The oft-cited dollar index sits at 99.3. But the euro comprises 57% of that index… and the index includes no emerging-market currencies.
A better perspective of dollar strength is the Federal Reserve’s “trade weighted dollar index,” sometimes called the “price-adjusted broad dollar index.” The number remains near highs last seen in late 2003.
Question for the conventional-wisdom crowd that insists the Fed will raise the fed funds rate next month because of that “blowout” jobs report: Can the Fed afford to have the dollar get even stronger than it is and risk an emerging-market debt crisis?
“Hopefully, the Indian people will see through this fraud and hang onto their physical gold,” says a brief missive from Jim Rickards.
“The central bank of India does not have that much gold,” he explains. “But the people of India possess the largest gold hoard in the world — estimated at over 20,000 tons. This is more than double the gold hoard of the United States!
“Now the Indian government has devised a plan to confiscate that gold,” Jim says — pointing us to a Bloomberg story about a “gold deposit plan” in which Indians would put their gold in the bank to earn interest. Upon maturity, they could redeem either the gold or the cash.
In theory, anyway. “First,” Jim says, “they lure the gold in with the promise of ‘interest’ on the gold. They give people a ‘redeemable’ paper certificate in place of the gold. We all know what comes next. The government will renege on the redemption promise and keep the gold.”
Shades of how it worked in the United States: The government didn’t go door-to-door confiscating gold. It encouraged people to use paper money — “gold certificates” — as a more convenient substitute for gold. Once most of the gold was stashed at the banks, confiscation was easy-peasy.
“What’s worse,” Jim concludes, “is this gold will be available for leasing, which is part of the global central bank gold price suppression scam.”
Takeover rumors are lighting a fire beneath a down-and-out sector. “While the major averages drooped more than 1% yesterday,” says Greg Guenthner of our trading desk, “the U.S. Railroads Index chugged nearly 3% higher.”
That’s because of talk that Canadian Pacific Railway might take over Norfolk Southern.
“Investors have squashed the major railroad stocks to a pulp this year,” says Greg. “Before the takeover rumors started flying, Norfolk Southern stock was down nearly 25% year to date.
“The oil crash has been a double-edged sword for transportation stocks. While fuel costs are down, decreased activity in America’s shale basins means trains are shipping less crude across the country. But thanks to Monday’s pop and recent news, we could be seeing the beginnings of some tradeable bottoms in the rails.”
Greg’s referring here to the Obama administration’s decision to nix the Keystone XL pipeline extension.
“During the first half of the year, transportation stocks couldn’t catch a bid. While the Dow Jones industrial average chopped along near breakeven, its cousins over at the Dow Jones transportation average piled up double-digit losses by early July. Now’s your chance to play a snapback rally in the transports as all of this train news comes to a head.”
And now the dirty details emerge about the Trans-Pacific Partnership: The too-big-to-fail banks get a free pass.
The text of the “trade agreement” was finally released last week — all 5,554 pages of it.
Buried within all that mind-numbing verbiage is this, writes David Dayen at The Intercept: “Financial institutions would be able to appeal any national rules they didn’t like to independent, international tribunals staffed by friendly corporate lawyers.”
That’s the good ol’ “investor-state dispute settlement,” or ISDS. We described it over the summer. Here’s a good summary by George Washington law professor Alan Morrison: “Instead of making the challenge in a court in the country where the investment was made, or before judges of a recognized international tribunal, the TPP would allow an investor to bring the case before an ad hoc tribunal of three arbitrators, one appointed by the investor, one by the nation in which the investment was made and the third by the agreement of the other two arbitrators.”
Many previous trade treaties have included ISDS. But under TPP, financial institutions can make an ISDS claim simply on the grounds of not receiving a “minimum standard of treatment.”
What does that phrase mean? “Over time, tribunals have interpreted this to mean that the company gets compensation if the change in policy disappoints their expectations of future profits,” explains Lori Wallach of Public Citizen’s Global Trade Watch.
More from Dayen’s expose: “Article 11.2 of the agreement confirms that financial services providers are covered under the minimum standard of treatment obligation. This means that almost any change in financial regulations affecting future profits could be challenged in an extrajudicial tribunal, even if they equally applied to foreign and domestic firms and even if they were enacted in response to a crisis.”
And under the treaty, there’s no recourse in the courts.
The Republican presidential debate tonight is supposed to be about the economy. But we’ll be shocked if this topic comes up.
Headlines notwithstanding, the art market still looks weak.
Yesterday we noted the art market was all but frozen over, wealthy and powerful investors no longer willing to pay insane prices. More than half the works at an auction Sunday night in New York sold for less than estimated — if they sold at all.
Last night, as if to make us look foolish, Christie’s auctioned Reclining Nude, a World War I-era work by the Italian artist Modigliani. A Chinese buyer picked it up for $170.4 million — the second-highest price ever for a work sold at auction.
Then we read deeper into the BBC’s story: “The sale took an auction total of $494.4 million, but it was not all good news — nearly 30% of the works up for grabs went unsold, including Lucian Freud’s Naked Portrait on a Red Sofa, which was estimated at as much as $30 million but failed to sell.”
Well, there you go.
Inconvenient questions: Maybe you saw the news about how Volkswagen is going to give its diesel owners $1,000 in gift cards and vouchers to try to make good on the emissions-cheating scandal.
Here’s what we wonder: Will the IRS consider these gift cards reportable income?
Guess we’ll know if VW sends owners a 1099 form early next year…
“Sorry, Mr. Walker,” writes a reader after seeing the former comptroller general’s remarks about the national debt yesterday, “but even hoping that the Congress will do the right thing for the right reason is a futile exercise in self-deception. It would be like trying to drown a fish in water.”
“About the ‘lower for longer’ oil-price scenario,” a reader writes: “With solar growing quickly, it could be a lot longer than ‘longer’ if the Saudis don’t back down soon.
“I’m hoping you guys are right and the Saudis realize their error in the short term so I can dump my oil stocks and get more heavily into solar.”
The 5: Now’s not a bad time to look at solar…
The 5 Min. Forecast
P.S. Here’s one more thing we guarantee you they won’t talk about at the debate tonight — even though it poses a profound threat to your wealth.
It’s a “worse than Enron” accounting scandal uncovered by our Jim Rickards.
“The fallout will be 525 times bigger than Enron,” Jim says, “and is sure to affect all American citizens — no matter where you live, what you do for a living or how much money you have.”
Sure, the politicians will start talking about it — after the crisis becomes too big for them to ignore. Problem is, “once you hear this story on the evening news,” says Jim, “it will be too late for anyone to act.”
Jim’s put together a four-step plan to prepare for the coming chaos. Click here to see all the details.