The Observation Deck

The jobs report just came out. Our economy added only 38,000 jobs in May. That’s terrible, the lowest one-month report in many years. They also adjusted the previous month downward (as usual). And making it far worse, the seasonal and other adjustments “added” jobs to the 38,000. The hinky “birth/death model” (which has nothing to do with being born or dying) “added” over 200,000 jobs last month. So in reality, we lost a crap-ton of jobs. Like we have for months, except for the fact that the reported numbers are all lies. And get this. The “unemployment rate” actually DROPPED to 4.7%. I’ve not dug into the numbers but I presume that means that gobs of people, newly “disaffected workers,” just gave up looking in May. In our Alice in Wonderland economy, per the BLS if you no longer are looking for work, you are NOT unemployed!

There’s a thousand things one can say about numbers like this, especially in the summer before a national election. But clearly the economy is in bad shape. Sure, it’s been papered over and the stock market has been propped up by all the money printing, and by nearly-zero interest rates. And so now we have to tolerate perverse “bad news is good news” outcomes. Which is to say, when the numbers are bad, it postpones any return to normal monetary policy, so interest rates will continue to be held down, and money (credit actually) will continue to be created out of thin air, so the stock market will actually go up! In a sane world, an employment number like this would send the S&P 500 down by at least 100 points (5%) instantaneously. Probably more….

I have my theories as to what’s next and I’ll try to share them as time permits, if anybody cares. A lot of it depends on the election, IMO. But a lot doesn’t, it’s baked-in. I’d look to the last 20+ years of Japan to see what’s in store for us. They wouldn't face the music either (and still won't) so even now they still struggle with a debt that exceeds 200% of their GDP. They won’t face the music either. But one thing’s for sure. We’ve lived high-off-the-hog for 40 years now. We’ve created massive amounts of debt everywhere, and pulled forward consumption to outrageous levels. And now we’re about to start paying the piper. Consumption is sure to decline. There really is no free lunch….

PS…. All that said, what happens in the next few months will all be election-year contrivances, even more so than the usual contrivances. Who knows, maybe they’re trying to make Aug/Sept./Oct look good. So the real outcomes will likely wait until after the election. But you simply can’t create tens of trillions of artificial consumption and not suffer sooner or later.

Tim, Thanks for the information. I recently started getting into watching the stock markets on fox business news. I am starting to see how our economy and lack of real, full time jobs, is destroying the country. What I find extremely upsetting that is happening now in this country is watching the protesters proudly holding up their Mexican flags as they are burning our American flags. Ask the protesters why they are protesting and they can't even give you an answer. God help our country!

eight years ago this country was sold a bill of goods. four years later we were sold it again with the bonus of being called racists if we didn't buy said goods.

part time service jobs instead of shovel ready is what we got. I know, I know, shut up, racist.

the current administration pulled a cosby on us. slipped us a mickey and gave us the dickey.

Our national economic policies have been pretty much the same for the last 35 years.
the nominal tax rates on the wealthy and corporations are nearly where the Reagan administration left them.
continual free trade bills and wall street/finance deregulation. continual financial collapses and bailouts.
continual rising of state and local taxes on a decreasing tax base.
doubtless, each Congress has added more loopholes, so the effective tax rate occasionally approaches zero.
the key fed interest rates were nearly 20 percent 35 years ago. You can only lower them to Zero. so whoever is in office next will be stuck only being able to raise them. Or pass other measures to justify keeping them near zero. Once you raise them to 20 percent you can spend another 35 years gradually lowering them to zero again. or something.
I'm pretty sure the Obama administration did nearly the same as a McCain or Romney administration would have done, and got pretty much the same results.

I cannot imagine a republican administration being less likely to have regime changed Libya or attempted to regime change Syria. One of the advantages of not being in charge is that you can voice token opposition to such undertakings. Europe isn't happy with the four million or so refugees that have shown up since last year.

For a party that campaigns primarily on nostalgia, very little thought or memory is given to the policies and physical realities of the good old days.
That is why I am writing-in.... Joseph Fidler Walsh.

OK Lori here goes. I do like to write (some) and I do have a good background in business and especially some of the quantitative aspects. Deneen will tell you, I’m a big bad Kellogg man!

There’s one thing we all know about the stock market (equities). It goes up and it goes down. And in the long run, equities mostly go up. Right? Well not so fast. When deciding when something is up or down, you have to ask yourself one very important question. The very question asked by one of my all-time favorite pundits: Marcel the Shell (click here)….

Compared to what?

You see, around here the price of stocks is always given in dollars, U.S. dollars to be precise. But that is incredibly misleading, especially in the aforementioned long-term, because the dollar is very fleeting, it goes up and down too, independently of equities. It’s like measuring the length of something with a ruler that randomly changes its length.

But the bigger problem is that the dollar mostly “goes down.” And you don’t have to be cynical or a conspiracy theorist to presume that the dollar will continue to go down. It always has, at least since the Federal Reserve was created in 1913. The conventional wisdom, mostly true, is that the dollar has lost 97% of its value since 1913. Most of that has taken place since Nixon unpegged the dollar from gold so it could be freely printed.

But Lori you’re smart, so you are already asking, “Hey Tim, you said the dollar has lost 97% of its value since 1913….

Compared to what?

Good question. The answer is, the dollar has gone down in value 97% compared to things people want to buy with a dollar: food, housing, clothes, transportation, entertainment, stuff like that. My cousin recently showed me a newspaper from the early 1930’s she had found. A really nice suit was advertised for about $30. From Bailey’s. Right now that same suit would cost several hundred dollars. It even had a snazzy hat.

Depending on what, and from when, the price of everything, measured in dollars, has “gone up” tremendously. Including stocks, which in reality have gone nowhere for the most part almost regardless of when you start measuring. Gone nowhere compared to….

Gold.

Gold has its detractors and is not a perfect tool for measuring value. But it’s the best we have, way better than dollars. Why? Because gold is (1) very scarce, (2) can be “produced” (extracted) only very slowly and painstakingly, (3) is not consumed, (4) is easily divisible, and (5) does not degrade. If you want to know the value of something over time, compare it to gold, not the U.S. dollar. Yesterday the talking heads were all aflutter because the stock market had “gone up” over a half a percent. What they failed to report was that gold was up almost two percent. Both up compared to dollars of course. So in reality the stock market was down, not up, compared to something with stable, enduring value.

Can the stock market be said to be up when a share of Exxon-Mobil buys fewer gallon of gasoline? When a share of ADM buys less corn? When 100 shares of GE no longer buys all your kitchen appliances?. When 100 shares of GM won’t buy a Chevy anymore?

When you ask the question “compared to what?” you’ll become very skeptical of equities. I personally think the stock market is going nowhere, pretty much forever. Like I said above, look to Japan for historical context. There are countless reasons why, perhaps a topic for another day. But it mostly has to do with interest rate manipulation. And again, by comparison….

There’s so much more I could write but I’ll leave with one more thing. The “stock market” was not contrived to for the benefit of you or I. And worse yet, so much stock market money is parked in what I consider the biggest financial rip-off on the planet: 401k plans. Maybe I’ll write about that next. I believe I did an LO post on it years ago.

Later….

Ryan while I'm logged on....

I like your posts. They are generally fun and informative. One thing though. Your assertion that interest rates cannot go below zero is wrong. Right now about seven trillion in first-world debt now yields less than 0%. Most of that is in Europe and Japan. The Japanese 10-year now yields negative .13%, which is to say if you "invest" 10,000 yen in 10-year bonds issued by Japan, in ten years you'd get 9,987 yen back. The Japanese 2-year is negative .27%. The Swiss 10-year is even worse, negative .48%. If the dollar was not still the "reserve currency," we might be looking at negative interest rates here. Which is to say the banks would charge us to store your cash. Some do now, at least small amounts. And this explains most of the so-called "strength" in equities. Stocks have been considered a great investment, "compared to" bonds. It also explains why there are moves afoot to eliminate currencies....

Thanks Tim. I will continue to read your posts here. They are interesting, and I love to learn new things ,even at my age. With the knowledge I have now, I believe it would be best for England to leave the EU. When you have time, what are your thoughts?

Lori I don’t know much about Brexit vs. Bremain, whether Britain should exit the EU, or remain in it. My inclination is to say exit, but not for any specific reason relating to the EU. Rather, I think that the “higher up” one is governed, the worse off one becomes, exponentially. If those who govern you are twice as far away, you’ll eventually become four time worse off. The inverse square law applied to governance. I think it’s pretty easy to see in our own recent (last few decades) experience.

Yes I do know that the Lakewood hospital situation is a pretty big deal. But a far bigger deal, even for Lakewood seniors, is the confiscation of their (our) retirement and other assets by way of centrally-managed interest rates, now moving to 0% (and sometimes below) pretty much throughout the developed world. By my calculation (via annuity math), moving “safe” rates from 6% to 2% has cost me (and you) about 35% of the value of our retirement funds, because the same funds can no longer earn nearly what they did just a few years ago. And frankly, I’m less concerned about having to seek medical care in Avon or Fairview than I am about having hundreds of thousands of dollars stolen from me (and my children) simply to keep debt-ridden far-away governments solvent. I worked very hard for that money, and took enormous risks to accumulate it. And it's gone (click)....

Should Britain exit the EU? Heck I think Ohio should exit the United States! The price we pay for federal “benefits” is outrageous. I have another home in Erie County. I think Erie County should exit Ohio. Erie County seems about the right size to be the “master” governing unit in my life. My opinions and actions, and the opinions and actions of the people around me, might have some effect at that level. Right now my neighbors and I are just a nuisance at the Federal level. Well not a nuisance perhaps, because I do pay Federal taxes. But we’re numbers….

All that said, poor governing can be (and often is) a local phenomenon. We’ve seen that here. But had our “master” government been far more local than it has been, chances are it would not have come to this. JOB reminds us that it’s important to understand the process, and how we got here. And he’s right. Frankly I think we’ve been dumbed down to the point that our eyes and ears gather sight and sound, but we’re long lost the ability to understand it all. Who was it that said that the hardest thing to see is that which is right in front of our face? Orwell I think….

It’s saddening. I made the statement above that 401k plans are a gargantuan rip-off. And nobody really cares to know how or why, even though it’s WAY more important to many (most?) people than virtually any other aspect of our lives. Up there with endless war and environmental degradation. There are those who decry millennials. “Generation Snowflake” I saw them dubbed yesterday. I kind of feel sorry for them….

Jim, I'm addressing here a comment you made in another thread....

It's called "normalcy bias"(click here). At this point my guess is that at least 80% of our supposedly-educated population suffers from it. But it's far more pernicious and dangerous at the national level. It supports a variety of perverse thought patterns, for example the belief that you can just print more money without any negative outcome, ever. Or that public employee pensions are sound. With every last bone in your body you want to believe it, even if it indisputably is not so.

Like I said above, sometimes that which is hardest to see is that which is right in front of our face....

Lori, et. al., a little more on the British remain/leave vote in a couple days....

Now it seems that the like of George Soros, Jacob Rothschild have weighed in....

"My 60 years of experience tells me the pound will plummet, along with your living standards. The only winners will be speculators" - George Soros

"All the evidence shows that Brexit would be a disaster" - Jacob Rothschild

"You cannot in the end protect people from the economic shock that leaving the EU would bring about." - George Osborne

David Cameron has also weighed in against Brexit. And they're all, shamelessly, using the shooting of that member of parliament to buttress their case against Brexit.

When the likes of those folks above want things one way, I suspect you'll be better off the other. The farther you distance yourself from central oversight, the better off you will be.

Joining the EU brought on a lot of new problems for most of the members. Going onto the Euro currency also brought on a lot of new problems. At least Britain was smart enough to keep the pound. Trade barriers are so thin and international finance is so deregulated it doesn't really matter.
Remaining in the EU will continue bringing new problems. Structural change also leads to new problems, so leaving the EU will also bring on new problems.

While banking and financial crises are pretty common, the nature of the EU and euro allowed the most recent ones to be much bigger than most.

https://www.theguardian.com/books/2016/ ... ook-review
https://www.goodreads.com/book/show/256 ... on=service

British people are mostly frustrated on EU mandates regarding immigration, refugees, bailing out failed EU members, and other smaller issues.
So, they can either stay in the EU and negotiate better terms or greater sovereignty. Or they can leave the EU and just copy and paste the parts of it they like in regards to dealings with the rest of the EU.

I wonder if we’ll ever see a negative unemployment rate. That is, more people employed than there are people. Ridiculous you say? Well not so fast I say….

As of the just-released May jobs report, our “official” unemployment rate is at a multi-decade low of 4.3% But there are lots of ways the BLS rate is statistically adjusted. You probably know the basics. People who have given up looking are not considered unemployed. Part-time jobs, even those paying minimum wage, are considered on par with full-time jobs paying a living wage and benefits. Seasonal adjustments. Yada yada. Do you really believe that 95.7% of working age adults have good jobs?

For example, let’s look at the just-released May jobs report. On the surface, it says that we added 138,000 jobs. But when you dig into the numbers BEFORE ALL THE STATISTICAL ADJUSTMENTS, you find that we actually LOST 233,000 jobs, i.e. 233,000 fewer human beings have jobs than in April. Pretty bad, right? But even worse, the economy actually lost 367,000 full-time jobs in May. But it added 133,000 part-time jobs, thus netting the loss of 233,000 jobs (or whatever counts as a “job” per the BLS).

Undoubtedly the most egregious and controversial statistical adjustment, bar none, is the “birth-death” adjustment I mentioned at the very top of this thread (calling it “hinky”). Like I said, it has nothing to do with being born, or dying. It has to do with the way businesses come and go. I’m not even gonna try to explain how it works. I’m not sure I understand it myself. Suffice it to say that the main purpose of the birth-death adjustment is to make the employment numbers look better than they really are. It's government legerdemain….

And it’s been VERY successful at doing just that. In fact, according to a Zero Hedge article last Friday (click here), birth-death adjustments have been responsible for over 93% of all jobs “added” since the 2008 Great Recession!

WOW! The audacity of the employment statistics promulgated by the BLS just boggles my mind. And I’ve been around some and I’m pretty hard to boggle!

So it occurred to me that perhaps the BLS statistical adjustments might backfire on them one of these months. Imagine if (1) the employment situation really does improve markedly even before the statistical chicanery, and (2) they don’t suspend the chicanery. What could conceivably happen is that if employment really did strengthen substantially, the unemployment rate as calculated after all the statistical deceit could actually produce a negative unemployment rate. Meaning there will be more people “officially” employed than there are people, after the adjustments.

Now, to be fair, I’m not 100% sure that is possible. I don’t know precisely how the adjustments work. But in the last nine years, the birth-death adjustment is responsible for 93% of the alleged decline in unemployment. 7% is due to more people working. Why can’t another nine years produce negative unemployment? More people working than there are people….

In the Wonderland of government statistics I would venture that this is entirely possible…..