Friday, June 3, 2011

The Jobs Report

Highlights for this month's Job Report:

54,000 new jobs created, down from 244,000 last month, consensus of 165,000.

The government's birth/death model, which is a number magically fabricated out of thin air for the government's monthly estimate on small business jobs created, added 206,000 new jobs this month, meaning the real jobs number was -150,000.  Sources have told us that the number was due mainly to the job growth in unicorn breeding.

When you factor in the Americans who have given up looking for work, the government's U6 unemployment rate is currently at 15.8%.  The following shows the average duration of unemployment.

There is no recovery.  The current depression, which began in December of 2007, has been temporarily masked by endless trillions of government "stimulus" and printed paper.

The wealthy have felt the temporary benefits of printed currency which has purchased stocks and pushed their paper portfolio gains higher.  The middle class and poor have watched their home equity and jobs vanish, and have been left with a staggering sum of student loans, mortgage loans, credit card debt, and now government debt to pay off with their income declining and jobs not returning.

If Obama can make it through 2012 before we have our currency crisis, (change will only come when the crisis arrives) his second term will ensure we will be witness to the greatest economic collapse in history.

Wednesday, June 1, 2011

New Food Stamp Record

44.2 million people are now part of the food stamp program.  The combination of this program with 99 weeks of unemployment checks and the ability of Americans to live in their home for years payment free before foreclosure has kept the fabric of our society together so far.

ABC news is reporting that Congress is planning on making deep cuts to this program due to its explosive growth.

Please see Spanish Riots for a reminder of what happens when a bankrupt country has its entitlement spending removed.

Bloomberg: Terrence Keeley

Tuesday, May 31, 2011

Home Prices Fall: D.C. Rises

The Case-Shiller home price index has hit a new post bubble low seen in this morning's release.  Home prices fell 4.2% in the first quarter after falling 3.6% in the fourth quarter of last year.

In the mist of every city across the country now seeing a waterfall decline in home prices, there is Washinton D.C., which recorded a month over month rise of 1.1% and an annual rise of 4.3%.

This is a perfect miniature snapshot of how our entire economy is currently operating.  A janitor working at a government office in Washington and collecting a government paycheck is probably making close to $100,000 per year. He can easily afford to overpay for a new home in the Washington area. (Especially with his government FHA loan)

The sacrifice to support his enormous paycheck must be made by the rest of the country, seen in home prices collapsing everywhere else, who must support this government spending.

This has not come in the form of higher taxes, but in the hidden tax of inflation, as the Federal Reserve purchases the debt our government recklessly borrows and spends. Americans around the country must then pay higher food, gas, medical, and living costs. It is a sleight of hand tax, unseen by the untrained eye.

By paying more for these goods, they have less to spend on other items, such as a monthly mortgage payment.

This scenario will ultimately come to an end.  Those buying into a Washington D.C. housing market today are the equivalent of those buying into a Miami condo market in 2005, which was supported by.....Miami condo price appreciation.  The rest of the country at some point will be unable to stomach either higher taxes or higher inflation to pay for a government worker to live like royalty.

D.C. is the last great bubble in America.  It is the living symbol of the overvaluation of both our currency and our treasury bonds.  The explosion will be historic, and those that take the short end of the trade will become the next subprime legends.

Monday, May 30, 2011

Gold Is Not An Investment: Part 2

Last week I discussed I the topic of Gold As An Investment.  I would like to expand on this subject further by looking at how you can attempt to measure gold as being under or over valued during this secular bull market.

The best way to accomplish this is by looking at gold's dollar value relative to the money supply.  During brief periods of history (early 1930's and late 1970's) gold has re-valued itself in the open market to account for the amount of new currency that has been created.  This has happened many times throughout history going back hundreds of years.

We are in the early stages of this process occurring again.  So the best way to figure out gold's current value is to determine where it stands in this accounting process.

In the graph below the black line shows what percentage gold's current price backs the money supply.  For example in 1980, when gold shot to $850, there was a brief period when the United States could have gone back on the gold standard.  At that price gold had accounted all new money created.

The black line then moves forward to where we are today, showing that the gold price currently would only account for 16% of the new money that has been created.  The red, blue, and green lines show what price gold would need to rise to back 25%, 50% and 100% of the current money supply.  To back the total supply, as gold has done throughout history, the price would need to be at $9,526.

This metric would show gold's current price as being severely undervalued.

There is another way to determine whether an asset has reached the mania or bubble stage of its bull market.  That is by looking at new supply coming on the market, as was recently seen by home builders flooding the market with inventory as prices were soaring during 2006.

The following graph shows the supply of gold entering the market (black line) as gold's price has risen consistently over the previous ten years.

It then shows the money supply growth during this period (green line).

(This chart does not account for 2010 production which would show static gold production and another moonshot of money growth due to QE2)

Does the new gold supply look like it is entering a bubble?  A mania?  Has it begun to account for the new money created with an upward price spike?

Not yet, but be patient, it will.

Jim Rogers: BBC Interview

One of the best money managers in history discusses the state of the financial world and where he is putting his money today.