Jul 17 2009 9:06AM
Private economists, not the government kind that are told what to report, signal a slow down in the jobless rate. We forecast just the opposite. Unemployment unfortunately has just begun to accelerate.
“Jobless claims were forecast to decline to 553,000 from an originally reported 565,000 the prior week, according to the median projection of 41 economists in a Bloomberg News survey. Estimates ranged from 480,000 to 605,000. Job cuts may be slowing after employers eliminated about 6.5 million positions since the recession began in December 2007, the most of any downturn since the Great Depression.”
“Federal Reserve officials expect the U.S. economy to contract less this year than they had anticipated in April, even as unemployment climbs to as high as 10 percent, according to their latest forecasts.”
“Even so, hiring is limited and economists surveyed by Bloomberg project the jobless rate will exceed 10 percent by early 2010, restraining the consumer spending that accounts for two thirds of the economy. Payrolls in June fell more than economists forecast and the unemployment rate reached 9.5 percent, the highest level since 1983, Labor said July 2. GM, which emerged from bankruptcy this month as a majority government-owned carmaker, plans to end the year with 64,000 fewer workers in the U.S., a 30 percent decrease from Dec. 31,” -Bob Willis, Bloomberg.com
Now For A Reality Check
Those paying attention to the news and evaluating it with a jaundiced eye clearly understand most government economists and several other “behind the curve” private ones have been consistently wrong except for a handful of realists.
National unemployment is now officially reported to be between 9.5% and 10%. If we study the rules for counting these numbers its readily apparent the answers are way-off. The birth-death government model is absolute fiction. True national unemployment is now nearing 20%.
We forecast the actual national jobless rate to peak at 30% to 35% within two years.
Some states like those in the Midwest, and other formerly, faster growing Sunbelt states are being hit the worst. Michigan is now approaching 26% unemployed and the full brunt of the auto layoffs is yet to come. Since I am familiar with the state and the auto industry, I forecast 30-40% Michigan jobless within 18-24 months. The state budget is over $1 Billion in the hole with hope of balancing.
Watch for severe social problems and outbreaks of rioting this summer in larger American, European and Asian cities. China is suffering major violence each day. Chicago, Detroit and Los Angeles are next. We all know of the problems in France and Amsterdam. We got the worst of both worlds in Europe; religious fanaticism coupled with unemployment; a very bad combination.
Observers must not lose sight of California as a leading edge indicator of employment, state budgeting (that’s a joke) and the effects of foreclosures on NON-FORECLOSED NEIGHBORS dragging down entire neighborhood values. Even those working and paying house payments are hit with wide-spread home devaluations seeing equities drop beneath the cost of debt owed the bank. jobless neighbors are economically wrecking entire neighborhoods dragging down all area values.
When a homeowner loses employment, and his or her house value skids so far beneath the loan, many send in the keys (jingle mail) to the lenders and walk away offering a voluntary deed in lieu of foreclosure. In some locations this transactional failure does not appear on future credit reports.
Another largely unreported statistic says that for every auto job lost, six more auto supplier company jobs vanish as well. We all know what a major role the auto industry plays in the economy. For most consumers a house is the largest asset and cars are next in line.
The amount of jobs lost within the big three is just the tip of the iceberg. Suppliers are filing bankruptcy right and left. The bigger question then becomes: How can the remnants of suppliers produce parts to build all those cars? Suppliers are not earning any money. The Big Three has crushed them with their own problems.
Both GM and Ford have had to buy back spun-off parts companies just to ensure mandatory parts delivery to build their cars. They have either helped them with millions-billions in fresh cash, or in fact bought back their parts suppliers outright. Even the premium, top drawer parts suppliers are filing bankruptcy.
The Big Three has historically treated their suppliers like economic enemies. The Asian manufacturers take the view their suppliers are their partners and work out problems together to ensure quality and that everybody makes a profit. If your suppliers fail you fail with them. The Big Three has never seen the light on this get-along notion.
Other Weak Sector Industries
We all know what a mess real estate is in nation-wide and in formerly overly-hot economies in the western world. With new home building starts and commercial construction on its knees, another major economic driver has bit the dust. New housing starts were last reported at 20% of former highs. Hundreds of thousands of well-paid jobs are goners in this industry.
Commercial construction is dead in the water with few exceptions. High-rise buildings must be completed as when construction starts you must build to the top. Problem is this; millions are being spent and these properties have no tenants, or cash flow. More jobs are lost here throughout this industry sector. The REIT’s have yet to suffer the onslaught of most failures. This category is more important to financiers than the number of related lost jobs; although that number is significant.
Pap TV touting the “next big thing for shares” tells us tech is the place to be as that recovery (dead cat bounce) seems apparent. With hordes of support jobs like legal, accounting, sales, advertising, marketing, shipping, etc. vanishing like ice in July, who will buy new tech equipment?
The one solid area for shares in our view other than precious metals would be consumer staples. The bigger funds go there like a magnet as there is little else available. Are these shares a growth-buy? We think not as funds are investing here to maintain balance and prevent losses. If they think they can earn good returns on these stocks we suspect wishful thinking. This sector in our view is just a place to park money and rest; getting out of the line of fire. They are only treading water.
Nine of ten CEO’s are selling mainstream shares. They have a clear vision of the future and see no future in their own companies. Otherwise they would be share buyers, or at least hold what they have. Can you imagine the impact on employment yet to come with all of these corporate failures?
The only employer posting substantial new jobs numbers is the national government. Local and state governments must balance budgets so they are in neutral or laying-off employees. Since most of these entities are unionized, the worst we’ve seen is cancellation of new jobs (openings pending) and some states cutting a few work days without pay; a pittance in the entire scheme of budgets.
National government continues to grow at rate of 60,000 to 70,000 jobs per month. Obviously the employment counting includes these positions as those wishing to put lipstick on the jobs pig say this is great stuff. We say it’s just more of the same, an on-going drain of make-work jobs foisted on taxpayers already struggling under a horrific tax load with waning incomes.
Meanwhile, government leaders in most national and local sectors scramble to find new tax money instead of pulling in the belt to tighten-up as revenue sinks like a rock. Michigan is over $1 Billion in the hole and Ms. Governor was in Europe trying to induce new investment for her state. Why would you go there or to California when other states are more consumer and employer friendly?
Texas falls into the friendly category and consequently has suffered the least.
These things are so obvious we wonder why our leaders don’t get it.
Gold & Silver Shares Holding On After Correction
In a previous essay we showed the very bullish inverted head and shoulders technical chart pattern for gold. Today, we see the shares chart working its way to the peak of moving averages and price congestion within several support and resistance lines. Please note the price of 140 on this index is a very strong magnet. While there could be more selling, we would forecast more channel trading moving sideways. Next month, usually during the third week of August, gold begins the last quarter rally despite the cycle calendar telling us time remains near the end of the third quarter. This is a market, like a pasture bull pawing the ground, preparing for the next rally charge. A convergence of events this fall could smack down all markets including our favorites in precious metals. However, in the longer view, the main trend is much higher. Bullion bank short sellers will eventually be overrun.
Look for a decided breakout signal when the XAU rises and holds above 160.
Some analysts told us gold was going back to 850-800 support or something even lower. While anything is possible, on a technical basis PM shares should support as they are still following manipulated mainstream shares in current, shorter term valuations. Sometime soon, probably after the fall stock market crash, precious metals shares could diverge and go a lot higher leaving the other shares’ types in the dust.
There is difficulty in attempting to market-time these ideas as we expect a vicious whip-sawing of shares prices in unusual volatility after Labor Day in early September.
It might be safer for investor-traders to take new junior positions during the next pullback, or hold those you already own expecting mild selling before the next rally blast-off in prices.
Senior precious metal shares are easier to buy-hold-trade as they have bigger volumes and trading action is smoother. However, on a per share basis they are more expensive to buy and do not offer the tremendous upside percentages coming for the quality junior miners.
We prefer a combination solution of juniors, seniors, ETF’s, futures, cash and physical metals.
Be Careful With Your Positioning And Timing
In your investing and trading, plan a complete trading-investing strategy determining
an entry, goals, trade management and above all a sound exit strategy. We expect some
wild volatility and in the heat of the battle that’s no time to be making rash moves.
Do you’re what if’s with a cool head before jumping into the fray.
Remember that in the last big precious metals rally in 1979-1980 a sampling of 20 junior companies earned +395% including all the winners and losers. This time, we expect something infinitely more radical on both the up and down sides. In former times, the losing or modest gaining juniors might have earned a little or broken even. Those without the correct ingredients could get smashed. On the other hand, the good ones and the great ones, we suspect will be more attractive than anything since Homestake in the 1930’s. This market event is going to be very interesting indeed.
We prefer futures trading but shares for traders-investors exclusively can be just as productive. Please work at this and think things through. We will try to help to the best of our ability as this is a one chance in 25-35 years event.
First, and most important of all, purchase physical gold and silver before anything else. This is your benchmark support underpinning everything else you might trade in these markets. Physical metal has nobody else’s liability attached. Buy it. Hold it. And, keep it out of the hands of others.
With each forthcoming cycle we think gold and silver shares might sell less posting higher lows. This could be reflected on the shorter term by how low our S&P’s trade. We expect 800 to 850 with 800 being more probable. One of these days PM shares will disregard all broken markets and rocket rally. But not yet; perhaps this fall.
Do not get tangled-up in daily noise. Keep studying the larger view and buy precious metals after each profit-taking correction. Headwinds are building into an economic hurricane. Take care of business right now. My dire fall prediction might surprise us and arrive earlier. Time is short.
Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert. –Traderrog
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com
Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information.
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