Counterfeiting is a Very Serious Crime…Unless the Fed Does It??

Posted on June 20, 2013 by blueworldadmin

Thursday, June 20, 2013

Ignorance is curable. Stupid is forever.©

We have been ringing the alarm bell about this in our posts and Matt has spoken of it on the radio. We are getting more and more questions about it as the likelihood of slowing the current bond buying program (Q.E. whatever) looms.

Ask anyone, including market “experts” if it’s a good idea or bad idea for the government to “kick the can down the road” and they’ll say it’s a bad idea. Then ask if they want the Fed to slow the bond buying program and they’ll exclaim “NO” in a panicked voice! What this betrays is a complete lack of understanding of what “Quantitative Easing” actually is.

First of all, it should be of great concern to anyone with money in the markets that government action, even contemplated government action, has become more important than economic fundamentals. Think of how absurd it is for the markets to panic at the thought of improving economic conditions that would lead to LESS government interference. Ya get that? THE MARKETS SELL OFF WHEN THE ECONOMY SHOWS SIGNS OF IMPROVING!! That is absolutely terrifying. When reality catches up, and it always will eventually, the results for those in the markets unprotected will be potentially catastrophic.

So, what is “Quantitative Easing” in actual practice? As with most things it is very simple. The Fed is buying short term debt (bonds) that are nearing expiration and refinancing the debt for a longer term. It is the very definition of “kicking the can down the road.” That is deplorably dangerous economic policy as it is, but never discount the government’s ability to take a bad idea and make it worse. WE DON’T HAVE THE CASH TO PAY OFF THESE LOANS! They are printing money out of thin air to pay off the loans and borrow the money for a longer period! If you did that you’d be arrested for counterfeiting! Does that help explain why you are hearing all this talk about the U.S. dollar no longer being the world’s reserve currency? By printing more supply of money without the demand for it we dilute the value of the currency and that’s why counterfeiting is illegal. There are two blog posts we did last year that explain this in more detail including an explanation of inflation and commodity impacts. They are:

Some Inconvenient Truths can be Backed Up by Real Math and Science Parts 1 and 2

They can be found at:

and

We hope this helps answer some of the questions surrounding the market’s behavior these days. Call or e-mail us with any others!

Thanks for reading and please stay tuned…

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. Referenced sources should be reviewed. Any analysis represents the opinion of Blue World Asset Managers, Ltd. who does not warrant or guarantee predictions based on its analysis.

©Blue World Asset Managers, LTD Thursday, June 20, 2013

Blue World Employment Situation Report Analysis 02-01-2013

Posted on February 1, 2013 by blueworldadmin

Blue World Employment Situation Report Analysis

Release Date: Usually the first Friday of each month

Release Site: www.bls.gov

Market Sensitivity: VERY HIGH

Management Value: VERY HIGH

Friday, February 01, 2013

Brain surgery is not rocket science to a brain surgeon©

The operative word today is…spin. When we saw the jobs numbers at first pass we thought “wow, this is ugly.” Now we go and read the BLS summary and some stuff around other notable publications and are quite amused by the characterizations of the report. For example, do you notice how when the rate falls by a tenth that is an “improvement,” but when it ticks up a tenth it is “essentially unchanged?” The Journal’s analysis wants to focus on upward revisions to last year’s estimates from an average of 153k per month to 181k per month. That means instead of being 100k short of breakeven per month we’re only 70k short of breakeven per month? Say nothing of the fact that 2012 is over! Are we going to make different business and investment decisions based on an estimated “improvement” from last year? It’s utterly ludicrous!

This is why you read us, folks. No spin, just an objective analysis of the data (with occasional commentary on how policy affects the data.) Remember, the data is not “good” or “bad.” It’s just data that requires the people who invest real money and employ real people to make sound decisions based on the objective analysis of the data. So, analysis can be “good” or “bad” and decisions can be “good” or “bad” but the data is just data.

Some quick numbers, then… The rate ticked up to 7.9%, but so what? We’ve shown how the unemployment rate is a poor indicator of labor market health these days based on the ratio of the labor force size and the total number employed. This month is no exception. That observation is validated by the facts that the participation rate is unchanged for three months during an overall downward trend during 2012 (as long as we’re focusing on 2012), the total number of people not in the labor force increased, and the total number of people reporting as in the labor force but unemployed rose again!

The work week for all employees is unchanged and short for three months, but construction AND manufacturing showed a reduction in the length of the work week for all employees as well as production and non-supervisory employees. That hasn’t happened in a while. There were notable downward revisions to hourly and weekly wages in manufacturing, and the preliminary data for last month shows a decline over those downward revisions.

Is there more? Yeah, but I think we get it.

We analyze over one hundred reports per month. Occasionally we do a post regarding other economic reports, but the employment report is the one we post our analysis of every month. That’s because it gives the investor and business manager the most insight into the economy. Why? Because it tells us who’s not working and for how long; who is working and for how many hours per week in which industries; plus how much they’re making. That eliminates most of the potential surprises in the other reports that come out. For example, was the negative GDP report from earlier this week a surprise? Not if you’ve followed us!

I’ll be on CBS radio Chicago (WBBM AM 780, 105.9 FM) to analyze next month’s jobs report and the economy in general on Friday, March 8^th. A couple of the reports we will be paying particular attention to during month are the consumer mood reports and the income and outlays reports. The consumer mood indicators have already taken a beating and we expect those to remain weak. We predicted that based on the realization that everybody’s paychecks got lighter, not just the $250k/yr + crowd. Next month the effect of 2012 year-end bonuses and dividend income should be gone but the tax bite will still be there. Add this to what we said about wages in manufacturing and we can see the potential for income and outlays to fall tracing the consumer mood values. If that plays out we’ll start to see the effects reflect in the weekly data on retail sales, durable goods orders, etc.

The market is still rising, but remember how fickle it can be. Let’s ride the wave as long and as well as we can, but make sure the defense is ready to deploy. We advise business managers to be watching the economic reports and industry data as closely as their own internals with plans in place for various hypotheticals. Call us if you’d like some help with that.

Have a great February. Thanks for reading and, please, stay tuned…

Release Site: www.bls.gov

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced. The analysis represents the opinion of Blue World Asset Managers, Ltd. who does not warrant or guarantee predictions based on its analysis.

©Blue World Asset Managers, LTD Friday, February 01, 2013

Blue World Employment Situation Report Analysis 12-07-2012

Posted on December 7, 2012 by blueworldadmin

Release Date: Usually the first Friday of each month

Release Site: www.bls.gov

Market Sensitivity: VERY HIGH

Management Value: VERY HIGH

Friday, December 07, 2012

Brain surgery is not rocket science to a brain surgeon©

C’mon everybody. Sing along. You know the words to this song. The economy added a net 146,000 jobs and the unemployment rate dropped to 7.7%. I admit we were unable to be even cautiously optimistic about the headline numbers due to the details in some other reports out during the month, especially regional manufacturing data and the GDP estimate. We had predicted that GDP would be revised lower but it was actually revised higher. A glimmer of optimism was squelched immediately by the detail which showed the GDP increase coming on the inventory side while the demand side slid. That indicates a data blip as opposed to the emergence of a sustainable upward trend.

November labor details tell a familiar story so here are the most illuminating. We got 146,000 new jobs but the labor force suffered a huge 350,000 worker reduction. The participation rate fell another .2% and the number of employed people fell by another 122,000. The work week remained flat for all employees and the overtime hours in manufacturing are still unchanged at 3.2 hours per week. There was some improvement in wages reported but still not enough to outpace inflation. Additionally, pay readings have been volatile and given to significant revisions over the last couple of years so we can’t put too much stock in single-month changes. College educated unemployment is still way too high but at least has been below 4% (3.8) for two months in a row. That number needs to go below 2.5% in order for any real recovery to be underway.

On the news there was a vertical spike in the S&P 500 futures but it only got back to about even on last night’s close. As the detail is digested and weak consumer sentiment numbers worked their way into the mix, the charts illustrated a retreat back toward the baseline and now (9:56a C) the S&P has gone fractionally negative while crude and corn retreat and gold is choppy and largely lateral.

So far the outcome of the election has done little to quell any of the uncertainty that has hung over the economy for the last few years. Aggression in the Middle East, continued turmoil in Europe, fiscal cliff worries, unresolved tax policy and anxiety over the implementation of Obama Care in the face of what appear to be developing new legal challenges to the Affordable Care Act maintain their grip on those we rely on to spend, invest and hire.

The markets continue their upward trend. While we have been happy to participate in the run we continue to be very cautious and we’re bringing the safety net up tighter and tighter. We have significant concerns about what seems to drive the markets these days. Government commentary, be it from our Fed or European leaders, have greater impact on market sentiment than economic and corporate fundamentals. We believe this as a driver is unsustainable and at some point market fundamentals will have to trump. When will that happen? If you had told us in 1995 that U.S. Ambassadors were being raped and murdered, Palestine had been admitted to the U.N., Iran was close to nukes, Israel was engaged in missile play, Syria was readying chemical weapons to use on its own people, North Korea was rattling its saber, the government owned private car companies, one sixth of the economy was being nationalized, there were only three banks left, GDP was under 3%, unemployment was over 7.5%, corporate profits were mixed as revenues begin to slip across the board and the markets are UP, we’d have recommended you seek professional intervention from a qualified mental health provider. Historically these conditions would drive the markets to extreme lows. Today, however, they continue to climb. We’ll ride the wave, too, but the defense is still on the field and ready to play when reality and perception align. Whatever defensive strategy you/your financial advisor employ, we think it prudent to keep it executable at very short notice.

This is our final jobs analysis to post for 2012. Thanks so much for reading and commenting. God bless you and your families. Have a very Merry Christmas and a Happy New Year. We’ll see ya on the other side.

GO IRISH!!

Release Site: www.bls.gov

©Blue World Asset Managers, LTD Friday, December 07, 2012

Blue World Employment Situation Report Analysis 11-02-2012

Posted on November 2, 2012 by blueworldadmin

Release Date: Usually the first Friday of each month

Release Site: www.bls.gov

Market Sensitivity: VERY HIGH

Management Value: VERY HIGH

Friday, November 02, 2012

Brain surgery is not rocket science to a brain surgeon©

Boy! It just keeps getting weirder and weirder, doesn’t it? 114,000 jobs and the rate falls by .3% in September and then we get 171,000 jobs and the rate goes UP .1% in October!!??!! WEIRD, right? Not really. (The really weird part comes later) It all comes back to what we’ve been saying for almost two years about the relationship between the size of the labor force and the number of those employed and unemployed. As we detailed in our last post, A Flute with no Holes is not a Flute and a Recovery with no Jobs is not a Recovery, in order to have a true economic recovery we have to have the work force and the number of people working both increasing simultaneously. In October we finally saw a little bit better growth in the labor force but the number of new jobs just wasn’t enough to keep pace and that’s been the problem all along. Remember, we need about 250,000 new jobs per month just to break even with the number of those becoming work-eligible. Of course, there are those that will say that 171,000 is a good step toward that 250k. The problem is that we’ve seen that step taken before in that last couple of years but there has been no upward pattern established. It continues to be a series of dips and blips with no sustained trend of growth.

Now, the really weird stuff…

We got 171,000 new jobs and the rate went up .1% to 7.9%. We get that but what is very unnerving is the following:

The number of unemployed workers INCREASED from 12.1M to 12.3M
There were sharp increases in those unemployed:
- Less than 5 weeks (newly unemployed)
- 5-14 Weeks
- Over 27 weeks
The length of the work week:
- Remains flat, overall
- Shortened in:
  - General manufacturing
  - Manufacturing overtime for production workers
Hourly and Weekly wages fell across the board with notable decreases in construction and manufacturing

Surprising? Not if we remembered a GDP report that signaled economic growth at an unacceptable 2% and which will, undoubtedly, be revised lower.

Policy matters and these just aren’t getting it done. Economically, we don’t care what works as long as it works. We remain committed to the notion that there is nothing wrong with being wrong. The crime is in ignoring the objective data telling you that you’re wrong and not changing course. Regardless of who wins on November 6^th, 2012, we hope they see the patterns and offer reasonable strategic modifications to get us back to where we could and should be. It really won’t take that much.

For over two centuries American men and women have given their lives to protect our right to choose our leaders and transfer power peacefully. Regardless of your preference, please vote.

Thanks for reading and, please, stay tuned…

Release Site: www.bls.gov

A Flute With No Holes Is Not a Flute and A Recovery With No Jobs Is Not a Recovery.

Posted on October 12, 2012 by blueworldadmin

Friday, October 12, 2012

In our jobs report analysis last week we said what we’ve been saying for a long time. We are not in a “recovery” because there is no such thing as a “recovery” without an expanding labor market.

So, what should a recovery look like?

Several of you e-mailed or called and pointed out that we’ve been demonstrating what a recovery doesn’t look like, but we haven’t really shown what a real recovery does look like. EXCELLENT POINT. Thank you!

We dropped everything else this week to do the research, compile the data and generate the graphs so you can compare this “recovery” period to those of the past five recessions going back to 1973.

A true economic recovery following a recession necessarily features an expanding labor market. An expanding labor market consists of two key elements. One is the number of people reporting as available to work (the civilian labor force) and the other is the number of the civilian labor force members that have a job (total employed). In order to be in a recovery BOTH of those groups need to demonstrate expansion.

7.8% is not credible because…

As we discussed last week, no one finds a .3% drop in a single month to be credible. With over 12 million people out of work, 100,000 new jobs just can’t move the needle like that. Heck, a couple of months ago an increase of 163,000 jobs (since revised lower) sent the unemployment rate up! How can this be? Without going into the detail, it is very simple arithmetic. If the growth in new jobs outpaces the growth of the civilian labor force the percent unemployed will fall even though things aren’t getting better. So, the labor market is not improving unless the unemployment rate falls in the face of an expanding civilian labor force AND an increase in the number of new hires. Beyond that, it just doesn’t fit with all the other data out there. For example, we need about 250,000 new jobs per month just to break even! Our GDP is at 1.3% (about .9% if we take out inventories). To get our unemployment rate down to 7.8% our GDP would need to have been about 4%.

Since last we spoke…

We are not conspiracy theorists, but come on… Are we expected to believe the big upward revision in new government jobs was the portion that was slow to report? Are we asked to forget that government jobs don’t signal private sector expansion? We found out that the administration “secured” an agreement with Lockheed Martin to postpone layoff announcements until after the election. On Thursday 10/11 an equally implausible drop in first-time unemployment benefit claims was trumpeted as the best in four years. Hours later we learned that California’s count wasn’t included. When we add that, the numbers aren’t so good and, of course, last week’s numbers were revised up. Like we said last week, if these are the shenanigans we know about…

OK, so what does a real economic recovery look like? Below are graphs showing the size of the civilian labor force and the number of employed people from the official beginning month of the recessions going back to 1973. The graphs extend out for the first forty months of recovery following the official end of each recession which is where we are with the most recent September 2012 jobs report.

♫ ♪ One of These Things is Not Like the Others… ♪ ♫

It makes sense for Big Bird to be a media headliner this week because our analysis is no more complicated than applying the Sesame Street Rule; One of These Things is not Like the Others!! Please note the movement of the labor force size and the number of employed people. The current “recovery” profile does not resemble any of the past 5 recoveries as the labor force size is flat. That’s the key to the falling rate. The final graph shows the participation rate. As you will see the participation rate had been quite stable for the prior 4 years and then plummeted during the “recovery.” This validates the graph showing virtually no material movement in the size of the labor force while jobs are added moving the lines closer together. This gives us a lower unemployment rate even though the labor market is not improved.

All data for the graphs was acquired from the official Bureau of Labor Statistics historical tables which can be found at http://www.bls.gov/cps/cpsatabs.htm

This last graph shows the percentage of prospective workers who are actually participating in the labor market. This is what is meant when you hear about all the people who have given up and left the labor market.

It’s striking. Even the recessions that only last a few months demonstrate an increase in labor force size. It has never been stagnant like it has been for the last forty months!

So, comparing this recession-recovery period with the previous five indicates a dramatic difference between the profiles.

Someone could tell us that this “recovery” is a flute. If we didn’t know better we might believe it. We could repeat it. We could even broadcast it. But even Big Bird would never be able to blow hard enough to make music with it…because it’s not a flute.

As always, thanks so much for reading. We hope you enjoyed it and stay tuned…