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

Ignorance is curable. Stupid is forever.©

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…

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 Friday, October 12, 2012

Blue World Employment Situation Report Analysis 10-05-2012

Posted on October 5, 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, October 05, 2012

Brain surgery is not rocket science to a brain surgeon©

O.K., here we go…

The public markets work on one level and businesses work on another level. The markets are very reactionary to data points whereas businesses need to pay attention to trends and trends are what give us actionable intelligence. We hear the cheers coming from the markets this morning because the jobs report was “better” than last month. That’s not saying much. As it turns out it was only 7 thousand jobs better which, as you intuitively know, can’t drop the unemployment rate by .3 percent. But better is better and that’s good enough for the markets. After all, since when do we cheer 7.8% unemployment over three years into a “recovery?”

Detailed analysis of the report yields far less reason for exuberance.

We continue to see the effect of a smaller labor force relative to job gains that bring the unemployment rate down artificially. We say artificially because we can’t improve the labor market by making it smaller. These points are validated by the flat employment population ratios and participation rates.

We have demonstrated this phenomenon, graphically, over the course of this year but it has never been as striking as it is for September. Did the labor market grow in September? Yes…but it did not even match the high for this year and it grew by a much smaller percentage than the number of jobs. That, in the land of percentages, could be a good thing so let’s consider the actual numbers.

First, the Revisions

Keep in mind that we need about 250,000 jobs per month just to break even.

We don’t usually focus on revisions but the ones to July and August 2012 were significant and not for the reasons we’d hope. The labor market is only improving if the private sector is adding jobs, not the government. That’s because the government’s source of funds to pay government workers come from the private sector. If the private sector falters, eventually, the government has to lay people off as tax receipts diminish. July jobs were revised up from 141 thousand to 181 thousand. The problem is that of the 40 thousand job increase, 18 thousand came from government jobs. It was even worse in August. The August 2012 jobs number was revised upward from 96 thousand to 142 thousand. Of that 46 thousand job increase, 45 thousand came from government. Government hiring has been on a tear the last three months accounting for over 70 thousand jobs.

For 2012 we are averaging 143 thousand jobs per month and the heft of that average comes from the first quarter. In 2011 we averaged 153 thousand jobs per month. Both are well below where we need to be but the trend is what’s important and the trend is negative. Each month we are flirting with new private jobs at or below 100 thousand. September payrolls grew by only 114 thousand. Of that, 10 thousand came from government, leaving the private sector at only 104 thousand new jobs, exceeding August by just 7 thousand jobs. See why we consider the public markets reactionary?

Here is the chart showing the artificial improvement in the unemployment rate.

Data Source: www.bls.gov

We saw downward revisions to some previous months’ wages, and some were significant. Hours worked in construction were disappointing considering all the news we’ve been hearing about housing, lately. It only matched this year’s February high and still averaging only 38.6 hours per week for the year. Manufacturing hours and overtime are still flat.

The 25+ with a Bachelor’s degree, or higher, are still unemployed at over 4.1% for September. That of course, remains at rates historically never seen until this recessionary period.

Important sectors losing jobs were not a surprise if we follow the interim Fed reports, GDP, and manufacturing data. Included were manufacturing, autos and parts, durables, non-durables, information, wholesale trade and private temporary help services.

The diffusion index measures whether industries are adding or losing jobs where a reading of 50 indicates an equal number of industries adding and losing jobs. The 81 manufacturing industries stand at 39.5 and have trended down all year.

Why the jump in payrolls? In addition to some meaningful gains in transportation, healthcare and a couple of other private service providing industries, there were significant increases in those taking temporary positions for economic reasons i.e. slack work or the inability to fins full time work.

We would be remiss if we didn’t add this to the mix. There are shenanigans going on out there. Earlier this week it was learned that Lockheed Martin, a major employer, was asked to withhold major layoff announcements until after the election. This is shady enough but based on the WARN act it is reported that the company will be in violation of the law by stalling the announcements. In exchange for compliance with the White House request the administration has, apparently, agreed to pick up any legal costs and fines. If this is happening we would be foolish to think it is the only manipulation occurring for political reasons so keep an ear to the ground. Follow us on Twitter (@BlueWorldMatt) to get timely content.

Corporations are warning, factory orders are falling, manufacturing employment is dwindling, politicians are playing games and the labor market is not improving. Don’t get caught asleep at the switch.

A shout out to a good friend (Tony) who pointed this out to me; we keep saying “play defense.” He said “ya always say that but ya never tell us what you recommend for defense if we’re talking about the markets! Are ya ever gonna?” Good point! The answer is “no”, not specifically, anyway. Whether it’s stop-loss orders, bonds, indexes, options, cash vehicles, long-short or any other safety net you or your advisors employ, make sure they’re ready. Ride the upside as long as it lasts but keep that safety net moving up underneath you at the same time just in case any of the significant risks out there catch up to the markets.

For business owners, no such vehicles exist. Watch your costs, be cautious in expansion and remember a cornerstone rule adopted and preached by Blue World:

Profit is Opinion. Only Cash is Fact.

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, October 05, 2012

How About a Little Economic Reality Check?

Posted on September 20, 2012 by blueworldadmin

Thursday, September 20, 2012

Ignorance is curable. Stupid is forever.©

How About a Little Economic Reality Check?

As we watch the markets struggle with the Fed action and economic data this week, we thought we’d offer a quick summary of what’s really happening out there…and it’s not good so watch your money!

The Fed opiate QE3 is fading a bit and some economic data are taking the lead causing our market “experts” a bit of bi-polar disorder. Watching the market intraday charts shows a market that is looking for any excuse it can find to rise. That’s not a safe or sustainable environment so keep the defense on the field.

We cannot emphasize this point enough. At Blue World we make a very important distinction between “data” and “actionable intelligence.” Data is what the market “experts” react to each day as each weekly, monthly or quarterly economic report hits the wires. This is, simply, foolish. That’s why “experts” are such slaves to data. One data point is useless out of context. Trends are what matter.

Actionable intelligence is what we glean when we look at the trends of each report and {this is the important part} compare them to the trends in all the other reports plus the trends in our industry plus the trends we see in our own business each and every day.

Below we are providing links to summaries of the economic data released this week (week of 9-17-2012). Read the summaries if you’d like but what we want you to study are the graphs. You’ll find that when you add them all together you’ll get a much more complete picture of what’s really going on in the economy than you will by reading the headlines or even the summary of any one week or month’s report.

Starting Monday of this week we got the Empire State Manufacturing Survey and it was dismal, joining the overall trend in manufacturing..

On Tuesday we got:

Goldman Same Store Sales The report showed a drop in sales for the month and that is predictable as the back-to-school rush passes. Take a look at the graph, however, and you can see that if you imagine out the wild volatility you see a retail sales trend that is totally uninspiring. Ok, so how does that stack up with other reports?

Redbook which is as likely as not to confirm the Goldman report agrees this week. More important, look at the long term trend and it is remarkably similar to the Goldman chart. Both are lackluster, at best.

Housing Market Index What do you think people who make a living building houses and are still in business are going to be inclined to say when asked “how do you feel about the home building industry?” The chart says it’s on the rise! YIPPEE! Wait! The anecdotal optimism survey of builders needs to be compared to other housing data.

Wednesday gave us some more figures to consider.

Mortgage Bankers Association New Mortgage Applications This report is considered a predictor of future activity in residential real estate because people need mortgages to buy a house. See if this chart matches the builder’s optimism chart above.

Housing Starts Starts were up a little in 2011 and very shallow to flattening so far in 2012. Compare the “recovery” period graph to the steepness of the drop in 2008-09. This is not what a recovery looks like.

Existing Home Sales While up in each of the last two months, two months is certainly not enough to establish a trend especially as interest rates drop to generational lows and values have plummeted causing a predictable blip. This plus the MBA Applications plus the Existing Home Sales data does not demonstrate a robust real estate recovery underway.

You know it’s Thursday when the unemployment insurance claims from the prior week are revised up!

Jobless Insurance Claims Last week’s numbers were, of course, revised higher and the moving average is up. Regardless, this report has proven to be a relatively unreliable predicator of the official monthly unemployment report so we regard the weekly knee-jerk reaction to this report as utter silliness.

Consumer Comfort In the summary they used the word “brightening.” Just have a look at the graph that is not only depressingly low but, also, making lower highs and lower lows, then let us know how “bright” you think consumer comfort really is!

Philly Fed Survey There was a huge one month bump in new orders (headline)…and it makes the index less negative. (not in headline) That’s the best that can be said based on this one report especially in the face of the Fed reports from last month (there is usually one that is better than the others) and the Empire report from just three days ago.

If you used today’s headlines to make decisions you’d be purchasing more inventories, hiring more employees and looking for a bigger facility. Bad idea!

You don’t have to be an economist (“expert”) to figure this out. As a matter of fact we have lots of evidence that not being an economist is a huge advantage in understanding reality! You can read more about this in our posts:

“The Confusion Suffered by ‘Experts’”

and

“The Confusion Suffered by ‘Experts’ II”

We can get a reasonably reliable picture of what’s really happening in the economy if we ignore the daily headlines and take a look at the economic data in total within the context of the short, medium and long term trends. That is how we convert data into actionable intelligence. That is how we non “experts” plan, predict and make decisions.

Messin’ with Markets is More Dangerous than Messin’ with Sasquatch!

Posted on September 13, 2012 by blueworldadmin

Thursday, September 13, 2012

Messin’ with Markets is More Dangerous than Messin’ with Sasquatch!

Time to Roll Up a Newspaper and Smack the Market “Experts” on the Nose!

GDP is below 2%. Claims for unemployment benefits are up and get revised higher every week. A record number of Americans are on government assistance. Social Security and Disability benefits hit record highs with a full month left in the fiscal year. Consumer comfort, confidence and sentiment are low and falling. Investor confidence is weak. Manufacturing is contracting. The Eurozone is on the brink of financial collapse. Our national debt is over $16 Trillion. Foreclosures are high and rising. Terrorists are attacking U.S. Embassies around the world and murdering Americans. And unemployment is over 8%…for over 40 months…yet, somehow, the Dow is up over 200 points on 9/13/2012 because the Fed announced QE3?

It should be of tremendous concern to everyone who has investments in the public markets that market performance has become SO dependent on government action. Do you realize that the actions contemplated by governments have become more important to the public markets than business fundamentals? Governments don’t even have to do anything. All they have to do is hint that they might do something, and the markets go crazy. It may be a suggestion that the Europeans may bail out Greece, or it may be the U.S. Fed announcing a new round of stimulus, as is the case today.

Let us explain what Quantitative Easing is in simple terms, then decide if you want your investment nest egg tied to more of it. In its simplest terms it is trading short term debt for long term debt. It is the proverbial kick-the-can-down-the-road exercise. The Fed uses our money (tax receipts) to buy back short term bonds (loans to the government) and refinance them for a longer term. The massive buy-back causes a drop in interest rates that is expected to stimulate the economy. It is the exact opposite of what they do during boom times when they think the economy is “overheating” and they want to avoid inflation by artificially raising the interest rates to slow things down.

Folks, we’re telling ya, messin’ with markets is more dangerous than messin’ with Sasquatch! At some point this will have to revert to being about economic fundamentals. When it does we recommend having the A-Team defense on the field or watch from the stands because it could be a catastrophe.

We can’t understand the exuberance at any level BECAUSE IT DOESN’T WORK, but we would think that the “experts” who get so giddy about such stupid and detrimental policies would have a learning curve that breaks off 180° somewhere. After all, we have plenty of evidence that these measures don’t work in the face of the current economic environment. You know what they say about the definition of insanity being the duplication of effort over and over yet expecting different results? O.K. the “experts” are not just morons, they’re insane.

For those of you wondering how we can make such assertions regarding the ineffectiveness of prior actions rendering the current ones “insane”…

Employment Situation Analysis – 09-07-2012

Posted on September 7, 2012 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, September 07, 2012

The big question facing us this morning is “to graph or not to graph.” This is one of the worst reports we’ve seen in a while, and that’s up against some pretty stiff competition. The market silliness is always entertaining, and today is no exception. The other data-driven graphs are just striking.

The July number was revised down significantly, and that’s consistent with what we said on CBS Radio last month. {Podcast at http://owl.li/cJ3T1 – starts at 2:30 in} 96,000 net jobs is “only” about 30,000 short of the “expert” consensus, and that is just about the best news we can find no matter how deep we dive into the minutiae.

25+ with a Bachelor’s or higher are still unemployed at over 4%, which was a level unheard of since records have been kept…until the last few years.

The number of people not in the work force continues to balloon, and that’s why the unemployment rate has fallen or remained the same from time to time, not because the labor market is improving.

The work week remains flat overall, but it has fallen to its shortest duration of the year in manufacturing. That’s not encouraging. The really big news in this report, which won’t get much play but is very troubling, are the downward revisions to hourly and weekly pay totals in several sectors, including construction and manufacturing.

We’ve decided the graphs would just rub it in, and we have no desire to subject you to them.

Policy matters, folks. Policy matters.

Thanks for reading, and please, stay tuned…

Release Site: www.bls.gov