Pixels vs. Images: A Quick Take on GDP, Markets, Business and the Economy

Posted on June 26, 2013 by blueworldadmin

Wednesday, June 26, 2013

Ignorance is curable. Stupid is forever.©

So, China growth slows and the U.S. markets tank. U.S. growth slows and the U.S. markets fly? That’s what happened this month. We even saw a market “expert’s” headline today “GDP Revised Down but Street Still Optimistic on Economy.” “Based on what” is the question we’d ask. Again, every headline today indicates the drop in GDP was “unexpected.” This continues to be our problem with the “experts.” They read one day’s news and proclaim a definitive view on the economy. The next day some new data is released and we get a whole new view, as if yesterday’s news was totally negated or, even worse, totally forgotten.

For market investors that’s fine AS LONG AS they know how to play defense. We, obviously, don’t object to a rising market whatever the reason. We just worry about the folks who are naked. As we’ve said, it makes us nervous when there are no fundamentals to support a bull market. We are happy to make money on it but we are ready for reality shocks, too. As long as you’ve got your swinging accounts, stops, puts, inverse ETFs, long-short strategies, or whatever other defense you/your advisor employs then let the market run and run with it. We do.

Running a business is a different story. As managers we have to be more concerned with economic fundamentals because we don’t have the kind of defensive measures that are available in the markets. The only defense we have is a keen awareness of what the economy is actually doing so that we can make appropriate decisions on everything from hours of operation to inventory stocks to employment.

The deplorable GDP is NOT a surprise if we’ve watched AND REMEMBERED all the other reports from this and previous periods. No report is valuable unto itself. Each must be viewed through the prism of the universe of data sets. Then each new data set must be triangulated with and compared to the rest of that universe. It’s the difference between viewing a single pixel vs. the entire image. Each data point that is released is just a single pixel in the image that is created when all the pixels are viewed together.

That’s how Blue World does it. For example, starting with the two most recent employment reports (Blue World Analysis at & ) we saw a continuing trend of flat hours, overtime hours and wage growth in manufacturing. The diffusion index (number of companies hiring) fell below fifty percent and the labor force remains stagnant. Then, all the regional Fed reports ranged from negative elements to negative across the board in each of the last two months. Sure, we hear some of you yelling at us about the positive Durable Goods report this month but, again, viewed historically the reports has been very volatile. “Good” is nowhere near what “good” should/used to be and the current year over year level is no better than February of 2012 and far worse than it was in 2010! See Econoday’s chart at .

The markets do not reflect reality. Please don’t use them as a gauge to make decisions in your sector, business or department. Just ride them as they produce and let us know if you’d like help with the defense.

There is tremendous uncertainty regarding the effect of tax policy, ObamaCare, immigration reform and a multitude of other domestic and international issues. Follow Blue World for a big-picture take on the economy and to aid in business decisions. Call us for individual help and analysis.

Our assessment continues to be that the economy is not in a meaningful recovery. We have an extensive collection of pixels that we organize into an image to back up that assessment. That’s why we typically only use the word “unexpected” when we read an “expert” who got it right.

As always, thanks for taking the time 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 Wednesday, June 26, 2013

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…

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

Blue World Employment Situation Analysis 01-04-2013

Posted on January 4, 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, January 04, 2013

Brain surgery is not rocket science to a brain surgeon©

There are two flags on the play…

Stagnant. That’s about the best assessment we can offer for the last quarter of 2012 with regard to the labor picture. That wouldn’t be so bad if we were stagnant at a much higher point. There are some small positives hiding under the bigger negatives but they essentially offset kind of like a 15 yard penalty on the defense can be offset by a 5 yard infraction against the offense during the same play. So, STAGNANT.

What does that mean? We’ll actually let the charts do the heavy lifting this month but those with a Bachelor’s or higher and are over 25 are still unemployed at 3.9%. That’s never been this high for this long since records have been kept. Any movement in the unemployment rate has coincided with an offsetting move in the labor force size. This has, of course, been a theme for that last couple of years where an increase in the rate was not necessarily “bad” and a decrease was not necessarily “good.” The bottom line continues to be a pattern inconsistent with any meaningful economic recovery the likes of which we have been used to. If you missed the post that demonstrated this graphically you should have a look at it as the pattern has not changed.

The number of those reporting as employed rose 28,000 in December 2012 but those reporting as unemployed rose by 164,000 which is astronomically high as is the number of those not in the labor force. The participation rate continues its downward trend, the number of those unemployed between 1 and 26 weeks jumped rather dramatically in December and overtime hours in manufacturing remain uninspiring.

So, what are some of the positives we mentioned? Wage increases in a few areas actually outpaced inflation last month and the number of those reporting at work part time because they couldn’t find enough to do or a full time gig was down a bit.

2012 Labor Force Size Continues to Under Perform Employed Totals After a small dip in 2011 the Number of Those Not In The Labor Force Exploded and Now is Moving Laterally

After a Small Dip in 2011 the Number of Those Not In The Labor Force Exploded and Now is Moving Laterally

A Historically Stable Participation Rate Has not Begun to Recover From a Collapse that Began in 2007

After a Small Dip in 2011 the Number of Those Not In The Labor Force Exploded and Now is Moving Laterally

We mention this occasionally and the first post of a new year always seems a good time to reiterate that there is a tendency to categorize data as “good” or “bad.” From our point of view the data is neither. It’s just data. Our job is to help businesses and investors react appropriately to the data at a point somewhere between cautious and aggressive. For a while all the data pointed distinctly toward caution. The last few weeks we’ve seen conflicting signals intra and inter reporting. For us, that is more cautionary than definable trends for obvious reasons. We’ll need to watch very closely over the coming weeks to see if any meaningful patterns develop in either direction. In the meantime we’d lobby the refs to throw a flag for roughing the analysts!

Thanks for reading, HAPPY NEW YEAR 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, January 04, 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 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

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