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The Easiest Way To Get The Unemployment Rate To Zero Is To Remove Everyone From The Labor Force

It’s frightening the way the “policy-makers” in this country are now twisting the truth into outright lies.  I recall reading Orwell’s “Animal Farm” and “1984” in high school and thinking:  “I doubt that can really ever happen here.”   Stunningly it’s not only happening here and now but it’s following Orwell’s playbook almost perfectly.

Yesterday Bloomberg News published a report in which Richard Fisher, President of the Dallas Fed, explained that the economy was getting better as private businesses were hiring more workers.   Apparently Fisher is either a professional liar or he doesn’t get his facts straight – in which case he would be a severely unprofessional economist.

We can presume Fisher was referring to Friday’s headline from Friday’s Government jobs report which stated that 288,000 jobs were created in April.  If that was the extent of Fisher’s due diligence of the facts, then he should be fired.

Here’s a table showing the summary data from the Government’s employment report (link):

(click on table to enlarge)

Untitled

I’ve highlighted the relevant boxes of data.  While apparently there were 288,000 new hires in April, a more careful reading of the Government’s report shows that there were actually 73,000 LESS people employed in total in April vs. March.  Not only that, but the size of the labor force declined by 988,000.   In other words, the economy LOST jobs well in excess of the 288,000 new alleged positions that were filled.

Now, maybe Richard Fisher is spending too much tutoring his grand kids in the “new math” being taught by school system these days.   But by traditional arithmetic, when you subtract a bigger number from a smaller number, you end up with a negative number.  Sorry Dick, you are wrong, the economy is not producing jobs.

Everyone knows by now that the Government reduces the “unemployment rate” by reducing the size of the Labor Force every month.  That’s the 988,000 increase from March to April of “Not in labor force” line in the table above.

I’m actually looking forward to the day when we wake up and read an editorial in the NY Times written by someone like Paul Krugman or Larry Summers suggesting that we just get rid of the labor force entirely  so that the Government can proudly present a zero percent unemployment rate.  The new economic policy can then be called “addition by subtraction” and the Orwellian cycle will be complete.

America’s Structural Jobs Depression – Part 1

A good friend and colleague of mine, John Titus, started drilling down deep into the Government employment data in order to understand exactly what was going on with the employment situation in this country.  What stimulated his desire for the truth was the fact that the knowledge that the monthly employment report fed into media headlines by the Government is obviously fraudulent.

When I saw the original graph (presented below) that he had created to illustrate the deep structural damage to America’s labor force, I encouraged him to write a guest blog post, as presented below:

Friday’s employment report confirmed the jobs disaster that is the U.S. economy. Below we demonstrate that it’s far worse than even many cynics have previously imagined.

While the mainstream media trumpeted the 6.3% headline unemployment number to what remains of its audience (i.e., rubes), the real action was in the Labor Force Participation Rate. It declined an eye-popping 0.4% in a single month, from 63.2% in March to 62.8% in April. Now the figure matches what it was back in March 1978, when the Bee Gees “Night Fever” topped the charts. How low we’ve sunk…

The Labor Force Participation Rate provides a good measure of what portion of the population is paying taxes (and, by subtraction from the pie, what portion is piggybacking). As such, its usefulness as a barometer for the health of the overall economy is far superior to the headline number, which is good for small talk and little else. How many people know how the headline number is even computed anyhow?

The Labor Force Participation Rate is simply the number of people in the labor force divided by the civilian noninstitutional population.

The labor force figure consists of people working or looking for work
The civilian noninstitutional population (“CNP”) consists of people 16 years of age and older who are not in an institution (prison, mental ward, etc.) or in the Armed Forces

Right now, there are 155.4 million people in the labor force (data link) compared to  the civilian noninstitutional population of 247.4 million people (data link). That’s where the 62.8% Labor Force Participation Rate figure comes from:

The following chart shows the Labor Force Participation Rate going back to January 1953 (the start of the Eisenhower Administration), providing us with fully six decades of data:

(click on graph to enlarge)

GRAPH1

Civilian Labor Force Participation Rate – St. Louis Fed/BLS

The chart indicates four notable points about the Labor Force Participation Rate:

Blue:  the average LFPR (63.2%)
Green:  the all-time high LFPR (67.3%, in February 2000)
Red:  the all-time low LFPR (58.1%, in December 1954)
Yellow:  the current LFPR (62.8%)

What is more telling than any of these points, though, is the sweep of the series.  After climbing for 35 years starting in about 1965, the Labor Force Participation Rate topped out in the first quarter of 2000 and has been declining ever since.

The Labor Force Participation Rate is an aggregate figure, though, so there’s not all that much more information to be wrung from of a graph of it per se.

However, when the constituent data that make up the Labor Force Participation Rate—that is, the Labor Force and the Civilian Noninstitutional Population—are disaggregated and compared month by month, a much clearer picture of what’s been going on in the economy emerges.

This process is conceptually simple.

Each year, the Civilian Noninstitutional Population (“CNP”) grows by a certain number of people.  From April 2013 to April 2014, for example, the CNP grew by 2.26 million people. On balance, 1.4 million of these people should have entered the labor force. That’s because the labor force amounts to roughly 63% of the population (and 63% of 2.26 million is 1.4 million), the six-decade average participation rate.

According to Friday’s jobs report, the actual total/cumulative number of people entering the civilian labor force from April 2013 to April 2014 was only 62,000 (155.421 MM minus 155.359 MM).  Employment Situation Summary, Table A – BLS

That’s a tiny fraction of the 1.4 million labor force entrants one should have expected. Instead of 1.4 million people entering the labor force, only 62,000 did. That’s a paltry 2.7% of the 2.26 million people added to the CNP over the last year.

Thus, for April 2014, the Marginal Labor Force Participation Rate—that is, the percentage of new additions to the CNP who make it into the labor force for a given 12-month window—was only 2.7%.

Just so we’re clear on what the Marginal Labor Force Participation Rate is all about (and so as not to depress ourselves), let’s look at a year that was good for the American workforce. A prime example is 1985 (with the historical labor force participation rate of 63.2% again denoted by the dotted line):

(click on graph to enlarge)

GRAPH2

As you can see, 1985 was a strong year. In January, the labor force grew by a whopping 2.52 million people over January the year before. By comparison, the civilian population grew by only 1.85 million people over the same period, meaning more people—upwards of one million more—got jobs in January 1985 than who entered the civilian noninstitutional population.

That might seem implausible at first blush:  how can you add more people who have jobs than the total number of people in general?  One answer is that working age people who weren’t in the labor force before January 1985 either got jobs or started looking for work (perhaps induced by rising paychecks or easy employment).

In January 1985, the Marginal LFPR was 136%. It was again over 100% for February, March, April, September, October, and November. Moreover, the Marginal Labor Force Participation Rate was above the 60-year average for every month of 1985.

The worst month of 1985 was June, and even that print was above (though just barely) the 63.2% six-decade average.

Years that are filled with months like those of 1985 push the broader Labor Force Participation Rate upwards. In baseball, if you were batting .300 before the game, and you go 4-for-4, your batting average is heading north of .300. The same is true here.

Likewise, a string of months where the Marginal Labor Force Participation Rate is below the historical average drags the LFPR down.

This is apparent at once from the following chart, which depicts the monthly Marginal Labor Force Participation Rate with a white line. It is very volatile. In a short time span, it would appear noisy. But over six decades, its patterns are clear and unmistakable:

(click on graph to enlarge)

GRAPH3

For purposes of comparison, the Labor Force Participation Rate is overlaid in blue. You’ll notice that when the blue line rises, it’s being pushed up by long stretches where the Marginal Labor Force Participation Rate is above the historical average.

The five longest above-average stretches have been filled in with solid white, the five longest below-average stretches with red. The latter pull the all-important blue line down. When chart below goes “red,” it means that the economy is not able to absorb the relentless growth of the civilian noninstitutional population at a normal or healthy rate. With that in mind, observe the U.S. economy over the last 60 years:  Take a good look at that last red region. Does that look like a recovery?  If 1958 was a severe recession according to Larry Summers, how would he refer to what we’re in now per the labor market data shown on the right side of the graph?

This chart leaves little doubt that the U.S. entered a structural employment depression some time ago. It reflects an economy where job creation is flat or severely restricted in the face of a working age population that’s growing by 25 million people per decade.

The last time the Marginal Labor Force Participation Rate posted a print above 63.2% was November 2008—exactly when the crisis hit. That was 65 months ago. Worse still is that in August 2009, the rate actually went negative. Yet Wall Street/government economists and the media contend—without paper bags over their heads—that the recovery had been underway for two months at that point.

All of this has occurred, mind you, against a backdrop of the Federal Reserve’s quadrupling its balance sheet. Supposedly this wholly unprecedented effort was undertaken to help employment. The Fed is shooting pool with a rope. It is failing so spectacularly that one must question its true intentions.

In reality, the last time the Marginal Labor Force Participation Rate was negative was July 1962, when John F. Kennedy was in office. Economists and media types who talk up “the recovery” since 2009 are dreaming, to put it charitably.

Good times for America ended a long time ago. Some time between 1984 and 2004, the economy—the real economy, not the pretend economy propped up on fake data by teleprompted parrots—reached a tipping point. That is what this graph is telling us. Something happened.

The downturn that arrived in 2008 was not cyclical, as mainstream figures would have it. On the contrary, the current jobs depression is deeply structural, and it’s showing up in a labor force participation rate that has stubbornly refused to stop spiraling downward for well over a decade.

This appears to have the BLS tied in knots. Its jobs report Friday was outright schizophrenic, with the Establishment survey reporting 288,000 new jobs compared with 73,000 jobs lost in the Household survey. Really? Government statisticians can’t get by with a 350,000-new-job margin of error for a single month? Those numbers are patently incredible.

One final note on regular and marginal participation rates. It might appear, based solely on the Labor Force Participation Rate, that things changed in early 2000, when that measure peaked. This figure, though, reflects only the surface of America’s jobs ocean. The deeper tectonic shift in the economy occurred much earlier and isn’t detectable with the aggregate labor force figure, a somewhat blunt instrument.

In Part 2, we will use the more sensitive Marginal Labor Force Participation Rate data to isolate exactly when the tipping point for the U.S. economy occurred—as well as the forces behind it. As we shall see, America’s structural jobs depression is about as inadvertent as an assassination.

It is time to cope with what has happened to America.

About the author:  John Titus has practiced patent litigation for 20 years. He wrote and produced “Bailout,” a 2012 feature-length documentary about the financial crisis, and is currently working to launch an internet video interview show that will examine economic issues.

Non-Farm Employment Nonsense: Down The Rabbit Hole

The US economy is a house of cards. Every aspect of it is fraudulent, and the illusion of recovery is created with fraudulent statistics.   – Dr. Paul Craig Roberts

While mainstream America will be greeted with news about the huge number of new jobs “created” in April, the truth is that the number of people employed in this country declined in April – by a significant amount.

I’m not going to go through the brain damage of dissecting the numbers other than report the fact that the Labor Force declined by 806,000. Most of that number is likely people who fell off the cliff of long-term jobless benefits. The labor force participation rate is now below 63%. The last time it was this low was March 1978.  This graph shows the “Civilian Labor Force Participation Rate,” which is the number of people employed plus the number of people considered “unemployed” as a percentage of the size of “working age” population.

Untitled

In addition to nearly  one million people “disappearing” from the labor force, the Government’s nefariously fraudulent “birth/death” model plugged 234,000 jobs into its statistical model.

Given the natural monthly growth of the population in this country, and given that over a million workers either disappeared down the rabbit hole or were fabricated by the Government statisticians,  it is likely that April in actuality experienced a big decline in jobs.  But the Government would never admit to that.

At least we can see from the reaction to the number in the markets that the stock market and the gold/silver market do not believe the report.  Initially the S&P 500 futures spiked up and gold and silver were trashed.  Now, as I write this, the SPX futures are red – down 9 points from the apex of their spike – and gold and silver have snapped back to resume the rally in the metals that started overnight.

I think that’s all you need to know about the number.

The thick smoke of Orwellian lies billowing out of Washington, DC  – i.e. the White House, Capitol Hill and the Federal Reserve – has become so noxiously thick that it leads me to believe that the House of Cards referred to as “the United States” is getting close to being blown away.

Something Ain’t Right Out “There”

The overt and blatant manipulation of the gold and silver markets on the Comex reflects frantic desperation – but why?

Perhaps the most unsettling recent event was the announcement by the CME that it was looking at putting daily price limit curbs on gold and silver futures.   Why now?  The daily volatility of gold is at a 4-yr low.  Why were limits not in place a year ago when the bullion banks took the price of gold down $200 in a 24 hour trading period?

The only reason to put price limit curbs in is to prevent true price discovery.   Anyone with a pulse knows that the last year’s manipulated trouncing of the metals using Comex futures triggered an avalanche of physical gold and silver buying globally.    And based on the fact that over 1000 tonnes of gold was removed – and disappeared from sight – from all of the physical gold investment trust globally combined, including over 500 tonnes from GLD, the massive and determined price take-down last year was anything but true price discovery.

But there are other, equally as disturbing smoke signals:

1)  Silver was hammered early this morning, after the a.m. London “price fix” and leading up to and during the opening of Comex futures floor trading.   All of the European/eastern REAL physical markets were closed today – Switzerland, China, Viet Nam, Turkey.  London was not closed but I think we’re fooling ourselves if we consider London a true physical market.  Today was nothing but a pure paper jam job to try to force potential holders of Comex contracts to sell and not stand for delivery.  Note:  no other correlated markets, like the U.S. dollar index or currency futures flinched during the raid on the metals.

2)  Since the beginning of March, 452 tonnes of silver were removed from the Shanghai Futures Exchange + the Comex AND the U.S. exported a record amount of gold to Hong Kong in January.

3)  Deustche Bank resigns from the LBMA  gold and silver fix committee and can’t sell its seat.  Why?  Because why would any prospective buyer pay for the right to fix the price of gold and silver if they won’t be allowed to manipulate it and make money from it.  This is a more significant event than has been attributed to it by anyone.  Those LBMA price fix committee seats have zero value if they can’t be used to manipulate the markets.

4)  What was the emergency and secretive Fed meeting about two days ago?  It certainly had no bearing on the policy announcement from the FOMC yesterday because the FOMC policy was basically unchanged, with the standard fraudulent comments about an improving economy and labor market.

5)  China and Russia shifted into overdrive mode to work toward eliminating the U.S. dollar from their trade activities.  Ironically this was triggered by the U.S. intervention in Ukraine.

6)  Unexplainedly, Belgium in the last 5 months has become one of the largest holders/buyers of U.S. Treasury bonds, amassing a quantity that is roughly 3/4’s the size of the country’s GDP.  Belgium has been running a current account deficit and a trade deficit.  Where are the funds coming from to buy this amount of Treasury paper?  Ironically, Belgium’s holdings jumped up significantly right around the time over $100 billion in Treasuries were removed from the Fed’s foreign custodial account (rumored to have been Russia’s bonds).

Please note:  Brussels is the headquarter city for both the EU and NATO.

Something is seriously wrong behind the scenes and I have a bad feeling – as do many of my colleagues – that we might find out exactly what it is before the end of the summer…

The United States Is A Fraudulent House Of Cards

Americans are an amazingly insouciant people. By now any other people would have burnt Wall Street to the ground.  – Dr. Paul Craig Roberts, article link below

Anyone with a pulse knows by now that the U.S. Government, in conjunction with the Fed and Wall Street, rigs every economic report just like it rigs every market.  When I first started getting involved in the precious metals markets back in 2001, the market manipulators at least tried to camouflage their activity.  Now they openly lie about everything and blatantly intervene in every market.   They no longer attempt to hide their activities.  The fraud, corruption and open theft truly is the mark of a collapsing Empire.

Dr. Paul Craig Roberts just published a piece which describes the giant Ponzi scheme affectionately referred to as America:

Capitalism has been transformed by powerful private interests whose control over governments, courts, and regulatory agencies has turned capitalism into a looting mechanism. Wall Street no longer performs any positive function. Wall Street is a looting mechanism, a dead-weight loss to society. Wall Street makes profits by front-running trades with fast computers, by selling fraudulent financial instruments that it is betting against as investment grade securities, by leveraging equity to unprecedented heights, making bets that cannot be covered, and by rigging all commodity markets.

I would encourage everyone to read Dr. Roberts’ commentary:  The US Economy Is A House Of Cards

My only disagreement with him is that it’s not just the economy, it’s the whole damn system.

March Pending Home Sales: Lots Of Hype But Little Hope

Despite continued price gains, most other housing statistics are weak. Sales of both new and existing homes are flat to down. The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005.  – David Blizter, Chairman of the Index Committee at S&P (from today’s Case Shiller home price index report).

Yesterday the National Association of Realtors released its Pending Home Sales Index for March.  It showed an uptick from February – but then again it should given the seasonal factors involved.  It showed an 8% drop from March 2013 and a 12% plunge from its peak in June 2013.

I wrote an article analyzing the devil in the detail.  You can read it here:   March Pending Home Sales.

I wanted to briefly touch upon the issue of price.  I saw a comment in another article yesterday that asserted that “rising prices” were the only thing protecting the market from collapsing.   Rising prices are actually bearish, because they make homes unaffordable for the first-time buyer, which historically makes up 40% of all home sales.

However, the price reports you see released, like today’s Case Shiller price report, are cited on a year over year comparison basis.  But prices of new and existing homes peaked and have been in decline since last summer.   In fact, while today’s Case Shiller report showed a year/year gain, there were price declines from January to February in 13 of the 20 cities that used in the C-S index:  LINK.  This is highly significant because the Case Shiller methodology overweights the price-effect from flippers.   A flipper buys a home for $200k, spends $25k renovating it and flips it for $250k.   That shows up as a 25% price gain.

 

Gold Bullion Bar Backwardation Is Truly Historic

“Central Banks stand ready to lease gold in increasing quantities should the price rise.”  – Alan Greenspan, “The regulation of OTC derivatives,”  Before the Committee on Banking and Financial Services, U.S. House of Representatives, July 24, 1998

James Turk did an interview with Greg Hunter of USAwatchdog.com (interview link) in which he asserted that the current backwardation in the London gold bullion bar market is historically unprecedented.   In response to this, my friend and colleague “Jesse” of Jesse’s Cafe Americain asked me if this was indeed the case.

(For those who want a detailed explanation on what the GOFO is, please see this article I wrote last August:  What Is GOFO And Why It’s Now Bullish For Gold).

My first comment in response to Jesse was:  “First let’s define the “backwardation” to which he (Turk) refers.  The paper market, the Comex gold futures, is not in backwardation.   He’s referring to the LBMA negative GOFO, which is backwardation in the sense that someone is willing to pay money to borrow physical gold bars AND collateralize that loan with dollars.  This implies that physical gold in hand is worth more than the promise to deliver physical gold in the near future, which is backwardation.”

In terms of the relative scale of historicity that can be applied to this current period of backwardation, I knew that between now and last July the amount of time the GOFO rates have been negative was unprecedented since 1999.  But I went digging around for the historical data to define “historically unprecedented.”

It turns out that, going all the way back to 1989 (I can’t find any data prior to 1989, which is probably because gold leasing didn’t really go into full swing until then), there’s only been two other instances when the GOFO was negative.  It first occurred in the last two days of September 1999.  It lasted only two days.  The second time was November 20, 21 and 24, 2008.  The backwardation lasted for three days.

When the GOFO went negative last summer, it began in early July and lasted for nearly 3 months.  It went positive for a month then negative again for over two weeks (November).  It also spent half of December negative.  Since the beginning of 2014, the GOFO has been negative for 34 of the 81 days that the LBMA has been open.

Turk’s commentary (as always) in the interview linked at the top is well worth reading.  The implication of the long stretch of time in which the GOFO has been negative since last July is that,  despite being covered up by the extreme degree of price manipulation in the gold market using paper Comex futures, there is a severe strain on the ability of the bullion banks to deliver physical gold bullion into the massive accumulation by buyers in the eastern hemisphere.  At some point the amount of pressure building up – think of it as being the equivalent of trying to stuff a beach ball into a test tube – is going to result in a massive upside explosion in the price of gold.

 

My Wall St. For Main St. Interview

Jason Burack of Wall St For Main Street interviewed me last week on the topics of the housing market, the economy and the precious metals market.  I go over the latest housing market and why the housing market is ready to resume the bear market that started in 2005.  Next we talk about some of the important issues affecting the precious metals market, including the failure of the mainstream media to accurately account for China’s demand for physical gold and the enormous drain of gold from GLD during 2013.

You can listen to the podcast here:  The Housing Market Collapse and Gold

Here’s Why Amazon.com Stock Is Getting Ripped Today

AMZN is down 10% today on already  3 times higher volume than the 90-day daily average.  Amazon.com’s business model is nothing but a massive, cleverly disguised Ponzi scheme.  This is why, despite impressive sales growth every quarter, AMZN can’t make any money.  In fact, in most quarters it actually bleeds money when analyzed from a cash-in/cash-out basis.

In its earnings report yesterday, for instance, if you skip everything and zero-in on the Statement of Cash Flows, you’ll see that “Net cash provided by operations” was -$2.5 billion.  When you net out capex, Amazon burned at total of $3.5 billion in cash.  In fact, it’s projecting an operating loss for next quarter of anywhere between $55-455 million.  That will burn even more cash.  At some point it will likely have to raise more money this year.

I wrote an article detailing why I thought eventually AMZN would implode:  Is Amazon A Giant Ponzi Scheme Dressed In Drag?

The reason Amazon can’t make real money and has been suffering declining operating margins for several quarters in a row now is that, ultimately, AMZN achieves sales growth by getting a product from the factory floor to the consumer’s floor more cheaply than just about any other retailer.  I love AMZN for this reason.

But the cost of doing that is called “fulfillment.”   Jeff Bezos went to agreat effort and expense back in AMZN’s early days to make sure the accounting rules would enable him to hide this cost in the financial statements.  But as you see from the operating margin contraction over time,  which will be negative next quarter,   the Company is hitting the old “law of diminishing marginal returns” wall.

Perhaps this is why insiders have  been selling the shares vs. buying at a 3.2 million shares to zero ratio over the last 12 months.

Amazon is one of the few internet stock bubble companies that actually survived the tech stock crash of 2000.  My hat’s off to Bezos for managing that feat.  But, as the actual results of his operations show, it’s a testament more to the fact that he’s perhaps the greatest snake-oil salesman of our era rather than an accomplished business operator.   This is why the actual cash generated from the AMZN business model has been next to nothing over the past 14 years.

You can ignore reality, but you can’t ignore the consequences of reality.  Ultimately, AMZN die-hard shareholders who stick it out rather than sell now will eventually face some very unpleasant consequences – possibly as soon as this year.