Tag Archives: unemployment

The Fed: Lies, Propaganda And Motive

The agenda of the Fed is to hold up the system for as long as possible. The biggest stock bubble in U.S. history has been fueled by 10 years of negative real interest rates. The only way to justify that policy is to create phony inflation statistics. Based on historical interest rates and based on the alleged unemployment rate, a “normalized” Fed funds rate should be set at 9%, which reflects a more accurate inflation rate plus a 3% premium. The last time the unemployment rate was measured at 3.7% was October 1969. Guess what? The Fed funds rate was 9%. I guess if you live an a cave and only buy TV’s and laptops, then the inflation rate is probably 2%…

Silver Doctor’s Elijah Johnson invited me to discuss the FOMC policy decision released on Wednesday afternoon:

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If you are interested in ideas for taking advantage of the inevitable systemic reset that  will hit the U.S. financial and economic system, check out either of these newsletters:  Short Seller’s Journal information and more about the Mining Stock Journal here:  Mining Stock Journal information.

The Slow Death Of The U.S. Economy

Deteriorating real economic fundamentals – The most important economic report out last week was retail sales for February, which showed at 0.1% decline from January. This was a surprise to Wall Street’s brain trust, which was expecting a 0.4% gain. Keep in mind the 0.1% decline is nominal. After subtracting inflation, the “unit” decline in sales is even worse. This was the third straight month retail sales declined. The decline was led by falling sales of autos and other big-ticket items. In addition, a related report was out that showed wholesale inventories rose more than expected in January as wholesale sales dropped 0.2%, the biggest monthly decline since July 2016.

Retail and wholesale sales are contracting. What happened to the tax cut boost to spending? Based on the huge jump in credit card debt to an all-time high and the decline in the savings rate to a record low in Q4 2017, it’s most likely that the average consumer “pre-spent” the anticipated gain from Trump’s tax cut. Now, consumers have to spend the $95/month on average they’ll get from lower paycheck withholdings paying down credit card debt. As such, retail sales have tanked 3 months in a row.

Paul Craig Roberts published a must-read essay on the slow death of the U.S. economy:

As for the full employment claimed by US government reporting agencies, how does full employment coexist with this reported fact from the Dallas Morning News: 100k Applications For 1000 jobs.

Toyota Motor Company advertised the availability of 1,000 new jobs associated with moving its North American headquarters from southern California to Texas and received 100,000 applications. Where did these applications come from when the US has “full employment?”

Clearly, the US does not have full employment. The US has an extremely low rate of labor force participation, because there are no jobs to be had, and discouraged workers who cannot find jobs are not measured in the unemployment rate. Not measuring the unemployed is the basis of the low reported unemployment rate. The official US unemployment rate is just a hoax.

You can read his full commentary here:    America Is Losing Its Economy

313k Jobs Added? Nice Try But It’s Fake News

The census bureau does the data-gathering and the Bureau of Labor Statistics feeds the questionable data sample through its statistical sausage grinder and spits out some type of grotesque scatological substance.  You know an economic report is pure absurdity when the report exceeds Wall Street’s rose-colored estimate by 53%.  That has to be, by far, an all-time record-high “beat.”

If you sift through some of the foul-smelling data, it turns out 365k of the alleged jobs were part-time, which means the labor market lost 52k full-time jobs.  But alas, I loathe paying any credence to complete fiction by dissecting the “let’s pretend” report.

The numbers make no sense.  Why?  Because the alleged data does not fit the reality of the real economy.  Retail sales, auto sales, home sales and restaurant sales have been declining for the past couple of months.  So who would be doing the hiring?  Someone pointed out that Coinbase has hired 500 people.  But the retail industry has been laying off thousands this year. Given the latest industrial production and auto sales numbers, I highly doubt factories are doing anything with their workforce except reducing it.

And if the job market is “so strong,” how comes wages are flat?  In fact, adjusted for real inflation, real wages are declining.  If the job market was robust, wages would be soaring.  Speaking of which, IF the labor market was what the Government wants us to believe it is, the FOMC would tripping all over itself to hike the Fed Funds rate.  And the rate-hikes would be in chunks of 50-75 basis points – not the occasional 0.25% rise.

The Housing Market Is Starting To Fall Apart

Last week I summarized January existing home sales, which were released on Wednesday, Feb 21st. Existing home sales dropped 3.2% from December and nearly 5% from January 2017. Those statistics are based on the SAAR (Seasonally Adjusted Annualized Rate) calculus. Larry Yun, the National Association of Realtors chief salesman, continues to propagate the “low inventory” propaganda.

But in truth, the economics of buying a home has changed dramatically for the first-time and move-up buyer demographic plus flipper/investors. As I detailed a couple of issues back, based on the fact that most first-time buyers “buy” into the highest possible monthly payment for which they can qualify, the price that a first-time, or even a move-up buyer, can afford to pay has dropped roughly 10% with the rise in mortgage rates that has occurred since September 2017. The game has changed. That 10% decline results from a less than 1% rise in mortgage rates.

That same calculus applies to flipper/investors. Investors looking to buy a rental home pay a higher rate of interest than owner-occupied buyers. Most investors would need the amount of rent they can charge to increase by the amount their mortgage payment increases from higher rates. Or they need to use a much higher down payment to make the investment purchase. The new math thereby removes a significant amount of “demand” from investors.

It also occurred to me that flippers still holding homes purchased just 3-4 months ago are likely underwater on their “largesse.” Most flippers look for homes in the price-range that caters to first-timers (under $500k). This is the most “liquid” segment of the housing market in terms of the supply of buyers. Any flipper that closed on a home purchase in the late summer or early fall that needed to be “spruced up” is likely still holding that home. In addition to the purchase cost, the flipper has also incurred renovation and financing costs. Perhaps in a few markets prices have held up. But in most markets, the price first-time buyers can pay without significantly increasing the amount of the down payment has dropped roughly 10%. Using this math, any flipper holding a home closed prior to October is likely sitting on a losing trade.

Similar to 2007/2008, many of these homes will be sold at a loss or the flipper will “jingle mail” the keys to the bank, in which case the bank will likely dump the home. I know in some areas of metro-Denver, pre-foreclosure listings are rising. Some flippers might turn into rental landlords. This will increase the supply of rental homes which, in turn, will put pressure on rental rates.

New home sales – The plunge in January new home sales was worse than existing homes. New home sales dropped 7.8% from December. This follows December’s 9.3% plunge from November. The December/January sequence was the biggest two-month drop in new home sales since August 2013. Back then, mortgage rates had spiked up from 3.35% in June to 4.5% by the end of August. The Fed at that time was still buying $40 billion worth of mortgages every month. With QE over and an alleged balance sheet reduction program in place, plus the Fed posturing as if it will continue nudging the Fed Funds rate higher, it’s likely that new home sales will not rebound like they did after August 2013, when mortgage rates headed back down starting in early September 2013.

Contrary to the Larry Yun false narrative, the supply of new homes jumped to 6.1 months from 5.5 months in December. How does this fit the Yun propaganda that falling sales is a function of low inventory? The average price of a new home is $382k (the median is $323k). New home prices will have to fall significantly in order for sales to stop trending lower. What happens if the Fed really does continue hiking rates and mortgage rates hit 5%?

January “Pending” Home Sales – The NAR’s “pending home sales index,” which is based on contract signings, was released this past Wednesday. It plunged to its lowest level since October 2014. The index dropped 4.7% vs. an expected 0.5% rise from the optimist zombies on Wall St. It’s the biggest 1-month percentage decline in the index since May 2010. On a year-over-year comparison basis, the index is down 1.7%. December’s pending home sales index was revised down from the original headline report.

The chart below, sourced from Zerohedge with my edits added, illustrates the way in which rising and falling mortgage rates affects home sales. The mortgage rate data is inverted to better illustrate the correlation between mortgage rates and home sales:

Housing sales data is lagged by a month. Per the blue line, current homes sales (i.e. February sales/contract signings) have likely declined again given that mortgage rates continued to rise in during the month of February.

The above commentary on the housing market is from the latest Short Seller’s Journal.  Myself and several subscribers have been making a lot money shorting homebuilders this year.  But it’s not just about homebuilders.  I presented ZAGG as a short in the SSJ in the December 10th issue at $19.  It plunged down to $12 yesterday.  I’ve had several subscribers report gains of up to 40% shorting the stock and 3x that amount using puts.

You can find out more about this unique newsletter here:  Short Seller’s Journal

For Clues On The Economy, Follow The Money

“There is nothing new on Wall Street or in stock speculation. What has happened in
the past will happen again, and again, and again. This is because human nature does
not change, and it is human emotion, solidly built into human nature, that always
gets in the way of human intelligence. Of this I am sure.” –Jesse Livermore

The profitability of lending/investing money is a function of both the rate of return on the money loaned/invested and the return (payback) of the money. The historically low interest rates are squeezing lenders by driving the rate of return on the loan toward zero (note: “lenders” can be banks or non-bank lenders, like pension funds investing in bonds).

As the margin on lending declines, lenders, begin to take higher risks. Eventually, the degree of risk accepted by lenders is not offset by the expected return on the loan – i.e. the probability of partial to total loss of capital is not offset by a corresponding rate of interest that compensates for the risk of loss. As default rates increase, the loss of capital causes the rate of return from lending to go negative. Lenders then stop lending and the system seizes up. This is what occurred, basically, in 2008.

This graphic shows illustrates this idea of lenders pulling away from lending:

The graph above from the St Louis Fed shows the year over year percentage change in commercial/industrial loans on a monthly basis from commercial banks from 1998 to present. I have maintained that real economic growth since the initial boost provided by QE has been contracting for several years. As you can see, the rate of growth in lending to businesses has been declining since 2012. The data in the chart above is through October and it appears like it might go negative, which would mean that commercial lending is contracting. This is despite all of the blaring media propaganda about how great the economy is performing.

The decline in lending is a function of both lenders pulling back from the market, per reports about credit conditions in the bank loan market tightening, and a decline in the demand for loans from the private sector. Both are indicative of declining economic activity.

This thesis is reinforced with this graphic:

The chart above shows the year over year percentage change in residential construction spending (red line) and total construction (blue line). As you can see, the growth in construction spending has been decelerating since January 2014. Again, with all of the media hype about the housing market, the declining rate of residential construction suggests that the the demand side of the equation is fading.

The promoters of economic propaganda have become sloppy. It’s become quite easy to invalidate Government economic reports using real world data. Using the Government-calculated unemployment rate, the economic shills constantly express concern about a “tight labor market.” Earlier this week, Moody’s chief economist Mark Zandi asserted that (after the release of the phony ADP employment data) the “job market feels like it might overheat.” The problem with this storyline is that it is easy to refute:

The graph above is from the Bureau of Labor Statistics productivity and costs report. The blue line shows unit labor costs. As you can see, unit labor costs have been decelerating rapidly since 2012. In fact, labor costs declined the last two months. The last time labor costs declined two months in a row was November 2013.

See the problem? If labor markets were “tight” or in danger of “overheating,” labor costs would be soaring, not falling. This is why I say the shills are getting sloppy with their use of manipulated Government economic reports. It’s too easy to find data that refutes the propaganda. I remember Mark Zandi from my junk bond trading days in New York. He was an “economist” for a fixed income credit analysis service (I can’t remember the name). I thought his analytic work was questionable at best back then. I continue to believe his analysis is highly flawed now. Recall, Moody’s is the rating agency that had Enron rated triple-A until shortly before it collapsed. That says it all…

Speaking of the labor market, I wanted to toss in a few comments about November’s employment report. The BLS headline report on Friday claims that 255k jobs were created in November. However, not reported in any part of the financial media coverage, “seasonal-adjustment gimmicks bloated headline payroll gains, where unadjusted payrolls were revised lower but adjusted levels revised higher” (John Williams’ Shadowstats.com).

The point here is that, in all likelihood, most of the payroll gains in the BLS report were a product of the mysterious “seasonal adjustment” model used. Per the BLS report, another 35k were removed from the labor force as defined. Recall that anyone who has not been looking for a job in the previous four weeks is removed from the labor force statistic. Furthermore, and never mentioned by the media/Wall St., the BLS report shows the number unemployed increased by 90k in November.

I don’t know when the stock market bubble will lose energy and collapse.  What I do know is that each time the U.S. stock market disconnects from reality, there’s a period of “it’s different this time,” followed by the crash that blind-sides all of the so-called “experts” – most of whom like Dennis Gartman do not have their own money in the stock market (it’s well-known that Jeremy Siegel invests only in Treasuries).  The retail lemmings who think they’ll be able to get out before the crash will see their accounts flattened like a Japanese nuclear power plant.

Most of the commentary above is from my Short Seller’s Journal, in which I present stocks  to short every week (along with options suggestions).  You can learn more about this newsletter here:   Short Seller’s Journal subscription info.

I’ve been a subscriber for a good part of the year and really enjoy my Sunday evening read. Thank you – received sent this morning from “William”

The Stock Market Veers Further From Economic Reality Each Day

Actual Monthly Change in August Payrolls Likely Was a Contraction – Though Bloated by Seasonal-Factor Distortions and Add-Factors, Annual Payroll Growth Effectively Held at a 30-Month Low – Second-Quarter Real Merchandise Trade Deficit Remained Worst Since 2007.  – John Williams, Shadowstats.com

The negative economic news continues to spill out, with most economic reports reflecting an economy that is already in contraction (recession). The most interesting report out last week was auto sales for July, which showed a 5.5% drop from June overall and a 6.2% drop for domestic vehicles. These comps are based on seasonally “adjusted” annualized rates. I would bet anything that the actual number of cars sold in July vs. June were a lot lower. Ford reported an 8.4% drop in sales. Ford admitted that the market was soft and that retail price incentives are at historical highs. In short, the overall auto sales report was a disaster and it’s going to get worse going forward.

With regard to the transports index, a report out on August 19th that received no attention in the financial media showed that Class 8 (heavy duty) truck orders fell 20% from June and 58% year over year. This is after hitting a four-year low in June. The big drop was blamed on a high rate of cancellations. This is consistent with regional Fed manufacturing reports out last week that showed big drops in new orders. Again, the economy is starting contract – in some areas rather quickly.

One last datapoint that you might not have seen because it was not reported in the mainstream financial media, or even Zerohedge:  the delinquency rate for CMBS – commercial mortgage-backed securities – rose for the the 5th month in a row in July. The rise was attributed to “another slew of balloon defaults.” Balloon defaults occur when the mortgagee is unable to make payments on mortgages that are designed with low up-front payments that reset to higher payments at a certain point in the life of the mortgage. This reflects an increasing inability of tenants in office, retail and multi-family real estate to make their monthly payments.

The housing market is going to crash again.  Vancouver home sales crashed 23% in one month – LINK.   Think this can’t happen in the U.S.?  Think again because, as I detailed in a previous post,  home sales in Aspen and the Hamptons have crashed 50% this summer. In this post – LINK  – I presented data from Redfin which showed home sales in July fell 46% in Vegas, 24% in Miami, 21% in Portland, 20% in Oakland and 11% in Denver.

The entities that report housing and auto sales can hide the truth about monthly sales volume using seasonally adjusted annualized rate metrics, but they can’t simulate actual economic activity with fake data.  Eventually reality catches up.  Go drive around areas where you live that use to be “hot” housing  markets.  I bet  you’ll see a lot of “for sale,” “for rent” and “price reduced” signs.  I am seeing that all over Denver and I’m starting to see it in the formerly “hot” suburban areas.

I have no problem betting on housing with my own capital.  My homebuilder short positions are the highest they’ve been since 2008.  Unless the Government starts pushing 0% down payment mortgages in general, vs. through programs sponsored by the USDA and VHA, the housing market is hitting a stiff wall in Q4.

The stock market is going to have to break one way or another.  Below is 60-minute, intra-day chart of the S&P 500 that I have been posting in my weekly Short Seller’s Journal (click to enlarge):

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I just don’t think the S&P 500 can continue in this “holding” pattern much longer. Some think the Fed is holding up the market until after the election. I don’t know if that’s true or even possible. It’s my view that, unless the Fed engages in another massive round of money printing, at some point it’s going to lose its ability to keep the market from turning south violently.  By the way, because of what you see in the graphic above, puts on most stocks, especially homebuilder stocks, are very cheap right now.  Buy cheap and sell dear.

Even though the Fed is obviously propping up the S&P 500 and Dow, several sub-sectors of the market are heading lower.   Housing, retail, transports and financials are just a few. Interestingly, the last four short ideas presented in my Short Seller’s Journal have worked right out of the gate.  This type of winning streak has not occurred since late December. Regardless of whether my ideas work immediately or take a few months to develop, most of them will work better than shorting the SPX over the next several months/years.  You can access the Short Seller’s Journal this link:  SSJ Subscription.

Why Do Central Banks Need To Exist?

The short answer is, they  don’t.   Central Banks function as “legititmized” price control mechanisms.  They control the price of money in order to help the elitists confiscate your wealth.  That’s it.   But price controls never last very long and neither do Central Banks.   The U.S. is on its third CB in less than 300 years of existence and there’s been in a movement in place to get rid of the Fed for at least the last 8 years.

The Daily Coin featured a useful analysis – LINK – of the latest attempt by the western Central Banks to build a “currency sandbox” for everyone to play in because they know the U.S. dollar’s role as the reserve currency is coming to an end.  The Utility Settlement  Coin” is an act of desperation to head off the move by eastern hemisphere emerging economic powers, led by China and Russia, to create a level playing field.

Almost every year the precious metals sector experiences a price correction late in the summer.   And almost every year the anti-gold propaganda floods the internet and media. This year is no exception.  But the current pullback in the sector has about run its course.   This was a healthy pullback after the huge run up in the sector.   The next leg higher should be even more exciting.

Finally, the U.S. economy is starting to collapse.  Blow away the propaganda smoke being blown by the likes of Janet Yellen, Stanley Fisher and Hillary Clinton and a clear view of the real economic data will show a nasty downturn emerging in housing, autos, general manufacturing and discretionary consumption.   In the latest episode of the Shadow of Truth, we discuss these issues and infuse some humor to make it easier to digest – enjoy the podcast and enjoy your  long holiday weekend – it could get ugly in Q4:

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Government Jobs Data: Defining Deviance Downward

Your analysis on the June jobs report was posted in the comments section on the WSJ online.  After reading them, I did some more research based on concepts you introduced [to me].  I learned more in the last 90 minutes about the BLS surveys than from the past 12 months of WSJ articles on the topic.  Thanks.  – from “Jim” in his Linked-In connection request

640,000 thousand people leave the workforce but the unemployment rate drops to 5.3%. Only here in this country now can sell that big bag of shit.  20 years ago anyone would have been embarrassed to print that report or laughed out of the meeting room.  – Dave’s NY friend

NY Friend:  Of all the lies you ever told in your days of a junk bond trader, you never told a lie that blatant.  You used to say a good lie contained an element of truth.

Me:  Dude, I only told lies I knew I could get away with.

NY Friend:  We’re back to the 1977 level of employment when one income could support a household.

Here’s the analysis of the jobs report today from my good friend and colleague, John Titus of Best Evidence:

The labor force is defined as people working or looking for work. It’s a solid approximation of the real jobs number, and it’s on the high side because obviously not everyone looking for work is actually working. But if you accept the sunnyside fudge and equate looking for work with actual work, you’ve got a very accurate picture of jobs.

Since Obama took office in January 2009, the U.S. labor force has added 2.827 million people. Obama’s claim of adding 11 million jobs is just a straightjacket-and-electrodes-crazy lie no matter how you cut it.
What is even worse is that those additions to the labor force came from the total pool of people added to the working age population—a pool that has grown by 15.924 million people.
So under this so-called jobs president, an astounding 82.25% of people enter their working age years without working and without looking for work. Think about that number for a second. More than four out of five people who aren’t working or looking for work is grim, worse-than-Great-Depression-ugly, no matter how small the sample is. But the fucking “sample” here is 100% of everyone added to the entire working age population for almost the last 7 years.
Anyone who thinks that what’s happening in Greece can’t or won’t happen here is at best dreaming and more likely unhinged. Based on the real jobs data, it’s guaranteed to happen here.
The the definition of “defining deviance downward.”  The phrase was first used by Senator Danial Patrick Moynihan in the early 1990’s after Clinton had assumed office to describe the willingness of our society to tolerate the rising criminality and fraud in the political and economic system.
Our system is well past the breaking point of recoverability.  I asserted in 2003 that:  “the elitists running our system will hold up the system with printed money and debt certificates for as long as it takes to sweep every last crumb of middle class wealth off the table and into their own pockets.”
We are witnessing the end-game phase of this operation.  For the record, “middle class” is defined as anyone who does not have enough cash laying around to buy their own Congressman, Senator or the Oval Office.  This means anyone reading this who has a few million in the stock market, bonds and a house or two will soon be stripped of that unless they convert that “wealth” into real money.

The Fed Is Blow-Torching The Economy With QE

The Federal Reserve exists for the sole purpose of enriching big banks…The Fed does whatever it takes to keep a yacht filled of failed executives and their friends unimaginably rich.  If this requires an economy of 300 million people to be blow-torched, then a blow-torching is what that economy will get. – John Titus, “Bailout Films” and “Best Evidence”

My good friend and colleague has written, narrated and produced a short video showing – with data directly obtained from the Fed’s own website to support his analysis – that there is almost a 100% inverse correlation between QE and the Labor Force Participation Rate.  I was stunned when he showed the evidence.

The only purpose QE has served is to keep the big banks solvent and to fund the massive pay packages paid to big bank executives. Please watch this video closely and pass it along to everyone you know – it is truly extraordinary: