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2.9.2015 Financial Intelligence Report Bookmark

Jobs Galore?

 

On Friday we got the non farm payroll report, and boy…if the powers that be ever wanted to paint something to  look perfect, this was their Rembrandt moment. Not only did the headline number beat the estimates of a gain of 235K by coming in at 257K; they went back and did some of the most aggressive “revisions” to prior reports that I’ve ever seen.

Let me paint the picture for you. According to our Government bean counters the last few reports have shown the most job gains in 17 years. They say that wage growth was the best since 2008, as they told us wages grew by 0.5%. The BLS did revisions to the entire year of 2014, and remember the “polar vortex” last January? They said at the time we only got 144K jobs. Now they say that looking back, it was really 247K.  But that was nothing compared to what they did to November. Now they say November posted a gain of 465K jobs.  That’s the most monthly gains since the tech bubble boom of the late 90’s. A time when there really were jobs galore.

Jobs Galore?

 

On Friday we got the non farm payroll report, and boy…if the powers that be ever wanted to paint something to  look perfect, this was their Rembrandt moment. Not only did the headline number beat the estimates of a gain of 235K by coming in at 257K; they went back and did some of the most aggressive “revisions” to prior reports that I’ve ever seen.

Let me paint the picture for you. According to our Government bean counters the last few reports have shown the most job gains in 17 years. They say that wage growth was the best since 2008, as they told us wages grew by 0.5%. The BLS did revisions to the entire year of 2014, and remember the “polar vortex” last January? They said at the time we only got 144K jobs. Now they say that looking back, it was really 247K.  But that was nothing compared to what they did to November. Now they say November posted a gain of 465K jobs.  That’s the most monthly gains since the tech bubble boom of the late 90’s. A time when there really were jobs galore.

There’s no question that the jobs report was “better” than in the depths of the 2008 meltdown. But do you really think that the jobs market is as strong as they’re telling us? Of course not. They’re trying to compare this report with numbers out of the late 90’s, and frankly that’s simply “wrong”.  Let me explain.

I remember the late 90’s well. Not only was the market screaming higher, gasoline was dirt cheap, and jobs were so plentiful, companies had a hard time filling them. At the time, I was living in Eastern Pennsylvania, in the Pocono Mountains.  Since those days, there’s something that I have always remembered about that time…our local Burger King had to actually advertise on the radio for employees. I’ll never forget that.

You read that right folks. There were so many jobs available, that McDonalds, and BK and other minimum wage type outfits couldn’t get anyone to work for them. People were getting much higher paying jobs, and even kids straight out of high school were going to work in jobs paying 11 and 12 dollars an hour to start. So desperate was our local Burger King that they had to take out radio advertising on the biggest local station in the area, just to fill job slots.

Uncle Sam is trying to tell you that we’re in that sort of 1990’s situation, with 5.7% unemployment, roaring wages and incredible job growth. Unfortunately, it’s simply not true. They’re comparing apples to oranges. Let me explain why.

Unemployment in 1998 was 4.4%. Today they say it is 5.7%. That’s not that much different right? I mean, what’s the big deal about the difference between 4.4 and 5.7?  Surely they’re right and things are comparable? No, not at all. The difference is in the “amount of people in the labor force”.  See, back in 1998 the labor force participation rate was over 67%. In 2014 it had crashed to 30 year lows of 63%. But not only that, the WAY they calculate the labor force participation changed. 

In 1994, they didn’t like the fact that all the folks that were frustrated and gave up looking for work, were still being included in the overall unemployment rate, making it look bad. So, they did what Governments do…they changed the rules. No longer would those not ‘actively seeking work” be considered unemployed. Instantly millions of people were no longer counted as “unemployed”. They were simply ignored. 

 So, back in 1998, the “U-6” reading of unemployment, which included all categories of joblessness, was at 7%. Today it’s 11.5%.  But GET THIS…if we calculated unemployment as we did for decades before 1994 … our current unemployment rate would be 22%.

In other words, our reading of 5.7% “unemployed” is from a VASTLY smaller pool of people “actively” seeking work, than we had in the 90’s. Right now we have 93 million people that aren’t even included in our unemployment numbers. They are “out of the labor pool so to speak. Back in 98, the level of people not actively in need of a job was much less than that and before 94 they all would have been computed in the equation. In basic terms, they fudged the entire thing.  

So no, we cannot compare today’s jobs report with the true strength we saw in those past decades. It simply isn’t a valid comparison. If the way they actually accounted for jobs, labor force participation, etc, were the SAME as it was 15 years ago and hadn’t been altered so many times to make the jobs reports look better, then we’d have a wildly different reading.

Even on a YEAR to YEAR comparison, they fudge the equation. Again, think of that 5.7% number. That’s supposedly based on the available pool of workers. Well guess what? Let’s take a look at that pool…

Not in labor force January 2014 92,534,000

 

Not in labor force January 2015 93,674,000

Do you see the game here? The “people” that they count as “in” the labor force SHRUNK by over a million. Then they apply their percentages to the remaining balance. So, whether we’re talking about comparing to decades past, or even last year, the raw numbers that are used in composition, simply are NOT the same.

Let’s consider quality of jobs for a minute. Back in the 90’s the bulk of adult workers were in FULL time jobs. Right now according to Gallop, the percentage of full time jobs in relation to the population, is at an ALL TIME LOW. Basically, the make up of the quality of the jobs posted has never been worse. Obama care forced tens of thousands of companies to cut full time workers to part time. They even revised the definition of full time from the age-old 40 hours, to just 30 hours. So again, our 5.7% unemployment rate of today, is VASTLY different than a 5.7% rate would have been 20 years ago.

If you take a woman in 1998 making 14.00 an hour in a 40 hour week, how can you compare that gal to one in 2014 making 14.00 an hour, but only working 30 hours?  That’s 140 dollars a week or a whopping 7,280 a year difference. But according to the bean counters, she’s part of a rip roaring jobs market.  Do you see the real impact here? 7 grand a year is a life changing event for people. It’s the difference between a house and a one bedroom apartment.  5.7% today, has no resemblance to 5.7% of 1998.

How about the big jump in wage gains? Did wages really jump 0.5%? Well, yes and no. What they didn’t tell you was that minimum wages rose in 17 states in January. Minimum wages usually only change every 8 – 12 years or so. So January saw 17 states hike their minimum wage rates. So while the overall wage hike was a healthy 0.5%, you have to look at in context. It wasn’t like already wonderful salaries got a nice monthly boost. No, what really happened was the poor kid in Florida making 7.93 an hour, now gets 8.05.  Don’t spend it all in one place.

I’m not trying to be negative and  I’m not trying to be the bad guy. I just want you all to understand that they will cheerlead anything they can make up to help you feel that things are really going well. It’s all about perception. They want you to feel good and go spend money. If you think the jobs report suggests jobs are well paying and plentiful, it makes you a little looser with your pocketbook. That’s their hope; that you think that even if your particular situation stinks out loud, YOU can’t find a good job, you still buy into the “everything must be fine” meme.

But it does beg the question of…if they keep tarting up the reports, desperate to show how great things are, doesn’t that pressure the Fed’s to do their stupid little rate hike? It does indeed.  But that’s another day’s discussion.

The Market….

 

Wow.  That’s about all I can say. I wish I had the space to write about all the incredible things happening around the world right now, but of course that would take a novel sized book and we can’t do that. But just understand that HUGE things are happening, and a lot of it isn’t making the nightly news casts. For instance, I didn’t see ONE, not ONE mention of Merkel and Hollande going to Russia to chat with Putin about solutions to Ukraine. I didn’t see ONE headline about the NATO commander saying that a military option is on the table. I didn’t see ONE headline about the Russian Foreign minister speaking at a security conference in Munich, and laying out exactly who was and still is responsible for what’s happening in Ukraine.  Nope, not a word.  Just crazy people like me are destined to report on them, and opine on their importance.

But all those things are indeed still playing out in the background, but here in the States we get make believe jobs numbers to focus on, numbers so removed from reality that they’d be better released in a sci-fi movie. Yet that’s the way it is.

The market had a spectacular rebound move this week. On Monday we were literally at the edge of a cliff with our toes hanging out into space, just shy of falling into the abyss when all of a sudden, a fake headline was conjured up. Knowing they needed something to rally the market on, they created a headline stating that the Greeks that were JUST elected on a platform of not bowing to EU pressure concerning paying back their debts; we reversing their entire stance and ready to toe the line. Well it worked. The market bounced from the cliff edge, and in just 4 days we’d gained 800 points. 

Did the Greeks really change their minds? Of course not. But in this day and age, no one is held accountable for making up rumors, lies and false news. Anything it takes to save the all precious market from falling.

On Friday we got the jobs report. I talked about that in the commentary section. But the market was tired from the big run, and it was at the “upper range” of the last couple big bounces. As I said the other day, the market has been running up and down in about a 1K point channel. We were at the top of that channel Friday, but they were having a bit of a struggle busting over it. The number that was important for us to close over was 2064 on the S&P.

As the day wore on, they got braver and braver. The S&P hit 2072 for a while and holding that into the close would have been a sure fire signal that they had broken out of the trading range and we were on our way to the all-time December highs. But it wasn’t to be. Late in the day another headline broke…the head of the Euro-group; a Mr. Dijsselbloem ( I call him Diesel-boom)  said “the Greeks have 10 days to apply for a bail out, or….basically leave the Euro”.

Well that changed things in a hurry. The DOW, which had been up 100 fell like a rock, and soon was negative by 100. The S&P which was in breakout mode, lost its breakout and ended red on the day.  

So what happens now? Boy that’s a great question. 15 nations have cut their interest rates, and now in about a dozen of them, they offer up NEGATIVE rates. To park your money in Denmark you have to pay them for your deposit. There’s talk of “negative mortgages” floating around. Lets think about that for a second… you take a mortgage out and the lender pays you every month?  How absurd can things get? Evidently, quite.  The whole world has gone insane, the product of printing endless streams of money to keep all the ponzi’s alive.

As you can see, it isn’t just Greece that’s made the volatility of the last month, it’s all this stuff. A combo-platter. And none of it will be solved by Monday, so trying to call a direction right this second is tougher than usual. For instance, are the Greeks going to hold firm and actually leave the Euro-zone?  If they do, it’s huge news, and could have ramifications for Spain and Italy to follow suit. If they buckle and go with the EU masters, will the world rejoice, as if something’s been solved? Probably even though it sill won’t work.

All I can do is use the numbers that have worked in the past. Until we put in a close over 2064 on the S&P, we still have to consider the idea that we’re trapped between the January lows and the 2064 high. In between anything can happen.  I tend to think they’ll “try” again and bust us up and over, but that’s just a guess. I think they’ll try and outthink Greece and come up with a way to dismiss it all.

We’re carrying 3 long positions in our Insiders Club. ATW, HD and WEN. So far so good comes to mind on all of them, as they’re all up nicely for us. But they are nervous holds as the market reaches these upper ranges and we won’t be shy about taking profits. I think that’s all we can do right now is keep positions small and take profits quick.  Good luck and be safe out there, things are as wild as I’ve ever seen them.

 

 

 

 

 

 

 

 

 

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