What That Jobs Report Might Really Mean

by Grayson Lilburne

Here is a statement release from Christina Roemer, quick to take today's employment report as...

...the most hopeful sign yet that the stabilization of financial markets and the recovery in economic growth may be leading to improvements in the labor market. (...)

There are many bumps in the road ahead. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, positive or negative. But, it is clear we are moving in the right direction.

I've done a lot of driving today, so I've heard a lot of coverage of the employment report on the radio, and the only misgivings about it that I heard was that it might be a "blip". There was nary a whisper that just perhaps the specific jobs created in the specific industries they were created in might be unsustainable. Even some mainstream commentators admit that the easy credit policies of the Fed at least contributed to the bubble in the first place. Yet, with Bernanke having doubled the Fed's balance sheet in order to keep interest rates around 0%, is it such a hard connection to make that an even more extreme easy credit policy just might induce a false-recovery bubble?

In fact, this rebound in employment, following a "jobless recovery" in capital markets (as evidenced in the bull market we've been having) strikes me as perfectly fitting the Austrian Business Cycle Theory's characterization of an economic bubble.

What That Jobs Report Might Really Mean

Related articles by Zemanta

• Fed Officials Indicate Central Bank Unlikely to Alter Policy Soon (blogs.wsj.com)

Film: The Incredible Bread Machine

Nothing Is As It Seems: Factory Orders and Unemployment

By Jeff Harding.

Everyone is pleased with the employment numbers that just came out today. Also, industrial production showed an increase. These numbers would indicate that we are well on our way to recovery, and I hope that is true. Many economists have hailed these reports as a clear sign that we are well on the way to recovery. I heard Brian Wesbury of First Trust Advisors say this on the radio this morning saying we are clearly in a “V”-shaped recovery.

Here is a typical reaction:

This is one of those game-changer reports that should fundamentally alter the perception regarding the economy. We have been steadfast in our belief that the labor market is stabilizing and that payrolls would turn positive around the turn of the year. It is safe to say that many if not most economists have been skeptical that the labor market would perk up, and the jump in the unemployment rate in October seemed to reinforce the negativity around the labor market. Today’s number was a little more and a little faster than we had expected, but it largely jibes with our broad evaluation of the employment picture. However, it should spark a much more significant re-assessment of the economic situation among market participants and the consensus at the Fed. –Stephen Stanley, RBS

But are these indicators correct? Do they signal a turnaround? Since I am accused of always seeing things darkly, I don’t wish to be overly critical, but I don’t think they are sending signals of a true recovery. Let’s examine the reports.

Nothing Is As It Seems: Factory Orders and Unemployment

Related articles by Zemanta

• Broader Jobless Rate Declines to 17.2% (blogs.wsj.com)

Why The Housing Market Is In Trouble

By Jeff Harding

Since the biggest financial collapse in world history was built on credit related to housing, it is pretty obvious that we should be paying very close attention to that market. The reasons are complex, but a recovery must be based on the liquidation of bad debt. The sooner that happens the quicker a recovery will happen.

When we mean “liquidation of debt” we are talking about a mountain of credit built on the housing bubble. This phony bubble wealth permeated the entire economy. When home owners saw the price of their home rising, they saw it as a source of capital to use for a variety of things, but let’s face it, most people spent it.

New stores opened, malls were built, financial institutions grew, cars and boats, second homes, vacations, and restaurants all flourished. Credit card debt mushroomed. Home mortgages were increased to pull cash out for spending. Yes, some of it went to good things, like our children’s education, helping our aged parents, and paying off bills. But the reality was that our debt kept growing.

The clever lads created even more phony wealth under the guise of insurance, but as we found out, companies like AIG really had no idea how large their obligations were for credit default swaps written against almost any financial risk. And these instruments were further leveraged without understanding the magnitude of these triple-counted obligations or their relationship to housing.

It all comes back to housing as the fuel for the 70% of our economy that was consumer spending. The thought was that housing has always gone up, and if it went down, it really never went down if you averaged growth since the post-WWII-period. A drop of 10%? Never has happened. 20%? Not even a 6th deviation possibility.

My thesis has been that this was all fueled by the Fed through monetary policies that created and supported the bubble. Aided and abetted by governmental policies and financing schemes that favored housing and risky loans. This was not a “free market” phenomenon. Far, far from it.

Why The Housing Market Is In Trouble

Related articles by Zemanta

• How much home can you afford? (raincityguide.com)

America Without a Middle Class

Image by jpellgen via Flickr

Elizabeth Warren

Can you imagine an America without a strong middle class? If you can, would it still be America as we know it?

Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can't make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.

Families have survived the ups and downs of economic booms and busts for a long time, but the fall-behind during the busts has gotten worse while the surge-ahead during the booms has stalled out. In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family. While Wall Street executives and others who owned lots of stock celebrated how good the recovery was for them, middle class families were left empty-handed.

Elizabeth Warren: America Without a Middle Class

Related articles by Zemanta

• Elizabeth Warren's New Model For Wall St.: 'If You Can't Explain It, You Can't Sell It' (huffingtonpost.com)

The Recurring Gold 'Bubble'

Tim Lacono

A lot of people are getting all worked up about the rising price of gold. Some say the current move has gone "parabolic" and that we're in the midst of a "blow-off top" akin to the early 1980s peak that saw the gold price disappoint investors for years afterward.
Just this morning, Hu Xiaolian, a vice-governor at the People's Bank of China, called gold a bubble and implied that the central bank wasn't much interested in buying thousands more tonnes of bullion as bank reserves at current prices.
Looking at the one-year gold chart below it's hard to disagree with that view, but there's much more to the story than that. In fact, as compared to previous moves up in this decade, the recent move has been rather tame so far for reasons that will be explained in a minute.

Since the yellow metal began its decade-long ascent in 2000, there have been distinct periods of rising prices, most of which have begun in the odd numbered years

The Recurring Gold 'Bubble' -- Seeking Alpha

Related articles by Zemanta

• Gold: precious metal breaks $1,200/oz to reach new high (telegraph.co.uk)

The Dubai File: Is Venezuela Headed for a Default?

Image via Wikipedia

by rc whalen

"The market flutter caused by the unilateral debt moratorium by Dubai suggests to us is that the illusion of stability created by the Federal Reserve Board over the past year is starting to dissipate.  Specifically, there are many Dubai type situations in the global markets, both sovereigns and corporates, that are over-extended and are unable to service their debts at par.  The corporates will end up in restructuring but the sovereigns are an open question."  
"We would not be surprised to see more sovereign debtors make unilateral announcement of debt moratoriums and/or restructurings, perhaps including even oil rich Venezuela.  We notice in that regard that Venezuela’s lider maximo, Hugo Chavez, is preparing to nationalize the few remaining private banks of that nation, usually a good indicator of an approaching sovereign default."
I have been following VE, both as a journalist and professionally, for many years.  While Chavez does have a reasonably tight grip on the security situation, c/o his Cuban trained praetorian guard, the economy is a mess, even with plentiful oil.  Indeed, not only has Chavez managed to wreck the state oil company so that VE barely meets half of its OPEC production quota, but inflation is running wild.

The Dubai File: Is Venezuela Headed for a Default? | zero hedge

Related articles by Zemanta

• Venezuela closes down four banks (news.bbc.co.uk)

Official Google Blog: Introducing Google Public DNS

Image via CrunchBase

When you type www.wikipedia.org into your browser's address bar, you expect nothing less than to be taken to Wikipedia. Chances are you're not giving much thought to the work being done in the background by the Domain Name System, or DNS.
Today, as part of our ongoing effort to make the web faster, we're launching our own public DNS resolver called Google Public DNS, and we invite you to try it out.
Most of us aren't familiar with DNS because it's often handled automatically by our Internet Service Provider (ISP), but it provides an essential function for the web. You could think of it as the switchboard of the Internet, converting easy-to-remember domain names — e.g., www.google.com — into the unique Internet Protocol (IP) numbers — e.g., 74.125.45.100 — that computers use to communicate with one another.
The average Internet user ends up performing hundreds of DNS lookups each day, and some complex pages require multiple DNS lookups before they start loading. This can slow down the browsing experience. Our research has shown that speed matters to Internet users, so over the past several months our engineers have been working to make improvements to our public DNS resolver to make users' web-surfing experiences faster, safer and more reliable. You can read about the specific technical improvements we've made in our product documentation and get installation instructions from our product website.

Official Google Blog: Introducing Google Public DNS

Former Managing Director of Goldman Sachs: Accounting Fraud of the Too Big to Fails May Be Worse Than Enron

Image via CrunchBase

by George Washington

Nomi Prins - former managing director of Goldman Sachs and head of the international analytics group at Bear Stearns in London - is saying the same thing that financial bloggers have been saying: The giant banks are manipulating their books to make themselves look profitable.
In fact, Prins says that this might be worse than the fraud which occurred at Enron:

Enron was the financial scandal that kicked off the decade: a giant energy trading company that appeared to be doing brilliantly—until we finally noticed that it wasn’t. It’s largely been forgotten given the wreckage that followed, and that’s too bad: we may be repeating those mistakes, on a far larger scale.

Specifically, as the largest Wall Street banks return to profitability—in some cases, breaking records—they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.

Former Managing Director of Goldman Sachs: Accounting Fraud of the Too Big to Fails May Be Worse Than Enron | zero hedge

Related articles by Zemanta

• Wall Street Bonuses - Are You Angry Yet? (themoderatevoice.com)

Competitive devaluations threaten a trade war

By Michael Pettis

Vietnam’s decision to devalue its currency by 5 per cent last week to protect itself from undervaluation of the Chinese renminbi, and the worried response from Thailand and other Asian countries, suggests the move towards global trade conflict may already be unstoppable. As one group of countries seeks to gain or maintain trade advantage by manipulating their currencies, the historical precedent suggests that countries that are not able to devalue will respond with trade protection, especially tariffs and other barriers, and global trade will suffer.

In the 1930s many, but not all, major economies imposed draconian constraints on trade which sharply contracted international commerce and almost certainly slowed the global recovery. It was widely understood then that the collapse in international trade would only worsen the crisis, and yet countries, seeking to protect their own positions, collectively engaged in behaviour that left them worse off.

American economists Barry Eichengreen and Douglas Irwin recently published a paper examining the roots of the post-1930 surge in protection. They argue that during the 1920s and shortly after the onset of the 1929 crisis, several countries abandoned the gold standard and engaged in beggar-thy-neighbour competitive devaluations. These countries subsequently experienced rapid improvements in their trade balances and suffered much less from the ravages of the global contraction of the 1930s.

But others, most obviously the US and European “gold bloc” countries, were sharply constrained in their ability to adjust their currencies. These countries suffered much of the brunt of the adjustment as imports became more competitive against their domestic industries, especially in relation to countries that were less constrained. These were also the countries that were most likely to resort to what the authors call the “second-best” adjustment mechanisms – tariffs, import quotas, exchange controls, and so on.

FT.com / Comment / Opinion - Competitive devaluations threaten a trade war

Related articles by Zemanta

• Chinese growth looking strong (economist.com)