A lie always contains a certain factor of credibility, since the great masses of the people in the very bottom of their hearts tend to be corrupted rather than consciously and purposely evil, and that, therefore, in view of the primitive simplicity of their minds, they more easily fall victim to a big lie than to a little one, since they themselves lie in little things, but would be ashamed of lies that were too big - Adolph Hitler, "Mein Kampf"
One of the most important aspects of financial analysis is determining not only the reliability of reported numbers (accounting issues) but also analyzing the "quality" of a reported number. "Quality" includes the sustainability of a business model - and the quality of the underlying sources of revenue and profit generation.
Without getting into the whether or not the monthly employment report is a manipulated and fictitious number - much has been written about this and it's now commonly accepted that the jobs report is not believable - I stumbled on an aspect of the Bureau of Labor Statistics' (BLS) monthly employment report that has a huge hole in it. I have not seen anyone comment on this aspect of the employment statistics or question the "quality" of it.
The fact of the matter is that even if the jobs growth number is bona fide, it's not sustainable and the fact that it's not sustainable means that yesterday's Fed minutes report indicating that the FOMC was leaning toward removing QE this year is also more fiction than fact. This being the case, the negative reaction to yesterday's report by the precious metals, mining stocks and bond market is an opportunity to capitalize on the high probability that those market sectors will rebound and move higher over the next several months. Let me explain.
I noticed in digging through the line items of today's report that one line item contributed substantially to the overall headline number of 155,000: Education and health services, 65,000.
Anyone see anything wrong with that number? 65,000 is 41% of the total headline number. But think about the "quality" of that number. How much of that number do you think is the result of direct or indirect Government spending, and thus dependent on taxpayer revenue?
Table B of the BLS report, LINK, attributes 55k of that number to "health care and social assistance." Without knowing the breakdown of that number, I think we can assume most of the jobs in that particular category are funded by Medicare, Medicaid and now, Obamacare. Even the private hospital and nursing service companies that would be considered "private companies" and who hire the people in this category have a large portion of their revenues derived from Government reimbursement/entitlement programs.
Let's examine the "education" part of that line item, which does not get further line item detail in the BLS report. I can summarize the quality of that number with two graphs. This graph shows the recent parabolic growth rate in student loan debt (source of graph: the Atlantic):
And this graph shows the growth in student loan delinquencies (source of graph: Zerohedge):
The total amount of outstanding student loan debt according the latest quarterly Federal Reserve report as of September 30, 2012 was $956 billion, with a $42 billion increase in during Q3: NY Fed. It's safe to say that number is now around $1 trillion.
That trillion dollars in student loans is primarily comprised of loans directly owned by the Federal Government and student loans that are guaranteed by either the Federal Government or State Governments. In other words, a significant portion of education is funded directly and indirectly by the Government/Taxpayer. This means that a significant amount of the employment that makes up the BLS' employment report is directly attributable to Taxpayer funding.
In the context of the accelerating level of student loan delinquencies per the above chart, any respectable financial analyst will admit that the growth in student loans, and therefore the portion of jobs growth that is directly attributable to this significant source of direct or indirect Government funding, is unequivocally not sustainable.
Any job growth connected to the student loan source of taxpayer revenue will not be recurring and will likely reverse when real budgetary austerity is imposed on the Government. Furthermore, to the extent that any healthcare related jobs are directly or indirectly connected to Government/Taxpayer funding, they are not sustainable and any real growth in that area will also reverse.
It thus looks like the Government has engineered another questionable monthly employment report in order to make the headline number appear as if the economy is back on track to economic health. But the truth is that even if the number is real, it is clearly not sustainable unless the Government intends to continue on its path of accelerating spending deficits and new Treasury debt issuance.
If the latter is the case in order to keep the economy from falling into a deep recession, the Federal Reserve is going to have to continue expanding its balance beyond 2013 buy continuing its substantial purchasing of Treasury bonds and mortgage-backed paper. Given this likely outcome of future Fed policy, the current plunge in gold, silver, mining stocks and bonds is an opportunity to deploy capital in those sectors and generate trading profits. If you are looking for a shorter term plays, I recommend GLD, SLV, GDXJ and TLT.