Companies Aren’t Hiring

Today’s Wall Street Journal reports, “According to a new survey, 52% of companies expect to employ fewer people in three to five years than they did before the recession began.” They are saying that long after the recession ends they are still going to hire fewer people, a tacit admission that they may have been something less than lean during the good times.

Of course, what companies “say today” they are going to do 3-5 years hence may only be slightly more worthwhile than “consumer confidence.” When gasoline prices are down, the rent is covered this month, the stock market is up, and dad got a new grill for Father’s Day, consumer confidence rises. It is such a short-term phenomenon that the number will be different at 2 p.m. on Thursday than it will be at 5 p.m. on Friday.

I feel the same about last week’s “good news” about leading indicators being higher, by the way. Among the favorable leading indicators were new building permits, money supply, stock prices, and the aforementioned consumer confidence. Looking at them one by one, I reach a rather different conclusion about this “good news.”

New building permits – We have a glut of real estate on the market already, bank foreclosures and short sales are rising, not declining, and sales are only taking place at lower prices. So it’s good news that we are going to build more and increase the glut even further? Nope. Not A Good Thing.

Money supply – the idea here is that it is a good thing when money supply expands because that is inflationary, not deflationary, and therefore avoids a depression. But money supply boosts GDP growth only if it does so without boosting prices. This happens when savings and productivity rise, not when the government acts as our drug pusher: having gotten us high on cheap credit, we’ve now crashed, so they think the solution is to get the banks to lend more and consumers to buy more. Isn’t that what created this mess to begin with? Getting us high again only postpones the day of reckoning. We need to get clean by repairing our personal and national balance sheets, not get high again! Having fomented a massive credit bubble, it’s too late for the feds to inflate our way out of trouble. In this environment, an expanding money supply is not A Good Thing, either.

Stock Prices – this indicator relies for it’s popularity on the notion that some nebulous “smart money” knows when the recession will end and “predicts” it’s end 6 to 9 months earlier than the actual bottom by buying stocks today. If only the investing business were as easy as “if the market is rallying, it means the recession will end in 6 to 9 months!” I’ve been a market observer, participant and insider for 40 years. If there was such a silver bullet we’d have discovered it by now and all be on Easy Street. Sometimes a rallying market is just a market that is rallying.

Consumer confidence – enough said.

So – about that survey reported in the WSJ. If “reported” unemployment (which may understate real unemployment by as much as 50%) hits 10% this year as expected, and many companies are determined to stay lean 3-5 years out, we may be in for a period of stagflation where the government increases the money supply and jawbones the banks to increase its velocity, while at the same time, Companies. Aren’t. Hiring.

If that happens, the national deficit gets even bigger. Already, just 48% of Americans pay taxes, supporting 100% of the spending bills that Congress can fit in the trough. Imagine if there are even fewer workers to tax while government spending, like kudzu, reaches absurd and invasive lengths.

I believe that sanity is the golden mean to which we will inevitably revert. We are therefore short via inverse ETFs and in cash equivalents. But if I’m wrong and this manipulation of news and numbers continues, these are the only articles you will see in the financial press:

“In a stream of ever-more good news released today, the National Government declared they had not completely disregarded the rule of law! Analysts had been expecting that the government would completely violate bondholders’ and other creditors’ rights in an attempt to buy more votes but in fact they only made them accept 22 cents on the dollar, rather than zero. The market roared ahead 400 points on this great news.

“ ‘We figured, what the heck, it’s mostly old people who own bonds, so they’ll be dying before the next national elections, anyway,’ said an administration spokesperson.

“Analysts were ecstatic. ‘Since the market was expecting complete takeover of all decision-making at any business Too Small to Save, this less-than-expected catastrophe is just fabulous news for the market!’

“Some hedge fund managers were not as enthusiastic, however. ‘Look, that’s just wrong,’ said one. ‘When the government says it’s going to destroy initiative and hard work, it needs to carry through. Hedge funds can’t make a dime without inside information, favorable tax laws, and the certainty that government will do what it says.’

“Consumer confidence was down briefly on the news, but less than expected by economists. Residential and commercial real estate sales were down, but less than expected by analysts. Employment was down, productivity was down, and real wages after inflation were all down but all were down less than some clueless lunatic expected. All is well in ToonTown.”

FULL DISCLOSURE: We are still long income and cash equivalents, some gold, and the inverse ETFs previously recommended.

The Fine Print: As Registered Investment Advisors, we consider it our responsibility to advise that, since we do not know your personal financial situation, the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

Past performance is no guarantee of future results, and it should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong. Finally, we will always disclose whether we own or are buying the investments we write about.

Comments

[sheeple123jump:]

Hello Joe....I just discovered your fine commentaries here in SA...I'm fairly new to the investment world,learning as fast as I can, and greatly appreciate the expertise of people like yourself. Thanks for all the good work youre doing here. very helpful . One of your recent articles on GGN, you gave a great evaluation of....I'm interested in that sort of investment...I had read the prospectus of Gabelli's funds ...along with ,for comparison, the Tocqueville Gold Fund....I like the look of tocqueville...... and was wondering if you are familiar with it, and if so, why you would choose the Gabelli fund over Tocqueville.... is there much of a difference between the two? I like that part of Tocqueville portfolio is actual gold coin.....since all of our assets are stuck within the framework of various IRA's...(inherited,rot... etc.).... so we cant extricate $ to buy bullion without serious penalty costs.
anyway,I wanted to say thank you again for your good work here.... it is greatly appreciated .
Thomas

Jul 03 11:11 PM

[Joseph L. S...:]

On Jul 03 11:11 PM sheeple123jump wrote:

...why you would choose the Gabelli fund over Tocqueville.... is there much of a difference between the two?
Thomas

Actually, Thomas, I have owned TOCQX a number of times over a number of years. But right now, I am looking for INCOME for our clients, and GGN has income -- which it derives primarily from a covered call writing strategy on its energy and precious metals holdings. The other caution I would advise vis-a-vis most open-end mutual funds, in general, is that most brokerages impose fees if you hold for less than 90 days. In times like these, I don't want to be locked in to any investment, so I prefer the liquidity of ETFs and closed-end funds.

You said you are a relatively new investor -- best of luck! And, as you appear to be doing already, do your research, seeking specifically intelligent commentary that DISAGREES with and challenges your own analysis.
Regards,
JS

Jul 05 01:26 PM