Quantum Shift in Economic Baseline: A 'Black Hole' Recovery

I continue ponder the possibility of a quantum shift in the economic fabric which is causing our economic and financial indicators to display incorrectly. I believe there is a fundamental and significant change in the dynamics which drive our economy.

What the punters are telling us that once we shift our personal wealth engines into high gear by talking up the equities markets and we get housing to stabilize or even creep up a little – we are going back to our old ways of spending. They see a direct correlation between wealth and spending.

This is all based on the premise that the higher current consumer savings rate is transient because wealth is down. The punters also see a direct correlation between wealth and savings rates. You see, for consumers to spend as before – they cannot save. We need to spend to drive our consumption based economy back to our past levels.

Most economic bears rightly use the argument that the existing debt burden will restrain our ability to achieve past spending levels. Let us save this argument for another day.

There is old research which offers an explanation of what we might be seeing. This paper explores baby boomers and their effect on asset prices.

Some of the dialogue in the paper:

A young population has many savers which generates a high total demand for assets, but an old population has many dissavers [dissavers in this instance means people who dispose of assets] so total demand for assets is low.

Asset prices clearly respond to a baby boom. Initially, the baby boom has little effect on the growth of asset prices. The simulation shows that asset prices grow 19 percent during the first 15 years (the years of high population growth), a rate near the steady state growth rate of 1 percent per year. This small initial effect reflects the relatively small size of the baby boomers and the small savings of young individuals. The growth of asset prices then accelerates to 73 percent during the next 30 years as the baby boomers mature and increase their savings. The year 2010 marks the retirement of the first baby boomer which reduces the demand for assets as the baby boomers begin to consume some of their wealth.

The net effect slows the growth of asset prices and eventually the large numbers of baby boomers consuming their wealth causes asset prices to fall. The decline starts in 2018 and continues for 9 years beyond the death of the first baby boomer in 2020. This fall in asset prices supports Schieber and Shoven’s [1994] speculation that the retirement of baby boomers will be a net drain on pension plans, thereby place a downward pressure on asset prices.

So this paper is telling us that there are new forces at work to depress housing prices. Their study has a caveat that the dates are only guesses – and therefore it is indeed possible that this could have been a contributing factor in our housing price decline as the demand would have fallen. I suspect the effects of the boomers “dissaving” will prevent any sort of significant recovery of asset value.

On the subject of consumer spending, I can cite many studies which draw the same conclusion as the 2005 Case, Quigley, and Shiller study Comparing Wealth Effects: The Stock market versus the Housing Market.

The evidence for a stock market wealth effect on consumption is, at best weak ......[and there is] strong evidence for a significant housing market wealth effect on consumption

Without a return to our old spending ways we will have an “L” shaped recession / recovery. Housing is the key to normal recovery as economists believe there is a direct correlation between housing prices and consumer spending. The boomers life cycle may prevent the housing market recovery – therefore no consumer spending like the past.

Many of our economic theories and beliefs are based on data developed since WWII while the boomers were climbing to their financial peak. Now their positive roles in our economy are reversing. Can we rely on our economic forecasting techniques which are based on historical data when the boomers are changing roles?

The boomers may have created the quantum shift.

This brings me to the issue of recovery. In any company, when you overrun revenue – it is considered a loss. Consider America as a company. Let’s say you overspend by $500 billion which is roughly 3% of GDP. This is not the type of overspending that will create jobs or income in the future so it is a true loss. GDP growth needs to overcome this loss to be gaining ground – either today or in the near future.

Now let’s say the overspending is in the trillions, and the population is growing by over 1%. Now GDP growth needs to be in double digits to move forward. It is impossible for a mature economy to achieve double digit growth.

Consider now that this overspending will happen every year into the foreseeable future. Massive overspending can be tolerated in short bursts, but only a die-hard Keynesian would argue that excessive overspending can go on indefinitely. The effects will eventually tip the economic balance, causing economic crisis.

My definition of recovery is moving forward economically. With the quantity of deficit spending, our recovery will be backward steps. There appears to be no forward thinking. We are being sucked into a black hole. As things are relative, there will be an initial illusion that things will be getting better.

We are about to experience a “black hole” recovery or “●” recovery. So forget about “v”, “L”, or “W”.

Welcome to the new normal.

Additional Economic Data from This Past Week

Headline: Consumer credit falls over 7%, Markets falls. News at 11.

Reality: Forget percentages. This is April 2009 data which actually is telling me that things are remaining almost static – after all, the consumer credit debit level is still higher than 2007 when the recession began while overall credit has fallen.

Consumer credit is important as it has been fueling the economy. The truth, however, is not in these numbers. It is the soaring default rate on credit cards, and the lack of transparency into the bank’s books which would tell us the complete story. Another part of the story is that debit cards are the majority plastic transaction vehicle now – a general trend away from credit cards no doubt inspired by a pullback in credit lines by the banks.

The banks are treating their problems like a small child taking off a Band-aid. They are doing it little by little prolonging the pain over an extended period of time. We have no accurate way to judge current consumer credit situation using this data.

After my rail job I did last week on the Institute of Supply Management’s Manufacturing Index, there is no reason to repeat my sentiment on their June 2009 non-manufacturing index which incidentally was less bad. The last time it was at this less bad level was before the economy hit the fan last year. In any event, it does appear things are less bad. Concentrating on only one element of their report – new orders, you can get a feel of what is going on:

The seven industries reporting growth of new orders in June — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Educational Services; Accommodation & Food Services; Construction; Information; and Finance & Insurance. The eight industries reporting contraction of new orders in June — listed in order — are: Mining; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; Health Care & Social Assistance; Public Administration; and Other Services.

Mortgage applications continue to fall. The four week moving average of mortgage loan application volume decreased 6.5% and increased 11% compared with the same week one year earlier. Please note that this was the shortened July 4^th week, and even though the data was adjusted it should be viewed as suspect. The refinance share of mortgage activity increased slightly to 48% of applications. The average interest rate for 30-year fixed-rate mortgage remained unchanged at 5.34%. The point in providing this data is to demonstrate that the volume of home sales are not increasing on a real time basis – and therefore housing remains a negative force for economic recovery.

The Conference Board’s employment index rate of fall moderated in June 2009. This index aggregates 8 indexes, and thankfully does not use the data from the BLS’s Non-Farm employment report which has provided so much discussion relative to its accuracy [they do however compare their results to this report]. I believe this index properly quantifies the current employment situation.

Because unemployment is so severe today, jobs at this point are the primary economic drag. The problem is our data when we try to quantify the problem. The collection methodology has changed though the years. Nothing better illustrates this than a comparison between an unemployment graph which has been circulating through the blogs this past week to an employment table – both are correctly analyzing published information and both use the same agencies data.

If the graph on the left is correct, please let’s stop talking about stimulus as things are not that bad. If the table on the right is correct, we are in the worst recession since WWII. As other data, such as manufacturing has fallen off more severely than any other recession since WWII – logic tells me that the table on the right more closely resembles the true state of employment / unemployment.

Just one more kick at the unemployment cat. As the data does not seem to correlate in one way or another, I have estimated the true official unemployment rate at 10.5% using the Clinton era adjustments in the methodology. I would be interesting to have a contest for all punters to think through unemployment – and derive unemployment using various methods. I do agree with the bear punters who think the real unemployment rate is over 12% using the 1970’s methodology. While we continue to lie to ourselves, we will continue to underestimate this Great Recession – and continue to make stupid decisions.

The 4 week moving average of initial unemployment claims decreased to 606,000. This data is for the July 4^th holiday period and this data should be viewed skeptically. Also, it was inconsistent that the total of persons receiving unemployment actually increased. There was no explanation given whether this resulted from a change in the benefits programs or reporting methodology. In fact, if you just stare at the data – it does not add up at all when you compare initial claims seasonally adjusted to non-seasonally adjusted. I will just ignore this week’s data. Pretend I did not bring it up this week.

Filing for Bankruptcy: Lear Corporation (LEA) , Bank failures this week: Bank of Wyoming, Thermopolis, WY

Economic Forecasts Published This Past Week

Nouriel Roubini’s RGE Monitor provided a mid-2009 economic outlook. Here are some selected excerpts:

On the end of the recession: We forecast negative real GDP growth in Q2 2009 and Q3 2009, and for real GDP to remain flat in Q4…… growth will reenter positive territory only in 2010, and then at a very sluggish rate, well below potential….. Recessions are not measured exclusively by GDP contractions. Unemployment, industrial production, real manufacturing, wholesale retail trade sales and real personal income (less transfer) are all considered when it is time for the National Bureau of Economic Research (NBER) to put dates around recession periods…… but it is likely that many of the above indicators will not bottom out (or peak, in the case of unemployment) before mid-2010.

On Employment: ……average weekly hours in private nonfarm payrolls are at the lowest since 1964, as employers have cut employees’ hours. Job openings and turnover openings continue to fall and are at the lowest levels since 2000, indicating continued weakness in the economy.

On Housing: …..housing demand is not yet improving at a pace that can guarantee that the lingering inventory overhang will dissipate. This implies that home prices will continue to fall. RGE Monitor expects home prices to continue to fall through mid-2010.

On Banks: Increases in the unemployment rate, well beyond the rates envisioned by the adverse scenario of the recent bank stress tests, imply that recapitalization needs are larger than what the too-lenient stress test prescribed. The U.S financial system – in spite of the massive policy backstop – thus remains severely damaged, and the credit crunch remains unlikely to ease very fast.

On Industrial Production: While the index probably found its bottom back in December 2008--at depression levels of 32.9--industrial production remains in a mode of contraction that started in January 2008.

On Public Debt: ….. the U.S. Congressional Budget Office estimates that the public-debt-to-GDP ratio will rise from 40% to 80% (in the next decade), or about $9 trillion – will also put a dent on growth. If long-term rates were to increase to 5%, the resulting increase in the interest rate bill alone would be about $450 billion, or 3% of GDP. The implication is that the fiscal primary surplus will have to be permanently increased by 3% of GDP, which could constitute further pressure on the disposable income of the U.S. consumer.

On Inflation: Deflationary pressures are still present in the U.S. economy. Demand is falling relative to supply and excess capacity is still promoting slack in the goods markets. Moreover, the rising slack in labor markets, which is pushing down wages and labor costs, implies that deflationary pressures are going to be dominant this year and next year.

On a Double Dip Recession: There are also signs that a double-dip recession could materialize toward the second half of next year, or in 2011. If oil prices rise too much, too fast, too soon, that’s going to have a negative effect in terms of trade and real disposable income in oil-importing countries. Also, concerns about unsustainable budget deficits are high and are pushing long-term interest rates higher. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, there is a risk of a sharp increase in expected inflation that could push interest rates even higher. Together with higher oil prices, driven up in part by this wall of liquidity rather than fundamentals alone, this could be a double whammy that would push the economy into a double-dip or W-shaped recession by late 2010 or 2011.

The WLI from ECRI is continuing to show improvement in economic conditions six months from now. The current reading is a two year high. In their statement last Friday, they said:

It is increasingly evident that, despite widespread misgivings based on backward-looking economic data, the end of recession is at hand,

You will note on the ECRI graph, a backdated revision in the blue colored Weekly Coincident Index (WCI) line. Lakshman Achuthan provided the following explanation:

The upward revision had to do with an actual increase in personal income. Also, the chart shown is of WCI GROWTH, which has certainly turned up, indicating a growth rate cycle upturn (followed, at least in every recession in the last 75 years, by an end to recession within 4 months). We are still waiting for a clear upturn in the LEVEL of the WCI, which would indicate an end to the recession.

This economic wrap has turned out sounding too negative. The economy, baring another kick in the stomach, is at the bottom or nearly there. Expect the bottom (NBER end of recession) in 3Q 2009. You will not know it happened because there will be no big indicator which jumps up and says we are there. The word “recovery” should be banned from describing the bumpy economic conditions which will follow.

What will be going on for the rest of the year is business and consumers adjusting to the new normal. There will be continuing weakness in manufacturing and services as companies adjust inventories, logistics, and processes. Consumers have a long road ahead of them to adjust their personal balance sheets. And my belief remains that the boomers are nearly finished fueling the economy.

Our future, however, is really in the hands of Washington and to the degree they can put America on the path to fiscal responsibility.

There is enough data out there to prove any point you would like to prove by careful connection of dots. The economy has billions of forces or dots. They interact, and it is that interaction that creates the dynamics. I am not out to prove anything except to challenge your beliefs. There is no absolute truth, only things relatively truer than other things.

Instablogs Published This Week

• Economic Predictions by Automotive Manufacturers
• Commercial Real Estate and the Fed
• Leashing the Fed

Disclosures: long MMFs, PYEMX, EWZ, TBT, PGJ, EWY, DBC, EWA, EWC, EWT, PIN, Physical Gold

Comments

[Roger Knights:]

"We are about to experience a “black hole” recovery or “●” recovery. So forget about “v”, “L”, or “W”."

Instead of "black hole," which lacks parallelism with letter-shapes like V and L, I suggest you refer to what's coming as "an h-shaped recovery." (I.e., a toboggan-ride down a waterfall.)

Jul 12 05:40 AM

[User 353732:]

I suggest we are experiencing multiple parrarel shifts that will change the structure of our economy and society over the next decade as capital, labor, technology flows and cultural priorites and preferences all make their concommitant transistions, each in their own way.
1. The great demographic shift in the US that consits of 3 shifts in one: aging; continuing population growth in the South, Southwest and West with stagnation in the Northeast, MidWest, Upper Midwest; substantial changes in the ethnic mix as European and African stock based poulations lose share while Hispanic and Asian stock based populations gain share
2. The end of the almost free money, debt driven consumption anomaly and a gradual return to higher savings,vanishing retirements, re-emergence of the 3 generation extended family for purely economic reasons, less conspicuous and frivolous consumption and the persisting technical bankruptcy of several US states and municipalities and increasing inability of the US govt to issue debt
3. The end of America's hyperpower status caused by the accelerating debasement of the dollar and the destructive self obssession of America's governing political, financial and media elites: a time of rising geo-strategic risk as well as country or region specific investment rewards; this also implies a decline in the quality of desirable immigrants the US will attract, further eroding America's historical advantage
4. A somewhat larger upper class., a much larger parasitic class and notably smaller middle class: a distressing implication of this trend is that class, ethnic and regional differences and conflicts will grow and dominate American politics causing a shift in voter and citizen loyalty from the "Classless American" ideal to a smaller , less inspiring subset of the US
5. By preference and necessity a great increase in the number of self employed people, free agents and small businesses in response to technology enablers,new knids of capital formation, niche opportunities, regulatory costs and lack of trust in very large institutions both public and private amongst Americans

I doubt anyone can even correctly identify and time all these parallel transitions, much less astutely analyze them or predict political, cultural economic outcomes. All we know that yet another great shift is underway in the US and in the World. We also know that frequent surprise will inform the transition and how we react to surprise will govern both personal and National outcomes.

Jul 12 08:16 AM

[CautiousInv...:]

As usual Steven you provide much interesting discussion and commentary.

The affect of demographics, baby boomers in particular, in this recession and pending recovery is indeed an interesting point of discussion. The civilian labor force totals around 155 million and I believe there around 78 million boomers; their aging and life cycle effects are certain to continue influencing economic events.

Consumers have lost around $14 trillion of wealth from the slide in equities and deterioration of home values but their indebtedness remains unchanged at $13.5 trillion..........and they are levered 3X what they were twenty years ago. With foreclosures up 18% YOY and credit card write-offs in the 10% range, consumers want to de-lever and lenders are forcing them to de-lever by reducing credit lines and extending fewer loans.

I think policy makers and government officials are guilty of both talking-up and propping-up the market to assist banks in raising funds and perhaps to restore part of the wealth our households have lost. More recently with the suggestion that a second round of stimulus may be required I believe the debate currently reflects a concern with deep rooted employment losses. I believe there is growing realization that propping up the market is not leading to expanded consumer spending and that the core issue of unemployment must be addressed.

This would suggest policy makers are aware of many of the issues you raise but are actually are afraid of the facts as they are politically dyspeptic and place policymakers in a feasibility trap. As Mohamed El-Erian said the “first best” policy solutions are elusive; and even in the world of second and third best, what is economically desirable is increasingly becoming politically infeasible; and what is politically feasible may well turn out to be economically undesirable.

As to the shape and nature of the recovery, I think there is a distinct possibility there will be an inventory restocking phase that will take place amid no change in final demand, leading to one or two quarters of growth and then a contraction much as we saw in the early 2000’s. We may also see the Fed increase interest rates to contain inflation resulting from QE, which could lead to another contraction. All in all, the recovery could be very uneven and fitful punctuated by alternating quarters of growth and contraction.

This will take place within the context of the new normal characterized by low economic growth, heavy regulation, higher taxes, higher rates of savings, reduced international trade and heavy government borrowing.

Jul 12 09:21 AM

[Donn Soderq...:]

Steven:

100% of your outstanding weekly summary is about the USA. Your investments are 100% out of USA equities and are not discussed or shown with percentages of your total portfolio for each position. Perhaps other followers have the same interest. Your bets are on:
higher USA treasury bond rates, gold, commodities, BRIC countries excluding Russia (a basket case), and commodity-producing nations. Meanwhile USA/Europe/Japan are avoided.
Understanding your investment selections would be beneficial.

Jul 12 10:02 AM

[Tom E.:]

The business community seems to be doing much better than the people. Businesses are running lean and mean and should be profitable even at lower levels of growth. What will the ramifications be for this divergence?

Jul 12 11:20 AM

[isaac the t...:]

To User 353732-
Good summary of major trends. I would add two points-
1. The diminished ability of the US to fund its military and diminished appetite for the citizenry to tolerate being the worlds policeman. Taiwan, South Korea, and Isreal are countries who would be well-advised to adopt policies that would lead to a decreased dependence on the US for their security.
2. The lack of a robust energy policy over the last 30 yrs will leave us vulnerable to rapid escalation in the price of fuel, and thus food and most other things. The resultant increased costd will be a huge drag on the economy. Local producers of energy will be big winners (oil sands, shale gas, solar, nuc developers).

Jul 12 12:10 PM

[ain't no fo...:]

Thank you Steve for another opus... a good comprehensive look at our current situation.

I agree wholeheartedly with your statement: "While we continue to lie to ourselves, we will continue to underestimate this Great Recession – and continue to make stupid decisions." It is this denial that continues to cause us to paint ourselves further into the corner, with fewer options going forward. As I continue to hear the statements of an increasing cadre of friends who are being devastated by this Great Recession, my confidence that we will recover in any meaningful way vanishes, while the denial expressed by the politicians, MSM, and the investment community leaves me scratching my head.

Do those people inhabit the same planet I do?

Tom E. states: "The business community seems to be doing much better than the people. Businesses are running lean and mean and should be profitable even at lower levels of growth. What will the ramifications be for this divergence?"

I believe we are seeing the ramifications in our monthly jobless claims, both U-3 AND U-6. Businesses have been doing OK (if you consider YoY numbers down 35-40%) because they have been cutting expenses by laying off massive amounts of workers, or converting full timers into part timers, with a concomitant reduction in their benefits. This creates a negative feedback loop where more unemployment = lower consumer demand/spending = lower profits to those self same businesses = further employee layoffs. Additional ramifications are additional credit deterioration on the part of consumers and many corporations, more housing weakness as foreclosures rise, and further deterioration of bank balance sheets.

I believe that the bank stress tests, with their diluted "most adverse" scenarios, are a joke and another in a long stream of denial that will come back to haunt us and take the legs out of any perceived "recovery" in 2010.

I talk to REAL people - the American middle class - but who in the name of GOD do the pundits talk to, each other?

Jul 12 12:37 PM

[Dave Dorgan:]

As always, very insightful!
Here are some additional points that concur with your analysis.
First, the US:
The US has had a consistently low savings rate. This is going to come back to bite the baby boomers and the country and economy as a whole. And, I believe many of the boomers already have or are starting to realize this fact too late. It almost verges on denial, much like thinking one might have cancer, but won't go to the doctor, because they don't want to know. Many boomers don't have the money to retire for the following reasons:
- Life expectancy has increased. Thanks to improvements in things like healthcare, nutrition, and standard of living, peoples length of retirement has increased. Not as many people expected to need enough money to live into their 80s and 90s.
- Increased healthcare costs - this is a significant portion of a retirees cost of living and it is always going up. I see more and more peole that could, in theory, retire quite comfortably right now, but can't because of the healthcare cloud hanging over their heads.
- The shift from pension savings to 401k savings. In the last 40 years there has been a shift from pension plans to 401k plans. I'm not saying which is better than the other, but 401ks give people a chance to save too little i.e. take home a bigger pay check and spend more. 40ks also give people the ability to put all of their eggs in one basket, for example, stock funds. Many people saw significant portions of their retirement slip away during events like the bursting of first the tech bubble and then the credit/housing bubble. Also, during this transition there have been many people left in limbo with neither type of savings plan.
- People are changing jobs more often now than they did say back in the 70s. In 1988 it was estimated that the average person would change jobs at least 5 times in their career. Changing jobs, in general, can cause a temporary dip in a person's savings rate i.e. having to wait to be fully vested at a new job - if you stay that long. Two more points, when a person changes jobs, they can shift their company based 401k into self-directed IRAs which tend to give uninformed investors far too much money to "play" with. And, there are the 401ks that basically left you with all of your eggs in one basket - company stock e.g. Enron.
- I won't even bother with Social Security.

Add this to Mr. Hansen's points. We are left with an economy where:
- What savings people have will be used up quickly i.e. sales of assets (secuirties and property).
- People working into their later years for less money. We see this already today more than ever.
- An ever increasing percentage of the population spending less and less.
- An ever increasing burden will be put on a smaller population (higher taxes).
This all implies: a growning drain from the financial markets (lower prices), ever decreasing consumption (dampening export based countries. You can extrapolate out from here as far as you want.

Japan may fair better. Their savings rate has always been high, but they do have the largest percentage of the older population to deal with (Hansen's chart). But, pardon the pun, no man is an island.

I'm not trying to sound doomsday-ish here. These are simply factors that may play out in the next 20 or 30 years that could be part of the "quantum shift". Long-long-term you have to like agriculture and healthcare.

Jul 12 12:40 PM

[Dave Wrixon:]

The bottom line is the old will be on reduced means for the foreseeable future. Their estates will be mortgaged to subsidize their expenditure. Most people's inheritance will evaporate.

Jul 12 01:44 PM

[Gregman2:]

"Most economic bears rightly use the argument that the existing debt burden will restrain our ability to achieve past spending levels. Let us save this argument for another day." Excellent post, Steve.

Jul 12 02:20 PM

[John Lounsbury:]

Steve - - -

Great job every week!

Some comments (why is it you get my brain moving on Sundays?)

1. You wrote: "...only a die-hard Keynesian would argue that excessive overspending can go on indefinitely." My observation of "die-hard Keynesians" is that Keynes himself would probably debate them. So many people cherry pick what they want from the great economic philosophers and ignore the rest. The more I read of Keynes work, the less I recognize the modern "Keynesian".

2. The dichotomy between the initial claims graph and the unemployment level table may be in the average duration of unemployment in this recession. It is at least 50% higher than any recession since WW II (probably much higher due to changes in measurement methods to which you referred). Unfortunately, it may be headed for 100% longer duration, or more.

3. I'm still wondering how much the rise in stock prices since March has pumped the ECRI Leading Indicator. If the market goes into an extended pullback toward the March lows, how will this indicator be affected?

Jul 12 02:26 PM

[Dave Wrixon:]

Official Stats for UK Jobseeker's allowance:

1997 1,406.30
1998 1,181.20
1999 1,105.80
2000 972.7
2001 848.3
2002 827.5
2003 832.3

Minimum wage was introduced in 1999.

Nuff Said!

You can download here if you don't trust me!

www.statistics.gov.uk/...

Jul 12 03:08 PM

[Dave Wrixon:]

Oops! Wrong thread. Sorry.

Jul 12 03:09 PM

[Alan Young:]

Many boomers have just seen 30 years of savings lose 1/3 of their value. Unless the market undergoes a miraculous revival, that means another 10 years during which we must save rather than spend just to get back to the baseline. Catch-22: this keeps the economy slow, so the market will not recover. It could be a long slog.

Jul 12 03:23 PM

[W.E. Heasley:]

Great article. Great information.

Regarding the unemployment level, agree that 9.5% is too low of an estimate.

Around 2004 or 2005 The Economist published an article that by 2010 the US Work Force would be made up of 49% self employed or contract labor.

The 9.5% Unemployment rate does not count the self employed. If half of the Work Force is not used in the 9.5% unemployment calculation, and making a conservative assumption that the self employed are suffering a 6% unemployment rate, the Unemployment is well north of 9.5%.

Possibly another indicator of the unemployment rate being well north of 9.5% is Tax Receipts. Tax Receipts are way off at the Federal and State level. Unexpectedly way off. This unexpected revenue loss could well be related to a higher unemployment rate than 9.5%.

Jul 12 05:24 PM

[Leftfield:]

Dave Dorgan writes a commentary I agree with about the shape of things for the economy and baby boomers. I would add, how will it play out when government employees continue to cause taxes piled on top of the present excessive taxation to fund their gold-plated retirements and guaranteed healthcare for life? I agree in sentiment with the angry UAW members who comment about the need for middle class jobs, but our economy has a pathetically shrinking percentage of those. Those that remain mostly come out of the hides of the working poor who once would have been middle class, via taxes and shrunken opportunities for themselves as they struggle to stay afloat.
wpdragon wonders who the pundits talk to. I just saw the CNN interview with Geithner, then a piece about "violence in America." They can't just report on a shooting; they provide the whole template of how we should think. Take away guns now! And Geithner is all about disinformation. They make it seem only right that average Americans must support Wall St.
The oligopoly that is MSM provides these disinformation sources and templates to brainwash Americans. Americans have been shorn of middle-class expectations and lives in a short time (their memories have proved even shorter). The number of "news providers" on the tube looks like we're getting information to most of us, but it's highly directed by a small and shrinking group of fat cat owners who, I daresay, don't have our best interests in mind.

Jul 12 06:32 PM

[W.E. Heasley:]

Ops! Typo.

16% unemployment rate regarding the self employed and contract labor.


On Jul 12 05:24 PM W.E. Heasley wrote:

> Great article. Great information.
>
> Regarding the unemployment level, agree that 9.5% is too low of an
> estimate.
>
> Around 2004 or 2005 The Economist published an article that by 2010
> the US Work Force would be made up of 49% self employed or contract
> labor.
>
> The 9.5% Unemployment rate does not count the self employed. If half
> of the Work Force is not used in the 9.5% unemployment calculation,
> and making a conservative assumption that the self employed are suffering
> a 6% unemployment rate, the Unemployment is well north of 9.5%.<br/>
>
> Possibly another indicator of the unemployment rate being well north
> of 9.5% is Tax Receipts. Tax Receipts are way off at the Federal
> and State level. Unexpectedly way off. This unexpected revenue loss
> could well be related to a higher unemployment rate than 9.5%.

Jul 12 07:12 PM

[beenburnedt...:]

Great article Steve. I would like to know exactly how the WLI from the ECRI is made up. The basis of the data comes from somewhere and seems to be the only green shoot out there defying explanation for me.

Jul 12 08:55 PM

[Steven Hansen:]

Donn Soderquist:
you are correct my non-cash investments are aimed out of the usa. but i remain 90% in MMF's. i am a more long term investor, and really for people like me there is no good place to invest. the situation remains quite volatile from an investing point of view.

i believe the dollar is enemy of investing in america - the government is doing everything short of announcing they want to devalue the dollar. there is no question american corporations will be profitable shortly - although i am concerned over the lack of investing in products. i am looking to gain not only from appreciation of stock, but also from currency movements. once the devaluation trend sets in i will diversify more money outside the usa.

i am retired. i do not have to bet the farm at this point. my risk tolerance is low. i am investing what i can afford to lose. i do believe in investing cycles and am studying hard this subject.

i live on my ship, and i enjoy my life. my grandson is visiting and we will be swimming this afternoon. i watched jim rogers this morning discuss his small children on singapore morning tv discuss life.

he says his 6 year old is fluent in mandarin. i suggest your children and grandchildren learn mandarin too. the 21st century will be asia's turn to lead.

Jul 12 11:08 PM

[Donn Soderq...:]

Steven:
Thanks for the response. I am 68, also retired, and investing for income. 90% in MMF's is similar to my situation:
60% in laddered bank CD's paying 3.500% to 5.000%, bought in October 2008, FDIC insured and no risk. 20% in GNMA Bond funds: VFIIX and FGMNX, interest rate risk only. No down years since 1994.
20% in High Income, High Risk positions: EOD, IGD, HYG, PFF, FMO, KYE, PREMX, FAGIX. Reinvesting distributions.
Agree that this is China's century. Government is doing everything possible to trash the $US. My risk tolerance is also low. Been retired for 12 years and want to stay that way. Sold our overvalued home in Silicon Valley at the peak in 2005 and moved to Kentucky after 40 years in California. No ship. New house, walking distance to fishing, 14 miles to Louisville.


On Jul 12 11:08 PM Steven Hansen wrote:

> Donn Soderquist:
> you are correct my non-cash investments are aimed out of the usa.
> but i remain 90% in MMF's. i am a more long term investor, and really
> for people like me there is no good place to invest. the situation
> remains quite volatile from an investing point of view.
>
> i believe the dollar is enemy of investing in america - the government
> is doing everything short of announcing they want to devalue the
> dollar. there is no question american corporations will be profitable
> shortly - although i am concerned over the lack of investing in products.
> i am looking to gain not only from appreciation of stock, but also
> from currency movements. once the devaluation trend sets in i will
> diversify more money outside the usa.
>
> i am retired. i do not have to bet the farm at this point. my risk
> tolerance is low. i am investing what i can afford to lose. i do
> believe in investing cycles and am studying hard this subject.
>
>
> i live on my ship, and i enjoy my life. my grandson is visiting
> and we will be swimming this afternoon. i watched jim rogers this
> morning discuss his small children on singapore morning tv discuss
> life.
>
> he says his 6 year old is fluent in mandarin. i suggest your children
> and grandchildren learn mandarin too. the 21st century will be asia's
> turn to lead.

Jul 13 07:53 AM