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The terrible job report tells us that the question is not "Will there be QE3?", but "How many quantitative easings we are going to see before the system breaks down?" Each time the Fed eases money, the action will have less effect on the economy, but will send the price of gold higher and higher.

The U.S. economy added the fewest jobs since September and the unemployment rate hit its highest level since December. Ouch! This employment recession is experiencing the weakest recovery and the most aggressive job cuts since World War II (see the graph below).

Non-farm payrolls rose 18K this month, far less than the 125K expected, or the 25K on the previous report (which was revised from 54K). Unemployment stood at 9.2% vs. 9.1% expected, and 9.1% prior. For the first time this year the number of U-6 total unemployed rose to 16.4% from 15.4% last month, and long-term unemployed (over 27 weeks and still looking) rose to 6.3 million from 6.2 million.

Wages fell last month and Uncle Sam needs more of our paychecks. HR 2411, the “Reduce America’s Debt Now Act of 2011”, states that every worker in the U.S. should be able to voluntarily have a portion of his or her wages automatically withheld and sent directly to the Treasury Department for the purposes of paying down the federal debt. Now all the U.S. needs is to generate 254,000 jobs a month for 65 months to get to pre-depression employment by the end of Obama’s second term, writes Zero Hedge.

Austan Goolsbee, Obama economic adviser, says:

This is not a double dip…this is a reflection and reiteration that the growth rate slowed at the beginning of this year.

His recommendation is passing free trade agreements and to secure a deal on long-term deficit reduction.

This news is obviously highly bullish for gold investors. The metal rose to $1,545 an ounce and can trend higher as fear spreads among equity investors. The S&P500 fell 1.4% but recovered some of the losses to finish down 0.70%. Quite unfortunately for gold equity investors, most of the gold stocks fell along with the market. This raises the question that in this era, whether gold investors are better off investing in physical gold (NYSEARCA:GLD) or gold stocks?

A colorful and depressing graph (depending on your attitude and portfolio), courtesy of Calculated Risk, shows the job losses from the start of the employment recession in percentage terms, aligned at the start of the recession. The 2007 recession is by far the worst since WWII.

click on image to enlarge

job losses

Disclosure: I am long select gold stocks