C. K. Michaelson: The American Economy - A Minority Report

Some Assembly Required
A Minority Report
by C. K. Michaelson

The jobs report is all about inflation and interest rates and only incidentally about workers and jobs. Economists claim, with little evidence, that mother nature or the universe or Keynes' ghost has an immutable law decreeing that a certain level of unemployment triggers a certain amount of inflation. Right now they pretend that 5.5% unemployment is the tipping point for this see-saw. If unemployment edges lower than that, inflation will pick up. In fact, hyperinflation may well appear, magically, overnight. It's called NAIRU – the Non-Accelerating Inflation Rate of Unemployment. The idea was first introduced as NIRU (non-inflationary rate of unemployment) in 1975. which was supposedly an improvement over the "natural rate" of unemployment made up Milton Friedman in 1968.

The idea is that as employers create more jobs, they have to compete for workers by offering higher wages, workers can demand higher wages for making the same number of widgets or threaten to go down the street and make widgets for the next guy. And to pay the higher wages, companies have to raise the price of widgets. The customers – who are the workers when they are not at work – will spend the extra wage income on the higher priced widgets and pretty soon they'll want more money for their labor. Round and round it goes and the first thing you know we're the Wiemar Republic.

Many things wrong with this idea, the biggest being the rather quaint pretense that today's American worker any clout when it comes to wages. First there's the huge number of workers who are AWOL from the labor pooI right now. And if the workers unite (ha)! to demand more wages, the companies will just move the jobs to Bangladesh or some other right-to-work place. Oh, wait, they already did, except for baristas, burger flippers and bedpan bangers.

If there is such a thing as NAIRU, it obviously isn't 5.5%, for wages went up a whopping 0.1% with the latest 0.2% fall in unemployment.

And then there's the definitional problem: What is unemployment? How big is the work force and who are all those guys sitting on the bench waiting to get into the game?

For that matter, what is employment? Is working 17 hours a week at Wally World or 22 hours a week at Macky D's 'employment'?

What would full employment look like, the kind that might, just might, lead to wage inflation? Would all workers who wanted a job have a job and would that job be commensurate with their skill and experience? Would that job provide the hours and wages they need to provide a decent life for themselves and their families – or would their kids still qualify for free breakfast and lunch at school and go to the emergency room for their healthcare?

Some data: There are 92,898,000 Americans currently not working. We have a 62.8% labor force participation rate, a 37 year low. Just last month another 390,000 Americans became invisible to the BLS. Officially, there are 8.7 million people who were actively searching for work last month, plus another 6.5 million people who didn’t look last month but who say they want a job. Plus another 6.6 million who want to work full-time but can only get a part-time job. That’s nearly 22 million people who are unemployed or underemployed.

The unemployment rate for blacks is nearly twice the national average.

American added 58,700 waiters and bartenders – pretty much earning minimum wage or less - as part of those 300,000 new jobs.

The unemployment rate would have been unchanged at 5.7% - safely out of the inflationary swamp – if the labor force participation rate had stayed steady. The big improvement didn't come from jobs, it came from despair of ever finding a job.

We're still about 1 million full-time jobs short of where we were pre-recession, and that's not even adjusting for population growth. All told, we're still about 4 million jobs away from the economy being okay;. At this rate we'll break even in September 2016.

Go Recovery!

The Will To Power in the Exceptional

"Christianity is called the religion of pity. Pity stands opposed to the powerful emotions which heighten our vitality; it has a depressing effect. We are deprived of strength when we feel pity...

What is good? All that heightens the feeling of power in a man, the will to power, power itself. What is bad? All that is born of weakness. What is happiness? The feeling that power is growing, that resistance is overcome."

Friedrich Nietzsche, The Antichrist

 

 'What is truth?' asked the cynical bureaucrat Pilate, and then turned and washed his hands of it.

 

 

 

"Cultures that do not recognize that human life and the natural world have a sacred dimension, an intrinsic value beyond monetary value, cannibalize themselves until they die. They ruthlessly exploit the natural world and the members of their society in the name of progress until exhaustion or collapse, blind to the fury of their own self-destruction...

The corporations, and those who run them, consume, pollute, oppress and kill. The little Eichmanns who manage them reside in a parallel universe of staggering wealth, luxury and splendid isolation that rivals that of the closed court of Versailles. The elite, sheltered and enriched, continue to prosper even as the rest of us and the natural world start to die. They are numb. They will drain the last drop of profit from us until there is nothing left. And our business schools and elite universities churn out tens of thousands of these deaf, dumb and blind systems managers who are endowed with sophisticated skills of management and the incapacity for common sense, compassion or remorse. These technocrats mistake the art of manipulation with knowledge."

Chris Hedges

 

“All life has inestimable value even the weakest and most vulnerable, the sick, the old, the unborn and the poor, are masterpieces of God’s creation, made in his own image, destined to live forever, and deserving of the utmost reverence and respect...

All too often, as we know from experience, people do not choose life, they do not accept the Gospel of Life but let themselves be led by ideologies and ways of thinking that block life, that do not respect life, because they are dictated by selfishness, self-interest, profit, power and pleasure, and not by love, by concern for the good of others...

As a result, the living God is replaced by fleeting human idols which offer the intoxication of a flash of freedom, but in the end bring new forms of slavery and death...

Francis I

 

I have long felt that the basis of our economic and political discussions are a distraction, and by design.   They force us to operate from some fundamental policy assumptions that prevent a discussion of our current state of affairs in a necessarily frank and fundamental manner.

El Greco, Fábula of Boy Lighting Candle With a Fool and an Ape

With regard to economics and political systems, a 'practical person' may decide on whichever form of government serves their own private interests best.  

 

The amoral person chooses what is expedient, and in this they are little different from the worst, because they will go along with whatever serves their own power and self-interest above all.  They will rationalize themselves into a hell on earth, or hereafter.

 

A 'moral being' must choose what is just, as defined by some higher principle of justice for all.  And that choice must be made because it is inherent in being human.

 

Just as love is the touchstone in religion, justice is the touchstone in public policy. 

 

Exceptionalism is no virtue, no mark of the chosen, but merely the sin of pride, wearing the silks of rationalization and self-delusion.  And this is at the root of every fallen angel, every lost soul, and every failing nation.

 

I am not here making an appeal to the careless few based on either faith or reason.  Alas, I fear they are now beyond both morality and common sense, until a reckoning comes.

 

Rather, in this solemn season I am reminding the faithful and the many of a message they have probably heard, and forgotten, so often.  A man cannot serve two masters.  He will love the one, and hate the other.

 

The ultimate question is, 'whom do you serve?'  Choose as you will, but you will live with your choice, forever.  We do not choose all at once, but every day, and in all our actions, whether we are consciously aware of our choice or not.

Your carelessness and self-approval, your reputation and connections, your associations and positions, will be of no comfort and value to you then.  When exposed by the light your life of self-absorption and exceptional selfishness will be an ever stinging rebuke of burning regret and torment.  Not that you have betrayed and traded away so much that is good, but that you have done it for so little.

“A true opium of the people is a belief in nothingness after death - the huge solace of thinking that for our betrayals, greed, cowardice, and murders that we are not going to be judged.”

Czesław Miłosz

 

Gold Daily and Silver Weekly Charts - Non-Farm Payrolls Metals Smash - Troubled Waters

Bubble bubble

Toil and trouble,

Savings burn

While assets double.

 

That certainly was a 'better than expected' Non-Farm Payrolls report number.

One thing to keep in mind is that the Bureau of Labor Statistics has gone back and revised every jobs report I have in my spreadsheet, back to at least 2004.

They have also revised the imaginary jobs, the Birth-Death model.

To give you an analogy, they did not just move the goalposts. They moved the entire field to a new stadium and redid every line, every marker, and every number that describes the field.

So anyway, in itself this was higher than expected, but hardly a great number.  It showed a nation of part time bartenders and low paid servers, with another 390,000 or so Americans being written out of the official record.  At least they are only erasing people on paper for now.

 

The Fed and their partners in government have the itch to raise interest rates.  And to do so, without everyone throwing up over yet another in a series of policy errors, they need the cover of an 'improving economy' with a growing fear of inflation. 

 

After all, it is a 'tight' job market.  Especially if you want to work the day shift at McDonalds in a suburb for minimum wage.

 

WHAT IS THE VELOCITY OF MONEY?    WHAT IS MEDIAN WAGE GROWTH?  Why aren't the whiz kids talking about that when they start fretting about 'inflation.'   Because they are willfully blind?

 

The Fed would like to get interest rates up to one percent.   This give them the room to cut rates again when their latest asset bubble collapses.  That is it in a nutshell.  They see the 'real economy' as cannon fodder in their increasingly self-absorbed financial engineering.

 

I am going to be more interested in what they do with those huge excess reserves which they have given pretty much for free to the Banks, for whom they are now paying them 25 risk free basis points.   Will they keep raising that vigorish for doing nothing to their Banks?  Because that is what it is, to say the least.  There was intraday commentary about that here.

 

The propeller heads and careless few are enamoured of 'corporate profits, and wage pressures.'   I think they will be much more preoccupied with the 'torches and pitchforks' indicators by late next year.

 

The dollar took off this morning as you might expect, with Europe pretty much falling into the abyss of their own hubris and delusions.  I mean, with most of the world savagely cutting interest rates because they recognize that the global economy is failing, what else is an exceptional people to do except raise rates?  Yes, we really are just that good.

 

And with the stronger dollar the multinational financiers will have sweeter pickings in acquiring assets overseas.  As for the real economy well, buck up and stop whining.

 

Let's see how gold and silver fare next week.   They certainly took it on the chin today. But what else would you expect from a largely unregulated bucket shop where prices are almost symbolic bets, contingent on other bets and leverage?  Liar's poker?

 

Have a pleasant weekend.

 

Addendum:   With regard to the cash levels of PSLV, Bron Suchecki seems to think that he knows what the options and outcome are, and has suggested something to me via email.   I have no such certainty about what he thinks he knows and have told him so in return.

Since he (and apparently a tweeter) have recourse to  blogs of their own, dare I suggest that they write their own opinions plainly and put them on their own blogs?

Maybe he is right.  In which case, he should put it in print.  Let him say what he knows, and what he thinks.  And in this he he has directed me to this posting.   And I am largely grateful for it, not having seen it before.  I have added a comment there today noting that I do not care which particular method Sprott uses to add cash, unless it has some adverse effect.   I will look forward to the details from Sprott.  It does now appear that a secondary is unlikely.

 

I am only concerned with accounting for the move in the premium, and that relative to other premiums.  If it varies, I would like to know why.   I also give a word of alert on the cash levels to those who watch these things, that they may be alert to the possibility.

 

I try to stick the facts that I can verify and understand for myself.  But I am always open to reading another's analysis and opinions. Even about details that do not particularly matter to me, of which there are many.   I do that about eight hours a day at least.

 

I should add that I do not 'follow' PSLV in the manner of an analyst.  I had thought I made that fairly clear.   I use it in the limited manner I have described several times, in comparing the premium to some other things. And I do find the fluctuations in the premium to NAV to be fascinating.  I offer no in depth analysis on the individual securities per se.   

 

And finally, if you happen to read the comments in the above link at Mr. Suchecki's blog, you will notice someone claiming that I am a hyperinflationist, although I have toned it down lately.   As anyone who visits here regularly may recall, I forecast for stagflation in a brief paper in 2005, which I have reproduced on this blog some years ago.  

 

I try to keep an open mind on hyperinflation since they do and can occur.  But I think it is a very low probability event for the US, especially while it retains reserve currency status.   The size and cohesiveness of the US economy will allow its currency to weather much more abuse than a smaller nation.

 

 

Despite the Storms, Life and Caring for Life Go On

SP 500 and NDX Futures Daily Charts - The Fed and the 'Real Economy'

An astute patron who shall only be identified as il greco asked a particularly interesting question at the tail end of a long email today.

Here is my answer.

I do not believe that the Fed has 'given up' on the real economy.

They see reality through the prism of the banking system and their circle of friends and associates, mostly laboring in the 'unreal world' of the academy, government, and the Banks.

They tend to diminish their own culpability and shift the problems they are creating to the 'fiscal side' of the house, the dysfunctional government. They do have a point, but they are mostly moral cowards and courtiers to power and privilege, rationalizing their own servility.

Things are going to be getting rougher before they get better. 

There is no recovery.

There has been no genuine reform.

There is another asset bubble.

The careless few are doing very well, and do not care.

 

Have a pleasant weekend.

 

 

 

 

The Existential Economist and Interest Rates

Here is an exchange I had this morning with someone I will only identify as the existential economist.

EE:

Fed will use this jobs report (+295k jobs) to justify raising rates.

Despite average wage growth falling.

Jesse:

They want to get off zero so that they can cut later on when they fail again.  Even if it is only 'symbolic.'  I would almost guarantee that this is their game plan.

I wonder if they will increase the rate that they pay the Banks on their excess reserves that the Fed provides? That could be another motivation.  They *could* play that a bit. Or maybe using rates to drive investors into riskier assets is just for the little people, and they could just use it to increase the Banks' share in their vigorish.

Aren't we cynical?  Maybe.  Maybe not enough.

I do not see the Fed doing anything to help anyone except to help the Banks belly up closer to an ever widening trough of economic distortions, inequality, and malinvestments.

NAV Premiums of Certain Precious Metal Trusts and Funds

Yes it certainly is a Non-Farm Jobs Payrolls day.

Apparently if you stack low paying part time jobs high enough it means something.

The dollar took off on the 'blowout' jobs number. With the rest of the world in the process of cutting interest rates, the US looks to be getting ready to raise rates, which is certainly boosting the DX index, which is most heavily weighted to the euro.

One thing I have never seen before to my memory is the negative estimate I have on the Sprott Silver Trust's cash position. Keeping in mind of course that this is my estimate based on what numbers they do publish.  And it could be wrong.  But if it is, it is not for a lack on trying to find out.

I believe they have several options to resolve this, but they do not seem to be in any hurry to share this information with their unit holders.  And it doesn't appear to be for any lack of Sprott spokespersons who are available to give their opinions on so many other things.

As I reminder, I recommend nothing to anyone, ever.  I am not in a professional position to do so.  I am actively watching macro-economic developments, and then putting out my own analysis and theories about what is happening and why.  And this does involve watching individual sectors and representative firms.

I am watching these particular trust and funds because they are closed end and publish some timely statistics, meaning that there is a way to track their variance to Net Asset Value.  And they offer a useful cross section of redeemable, non-redeemable, and a mix of gold and silver.  I do not track any open ended funds designed to track the price of an underlying commodity.  Some people do.

Everyone's individual financial position is unique, requiring much more information than a public blog will have.  I put what I know and what I think out there, and people may make their own best judgements.

I bring this up now because people have a tendency to take full credit for all their successes, but their failures are orphans at best.   Sometimes people will ask for my 'opinion' on some particular notion they have, and they provide so little meaningful personal information in their request that it is obvious that they have already made up their minds, but just want to tag someone else with the decision.  It if wins, they are a genius, if it is wrong, they ought not to have listened to that other guy.

And while I have occasionally done it, I no longer like to even disclose what specific positions I may be holding because I do not wish people to 'follow' my own investing or trading, even at a distance.  That is no way to do it.  My circumstances and objectives may be entirely inappropriate for yours.

Leverage, risk and portfolio theory.  If you do not understand them, you ought not to be investing on your own.  And in general I think that in this market no amateurs should be actively trading because the probability that they will lose money is exceptionally high for the reasons I have stated many times.