I first came to the conclusion that temporary hiring was not the forward looking indicator it may have once been, actually I always thought it was a poor forward indicator for more employment. However, most pundits, friends and even some commenter’s felt I was wrong, but I never wavered on my belief that today’s temporary hiring was merely a cost cutting method and not indicative of a better job market in the near future. Apparently the Associated Press now feels the same way along with some other sources, i.e. David Rosenberg, and such.
My belief was that employers were simply hiring temporary workers for pure financial reasons, they are less costly, easy to terminate and right now you can get highly skilled workers for a fraction of the cost by hiring them temporarily. It was more than that though as inventories dropped to such low levels the need to restock, a large portion of that mythical 5.7% 4Q GDP print, which made employers hire people. However, why hire a fulltime employee when employers know the business cycle is severely damaged and restocking is a short-term boost only? Employers know their business and they know what real demand is meaning they know there is no real end demand at this stage of the game. Yes, deflation is here to stay for now.
My theory was confirmed by the AP’s article and some of the economists quoted. Here is what a portion of the article said:
“I think temporary hiring is less useful a signal than it used to be,” says John Silvia, chief economist at Wells Fargo. “Companies aren’t testing the waters by turning to temporary firms. They just want part-time workers.”
The reasons vary. But economists and business people say the main obstacle is that employers lack confidence that the economic rebound has staying power. Many fear their sales and the overall economy will remain weak or even falter as consumers spend cautiously.
Companies also worry about higher costs related to taxes or health care measures being weighed by Congress and statehouses. That’s what Chris DeCapua, owner of employment firm Dawson Careers in Columbus, Ohio, is hearing from clients.
That basically hits the nail right on the head and then some. There is just no way to know if the recovery is real or a stimulus induced liquidity rush. On top of that, the unknown about taxes and health care are a huge problem for employers as they do not know if having more employees will cost much more than just a year ago. Yes, Washington is working on a jobs bill to reduce taxes on employers, but that bill was slashed by the Senate leadership from some $85B to $15B, I mean why bother with a $15B jobs bill anyhow?
I have advocated for the government to stop their Keynesian policies as they will create much bigger problems than we have now, but I even concede that we need a jobs bill now. Tax breaks would be a start for hiring, but do not kid yourself this is a short-term fix, see Jimmy Carter’s same attempt and its aftermath. No company is even going to hire until real demand actually comes back anyhow so we need to spark demand. How we could do this is by simply reducing patrol taxes and income tax rates and implement a TEMPORARY, I cannot stress that enough, national sales tax. This way the government will not sacrifice tax revenue and people will feel richer with the tax break.
I do not expect Washington to embrace any reasonable solution and that temporary sales tax would end up being permanent so it is not the best idea ever, but it is certainly better than what they are trying now. Perhaps if they mandated the tax had to expire in a year it might fly, but I doubt it. The primary problem with trying to spur job growth is that it needs to involve tax cuts, but we cannot cut taxes as it will kill the deficit, see Greece for the end result. This is why we would need to replace one tax with another unassuming tax for now as one would certainly make up for the other. Again, it is not perfect, but it is much better than what is being proposed in Washington.
Unemployment will continue to weaken for sometime into the future. Yes, we will have decent unemployment numbers over the next couple of months for the Census, but, again, don’t kid yourself as those jobs are very temporary. The caveat to the higher unemployment figure is that the BLS continues to take people out of the workforce which means if the government has its way we could be at 5% “official” unemployment by the end of next year. It doesn’t mean it’s true, but let’s face the facts, governments around the world do what they have to do to make things “look good” in order to not create a panic. Again, look at Greece for the lengths a government will go to in order to make things look good.
While demand is weak, unemployment is high and deflation is here to stay, for now, I still believe precious metals are a fantastic play. I like Palladium, silver, platinum and gold, in that order, for precious metals as I do believe we are in for a bumpy ride in the FX market. As the dollar strengthens these prices will come down and be a screaming buy, in my opinion. I see deflation being the current conditions for prices I also foresee some problems in the currency market which will benefit precious metals in a positive way in the near future. Plus, the summer time is usually the best time for precious metal prices. I am now a buyer again, scratch that, I am a selective buyer now of most metals.
In a story from the New York Times Goldman Sachs is at the heart of yet another financial crisis, Greece and some of the other PIIGS. The firm, apparently, helped Greece raise a substantial amount of money secretly in order to avoid the EU from knowing the country was violating the debt to GDP ratio. While I am not a regulator and my opinion is worth whatever the reader thinks, in my opinion Goldman, the Vampire Squid, is guilty of several EU rules and should be banned from doing business in the Euro Zone. The firm should also disgorge all fees paid to them for helping Greece bamboozle the world.
Goldman clearly suffers from a lack of a conscience and needs to attend business ethics training, although if you need to learn about ethics chances are you simply have none, as they clearly would sell their soul for a few million in fees. I agree that Goldman Sachs probably has the best f the best working for them, but that does not excuse the fact that, apparently, the firm helped a country violate rules and hide their reckless spending. At the core of the problem is also another familiar financial product, derivatives.
Apparently Greece, in order to keep spending, also sold their rights to airport landing fees, roads and lottery revenue in return for short-term money upfront which lowered their deficits in the near-term. Many of these deals were done in the early 2000’s which begs the question, what else is Greece and, apparently, Italy hiding? It also begs the question of what else has Goldman been up to? We know that Goldman went to Greece to help with a solution to their problems, which means kick the can down the road while sucking the remainder of Greece’s blood, but Greece said no to their plans.
Unfortunately, the story about Greece seems to be getting worse and worse as more details come out. As more of the story comes out I have a feeling we will learn more about Goldman’s and JP Morgan’s involvement in this deceitful tale. One also wonders if the US has also participated in such shenanigans as well. At this stage of the game, with the close ties Goldman has with Treasury, would it really surprise anyone if the US engaged in idiocy like the Greece government?
What is most disturbing about this whole story is the fact that Greece basically sold off their public entities to a firm like Goldman and JP Morgan. Essentially, those public utilities, which is the best description of what Greece gave as collateral, revenues would go to these banks. Along with that disturbing piece of financing news we also find out that if Greece takes a bailout the population will be forced to give up part of its sovereignty as well. How would you like to be a citizen of Greece knowing your Politian’s sold your sovereignty out in secret to private banks and now to the EU.
If there is a moral to this story it is why is Goldman allowed to exist at all? They clearly provide no real value to society or even governments as they made it so Greece could sell worthless bonds to foreign governments. This is also the second time the world is witnessing a credit crisis with a major US bank, Wall Street if you will, creating the mess or at least adding to it. Goldman and JP Morgan literally threw gasoline onto the fire in the case of Greece and, perhaps, Italy as well. How can we trust a firm who consistently knows how to make money for themselves, but screw everyone else? At the end of the day, why should Goldman exist at all?
Today was a bit odd in the markets as they sort through the Greek problem, along with the upcoming PIIGS issues, and a so-so initial claims report. The dollar started out strong and then sold off as anxiety subsided about Greece, but don’t kid yourself as the problems are just getting started. What is interesting is the dollar correlation trade is back after being somewhat broken for the past couple of months. Frankly, the dollar correlation to the markets makes so little sense it is just plain bizarre as the gains of a weak currency are so short-term and on a longer term basis it is simply just bad for everything.
Regardless, you cannot argue with something that is clearly working, but as the EU’s issues expand it is sure to send the dollar higher after it takes a little breather here. Longer term the dollar is going much, much lower, its not political it is simply mathematics that dictate that fact, but President Obama confirmed the dollars fate. During the State of the Union address Obama said he wants to double exports, a feat that can only be accomplished if you actually produce something or you devalue the currency. The US does not produce many real products as compared to China or other Asian countries, our largest exports are financial products, bombs and heavy equipment which is vastly different than producing, say, hammers which is what China makes.
In other words, our exports are for select industries or institutions and not for the average person. I am not saying we don’t produce things for everyone, but we do not produce enough things for people to double our exports over 5 years. If we get our manufacturing sector back, meaning more than 11% of GDP, we may have a chance to boost exports. However, the US is not competitive in manufacturing as our labor costs are through the roof compared to Asia or Mexico which reinforces the idea of a massive dollar devaluation in the future, a weak currency would make our products competitive worldwide. Essentially, we are a service oriented economy and you cannot export services. If we could double exports that would be fantastic as jobs would be much more plentiful, but I digress.
The US is still losing jobs at a disturbing rate as we are now some 2 years into the recession which should show everyone that this time it was indeed different than past recessions. While we posted high GDP numbers for the last 2 quarters the growth was based on government stimulus and an inventory rebuild that is quickly coming to an end. With some 8 million jobs lost from this recession there is little chance of unemployment coming down for a very long time, unless the BLS continues to take individuals out of the system like they have been. Some estimate that is could take 8 years for the US to regain full employment and that is with a reasonable growth rate, which we are unlikely to actually have.
The employment picture is simply not improving like many pundits claim it is, there are 6 people chasing every job opening. Hiring’s are also not lived up to expectations either as many firms are still laying people off versus rehiring them. It is scary to think that we have 0% interest rates, some trillion dollars in government stimulus and the Fed has a $2T balance sheet with unemployment first time claims still above 440K a week. I will admit that the stimulus probably did help soften the blow with unemployment, nowhere near as much as the administration claims, and the jobs are temporary at best which does nothing to really help the employment picture. We spent a ton of money for well below average results which is really bad news as the annual budget deficit is hitting 10% of GDP and the national debt is just sky high.
I have little hope that any jobs bill will actually work at this stage of the game because there simply is just no end demand for products. Without end demand who is going to hire? Things are better than they could have been, so they say, but I am convinced that if we let things run its course we might be further along than we are now. The depression of 1920-21 was a quick sharp contraction which ended as quickly as it began because the government did not follow the Keynesian method of stimulus. Massive spending is stealing from the future and when you are heavily indebted country it is a recipe for disaster. In other words, I believe that we should have dealt with the blow and let firms fail in 2008 and we might have been closer to the end by now than the middle.
If we look at the effects of the governments intervention we would see that they are making problems worse, not better. The housing market is still declining versus being at the bottom if we did not try and prop up demand. Unemployment may have been much worse if we did nothing, but I am sure that once all the junk was out of the system it would be going up by now versus being stagnant and, in my opinion, on its way to the bottom. Government intervention merely kicks the can down the road and steals from the future. We can see this playing out in the PIIGS now and we can also see what a heavily socialized government, meaning universal health care and liberal social programs, creates huge financial problems and eventually will cause countries to fail. The US is not far behind the PIIGS even though most believe “it can’t happen here,” it can and will as we set the course and it there is no way to stop the insanity of our government. Both parties are to blame.
So, watching Venezuela, with its currency devaluation, and the PIIGS with their fiscal largesse is telling of what will more than likely play out in the US. That statement is not political, it is mathematical as there is no political will to do what needs to be done. Don’t get me wrong, I do not enjoy preaching lower entitlement programs and reduced benefits, but tell me what choice do we really have? Raising taxes would work temporarily, but not permanently as higher taxes drive capital away from countries and people learn that making less may mean more take home pay. The irony is that we all saw this coming and were forewarned by many credible sources, but we did nothing to prevent it. Essentially, we kicked the can down the road for a fix later and it is now later with leadership who has no idea how or what to do about our troubles. This could get very ugly, very fast.
We are not talking about bailing out Citi or Bank of America, but whole countries now. What is wrong with this story? Greece is a tiny portion of the EU’s GDP and has always been a problem child for Europe, but this is insanity. What happens is Greece gets bailed out will the EU bailout the rest of the PIIGS as well? They would have to because no matter what deal you give Greece those other countries will demand similar treatment.
This is how moral hazard develops into a currency crisis because you cannot be selective on who you bailout and let the rest fail. It is also an extremely complex problem since none of these countries can print their way out of this mess. Typically, a country in these types of problems would simply devalue its currency and be done with it, but the PIIGS cannot do this under EU rules. If they drop out of the EU they are stuck with debt priced in Euros which would utterly destroy the country forcing a true default. There is simply no way out for these countries and we may be seeing the whole EU dissolve right in front of our eyes.
The ramifications for what is going on are enormous to say the least. From my lens it looks and feels like a currency crisis in the making as the entire EU is becoming unstable at best. Germany cannot single handedly hold up the Euro nor can they bailout all of the problem children in the group. The charter of the European Union, as Rosenberg pointed out today this was one of the latest versions of a European Union, the others failed, does not allow for countries to be bailed out. However, an individual country can help out its neighbor if it so desired. This was the rumor today, Germany was going to bailout Greece, but that would have killed the German Bund, which reacted negatively to the news.
The reason why the EU proper cannot bailout of country was established for a reason. Bailing out a country would mean a devaluation of the Euro currency and the EU wanted individual countries to be held responsible for their own troubles. The interesting thing is that Greece totally benefited from the EU versus what it contributed to the rest of the union. However, their benefit was to the detriment of the union itself. Regardless, think about it a country needs a bailout and people think this is not a big deal?
This is probably one of the biggest deals I can think of especially as it is hitting the Euro as hard as it is. I have been expecting a currency crisis for some time now, but always figured it would be the UK followed by either the US or Japan. It does appear that the Euro is first and this is a major problem for everyone, whether you realize it or not. Think about 1997 when Thailand devalued its Baht and what happened there and then magnify that problem by 1000 and you can begin to see the problem this situation can become. I would be very cautious on what you do with your money at this stage of the game, this rally is low quality and based on rumor. I am keeping my shorts.
Bad things often happen to good people, but why would anyone take advice from a guy who is bankrupt? Lenny Dykstra famously lost his house and fortune last year in a very public bankruptcy and at one point the judge ordered a trustee to take control of Dykstra’s assets because Lenny seemed a bit, um, well, aloof. Lenny claimed that he got bad advice from a mortgage broker and was a victim of fraud. I do not know if the allegations are true or not, but one thing I do know is that you do not buy a house you cannot afford, he clearly could not afford it, and then claim fraud.
Lenny famously wrote for the TheStreet.com under the watchful (?) eye of Jim Cramer who had nothing but praise for Lenny. That is, of course, right up until his bankruptcy hearing when he was quickly and quietly let go from Cramer’s outfit. You would think after such a public display of horrors Lenny would simply just go away to rebuild his life somewhere, but that is not to be. Apparently Dykstra decided that he needs to get back up on that horse and has started a website to sell his top picks.
The service for Lenny’s top picks range from $899 to $1548 a year, depending if you pay monthly or all upfront. For this service you get access to Lenny and a signed baseball as a value add proposition, ever hear of Ebay? Regardless, his website mainly brags about his baseball achievements and his prowess as a deep in the money option player, but you have to pay to find out how good he is. What his site leave out is the facts regarding his own personal financial problems.
While I could never hold a personal financial issue over someone’s head or a string of bad luck, maybe he was a victim of fraud, but to omit such information is sketchy to me. If he was so good at picking winners, he boasts a track record of 140-0, how could you lose your home? I honestly wish Lenny the best, but why anyone would trust his picks or why he would omit his public financial problems is just dirty pool, in my opinion. Everyone is entitled to make a living doing what they do best and, in this case, perhaps Lenny should go back to something baseball related instead.
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