Those who deny that there was a stimulus II, which was actually a stimulus III or IV depending how you count C4C and the home buyers tax credit, should be intrigued by the title of one of the last acts to narrowly pass the House, the “Jobs for Main Street Act.” This act spends an additional $174B on jobs for American’s, which sounds great, until you read the jobs it wants to create. This act which is merely another spray and pray spending bill geared to help the base that swept the current administration into power. However, the $174B isn’t all new spending as $75B is coming from TARP and only $100B is coming from new spending.
Let’s examine where this money is going and then decided if it is going to help the employment situation. According to the bill and its Democrat supporters a portion of the bill is going to support key areas of ‘infrastructure’ and create jobs in the following areas: tens of thousands of new construction jobs, 5,500 more police officers, 25,000 additional AmeriCorps members, 250,000 summer jobs for disadvantaged youth, 14,000 part-time jobs for parks and forestry workers.
A couple of points of interest, first, weren’t the first $787B supposed to support infrastructure projects? Wouldn’t this prove that the first stimulus in the infrastructure area was a waste or at least mismanaged? Second, I am not really sure how AmeriCorps and summer jobs for youth are infrastructure jobs, but it does do one thing, solve the unemployment problem for youth which is in the high 20% area. Unfortunately it does nothing to solve the real unemployment problem in the private sector or for those who actually pay taxes to support such spending bills, but hey, who cares as long as kids have jobs.
I love the fact that we are going to hire more part-time workers though, that is fantastic as the BLS can remove another 14,000 people from the employment pool. Maybe the government should just hire 100,000 part-time employees every month, that will cure the problem of unemployment the old fashioned way, they will lie their way out of it. On the real Brightside, construction jobs and more police officers are a good thing, honestly. Perhaps they should spend more money in that area, as long as they don’t dump the cost on municipalities later on and provide federal grants forever for their expense.
There is no question that the Federal government needs to do all it can to spur job creation, but my issue is that they simply do not know what they are doing and this is all for show. Not to mention that for all the bragging about the original stimulus working and “saving or creating 600K to 1M jobs” this is just proof that we experienced one big waste of money. For proof of this all I need to say is ‘monorail,’ yes a monorail from Southern California to Las Vegas was part of the original stimulus package, this is straight out of the Simpson’s, but unlike the Simpson’s this is no laughing matter.
The other major issue is the fact that clearly Congress is not buying the BLS’s employment figures either. If they did they would not have passed the unemployment benefit extension or this latest pork barrel spending bill. Evidence of the understatement of employment is plentiful from the ADP, ISM and weekly claims reports to the BLS’s own admission that they will have to adjust the unemployment figures for 1009 by about 800K in February of 2010. Even Zero Hedge, who I disagree with on many issues, just did an excellent post on how the Treasuries own numbers show that there is the potential that the government is underreporting the unemployment figure by as much as 32%, based on the gross amount of benefits paid versus the actual reported number of unemployed.
Of course, this discrepancy could be from the increase in benefits that Obama and Congress gave to the unemployed with the stimulus bill. It could also be because of the fact that the extension of benefits brought many people back on the unemployment rolls on the Federal level, but not on the state level keeping the official level down, I love how the EUC benefits work now. We simply just do not know how the gross number works because Treasury does not tell us and they operate in a very opaque way, I hope this changes, but I am sure it won’t. I do believe unemployment is being underreported, by how much I have no idea, but there is certainly plenty of room for speculation. Regardless, a headline stating ‘the government underreports unemployment by 32%” is sure to grab readers, whether it is true or not, well, that’s a different story.
What we do know is that unemployment is a huge problem and there is simply no way of believing the problem is getting better when credit for business remains tight. Hiring is simply not happening based on the data available, but the firings do appear to be slowing. What I do not like is that even during the holiday season we are still getting initial claims well over 400K, that is not a good sign. As I have stated earlier, employers try not to let people go over the holidays because they do not want to be a Scrooge. The worst part is that now the holidays are over and the after Christmas sales are going to be coming to an end, remember all those part-time workers? I bet you they are going to be gone very soon and the inventory build is also almost complete. In other words, employment may actually get a bit worse again.
On the bright side, we are going to get a great GDP report soon, until it gets revised down to nothing like 3Q09 did. I am also sure we will get another fabulous employment report on Friday as well, whether it is believable or not will be another story. If the BLS takes out another 100K people out of the workforce maybe we will get unemployment below 10%, but do any of you really believe 100K people a month are really leaving the workforce? There is only one reason to reduce the workforce, mathematically, like that, to lower the unemployment number. It is like the birth/death model the BLS uses, do you really believe that 130-200K people a month were starting their own businesses during the peak of the credit crisis when there was no credit available, to anyone other than Uncle Sam? Well, that is what the BLS said happened and that should be reason enough to not trust government numbers.
The other tell that things are not getting better is the fact that the government is spending another $174B in a jobs bill. This goes against very argument that the V shaped economists and pundits have been telling us is in the works. Not only does this fly in their face, but also in the face of Obama and Joe Biden as well as they told us that the stimulus was a stunning success and we are on the road to recovery. Yet, all we keep hearing about is more jobs bills and extended unemployment benefits, the real kicker is 1 out of every 10 of Americans is on food stamps, go figure.
I want things to get better, everyone wants things to get better, but the issue is no one is being straight with the people and why should they be? Unlike the 1930’s the truth can be hidden. There are no soup lines because we have food stamps. There are less homeless because we have public housing. We have unemployment insurance and a host of other social safety nets to mask what is really happening. All we really see are figures on paper and the occasional rally on Washington, not what is really happening and the media questions nothing. Regardless, we have another jobs bill to help wallpaper over our major problems and propel the myth that the ‘road to recovery’ is just fine. Maybe it is, but I just do not see it.
I guess a few firms had to be to Scrooge given the 452K initial claims we saw this morning. Anyone expecting a larger number than we got is crazy because companies just do not or try not to fire people around the holidays. In fact, I am shocked that we saw claims as high as we saw today which reinforces my thought that the employment picture is not getting any better, I know I wouldn’t know a V shaped recovery if it hit me in the head because employment is a lagging indicator. That would be true for an inventory recession, but not for a credit collapse or do I have my type of recessions mixed up?
These initial claims and the ISM data is still not consistent with the magical -11K employment report we got in November, sorry for being a doubter. I simply do not trust government data and neither should you because the BLS along with this administration, any administration for that matter, will do anything to make themselves look better. For example, even though banks are not lending the BLS insists that 30K people started their own businesses in November, really, that is what the birth/death model says. Go back a year ago when things were really bad and the numbers are even higher, 100K+ people were starting their own businesses when the credit markets were frozen solid, so trust those BLS numbers all you want, I don’t.
To further illustrate this point, last month the BLS reduced the number of people in the work force by some 130K, they just took them out of the work force, why? Because they gave up looking for a job, or could not find one, and that is how you get a -11K employment report and massively revised prior reports. I wish we could all doctor our books like the government as we would all be rich. However, did you hear Steve Liesman tell you about how the BLS removed people from the workforce? Nope, you did not. Santelli told you about it and Santelli told you about how retail sales were doctored, but none of the other talking heads, why? I don’t have an answer, I really want to know why. I get that no one wants all bad news all the time, even I don’t want that, but I do want the truth.
My point is that last week and this week we will see soft initial claims numbers and December’s employment report will probably be OK, unless they doctor it up again. If they doctor the report, which will be unnecessary, it will be spectacular and completely unbelievable which will be the problem. Moving forward credibility will be an issue for the government, kind of like the USSR in the 1980’s when they said everything was fine and we knew it wasn’t, we are trying to do the same freaking thing. The thing is when 20% of the population is unemployed/underemployed, 1 out of 5 people, you cannot lie your way out of that and you will pay through the elections. This AM on Squawk even Liesman finally admitted that the Bush “economic recovery” was very poor and we are right where we were at the beginning of the decade. We need massive job growth, 300K+ a month now to turn this around and that is not going to happen.
The economy is bad and without government intervention there is no green shoots, period. The housing data yesterday proves that because that was the first look at housing starts without the tax credit, starts were down 11% when expectations were for +6%, ouch. That is quantifiable proof that the private sector is doing nothing right now and it is 110% government intervention growing the economy which has zero multiplier effect, it actually destroys wealth especially when your country has to borrow 100% of the money. That one data point on its own destroys the V shapers story, but if you combine it with any other data point it completely buries it. Let us not forget that if this was a V shape the Fed would have at least changed its language during the last meeting, but nope they did not even do that. Keep in mind I want out of this to, but I am just not delusional. Sure stocks are higher, but that doesn’t mean the economy is OK and in fact it means there is pain coming hard and fast somewhere along the way. Oh, where’s the volume?
Just how bad are things? Well, banks aren’t lending to the wealthy either. I spoke to a very wealthy friend of mine yesterday in Florida which is telling of what is really going on in the mortgage market right now. Now, I know how lending works, but there is simply no excuse for what he is going through right now in trying to refinance his condo in Florida, I know it is a hard hit area, but hear out the story before passing judgment. His condo was worth 7 figures before, but now in the high 6 figures and he has zero debt, $2M in cash, 790 FICO score and he is self employed. Now his self employed status is an issue because he has inconsistent income, $40K a year to $400K a year which is wild swings, but not bad considering he only wants to refinance $200K.
Here is the thing, he cannot get any financing from any bank anywhere. He wants to refi a portion of his condo, so it is totally secured, he has cash, credit, no debt and income with no bank wanting the business. Keep in mind I am not talking about a second lien where if he filed for bankruptcy the bank gets nothing, we are talking first lien here. So, how can this be if banks are ‘eager’ to lend, the credit markets are fully functional or the economy is just fine? It is not possible as this guy is prime to lend to. Now, if a bank is not going to lend to him, which is a collateralized loan I might add, then they are not going to lend to a small business or consumers in general.
All of this points to much tighter credit and much higher unemployment coming soon. Especially since banks are dumping TARP as fast as they can because they do not want to be told to lend by the administration or they want that one last big payday before the whole thing comes down. Actually, my belief is that why wouldn’t banks not want to repay TARP since they know they could get it back anytime they want. Either way, banks do not want to lend and they are not going. No lending, no growth.
According to Ben and now his number 2, Donald Kohn, there are no more asset bubbles in the US, none at all. This is coming from the same Fed that missed the mother of all housing bubbles and continually either lied to themselves or us to the severity of the bubble, when they realized it was busting, after the fact. These are not exactly what I would refer to as credible words of comfort when they messed up so badly to begin with.
However, considering we lost millions of jobs in the last 6 months alone and had horrible economic data all while the stock market climbed an unprecedented 60% from its lows, a feat that usually takes 2 years after a recovery has actually occurred, there is no bubble. Right. In my opinion we went from one horrific bubble, what was the mother of all bubbles, to the greatest ,biggest, most fantastic bubble of all time created by the Fed on purpose. I realize that everyone thinks everything is fine now that the market is up and we had a wonderful 3Q09 GDP figure, which will be revised down to 2.5-3%, that was 110% stimulus induced, and do not fool yourself and think it was not, but things are ugly.
We are still reporting 500K initial claims a week, last month if you look at the official number we actually lost some 276K jobs, the BLS added some 86K via the birth/death model, and unemployment is at 11%+. That’s right, I said unemployment is at 11%+ right now and I can prove it. According to the BLS they understated employment by some 800K in the beginning of this year, this was announced in September 2009 by the BLS, which means we are not counting some 800K people who are unemployed because the BLS fudges the numbers with the birth/death model, go look to see their actual numbers they add in HERE.
My point is that there has never been a point in history where the market climbed 60% from its lows in a mere 6 months while we are still shedding jobs. Given that employment has been overstated, or understated depending on how you look at it, and we have had weak or anemic, albeit better, economic data this equity move is unparalleled and is the basic definition of an asset bubble. Here are 2 other things that should make you say hmm, treasuries are doing very well, still, which is highly unusual in a economic recovery, come on stocks and treasuries can’t both be right, and precious metals are also going through the roof.
It is impossible to have every or virtually every asset class go up and have them all be right. According to the markets, which are horrible future forecasters, see September 2007 Dow 14,000 for proof, we are facing deflation or a continued recession with treasuries going up, inflation with commodities doing very well or a complete economic recovery with stocks and corporate bonds going through the roof. Do you see my point? They cannot all be right, it is not possible. I know I will get hate mail for this next statement, but here it goes, stocks are stupid money and that is a fact. Credit markets and the FX markets are always where the smart money is, hence the reason why those markets dwarf the equity markets. If you think about it you know I am right, stocks are last in line during bankruptcy!
The point I am making is this, equities are for gamblers, like me and probably you. The credit markets represent the smartest of the smartest money and what is that market telling you? Treasuries are saying there are still major problems out there, as they are going up, and corporate bonds are pricing in 2% GDP growth. Stocks, however, are pricing in some 4%+ GDP growth with job creation and even credit expansion, none of which is actually happening in real life. I can talk until I am blue in the face about valuation and such, but it will do absolutely no good because people do what people do, they see stocks go up and jump on at the very end to ride them all the way down.
In fact CNBC stated today that the retail investor is coming into the market now. Why? Because human behavior is predictable. They wait for things to go up and then see their friends buying stocks, making money and feel left out and jump on the bandwagon. I saw this happen in 1999/2000 only to see people get killed when the market corrected, which it will, because when we see the behavior I am talking about it is the sign of an asset bubble. It is what happened during every bubble we have had and then we will look back in a year and say how were these people so dumb to fall for it? For the record, I do not think all people are dumb I just think people make bad decisions based on faulty advice and herd mentality.
I also do not think retail investors are jumping into this market as net flows do not show that type of activity, equities still show net redemptions not in flows, so CNBC is flat out wrong. Oh, there is also no money on the sidelines so just forget about that argument it does not exist. That money is sitting in money market accounts because people want it liquid and/or it is part of an asset allocation. In fact, that money has not moved off the sidelines in 15 years so I highly doubt it will move now. If it did, which it is not, that is further evidence of a bubble driven by cheap money as the Fed is literally forcing people to risk their principle to make any return.
The Fed can say all they want that there is no bubble because you and I know there is a major bubble out there. Well, you should know that unless you think 60% rallies happen all the time in a mature market and economy. I think what the Fed is saying is that there is no bubble in securitization or in the housing market, which is debatable, but there is one heck of a bubble in stocks. The one thing I do know for sure is that all bubbles pop, I just do not know when, but this one will go soon and it will be spectacular.
Well, last week was the breaking point in the equity markets and there is no denying that. The GDP figures were cooked to say the least and shows that the economy, unfortunately, cannot survive on its own without massive government intervention. It also proves, to me at least, that there will be, I place a 70% probability on it, that there will be another stimulus plan by the end of 1Q10. In the upcoming week we have massive data coming out, but there are a few data points I am waiting for, the ISM report on Monday and the employment reports, ADP on Wednesday, the initial claims on Thursday and the employment report Friday. However, there are tons of other data points also being released that you should pay attention to and look beyond the headline numbers on.
On the absurd side of the reports last week was the Whitehouse’s attempt to tell us that is wasteful $787B stimulus package was working and “saved or created” 650K or 1M jobs. First, there is no way to quantify a saved job and any economist worth their salt will verify that as a factual statement. Second, they said the $283B or so tax benefit, the most painful joke of the stimulus bill, helped create more jobs because it lessened the tax burden of working Americans. How an additional $20, and I am being generous with the $20 figure, a week tax savings is saving or creating jobs is beyond me, but hey the government has its own mathematical formulas to suit its own purposes. What is so painful about that portion of the stimulus is that you need to have a job to reap the benefits of that tax savings or wait until you file, unless I do not understand the language of the bill and I am not a CPA.
I can see how bailing out GM and Chrysler would have quantifiable results in the “saving” jobs category, but outside of that there is simply no way to tell. Then we have reports coming in from the Associated Press, not FOX News mind you, that the creation of jobs figures is double counted or just false figures. Considering the last report released just a couple of weeks ago showed such different results I find it way to convenient that this report shows such stellar results, not that our government would ever be aggressive with their math figures. The other reality is that if 1M jobs were saved or created how in the world can we be shedding 530K jobs a week still?
That means we are in far worse shape than we are being told, which sounds about right to me. Not only that, but look at all the consumer sentiment numbers coming in that all show jobs are tough to find and getting harder to find. The picture is not improving and considering a 3.5% GDP print and all the rosy talk from Biden, Obama and their economists this thing, whatever we are calling it now, is over. However, if it is over and things are better, why are the people saying I can’t get work? Because it is not over and, in fact, it is getting worse at least on the jobs side of the picture which does not bode well for the economy itself.
There is so much uncertainty out there that personal spending decreased, according to the report of Friday, and disposable income is way down, according to the GDP report. Those are two key pieces of data that were completely ignored by the media, except for the spending report of Friday. All you heard about in the GDP report was how great it was and that if you subtract government stimulus we still had growth. Well, wait a minute, if you look at the consumer side of the equation and how incomes and disposable incomes are down that is very forward looking and not good. In fact, GDP is review mirror looking, but the consumer income portion is forward looking, that is why CNBC and the rest of the media ignored it. It is because there is trouble ahead, big trouble.
Corporate earnings were a factor of international growth, which may continue, but it was also a factor of a weaker currency as well. Now we are seeing a stronger dollar, so what does that mean for Intel’s earnings next quarter? I am willing to bet they will meet their EPS, but miss on their revenue if the dollar steams ahead in value, which it will if I get my continued correction I see coming. I am not picking on Intel, I love their product, but I am using them as an example as they grew their international business and their US sales dropped last quarter and they had favorable FX results, like many other firms. This could be a problem moving forward in the tech area, especially if our products get more expensive overseas.
Looking ahead to next week, Thursday’s employment report is going to be interesting, to say the least. We have had another month of straight 500K a week initial claims, but estimates say that last month only 190K will actually be unemployed, which is a joke of course and Breifing.com estimates 235k for this figure. What is important to look at is the revised figure for last month, the U-6 number and what games the BLS has played with the birth/death model, which is a guesstimate that a certain percentage of terminated workers will start their own businesses. That birth/death model has been busy this year and last year adding hundreds of thousands of phantom jobs to the report, so many in fact that the BLS quietly will add an additional 825K to all of the 2009 unemployment numbers in February of 2010, nice right? Be sure to come back here to see what they add in after the number is given and I will be more than happy to share how many phantom jobs are added to this month’s report.
My point is that with 500K+ a week filing for initial claims, that’s 2M a people a month, and over 50% of consumers saying that finding a job is very hard and the average time to find a job is 6 months how can we only have 200K a month actually be unemployed? It is not possible and unrealistic. If this was the case we would have no need for extended unemployment benefits or emergency claims along with, there is a pending bill now in the Senate, another measure to extend benefits to about 2 years for unemployment benefits. There is no conspiracy or anything of that nature happening, they are doing it right in front of you, but they just burry the numbers in the reports which is why you need to look at the U-6 report on Thursday because that will show you what the real unemployment number is. It is definitely not 9.8 or 10%, it is a lot higher.
So, if you want to believe that 1M jobs were saved or created, believe it, hey my kids believe Santa and the tooth fairy still so there is nothing wrong with a little belief in magically creation. However, we all have to grow up and unfortunately we all learn that there is no Santa or fairy that leaves money under our pillow, we would all be toothless, and reality sets in. I know that we all have hope that President Obama will live up to his Hope and Change campaign promises, but it has been a year and guess what? There has been no change and my hope for change was killed the day he brought Larry Summers back into the Whitehouse. I saw this movie before and it did not end well the first time and I am sure the sequel will end even worse.
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