Dear Reader,
As readers of any duration longer than a day already know, here at Casey Research we are considerably less optimistic about the economic outlook than members of the government or their close companions down on Wall Street.
Are we bearish by temperament? And so our radar picks up only bearish-shaped blips?
Perhaps, though I hope that’s not the case.
How, then, should we view today’s improved unemployment numbers?
Mr. Market went gaga for that latest green shoot, rushing to throw large sums at the U.S. equities and sending the DJIA up over 150 points in a hurry.
But then something happened. Like a doomed space shuttle, the market’s trajectory peaked, struggled, and is now, at this writing, in negative territory, but the day is still young.
Meanwhile, the dollar has spiked – almost a full percentage point – sending gold tumbling $34. And the gold stocks, which have treated us so well, are all off across the board with even big shares coming off by big amounts. Barrick Gold, the world’s largest producer, is off almost 10% as I write.
Perhaps it is because I just watched the latest Star Trek movie on DVD, but I feel much like Captain Kirk of the Starship Enterprise, hurtling through space as the ship is buffeted violently.
From the intercom, a distinctly Scottish voice shouts, “Engineering to the helm! She’s breaking up, Capt’n, and can’t take much more!”
Calmly, I scan the ship’s computer for data, yelling back at Scotty as I do,
“You’ve got to buy us time, I don’t care how you do it!”
“Aye, I’ll do my best, but it won’t be easy,” mutters the ever-stressed engineer, flipping off the intercom as he turns his attention back to the falling pipes and sparking electronics that surround him.
“Chekov!” I snap. “Report. What’s happening?”
“Traders are rushing out of ze dollar carry trade. Zey seem to tink the unemployment numbers are indicating an actual recovery.”
“Well, is it? Is it really a recovery?” I shout. “Sulu, I need the information!
What’s the econotron indicating?”
“Look for yourself, Captain,” he responds, projecting the data onto the large screen.
(Click to enlarge)
“Spock, what does it mean?”
“Simply, Jim, that the problems that have brought us to this place in the first place – starting with record levels of debt – have actually worsened. Just look at household debt. Sure, it’s flattened and come off slightly, but look at federal debt – it looks like a rocket leaving the Argonian atmosphere.”
“And interest rates?”
“Very interesting. All logic dictates that historic levels of debt should send interest rates higher, not lower. But until recently, that hasn’t been the case. I can’t explain it. Unless…”
“Yes, man, don’t hold back!”
“Engineering to the Capt’n, she’s breaki…”
“Not now, Scotty! I get it! Spock, continue!”
“Well,” Spock continues, “it could be the result of passing through a cloud of Bernankium.”
“Bernankium?”
“Yes, it’s a noxious gas that causes mass delusions, creating something akin to an alternate universe where everything is turned upside down. For example, instead of heavily indebted consumers being urged to spend less and save more, they are urged to borrow more in order to consume more. Instead of rising to reduce the demand for money, interest rates fall, actually reducing any incentive to save. Meanwhile, the government tries to solve the debt problem by going further into debt. The pressure on the economy, instead of easing, only grows.”
“But how will it end?”
“Impossible to say, but history tells us that, in time, interest rates have to go up. In fact, if you look at the screen, you can see that that may be beginning to happen now. If it does, then, well, the universe as we know it could implode as rising rates crush what’s left of the economy.”
“What about unemployment? Couldn’t the latest numbers be indicating a turnaround? You know, where people will begin earning money again, paying taxes, buying houses and flat screens and all that? And, maybe even reducing their debt before interest rates go sky high? Give me some hope, damn it!”
“Sorry Jim, it’s not as good as the latest data might suggest. Uhura, show the Captain the Chart of the Day.”
(Click to enlarge)
“As you can see,” Spock continues, “unemployment is still way off by historic norms.”“But today’s numbers?”
“Uhura, next slide.”
(Click to enlarge)
“What am I looking at?”“It’s a chart of the Bureau of Labor Statistics data showing the number of people now working only part-time because they can’t find full-time work. As you can see, there is a pretty strong correlation between a turnaround in those numbers and the end of recessions. That’s because in an economic downturn, businesses favor hiring part-time workers over full time. Only when they are sure that it’s safe to go back in the water, so to speak, they will then reduce temporary workers in favor of full timers. In the latest unemployment data, there were only three sectors of the economy that actually saw gains: government, health care – we’re getting older, Jim – and temporary help services. The rest? All down.“
“But why the latest upswing in part-timers?”
“Well, November is just ahead of the Earth’s holidays, and so some businesses feel they need additional staff. But they can’t bear the cost of hiring full-time employees – taxes, insurance, etc., etc. So, temp workers it is.”
“The dollar? Gold? Gold stocks?”
“Well, here’s the good news. You see, Bernankium acts like a mass hallucinogen. You know, like those mushrooms you and Bones experimented with last year on Alpha-Beta when you took off all your clothes and started chasing after Uh…”
“Yes, I remember, but cut to the chase, damn it!”
“Well, the thing is that the Bernankium has made almost everyone lose touch with reality. If you want to see reality, just look back at the first chart. Debt is still at historic highs, and there is no end to it in sight. In other words, nothing has really changed.”
“So, you’re saying that… most people are delusional, and they think it has?”
“Correct.”
“And so, all we have to do is to stay the course?”
“Exactly.”
“So, gold and gold stocks are falling only due to mass hallucinations, and the smart move would be to go to warp speed and…”
“Yes, Jim, buy more.”
“Engine room, this is the captain.”
“Yes, Captain!”
“Stop yer whining and go to warp speed, Scotty!”
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