Unemployment

When is the economic collapse going to happen?  Just open up your eyes and take a look around the globe.  The next wave of the economic collapse may not have reached Wall Street yet, but it is already deeply affecting billions of lives all over the planet.  Much of Europe has already descended into a deep economic depression, very disturbing economic data is coming out of the second and third largest economies on the globe (China and Japan), and in most of the world economic inequality is growing even though 80 percent of the global population already lives on less than $10 a day.  Just because the Dow has been setting brand new all-time records lately does not mean that everything is okay.  Remember, a bubble is always the biggest right before it bursts.  The next major wave of the economic collapse is already sweeping across Europe and Asia and it is going to devastate the United States as well.

History never changes. Or, at least it changes very slowly indeed. So here we are, like those before us, warning of our own Great Depression, of our own World War, or of even larger cycles like the fall of the English, Spanish, or Roman empires. And so far as we can tell, few listen and nothing changes. Why? Because it isn’t time. Understanding long-term cycles, and how they shape our spectrum of responses in periods of crisis and transformation is key to comprehending what is to come (and how we will allow it to affect us). Do you really think your ancestors didn’t see the Depression coming in 1921 or in 1929? Of course they did. The Balloon Option-ARM mortgage had just been invented, creating a housing boom larger and even more groundless as our own, immortalized by the Marx Brothers in The Cocoanuts. They warned the world then just as we do now, and no one listened then, just as they don’t now. Why? It wasn’t time.

More indisputable proof that gold and silver prices are massively manipulated by the global Central Banking cartel.

In some surprising news, and quite contrary to what its record low bond yields would indicate (for a key reason for said artificial demand for French, see The Greater Fool) today the Pew Research center released results from a poll of 7646 EU citizens in March 2013, showing that the new sick man of Europe is Europe itself, or rather the great unification project itself: the European Union. Perhaps most surprisingly, nowehere is this more evident than in France itself - the country where the idea of a European Union germinated in the first place - and where the decline in support for the EU has been the greatest in the past year, with just 22% responding affirmatively to the question whether 'economic integration strenghtened the economy', down from 36% a year ago, and the biggest drop of all surveyed EU member states.

So, apparently, according to Jon Hilsenrath, "QE to Infinity" is actually "finite" after all. There is no doubt that the Federal Reserve will do everything in its power to try and "talk" the markets down and "signal" policy changes well in advance of actual action.  However, that is unlikely to matter.  The problem with the financial markets today is the speed at which things occur.   High frequency trading, algorithmic programs, program trading combined with market participant's "herd mentality" is not influenced by actions but rather by perception. As stated above, with margin debt at historically high levels when the "herd" begins to turn it will not be a slow and methodical process but rather a stampede with little regard to valuation or fundamental measures. The reality is that the stock market is extremely vulnerable to a sharp correction.   Currently, complacency is near record levels and no one sees a severe market retracement as a possibility.  The common belief is that there is "no bubble" in assets and the Federal Reserve has everything under control. Of course, that is what we heard at the peak of the markets in 2000 and 2008 just before the "race for the door." This time will be no different.

Another day, another US city on the brink of insolvency. This time it's Detroit, whose recently appointed emergency financial manager Kevyn Orr said may run out of cash next month and must cut costs such as long-term debt and retiree obligations. According to Bloomberg, "Orr’s report says the cost of $9.4 billion in bond, pension and other long-term liabilities is sapping the ability to provide such basic services as public safety and transportation. He listed cutting debt principal, retiree benefits and jobs among options he may take. “No one should underestimate the severity of the financial crisis,” He called his report "a sobering wake-up call about the dire financial straits the city of Detroit faces."

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">Driving the sentiment was the report that U.S. jobless benefits decreased to their lowest rate since 2007. Philadelphia Fed President Charles Plosser forecasted that day unemployment will drop to 7% by December 2013 and he favours reducing the Fed’s $85 billion monthly bond purchases next month. Plosser however has no vote on Fed policy this year.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">While hedge funds are seeing outflows of $20.8 billion from gold funds this year, BlackRock Inc. the world’ biggest money manager is still bullish, reported Bloomberg.

In the US, retail sales are expected to continue to slow in the headline, while retail sales ex autos, building materials, and gas should turn positive in April according to Wall Street analysts. Goldman remains below consensus for Thursday's Philadelphia Fed survey, forecasting a slight improvement on the previous month. The firm also expects the flash reading for Euro area Q1 GDP to come in slightly below consensus, consistent with a shallow contraction. We forecast German GDP will turn positive in Q1 after Q4 2012's negative reading. In Japan, GS sees Q1 GDP at 2.8% qoq ann., slightly above consensus, with stronger consumer spending the main driver. Among the central bank meetings this week, Russia, Chile, and Indonesia are expected to remain on hold, in line with consensus.

Overnight risk continues to ignore all newsflow (today the economic reporting finally picks up with advance retail sales due at 8:30 am as expectations for a second modest decline in a row of -0.3%) and is focused entirely on what the consensus decides to make of the Hilsenrath piece, even as the difficulty level was raised a notch following another late Sunday Hilsenrath piece, which puts more variable into the "tapering" equation, and whose focus is whether Bernanke will be replaced by Janet Yellen, Geithner or Summers, or anyone. With all three classified as permadoves, one does scratch their head how the market can be confused: worst case Fed tapers by $10/20 billion per month, market tumbles, then Bernanke's replacement or Ben himself ploughs on even more aggressively with QE. QED.

In a weekend dominated by discussion of the "Taper Tantrum", i.e., interpretations of what Hilsenrath "said" after the close on Friday, what the Fed wanted him to say, what the market's response to what he said or did not say would be, and what the next steps may be, we present this convenient annotation of Hilsenrath's complete recital courtesy of Mike O'Rourke from Jones Trading.

Put down the Sunday newspaper; grab a pot of coffee; and call 'mom' and tell her she has to read this. Doug Rudisch has written a far-reaching summary of the true state of the world and 'why policy has failed'. Simply put, there is no faith in the system; real underlying faith and trust in the system, as opposed to the confidence born from economic steroid injections or entitlements. There also is a subtle but important distinction between faith and trust versus confidence. Faith and trust are longer term and more powerful concepts.There is more going on than a temporary lull in animal spirits that current fiscal and monetary policy will cure. If that was the case, it would be working already... We have ended up with a system where the worst of the risk takers have the ability to take the most risk and are currently taking it at extreme levels. We wish we could be more prescriptive and offer more solutions for the problems. But in order to solve a problem, you must first realize you have one. With respect to the Fed, we don’t think the U.S. realizes it has a problem.

Last week's plunge in wholesale sales (and "completely involuntary" surge in inventories) has Gluskin Sheff's David Rosenberg greatly concerned that current quarter real GDP will be very close to stall speed. However, as he notes, "either Mr. Market has yet to figure this out or simply doesn't care any more because of the well ingrained belief that the 'Fed has my back'." When even the Fed is pimping stocks as cheap, he explains, you know what is dominating the thought process of the central bank's targeting - "they say unemployment rate, but they really mean the S&P 500." The 'wealth effect', however, only benefits a chosen few and as Rosie illustrates, an historically low 52% of American households have any money invested in the stock market (based on a recent Gallup poll) - which merely spurs the 'bulls' to argue that the Fed has to be more aggressive...

While the stance of monetary policy around the world has, on any conceivable measure, been extreme, the question of whether such a policy is indeed sensible and rational has not been asked much of late. By rational we simply mean the following: Is this policy likely to deliver what it is supposed to deliver? And if it does fall short of its official aim, then can we at least state with some certainty that whatever it delivers in benefits is not outweighed by its costs? We think that these are straightforward questions and that any policy that is advertised as being in ‘the interest of the general public’ should pass this test. As we will argue in the following, the present stance of monetary policy only has a negligible chance, at best, of ever fulfilling its stated aim. Furthermore, its benefits are almost certainly outweighed by its costs if we list all negative effects of this policy and do not confine ourselves, as the present mainstream does, to just one obvious cost: official consumer price inflation, which thus far remains contained. Thus, in our view, there is no escaping the fact that this policy is not rational. It should be abandoned as soon as possible. This will end badly...

Politicians love good asset bubbles. Until they blow up. Which they always do.

Since the end of the recession businesses have been increasing their bottom line profitability by massive cost cuts rather than increased revenue.  Of course, one of the highest "costs" to any business is labor.  One way that we can measure this view is by looking at corporate profits on a per employee basis.   Currently, that ratio is at the highest level on record. The problem that businesses are beginning to face currently is that while they have slashed labor costs to the bone there is a point to where businesses simply cannot cut further.   At this point businesses have to begin to "hoard" what labor they have, maximize that labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion. The issue of "labor hoarding" also explains the sharp drop in initial weekly jobless claims. This is likely obscuring the real weakness in the underlying economy.  Without an increase in the demand part of the equation businesses are likely to continue resorting to further productivity increases to stretch the current labor force farther to protect profitability.  However, as we may currently be witnessing, businesses may be reaching the limits of what they can do.