Life expectancy in 1935, in the United States, for example, was 76.9 for men. Workers relying on the plan for retirement would not receive much each month and were not expected to live long enough to drain the system.

When Social Security was founded, the typical US worker at age 65 could expect to live another 11.9 years. But if today’s official projections are right, by the year 2040 the typical 65-year-old worker can expect to live at least another 19.2 years. If the normal retirement age had been indexed to longevity since 1935, today’s worker would be waiting until age 73 to receive full benefits and tomorrow’s workers even longer.

In a report called “Demographics and Capital Markets Returns,” Robert Arnott and Anne Casscells argue that the crisis is not in Social Security, but in demographics. “When an entire society ages,” suggest Arnott and Casscells, “…the thing that matters most is the ratio between the workers to retirees. Unfortunately, the aging of the baby boom generation, which is a significant bulge in population, will cause a dramatic increase in the ratio between workers to retirees, one that will put enormous strain on society and cause friction between generations.”

In the United States, as in other developed countries, the unfunded benefit liability for public pensions amounts to 100 percent to 250 percent of GDP. It is a ” hidden debt ” far greater than official public debt. Unlike in the private sector, these debts are not amortized as expenses over 30 to 40 years. And it may be worth pointing out that under normal conditions economies do not run such crushing deficits. They only do so in crisis mode.

The annual cost of Social Security benefits represented 4.4 percent of GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, and then decline to about 5.8 percent of GDP by 2050 and remain at about that level.

And to the retiring boomers’ other doubts and insecurities, we might add that US health care costs are expected to rise by 7 percent of GDP over the next 40 years – a rate that is more than twice as fast as other developing nations. The “old old,” – those aged 80 and over – are predicted to rise sharply through 2050 and will dramatically increase long – term care costs as well as disability, dependence, and health care expenses.

In fact, by official projections, in 2030, the US government will be spending more on nursing homes than it spends on Social Security today. “Although people justifiably worry about Social Security,” says Victor Fuchs, an economist who studies the health care industry, “paying for old folks’ health care is the real 800-pound gorilla facing the US economy.” Adding projections for Medicare and Medicaid ’s expenditures to those of Social Security could raise the total cost to more than 50 percent of payroll taxes.

The fiscal kickers of health cost inflation and political demand for more long-term care benefits threaten to raise public spending dramatically in the United States. Between 2005 and the fall of 2008, we spent two and a half years chronicling the efforts of David Walker, the former comptroller general of the United States, and Bob Bixby, executive director of the Concord Coalition, to reign in reform and shore up the Social Security and Medicare systems. The project yielded a feature length documentary film, which earned us a trip to the Sundance Film Festival in January of 2008 and another to the Critic’s Choice Awards in Los Angeles a year later. We published a best-selling companion book of the same title in late 2008. You’re encouraged to delve into the numbers we presented in the film and book. They’re truly mindboggling. But in many ways the project was dated the moment we released it to the public.

The credit crisis that reached a fever pitch developed in 2008 pushed the date of insolvency of these programs ever closer. On May 13, 2009, the Medicare Trustees warned that the fund they tap to pay for beneficiaries’ hospital care will be insolvent by 2017 – two years earlier than trustees had predicted the year before. The program has been paying out more than it collects in taxes and interest since last year, in part due to a recession well underway. Medicare would have to deposit $ 13.4 trillion – $ 1 trillion higher than last year’s estimate – into an interest-earning account today in order for the hospital fund to pay its scheduled benefits over the next 75 years. The program’s total unfunded obligation, which includes doctor and prescription drug benefits, is $37.8 trillion. The trustees estimated that in coming years, Medicare spending will rise faster than workers’ earnings or the economy as a whole.

Trustees say that while the financial standing of Social Security decreased more sharply than Medicare last year, the health program remains at greater risk of insolvency. The financial difficulties facing Social Security and Medicare pose serious challenges, the report concluded.

For Social Security, the reform options are relatively well understood but the choices are difficult. Medicare is a bigger challenge. Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained. But despite the difficulties – indeed, because of the difficulties – it is essential that action be taken soon, particularly to control health care costs.

After the revised Social Security and Medicare announcement the world began to wonder: Can the US hold onto its AAA credit rating?

“The US government has had a triple-A credit rating since 1917,” David Walker, now president and CEO of the Peterson G. Peterson Foundation, commented in the Financial Time s following the release of the Trustees report, ” but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

“First, while comprehensive health care reform is needed, it must not further harm our nation ‘ s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

“Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.”

Of course, we must note that the whole credit rating biz is…well…corrupt. The agencies that are responsible for dishing out sovereign credit ratings (S&P, Fitch, and Moody’s) are the same ones that left us all out to dry in 2007. (Of course, mortgage – backed securities get a AAA…housing prices never fall!) Rest assured, if Wall Street can buy its way into AAA, Uncle Sam surely can, too.

But even Moody’s is starting to hedge their bets. They’ve since created three subdivisions within their AAA rating: resistant, resilient, and vulnerable…a corporate way of saying the good, the bad, and the ugly. While the United States isn’t in the worst of the bunch, it’s certainly not the best.

Source: Social Security? Not Exactly

The news story above, which will no doubt be taken as Gospel by all and sundry who ingest it over the next 24 hours, summarizes a quarterly survey from The National Association for Business Economics.

Sara Johnson, one of the geniuses who helped read the report from its original stone tablet, told Reuters that it “provides new evidence that the U.S. recession is abating…

“Industry demand was still declining in the second quarter of 2009,” Johnson continued, “but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half.”

We’ve gone over the “less bad as good” point many times here in these pages, so let’s skip ahead and look at what’s leading this “stabilization.”

“Of the four major sectors, financial services showed the strongest demand, with an index reading of +15. The transportation, utilities, information and communications sector had the lowest reading at -90.”

So, having just been handed the largest, system-wide smack down since the Great Depression, financial services are apparently back in the economic driver’s seat. Your editor remains a little dubious here but, even if we assume that this is the case and that the likes of Goldman and JP Morgan are in fact leading the way, is this really reason to cheer? In other words, is what’s good for Goldman and JP really good for America?

Earnings reports from Wall Street’s two remaining powerhouses last week showed that a huge portion of their second quarter profits came from “trading and investment banking results.” Who, besides these two institutions, wins when their traders are posting profits?

As Bill Bonner explains, “Anyone who takes this as evidence of a recovering economy should work for the government. Only a government economist or a mental defective (excuse us for being redundant) could believe that genuine prosperity can be built on a foundation of speculating by large financial institutions. You can see why by asking a simple question: whom were they trading against?”

“Speculating is a zero-sum game,” Bill continues. “No matter who wins, the economy is not a bit better off; it has not a centime more in resources. Goldman and JPMorgan report earning, together, more than $6 billion. Who was on the other side of that trade?”

Your editor cheers the possibility of a recovery as much as the next guy. We prefer freedom, prosperity and apple pie for all. But we prefer the kind of recovery that is based in solid capital formation, robust productivity, job market growth and increased manufacturing. In increase in trading profits at a couple of government-coddled, risk-heavy banks is not the kind of basis for recovery that imbues great confidence, in other words.

When a Roman carpenter had finished building a new house, he was forced to stand under the doorway as the scaffolding was pulled away. If the roof ended up on his head, it was considered his punishment for erecting a dangerous structure. That way the homeowner avoided injury and the carpenter could never endanger another unsuspecting customer. We may have come a long way since those days, but when the roof comes down on the economy, the only people standing under the doorway are the poor fools who bought the place. The CEOs, economists and policy wonks responsible for the mess are already down the street, building a whole new development.

Source:  The House that Recovery Built

In at least one alternate universe, the U.S. Federal Reserve raised rates last week and your editor arrived on time to board his flight back home to Taipei. In the known universe, however, neither of these things came to pass.

The Fed, for one, is staying put at near free money and leaving intact its $1.75 trillion purchasing plan, including up to $1.45 trillion in the MBS sludge and $300 billion in treasuries (so called, “quantitative easing”). For how long the people who didn’t understand the risk in the first place will be able to manage it, we couldn’t say. We only know that the physical world doesn’t support any ex nihilo activities. In other words, something never comes from nothing; neither in money nor in anything else confined to the laws of nature.

The rules here are incontrovertible, like the rule that you can’t have your cake and eat it too, or catch a plane that has already left. Which brings us to our second “alternate universe” point.

Without the aid of his hyper-organized girlfriend, your editor has the tendency to get “lost” in foreign cities. “Lost” in this context may refer both to geographical position as well as in the time it might take him to get from one point in the city to another, particularly if that second point is a train, plane or bus station. Ergo, our planned two-day skip has turned into a weeklong trip.

We came to Japan last week for a first hand look at what one possible version of America’s future might look like. We wanted to see what a “staying the course” policy of zero interest rates might do to an economy and to the people living, eating and trying to invest in it.

The Land of the Rising Sun began to set, aided in no small part by the implosion of its gargantuan asset bubble, in the early nineties. Over the previous decade, speculators frantically bid up prices, particularly in real estate, to unheard of heights. At the peak of the euphoria, space in Tokyo’s Ginza district had reached the magical “million a meter” apex (about US$95,000 per square foot). The stock market too had run quite the temperature with the benchmark Nikkei 225 peaking at just below 39,000 points in 1989, roughly four times where it sits today.

Then came the crash and the ensuing “lost decades,” referred to in Japan as “ushinawareta jnen” or “the end of the century.” Mired in a deflationary spiral, the Japanese Central Bank cut rates to about where Bernanke has them right now. Similarly, policy wonks stepped in to save collapsing banks and financial institutions whose main specialty, it seemed, was in making loans to as many people who might never pay them back as possible. It all sounds very familiar.

So what about now? What does the place look like today? Has the market picked up? Do the Japanese kids skip to school, knowing they will inherit a better tomorrow?

Anecdotally, things are very quiet on the far-eastern front. Despite consumer prices falling at an astonishing pace (down 1.1% in May, the fastest annualized pace on record), Japanese consumers themselves are still terribly cautious at the counter. The venerable Itawaya and Mitsukoshi department complexes, multistory labyrinths of high end retail space, still draws the crowds…but far fewer customers leave with designer bags than with designer coffees from the courtyard Starbucks. It’s a place to be seen, in other words, not a place one can afford to shop.

As for the chic restaurants along the streets in the fashionable Nakasu area, no reservations need be made. Your editor ducked into a stylish eatery near his temporary residence for lunch today and, to his amusement, had the place all to himself. The bill for a three course lunch in superlative surroundings came to under ¥1,500 (about $15). Two waitresses tended to our every hand gesture (most of which were misinterpreted, we suspect) and even brought us a small ceramic vessel of local sake, gratis, when we tried to leave our conspicuous window seat.

Analysts blame “sluggish” wages as one reason for consumers’ tepidity. Perhaps they might also consider the “bull who cried bottom” syndrome. Japanese investors hoping for a turnaround in their economic fortunes have been told too many times that “this time is different.” As we’ve pointed out in these pages before, the Nikkei 225 actually rallied more than 30% on ten separate occasions during the last two decades, including three rallies of more than 60%.

For frame of reference, it is worth noting that the Japanese stock market did not find its post crash “bottom” until October of last year, when it reached a 26-year low of 6994.90. That’s a long decent…with plenty of time to stockpile a healthy supply of skepticism. Then, in the first quarter of 2009, the enervated economy suffered its worst contraction on record, shrinking at an annualized pace of 14.2% as exports – especially those to the U.S. – fell off a cliff.

So, where to from here?

Source: Twenty Years of Bottoms

The broader S&P 500 bled more, ending the day down just over 3%. The tech-centric Nasdaq was worse off still, losing 3.35%.

And today, the bloodletting spilled over into Asian measures. Hong Kong’s Hang Seng (-2.9%), Japan’s Nikkei 225 (-2.8%), Australia’s S&P/ASX 200 ( -3.1%) and South Korea’s Kospi Composite ( -2.8%) were among the worst hit.

“Asian investors are connecting the dots – with the World Bank’s help – that the U.S. economy is nowhere near turning around,” Tony Sagami, editor of Asia Stock Alert, told the Wall Street Journal’s Asian Edition. “Any Asian companies that depend on Americans for a big chunk of their sales need to prepare for lots of red ink.”

But it’s not just Asian markets.

Russia “officially” entered a bear market after yesterday’s 0.6% selloff pushed the Micex index down 20% from its last peak. Indeed, the MSCI Emerging Markets Index ended the session down 10% from its 2009 high. What do you call that? Half a bear market?

“After the World Bank report yesterday we see more concern about the return of negative growth dynamics,” Commerzbank AG’s Michael Ganske, told Bloomberg. “Investors realize that all the discussions of a sharp, V-shaped recovery are not going to materialize.”

NOW they realize, eh? We wonder how long it will be before they’ll forget that the word depression doesn’t end with a “V”. It ends with a lower case “n” or, as Bill Bonner is fond of saying, “a corrective force equal and opposite to the deception and delusion that preceded it.”

And there’s still plenty more deception and delusion to come, folks. For starters, the FOMC meets tomorrow, no doubt armed with a sack full of optical illusions and prestidigitations for the investing public. History shows, however, that we humans prefer a blissful illusion to a decaying reality…even if the shoots are turning brown before our noses.

or a closer look at what’s going on around town, we decided to ask the Rude readership for some boots-on-ground analysis. As usual, you obliged with emails from Sweden to Singapore and Atlanta to Alabama. In today’s column, we present the second and final installment of our green shoots vs. premature celebration mailbag. Please enjoy…

From Anytown, U.S.A., a reader reports…

Regardless of what the official figures are on inflation, prices are going up. Here are a few examples.

· Grape juice, Walmart store brand, up 17%

· Corn chips, up 27% [price unchanged, but the bag went from 28 oz. to 22 oz.]

· Gasoline, up 84% since January.

· Commodity Futures data provider, up 50% [he apologized, but said the exchange fees are up sharply.]

· Homeowners insurance, down 5%. I guess the cost to replace a house isn’t what it used to be.

I could go on, but you get the point. Meanwhile, I am retired, with a pension that is supposed to include an annual COLA [cost of living adjustment], but because the government declared that there was no inflation last year, I will not receive a COLA come July 1.

My IRA/401(K) accounts are heavily overweighted toward oil, natural gas, gold, etc., in an effort to keep my purchasing power at least even with inflation, and I just hope that it works. Now if we can just sell our house [which we own free and clear] my wife and I are looking to move to Latin America.

A lot of our friends think we are crazy, that the government will never let things “get too bad” here. I think that they are crazy to have that much faith in the government, and I would rather live where people actively distrust their government, but I guess that it is differences of opinion that make a market.

From Texas, a reader reports…

In the Hill Country of Central Texas, life continues at what passes for normal in these parts. The Texas economy overall has been able to withstand the credit crisis quite well. Foreclosures are almost non-existent out here in the sticks since the mortgage loans were never any of the alphabet soup variety and the lending banks keep their own paper. Real estate seems to be selling but at the normally slow pace that is historic for our area. Real estate prices never got overheated here so the market has remained slow and stable. Even the local Chrysler dealership is still in business (must have made a large-enough contribution to the Democrats’ campaign). I own an industrial building and my tenant tells me his business has slowed somewhat but he is still doing a good volume. One note of economic concern is tourism. Friends own a Bed & Breakfast on the lake and they tell me their guest-count has dropped dramatically.

Out on the West Coast, we just bought a second home in San Clemente, CA. It’s a gorgeous ocean-view home that was foreclosed and then we bought it on a short-sale from the bank. I calculated we got a 60% discount overall. From what I see in Southern California, they’re in a world of hurt.

From Oakland, California, a reader reports…

Well, I’ve got some doom and gloom. My IRA is still down over 40% from its high. At the beginning of the year I could not find work for 4 months and finally swallowed my pride and went on unemployment. My house is under water. Bank of America says that I do qualify for a loan adjustment but they won’t do it “right now” because I’m not over 2 months late on my payments.

On the flip side I have started getting work lately and I’m still making money with the short report. Puts and gold seem to be where it is at right now.

From Florida, a reader reports…

I know it is politically au courant to blame all spending on Obama, but that ignores the truths that the Congress is doing a helluva good job in that field as well AND that Eisenhower started building the Interstate highways with money we didn’t have and that every congress and every administration since then has spent more than it has taken in. Our two ruling parties are equally fiscally irresponsible.

As for Kudrin’s “white lies” about US currency, I remember while being trained for intelligence work a lengthy discussion of information, misinformation, disinformation, propaganda and outright lies. And while there are differences in them, it seems these days everything we hear from governments and most media stinks of one or another kind of spin. I read Agora financial info every day to try to get unadulterated information without the spin. Keep up the good work. And keep entertaining us with the fashion reports on the emperor’s new clothes.

From north of the border, a reader reports…

I live in Peterborough, a city of about 75,000 which is 90 miles NE of Toronto.

Things here are slow, but not extremely so, even though we depend on the auto industry and tourism. We have a high retired population and people are very price conscious. Housing sales died during the winter but have come back a little since. Prices are off 10 to 15% on average and houses over 350k usually sit a long time and are then marked down. Some businesses are running ads suggesting people “just think positive”. Since everyone is still looking for the bottom, I’d say we still have a ways to go. I expect this winter to be really ugly.

And finally, an unpaid international correspondent reports from Singapore…

1) Unemployment; graduates are finding it difficult to find jobs, other than the “odd jobs” that don’t fit the qualification; most of which have vacancies because the cheaper foreign workers that were brought in during the boom phase were repatriated back to their countries…Its déjà vu for people who graduated in the 70s; they are repeating the mantra from then – “Graduation = Unemployment”.

2) Retail sales are down pretty big, but those shopping malls continue to pop up all over the place and many of them are continuing their work-in-progress. The government is supportive of these projects… again, uncertainty over the economic climate is putting a gloom over these things.

3) Property prices fell approximately 30%, but have since rebounded about 15% with the stock market rally. The same companies that are building those shopping malls continue with these condominium projects.

5) Consumer credit still seems pretty okay; those stupid banks continue to pull out all the stops to get people signed up for their credit cards.

6) Healthcare costs continue to rise regardless of economic conditions and there is quite a bit of public outrage at the moment; no worries, just let the government handle everything… we’re a nanny state. (That disgusts me btw and I’m pretty close to swearing never to work for the government… having said that, I might choose the porridge over my ideals).

Source: For Better or Worse, Part II

Wait…scratch that…make it negative 2.9%.

Somebody must have slipped a few Rude pages to the honchos over at The World Bank. It seems the Washington-based lender is hedging its bets. A 2.9% contraction in the global economy this year is a far cry from its March estimate of 1.7%. But growth will be back to 2% next year, the bank assures us, slightly down from the 2.3% they originally expected.

What went wrong during the springtime, we wonder? Didn’t unprecedented levels of stimulus flow from government taps around the world? Weren’t Bernanke and Geithner manning the pumps? Didn’t the global media confirm sightings of green shoots? Or were they recovery saplings? Your editors were too busy “calling B.S.” to keep up with all those flowery euphemisms for delusion. Still, shouldn’t we be smelling the turnaround tulips by now, on our way back towards bull market springs?

Not just yet, says the bank of the world. The following adjustments must be made to the March forecast:

• Output in the U.S. will drop by 3%…not 2.4%,
• Japan’s gross domestic product will shrink 6.8%…not 5.3%.
• The Eurozone will have it a bit tougher too, contracting 4.5%…not 2.7%.
• And the globe as a whole? Uh…eh…it won’t decline 6.1%, as predicted. Better expect closer to 9.7%.

The lender also called for “bold” actions to hasten a rebound (an urgency upgrade from “tough” actions) and said the prospects for securing aid for the poorest countries were “bleak” (adjective upgraded from “slim”).

Does that mean the “delude-a-bulls” are spent? Is the sucker’s rally over? Insiders seem to reckon so. Bloomberg reports that, “Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.”

Worldwide markets did enjoy a pretty nice rally over the past couple of months. Perhaps that’s the end of the first suckers’ rally. Maybe last week’s 3% mini-selloff on Wall Street was only a harbinger of things to come.

Personally, we wouldn’t expect any hope of a sustainable turnaround until The World Bank downgrades its forecast from “bleak” to at least “apocalyptic.”

Joel’s Note: Our annual Agora Financial Investment Symposium in Vancouver, British Columbia is rapidly approaching…and this year marks the 10th anniversary of The Daily Reckoning. So, this July, the Symposium will be focused around a “Decade of Reckoning”…four days that will help you to gain greater insight on how to turn investment ideas into the profit opportunities of the next decade.

So, will we be seeing you there? This event is already 70% sold out, so you’ll want to be nimble. Click below for all the info:

The Agora Financial Investment Symposium: July 21-24

Source: World Bank: Whoops!

Hoorah! The dollar is saved! How do we know? The Russian finance minister told us so!

The dollar is in “good shape” according to Alexei Kudrin, who cautioned the Group of Eight conference in Lecce, Italy, over the weekend that, “It’s too early to speak of an alternative [to the U.S. dollar].”

Even politicians from the Former Soviet Union have the right to their opinion, of course, just as we reserve the right to disrespectfully disagree. And, so it appears, do other members of the same, somewhat confused Rusky government. A few days before Kudrin was heard drumming up support for his unlikely ally at the G8 roundtable, Russia’s president, Dmitry Medvedev joined China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.

From where came this unlikely champion of U.S. currency, we wonder, and is he really looking out for the John Q. Citizens of Anytown, U.S.A.? Not likely. Politicians, as we know, are invariably brewed from near equal parts malice and fraud. Some are a little more evil, others a little more deceptive. Kudrin, rather than simply trashing the greenback outright, understands that a gradual move toward an unspoken alternative currency might behoove his own nation’s global position over the long run.

For starters, Russia has some 138.4 billion of those dollars stashed under a few tones of soviet concrete in Moscow. If the value of the greenback drops too quickly, the buildings atop that stash risk caving in themselves. Other countries with big dollar reserves understand this too, which is one reason China, the largest U.S. creditor, doesn’t simply dump $767.9 billion of U.S. debt on the open market.

It’s also why, speaking just a few days before the abovementioned G8 party, Japan’s finance minister, Kaoru Yosano, described his faith in the U.S. Treasury securities as “unshakable.”

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Mr. Yosano said in an interview in Tokyo without, we might add, even cracking a smile. But we can think of 686.7 billion reasons Mr. Yosano might resist the urge to burst into uncontrollable fits of laughter. If word gets out that all those green notes aren’t worth the numbers printed on them, what can Mr. Yosano hope to get for them? The same goes for Mr. Kudrin and Mr. Guido Mantega of Brazil, who sits on over 125 billion of them himself.

The case could be made that the abovementioned fellows are actually more responsible stewards of the greenback than either Greenspan or Bernanke, who both actively sought to devalue it by running the presses and lending at ridiculously depressed levels.

It’s all smoke and mirrors, mind you. Everyone knows the world can’t continue to trade in shells if every time the tide comes in another 300 billion of them turn up on the shoreline. What world leaders are doing is simply protecting the value of their own reserves by trying to pretend the tide won’t come in again. It will, of course, and then we’ll see everyone scrambling for coconuts, crushing the broken shells under their feet as they run.

Source: A Currency for Comrades

Joel Bowman, reporting from Taipei, Taiwan…

Everybody is busy counting…but nothing’s adding up the way they want.

The Chinese are counting on the American’s not to clip their coins; Americans are counting on the Chinese to keep accepting them. The Chinese count on the Americans to buy their widgets; Americans count on the Chinese to loan them the money to pay for them.

The Chinese ask the Americans for some numbers, “some arithmetic.” The Americans squeeze and mold, cram the equations through their models and computers, but still the numbers come out the same: with a negative sign in front of them.

But sometimes bad numbers can be good, or so the market is trying to tell us. What would once have been terrible numbers are now reason for celebration and sighs of relief. Anything under half a million, for example, is apparently a wonderful number of jobs to lose in a month. Maybe we should get some of these newly laid-off people around for a party, to join in the celebration. They must be positively stoked to be part of such a “less-bad” statistic.

“The world’s largest economy has lost 6 million jobs since the recession began in December 2007,” Bloomberg reports, “exacerbating the biggest drop in any post-World War II economic downturn.”

Hmmm…Good number or bad number?

The report continues:

“Including those that have stopped looking for work because they are discouraged by employment prospects and those working only part-time who prefer a full-time job, the jobless rate would have jumped to 16.4 percent in May, the highest level since comparable records began in 1994, from 15.8 percent the prior month.”

Good numbers or bad numbers?

Well, the markets seem to like them, whatever that means. The Dow is back to where it started the year and the S&P is actually up a few percent. Measures from Dubai to Tokyo are racing ahead (though the former collapsed almost 4% today…proving our next point.) Stock markets, by their very nature, suffer from a very severe type of multiple-personality disorder. They are the collection of millions of peoples’ very own hopes, fears and delusions…all wrapped-up neatly in a daily print. And, because of those millions of clashing opinions, markets have a tendency to overshoot themselves.

The higher this rally goes, in other words, the harder we can expect it to fall when the next jolt hits.

Markets across the Eurasia region traded mixed overnight.

European markets were mostly down, last we checked. London’s FTSE dropped over 1% shortly after the open as was down about 1.2% a few minutes ago. France’s CAC 40 was also off the pace, as was Germany’s DAX. Both were down 1.5%.

Here in Asia, Hong Kong’s Hang Seng kicked off the week with a 2.3% loss while Japan’s Nikkei 225 managed to gain 1% even. Down Under, the Aussies took the day off to celebrate the queen’s birthday. How embarrassing.

Over in the commodity pits, oil is down slightly at $67.70 per barrel while gold fell to $950 an ounce on dollar strength.

We’ll be back again tomorrow.

Source: Geithner’s Shoddy Abacus

]]> http://www.contrarianprofits.com/articles/geithner%e2%80%99s-shoddy-abacus/17626/feed 0 http://www.contrarianprofits.com/articles/recession-runs-rampant/8610 http://www.contrarianprofits.com/articles/recession-runs-rampant/8610#comments Mon, 17 Nov 2008 16:28:54 +0000 Joel Bowman http://www.contrarianprofits.com/?p=8610 Losses in equities worldwide top $25 trillion. What say ye, Obama?… Japan, eurozone enter recession, Gulf bourses continue to tumble… Turning fear into profit: A special volatility report, and plenty more…

The bloodletting continues.

On Friday the 15-nation Euro-zone announced that it is officially in a recession. GDP contracted by 0.2% for a second consecutive quarter over on the continent with Germany and Italy leading the way backwards. France narrowly escaped an “official” recession – two consecutive quarters of negative growth – by the narrowest of margins, posting 0.1% growth.

It has been 15 years since the last time Europe experienced such a large-scale downturn. Back then, of course, each country was able to act independently on monetary policy. Now they must seek…

The people of the United States of America prayed for a political messiah. Now that he has stepped forth, we are left to wonder, what next?

Politics is not really our beat here at the Rude Awakening, so we won’t be offering up any four-legged sacrifices for the promise of financial salvation. In the harsh light of economic reality, miracles are hard to come by, even for those claiming to posses the kind of optimistic foresight that defies rational explanation.

A cursory glance toward the economic horizon reveals some perilous obstacles ahead. As we walk through the valley of 5-year market lows, the shadow of the death of consumer spending looms particularly large. American consumers, upon the backs of whom almost two-thirds of the world’s largest economy rests, cut spending by an annualized 3.1% for the third quarter. For perspective, that marks the first quarterly decline since 1991, as well as the largest quarterly decline in 28 years, according to the U.S. Commerce Department.

Meanwhile, prices of goods and services purchased by US residents jumped 4.8%. That’s on top of a 4.2% increase in the second quarter. Even excluding food and energy, prices were still up by 3.1% in Q3.

As the consumer-driven economy grips the emergency brake and higher prices put the squeeze on employers, jobless rates continue to skyrocket. The Department of Labor is expected to announce the loss of 200,000 jobs for the month of October when it meets on Friday. That would drive unemployment to 6.3%, up 0.2% from September.

Shrugging off all these annoying statistics, however, the market continue to mount a herculean rally. After posting its worst month since 1987, the Dow surged an impressive 300 points Tuesday in anticipation of Obama’s victory, topping off double-digit gains for indexes across the board last week.

Could we be witnessing a miracle in the making here? Is it possible that a new tablet of financial commandments might render the age-old saws of saving and producing nothing more than outdated or even, dare we say, profane?

We wouldn’t dare offend any divine and future superintendent of the financial universe by asserting otherwise…but we reserve the right to remain unconvinced.

In the absence of proof that what goes up need not come down, we will continue to seek our financial guidance from within the “boring” confines of reality. And so, we turn to the inimitable Rude Readership for the results of our latest Group Research Project.

A couple of weeks ago, we asked readers to submit their favorite “chicken longs.” Put simply, we wanted to know what stocks readers would like to have in their portfolio should the heavens open up and curse the earth with a great financial flood. Such stocks might derive their buoyancy by paying a large dividend, enjoying a competitive position in a relatively “high ground” sector or through some other means of protection.

We have no clue as to whether the President Elect will perpetuate the current state of fiscal delusion or merely usher in a winter of slightly milder discontent…but it is probably best to be prepared for either scenario.

Reader “Bradbarb69″ kicks off our newest Rude Awakening Group Research Project with the following cheerful suggestion:

“I like prison stocks. There will never be a shortage of lawbreakers at any level, and governments must maintain prisons for the public good. As crime rises (as it inevitably will) these stocks will be good holdings. I also like [the cemetery operator] Stonemore Partners L.P. (NASDAQ:STON) for its high dividend and for the fact people will always die no matter what the economy does. Personal protection stocks are also on my list of “buy at the right price.” I’m thinking in particular of Smith & Wesson (NASDAQ:SWHC) and Taser International (NASDAQ:TASR).

[Editor's Note: Although Bradbarb69 did not provide any specific names in the prison sector, a couple that come to mind are Geo Group (NYSE:GEO) and Corrections Corp. of America (NYSE:CXW).]”

Reader Tom Winstanley recommends Weir Group, a Scottish company that trades in the U.S. over-the-counter market under the symbol, (PINK:WEIGF).

“This company makes boring old pumps,” Tom explains. “Energy and Water are two areas that simply will not wait upon the recovery of the world economy. Come hell or high water, governments know that if they cannot keep the lights on, provide as much fresh water as their people are used to having available and treat waste water to high standards, then they will be more trouble than they can handle. Pumps might be boring but try getting by without them – whatever the state of the economy!” [Editor's Note: Weir trades for less than eight times estimated earnings and yields 4%].

Reader Susan Vander Voet likes the Brazilian oil giant, Petroleo Brasileiro (NYSE:PBR), also known as Petrobras. The stock was trading around $21 when Susan submitted her email to us. Today, the stock is around $30.

“I’ve been watching this company for about a year,” Susan writes, “and the reasons for my recommendation are:

1. Active and with interests in several Latin American countries (Brazil, Ecuador, Chile, Peru) in exploration, production, distribution and retail;
2. Huge offshore resources discovered in Santos Basin;
3. Active in several African countries (Angola, Tanzania);
4. Stock is trading well below the moving average, which has trended upward for 5 years;
5. As oil prices are projected to recover (in 2009), I see this stock at least doubling its current value ($21).”

Reader David Myrhre identifies Harvest energy Trust (NYSE:HTE), a Canadian investment trust, as his “current fave.” The stock, which was trading below $8.00 when David submitted his email to us, is now north of $11. But even at the current quote, the stock is well below the $18 price tag it fetched in September. What’s more the indicated yield on the stocks is a whopping 27%.

“I’ve heard worries that the dividends will go down because oil prices have gone down,” David explains “But these oil producers sell on annual and multiyear contracts.  Dividends didn’t go up when spot oil prices spiked and they won’t go down just because spot prices did.”

Elsewhere in the Canadian investment trust sector, reader Greg McLean highlights Peyto Energy Trust (PINK:PEYUF), a stock that yields about 14%. Greg also likes Hanfeng Evergreen, “HF” on the Toronto Stock Exchange. “Hanfeng is a small Canadian company that makes slow release rice fertilizer in China,” explains Mr. McLean. “Hanfeng has decent earnings and cash, little debt and is trading close to book. I feel confident betting China will continue to grow rice.”

Another high-yield energy stock is Atlas Pipeline (NYSE:APL), which is a stock that reader Don Gish favors. “My favorite bear market stock is Atlas Pipeline (APL),” Gish writes. “The sudden drop of the energy market and other market sell-off factors have driven APL unrealistically down.  [At the current quote, the stock yields about 20%].  I believe APL’s focus on natural gas pipelines with no exploration/development costs and long term contracts has created an excellent long term dividend with significant potential for future stock price upside.  I love this position, so I have to resist my desire to buy more.”

Lastly, reader Scott Lovinghood writes: “I have a suggestion for a chicken long: Blackrock Municipal Income Closed End Fund (NYSE:BKF).  It is primarily invested in tax free municipal bonds.  At current prices the yield is just a hair under 8% TAX FREE!!  The fund covers many different states and markets.  California is the largest concentration at only 11% of the fund.  The majority are longer dated bonds, so unless municipals are totally wiped out, the monthly pay outs should continue.  The shares were hammered recently due to the credit freeze. The stock’s NAV is $10.15.  But the stock is only $9.20…Not a bad deal.”

And so concludes Part I of our newest Rude Awakening Group Research project.

Source: Chicken Longs

Now, twelve months later, as W’s presidential twilight years draw to a close, another of the West’s leaders journeys to the Gulf region. Like Bush, England’s Gordon Brown is not particularly popular in the polls. But this captain from the west has more pressing issues to deal with than the restoration of his public image; he needs cash to rescue the world’s “emerged” nations from the brink of financial collapse. And so, hot on the trail of the dollars and pounds that have poured from the west into the Gulf ever since oil was first discovered here, Gordon Brown shot his cuffs, donned his best smile for the cameras…and went panhandling.

Making no bones about the goal of his mission, Brown has said that he wants “hundreds of billions” of extra dollars from the oil-rich Gulf States, to be pledged to the International Monetary Fund.

The IMF is already burning through its $250 billion reserves, providing around $30 billion in emergency loans to Iceland, Hungary and Ukraine in the past few weeks alone. Pakistan has also said it may call on the international body for a quick cash advance. Somewhere in the vicinity of $5 billion should do the job, they reckon.

“The Saudis will, I think, contribute like other countries so we can have a bigger fund worldwide,” said Brown after a three-hour meeting with Saudi Arabia’s King Abdullah late Saturday in Riyadh.

“The oil producing countries, who have generated over $1 trillion from higher oil prices in recent years, are in a position to contribute,” he continued, employing the kind of misguided logic that Karl Marx would be proud of. He might as well have gone the whole hog and recited the creed straight from the Critique of the Gotha Program: “From each according to his ability, to each according to his need.”

Usually, when a man finds himself in the unfortunate position of having to beg for alms, he does so with a sense of humility. He may even come to the realization that, but for the kindness of strangers, he might be infinitely worse off. The dire situation Mr. Brown finds himself in, and the crisis in the west that led to his fundraising mission, seems not to have dampened his sense of moral superiority.

Just two weeks ago Mr. Brown severely reprimanded OPEC for its decision to cut oil production in the face of falling prices. The OPEC nations say they needs to defend a floor for prices in order to fund and develop future energy projects; projects that may or may not end up fuelling engines in the countries Mr. Brown is here to represent. Whether or not OPEC is telling the truth, we must admit that we find Mr. Brown’s diplomatic stratagem a tad puzzling.

Brown described OPEC’s production cut as “wrong for the world economy,” arguing that such a measure was “absolutely scandalous” at a time when the world is suffering through an economic crisis.

Translation: “It is wrong that OUR economy must suffer through high oil prices…but we would still like you to use the money YOU made from high prices to solve our problems.”

Pleading for help from one side of the mouth while sharply criticized from the other is seldom an effective tactic. It must be said, of course, that your editor is not here to defend a monopolistic cartel. We’re simply suggesting that if Mr. Brown chooses to go brown-nosing for money, he might think about refining his tactics a little. Either that, or learn to speak Chinese or Japanese…they made (and saved) lots of money from the west too.

Beggars can’t always be choosers but, if they play their cards wrong, they can end up losers.

Source: Beggars Can Be Losers