But they may be struggling in vain.

Since 1945, the party that has controlled the White House has lost an average of 16 House seats in the president’s first midterm election, according to the Cook Political Report, a nonpartisan publication in Washington. However, losses for the Democrats could be far steeper next year if they fail to put unemployed Americans back to work.

Then-U.S. President Bill Clinton and the Democrats lost 52 House seats in 1994.

“Unemployment is the leading economic indicator when it comes to politics,” Democratic pollster Peter Hart told The Wall Street Journal. “Anytime unemployment hits double digits, it’s hard to see the party in control having a good election year.”

Right now, polls are showing that the majority of Americans list jobs as their top concern. And rightfully so.

The economy unexpectedly shed 263,000 jobs last month as the jobless rate soared to a 26-year high of 9.8%.  And many economists expect the unemployment rate will reach 10% by the end of the year and peak at about 10.5% next summer.

Lawmakers are scrambling to staunch the bleeding, but that process has been made difficult by an escalating budget deficit.

The government ended its 2009 fiscal year in September with a total deficit of $1.4 trillion, the Congressional Budget Office (CBO) said. That equates to 9.9% of gross domestic product and is the largest deficit since 1945.

Government spending rose by 18% in the year, with the bailout of the financial industry, which alone required $245 billion. The spending increases and tax cuts included in the economic stimulus package approved in February added almost $200 billion to the 2009 deficit, the CBO said.

The Obama administration’s $787 billion stimulus plan, which was touted as a catalyst for job creation, has been criticized for its slow progress and ineffectiveness.

Only about a quarter of Obama’s stimulus, or $164 billion, has been paid out. About half, nearly $400 billion, will be paid out over the next 12 months in the build-up to mid-term elections, and the remainder will be disbursed in 2011.

In January, the administration claimed the stimulus package would keep unemployment below 8% and push it below 7% by the end of 2010 – a fact that has already been seized on by Republican opposition.

“We’ll continue to remind Democrats of their failed promises that led to what is now, at best, a jobless recovery,” said National Republican Congressional Committee (NRCC) spokesman Paul Lindsay told The Journal.

President Obama said in his Saturday radio address that he would “explore additional options to promote job creation.”

But with a growing perception that the stimulus has failed and a deepening concern about the nation’s snowballing deficit, the White House has bristled at talk of a second stimulus package.

“This is not a discussion of second fiscal stimulus,” Jen Psaki, the senior White House economic spokeswoman told the Financial Times. “The president and his economic team have continued to look at a wide number of policy options to create new jobs and ease the burden of those who cannot find employment but any notion that we are any farther along than preliminary discussions about new proposals is wildly inaccurate.”

In particular, the administration is hoping to extend such stimulus measures as the $8,000 tax credit for first-time homebuyers.

When it expires on Dec. 1, the homebuyers credit will be responsible for nearly 400,000 sales of new and existing homes, out of total sales of 1.4 million, Mark Zandi, chief economist at Moody’s Economy.com, told The New York Times. That’s roughly in line with estimates from the National Association of Realtors (NAR).

Zandi, who formerly advised Senator John McCain, recommends extending the credit through August 2010. Legislators are also considering extending the credit to current homeowners.

The administration may also consider expanding the federal transportation funding program, which comes up for renewal every six years. That 2003 program expired on Sept. 30 and is currently operating under a 30-day extension period.

Obama is also expected to push for an extension of the “Making Work Pay” middle class tax cut that accounted for about a third of the February stimulus.

Extending these programs could cost the government tens of billions of dollars in tax revenue.

For example, congressional analysts estimate the cost of the current homebuyer credit at about $1 billion a month. Expanding the credit through next August could cost as much as $30 billion, according to Moody’s Zandi.

That, in turn, could lead to another large run-up in the budget deficit, which in the last year was exacerbated by dwindling tax revenue. Individual income taxes, the biggest source of tax receipts, fell by 20%, and corporate income taxes dropped by 54%, the CBO said.

“There may not be anything we can do,” a Democratic Congressional leadership aide conceded to The Times. “Under any circumstances, it’s going to take a while for jobs to recover.”

Source: Can Democrats Anchor Unemployment Without Doing More Damage to the Deficit?

Household credit is shrinking…
Profits are shrinking…
Employment is shrinking…
Housing values are shrinking…
The wage base is shrinking…

But the recession is over!

Whoa… how is that possible?

This weekend’s news brought no surprises. For example, the housing picture is still depressing – unless you’re a buyer.

There’s “no bottom in sight” to Florida condo prices, says Barron’s. And Reuters warns that option ARM mortgages “are about to explode.” At least, that’s what the attorney general of the sovereign state of Iowa says. The option gives the homeowner the right to pay only the interest (or in some cases less than the interest) for the first few years. They’re sometimes called I.O. mortgages (interest only). And now these mortgages, written at the height of the bubble, are beginning to reset to more normal terms. According to Reuters 128,000 people in Arizona alone will face reset I.O. mortgages next year.

How much more will these people have to pay? Between 5 and 10 times what they’re paying now. Almost all these homeowners are underwater. They bought at the bubbliest period. How many of them can afford a 400% increase in their mortgage payments? How many of them will be willing to pay?

Not many. That’s why a new wave of foreclosures is coming. And that’s why house prices are likely to keep going down; the supply is going to increase, while the demand (willing and able buyers) will probably stay steady.

Meanwhile, the California jobless rate has risen above 12%.

But let’s go back to the first item – shrinking consumer credit. This is the key thing. The expansion of the US economy – broadly speaking – from 1945 to 2007 depended on consumers’ willingness to go further into debt. Wages rose during the first half of that period – supporting consumption. But as the great boom continued more and more of it was based on credit, not on wages. At the end, it was almost all credit expansion. Consumers weren’t earning more money… nevertheless, they kept spending more and more money. How did they do it? By borrowing.

Without this borrowing the economy would not have grown.

And now what’s happening? Well, consumers aren’t borrowing anymore. Consumer credit is going the other way, shrinking rather than growing.

The feds are trying to counteract this major trend. This year, they’re borrowing $1.7 trillion. Consumers won’t borrow; no problem, the feds will borrow for them!

So far, the feds have put at risk about $13 trillion in order to counteract the downturn. This is about equal to the amount Americans had lost in the crash. But while the crash wiped out $13 trillion in housing and stock market wealth, the feds have no obvious way to put the money back. Banks were easy to reflate. Bankers and federales are tight with each other; they’re happy to share out the taxpayers’ money. But getting money to the consumer is a different matter. The banks don’t lend and the consumers don’t borrow.

Of the $13 trillion the feds have put at risk… very little has actually made its way to the consumer economy. Result: no new boom in consumer spending… no new boom in hiring… no new boom in production or profits.

Pity the poor investors who are counting on a bull market. Profits aren’t increasing. So the increase in stock prices is based on an increase in the multiple. As stocks rise, investors pay more for each dollar of earnings. Unless there is a big boom coming, this will turn out to be a mistake.

The Dow rose 36 points on Friday. Gold ended the day at $1008. And the dollar keeps sinking; on Friday, American visitors to Europe found that it cost $.147 per euro. (More below…)

“Things have changed so much,” said a colleague yesterday. “We’ve been telling readers that they could live so much more cheaply overseas. But now, about the cheapest place in the world to live is the US…”

We spent Sunday with the publisher of International Living magazine.

“Prices have fallen so much in Florida that you really get more for your money there than practically anywhere else,” she continued.

“I think Florida may be cheaper than Buenos Aires,” added son Will, who’s been living in Argentina for the last three years.

Housing is cheap in the US. In Texas and Arkansas, housing is probably the best bargain on the planet. Food prices are going up; still food in the US is much cheaper than it is in Europe. And cars? We have a friend in Paris who goes back to the US to buy his Mercedes. Even with the cost of shipping the car back to France… and the cost of refitting the car to European standards… he still saves about $10,000.

“I was just in Paris,” Will continued. “You pay $10 for a cup of coffee and a croissant. In Florida, I could get the ‘Breakfast Special’ for $5.95… and it had everything. Pancakes. Bacon. Everything.”

“But what is amazing,” continued our International Living colleague, “is that interest in moving overseas is going up. It’s not about money. Apparently, a lot of Americans are just fed up… or afraid. They want to get out. They see taxes going up or they see the society going down the tubes. I don’t know. But many say they just don’t like the way things are going.

“One thing I hear is that they think American society has become meaner… ruder… less civil. You can’t have a polite discussion of politics anymore. People get really upset and nasty. I mean, someone yelled out and called Obama a liar in the middle of a joint session of Congress. And a substantial part of the US population regard the guy – the guy who called him a liar – as a hero. They think Obama is a traitor…

“I think this is really a result of the financial downturn. People feel betrayed. Let down. They think something is very wrong. That the nation is in decline. So they look for someone to blame. And they tend to blame each other. Conservatives blame liberals. Liberals blame conservatives. They blame the bankers. They blame the capitalists. They blame the government.

“I guess that’s what happens when you get a major correction or a big financial crisis.”

We recalled what happened in Germany in the ‘20s and ‘30s:

“Germany was probably the most civilized country in the world – before WWI. Artists, philosophers, scientists, mathematicians, musicians… Germany had the best in the world. The war shook the public’s faith in its leaders. But then, according to people who lived through the period, the financial crises of the ‘20s and ‘30s were worse. Hyperinflation… depression… strikes… a decade of financial chaos and disruptions led to a breakdown in social order. By the early thirties, groups of communists and fascists were battling in the streets. People seemed to leave the center and move to extreme positions. Soon, the Nazis had the upper hand and Hitler was voted into the government.”

Until tomorrow,

Bill Bonner

Source: Pity the Investors Counting on a Bull Market

Fortunately for us, we foresaw this scenario a while ago. On April 20, I recommended that investors diversify their portfolios by adding the SPDR Gold Trust ETF (NYSE: GLD).  The fund is up about 14% since that recommendation, but it’s not yet time to sell, as there are still a number of factors working in gold’s favor.

For starters, there is more and more talk of the U.S. dollar losing some of its luster as a reserve currency.  But this debate is moot for the moment.  The reality is that it will take a long time to reduce the preeminent role of the dollar as the store of value of choice for central banks around the world.

Earlier in March and later in June, Zhou Xiaochuan, governor of the People’s Bank of China made a pitch for the creation of an international global currency delinked from sovereign currencies.  This increased speculation about the probability of China deemphasizing the dollar within their extraordinary high foreign reserves of almost $2 trillion.

Some 64% of global reserves are in U.S. dollars, according to the International Monetary Fund (IMF). So if China and other holders of U.S. debt were to reduce their holdings, it would have a substantial impact on the greenback’s value, as well as on U.S. interest rates, given that those countries would be selling U.S. Treasuries.

Zhou suggested the use of the IMF’s Special Drawing Rights (SDRs) as an alternative. The SDR is a currency linked to a basket of four major international currencies in the following approximate weightings: U.S. dollar (44%), euro (34%), Japanese yen (11%) and British pound (11%).

But the reality is that this would be highly impractical. To begin with, there are almost no instruments denominated in SDRs that China and other countries could invest their reserves.  And if the IMF issues the instruments, then it would be taking the other side of the trade, which means it would have to start lending in SDRs, too.  This is very unlikely.

Furthermore, no other currency on the planet is large enough to serve as the world’s main reserve currency.  The sole exception, in terms of having a comparable size of the economy, is the euro.  The euro serves 16 members countries of the European Union (EU) and a few others peg their currency to it.  But the problem with the euro is that even though the entire EU is comparable in size to the United States, it is comprised of many countries with very different fundamental strengths and weaknesses.

Therefore, each of these countries issues bonds and each of these, by themselves, are too small and offer too little liquidity for central banks to accumulate as reserves.

But right now – given the large size of the current and projected U.S. deficits and the easy monetary policy – the incentives for holding dollars have diminished.  The risk that inflationary pressures will build up next year, and in turn lead to higher interest rates, are not negligible, even though the U.S. Federal Reserve keeps assuring the markets that it will stifle these pressures before they materialize.

Last Friday, John Taylor, a renowned economist and an expert in monetary policy, opined that the Fed would need to start raising interest rates in early 2010 in order to stem price pressures.

In the meantime, emerging markets such as China and Russia complain about the vulnerabilities of the U.S. dollar.  But these visible complaints have to be construed merely as verbal intervention.  These countries are acting in their own self-interest, because they have very large holdings of U.S. Treasury bonds.  They are trying to “encourage” both the Fed and the U.S. government to act very prudently and conservatively with monetary and fiscal policy.

The United States has offered plenty of assurances to China that it will remain vigilant about inflation. But the trick is being able to identify these inflationary pressures and to take action way before the actual inflationary pressures become entrenched in the economy.  And the Fed will need to rely on its projections to do that.

In this uncertain environment, making economic projections is much easier said than done.  And one would rather err on the side of being a bit late in raising interest rates and reducing quantitative easing. If the Fed is slower than needed, and some inflationary pressures build, it they can resort to raising rates a bit faster and resolve the problem. But if the central bank raises rates – and reduces the quantitative easing policy too soon – it could send the economy into another recession.

This could be problematic since it would increase the risk of the U.S. economy falling into a deflationary spiral and put additional pressure on the U.S. financial system.  Therefore, it seems reasonable to assume that the Fed has greater incentive to err on the lenient side than on the hawkish side.

Remember that we are not out of the woods by any means.  Unemployment, which is a lagging indicator, is still increasing and there are many other large problems to resolve in the economy. Without even considering the impact that healthcare reform will have on the U.S. budget deficit, we see the following important headwinds:

• Consumers are very weak.  It’s not just the jobless that have been affected.  The uncertainty about continued employment for those who still have jobs led to an increase savings rates as would be consumers postpone spending.
• The huge drop in home prices has put about one in four homes in an “upside down” mortgage situation. That means consumers cannot sell their houses without taking a loss, and cannot borrow against their homes to make other expenditures.
• The drop in home values has had another effect:  It has increased the need for consumers to save.  This need has been reinforced by the large hit to 401(k) savings and other retirement plans.  As a result, savings rates have zoomed to 7% of personal income. The savings rate could even hit 10% as consumers strive to rebuild their nest eggs.  Additionally, the “Baby Boom” generation has saved too little and retirement is just around the corner.  Consumers make some two thirds of the U.S. economy, so this new predisposition to saving will be a drag on consumption for a long time.
• Capacity utilization is still low, which greatly reduces producer pricing power.  This, along with very high unemployment, gives the Fed time for now.  Low capacity utilization also keeps investments in factory expansion low.
• Recent banking data revealed that many smaller U.S. banks will be closing their doors, taxing the already overstretched resources of the Federal Deposit Insurance Corp. (FDIC), which will have to be recapitalized, adding to the U.S. fiscal deficit.
• We have not yet seen the fallout from the commercial real estate drop, which Money Morning has warned will be severe.  Since the U.S. consumer is not buying as much, many properties will not be able to keep up with their payments and will default on their loans.  Commercial real estate generally follows the trends in residential real estate with one or two years of lag.
• Last, but not least, we are going to see an economic acceleration in the United States in the third quarter, but that acceleration might be driven to a large extent by inventory rebuilding.  The U.S. economy will probably surprise to the upside in the third quarter with growth.  Among other things, the government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers,” should show up positively in the numbers.  But once the levels of inventories are brought up to their necessary levels, that extra growth will not be present in the following quarter.  And the demand from Cash for Clunkers will cease to be a factor.

All of these reasons warrant caution for the Fed.  Some economists, including Nobel Prize winner and former World Bank Chief Economist Joseph Stiglitz, have highlighted the risk of a “W-shaped” recession/recovery scenario, and have even suggested the need for another stimulus package.  While that might do more harm than good, this position highlights the dovish bias that the Fed is likely to maintain.

What About the Rest of the World?

China enjoys many degrees of freedom to move its economy forward and has had resounding success in doing so.  It has no debt and more than $2 trillion in foreign currency reserves.  Its banking system is small in relation to the size of its economy, which gives the country a lot of room to expand credit, and the savings rate of its consumers is sky-high.  This leaves China with the capital resources to deploy growth strategies.  Since the largest companies are all government-owned, when the government decides to deploy capital, it gets done swiftly and powerfully throughout the economy, with great effect on growth.

As a result, China’s economy grew at the breakneck annualized pace of 14% in the second quarter.

Other emerging markets, like Brazil and India, are in similar, though not as potent, positions to move their economies forward. And they are doing so aggressively. India is expected to post on average 7% plus of annual gross domestic product (GDP) growth.

Emerging economies – those that did not splurge the bonanza of the prior five years of strong growth in commodity prices and other exports — are now in the position of stimulating their economies with easy monetary and fiscal policies.

Massive stimulus packages, the scorching demand growth from capital investments, and reborn consumers in emerging Asia, have combined to rekindle global growth.

Resurgent Growth in Europe

Both Europe and Japan are emerging from their recessions – even though Japan may post a negative growth number in the fourth quarter – and Britain and Italy are lagging behind in the recovery.  But the most important European economies, led by Germany and France, are pulling ahead.

It is understandable that European Central Bank (ECB) President Jean Claude Trichet, recently mentioned that the recovery was uneven in Europe.  Most market pundits took this as a sign that Europe would not be raising rates as fast as previously anticipated.

However, keeping interest rates low is much harder to do than it is to say.  Unlike the Fed, which has symmetric objectives – promoting economic growth and controlling inflation – the ECB’s only mandate is to control inflation.  The reason for this notable difference in objectives is that the European economy is much less flexible than the American economy, mainly due to its very rigid labor laws and other regulations.

Thus, the Europeans start running into inflationary problems when their economy grows above 2.5%.

The ECB just raised its own growth forecasts.  Similarly, the Organization for Economic Cooperation and Development (OECD), which comprises the 30 most influential free-market representative democracies, indicated that the global recession is coming to an end much faster then they previously thought, but said that the recovery will rely on massive spending and low interest rates for some time.  The OECD cited the strong rebound in Asian economies as having jumpstarted this global reacceleration.

Because the Federal Reserve will have to err on the cautious side, and because of the institutions’ differing mandates, the ECB will probably tighten monetary policy before the U.S. central bank does. That means the euro and emerging market currencies will keep appreciating against the U.S. dollar and the price of gold will soar.

The protests that will come from time to time from Chin and Russia will be just that: verbal intervention.  They will not resort to sudden changes in the composition of their foreign reserves, at the risk of doing further damage to the dollar.

In fact, China and other countries generate some 90% of their large current account surpluses in U.S. dollars.  But their holdings of dollar-denominated assets are only about 64% of their total reserves.  That means they already consistently sell the difference, and this selling so far has not decimated the dollar.

So do not expect a sudden devaluation of the greenback, nor fear China currency reallocations.

But we can and do expect a gradual weakening of the U.S. dollar to occur next year.

And as much as we all hate it, we will be able to take comfort in the fact that we avoided a much worse evil: Deflation.

So we are going to remain playing it with gold.  Also, this “currency” play gives us added diversification to the portfolio.

Source: Buy, Sell or Hold: The SPDR Gold Trust ETF (NYSE: GLD) Continues to Offer Investors a Hedge Against Inflation

Good day… We had more rain here last night, but the storms have cooled things off and it is starting to feel a bit like fall around here. Chuck flies off to San Francisco today to speak at the Money Show, so I will be bringing you the Pfennig for the next few days. The dollar has rallied just a bit overnight, clawing back some of the losses which occurred mid morning yesterday.

And what, you might asked, caused the dollar to rally yesterday? You can re-read a bit of yesterday’s Pfennig for the answer: “The data cupboard has been emptied out and is looking to get restocked today… So the only thing besides sentiment moving the markets today will be the direction of stocks…” Yes, Chuck was right on in predicting what would drive the currency markets yesterday, as the dollar got sold off as stocks moved higher.

Without any data to push the markets one way or another, investors began moving back into riskier assets, selling their ’safe haven’ US treasury holdings. The currency markets have been trading on the risk theme lately, and don’t seem ready to break this pattern anytime soon. Risk appetite is the main driver of the currency markets, with the dollar gaining with investor worries, and falling back down as investors feel more confident.

I spoke at an investment conference last week in Chicago, and listened to several good presentations on the current state of the economy. While every speaker had differing opinions on how to invest during the next few months, they all seemed to agree on one thing; the recent rally and ‘recovery’ would reverse, and the US will likely head back into another downturn. The timing of this next downturn is hard to pin down, but most believe we will see the US economy falter again toward the first quarter of 2010. If and when this occurs, the dollar could see a temporary rally as investors flee back into US treasuries. But longer term, everyone at the conference was in agreement with what Warren Buffet said in his op-ed piece yesterday: the US$ will ultimately lose value.

Speaking of Buffet, I re-read his op-ed last night during dinner, and had to laugh a bit as much of what he wrote could have been taken directly from the presentation I gave last week. The following lines were especially poignant, so I decided to include them in the Pfennig:

“An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.”

This is what we have been preaching over the past several years, that the deficits, if unchecked, will ultimately lead the government to put the printing presses in overdrive, and we will attempt to inflate our way out of debt. This will cause the value of the US$ to drop. Buffet ended his piece with the following line: “Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.”

Sorry to spend so much time on Warren Buffet, I know he isn’t the most popular guy with many Pfennig readers. But you can’t deny that he has been an extremely successful investor, and the piece he wrote for the NY Times was just right on in my opinion.

Lets get back to the currency markets. Good news helped propel the Norwegian krone higher overnight. Norway’s economy grew last quarter, pushing the worlds fifth largest oil exporter out of recession. Norway’s mainland economy (ex oil and gas) was able to grow .3% during the second quarter. Economists had predicted Norway’s economy would contract by the same margin. The overall economy still contracted, as oil revenues declined, but the recent move higher in crude should help keep Norway on the growth path in the second half of 2009. Petroleum exports make up a quarter of Norway’s output, so a global recovery is definitely good news for Norway. This currency, which was called the safest in the world by the NY Times, should be part of every investors portfolio.

The UK economy is doing quite as well as Norway’s, as Britain reported a record $13.2 billion budget deficit in July. This is the largest deficit reported for July since records began. Quarterly tax payments usually boost the revenues in July, but the recession has taken its toll on tax revenue, and unemployment benefits are pushing outlays higher. The UK is predicted to have the biggest deficit in the G20 next year according to the IMF. The pound sterling was the largest loser vs. the US$ on the back of this reported deficit.

Minutes of the BOE’s August 6 meeting were released yesterday, and it showed BOE Governor Mervyn King pushed for an even looser monetary policy. King pushed to expand the ‘quantitative easing’ which the BOE began in March. The pound lost more ground after the release of the report, as investors lost faith in King as an inflation fighter.

Chuck sent me this note last night and wanted me to include it in today’s Pfennig:

“I forgot all about the fact that this is that time of year again when Central bankers and economists from around the world have a boondoggle at Jackson Hole Wyoming… You might recall that last year they all hunkered down and tried to think of ways to keep the financial mess forum worsening, only to have Lehman Brothers collapse a few weeks later!

Well… I’m sure we’re going to hear a lot of rhetoric about the “recession coming to an end”… but they have it all wrong! this isn’t a recession it’s a depression…

With pockets of risk remaining, such as the collapsing U.S. commercial real estate market, and the double digit unemployment rate… I would think that these guys who missed seeing the subprime meltdown coming and then when it was presented to them, told us it wouldn’t filter out into the economy… should just keep their opinions to themselves and read newsletters like The Pfennig and The Currency Capitalist, and the Daily Reckoning, and the 5-minute Forecast… OK I’ve had my say, thank you for letting me vent! Have a nice day!”

Yes, the ‘top’ economic minds (minus Chuck) will be meeting in Jackson Hole and Ben Bernanke will undoubtedly trumpet the fact that data shows the US economy is starting to pull out of its recession. This morning we will get the index of US leading economic indicators which is projected to show a move up in July; the fourth consecutive positive monthly move. The weekly jobless claims are also expected to be a bit positive, with a fall to 550k from last weeks 558k. But the jobless rate is still projected to reach double digits (the real number has been in double digits for a while!) and housing will continue to be a drag on the economy.

The administration will also announce the US deficit for 2009 will be slightly less than what was forecast in May. Yes, our government’s deficit will total just $1.58 trillion, about $262 billion less than the previous estimate. But the change isn’t due to increased revenues, it is mainly due to the administration’s scrapping of a $250 billion contingency plan to aid the financial industry. With the recent signs that the economy is starting to pull out of recession, the Obama administration decided it no longer needed to hold the quarter trillion dollars in reserve to meet predicted bank failures. But I would still be a bit worried if I were the administration, as there will likely be a few more ‘big’ bank failures down the road. Personal bankruptcies continue to climb, and as Chuck pointed out above, the commercial real estate market still has a few ’surprises’ in store for the economy.

Even after this adjustment, the deficit figure would amount to 11.2% of the GDP, the largest share since 1945 when we were paying for WWII. And unfortunately, with growing outlays for Social Security, and interest on the debt eating up a larger overall percentage, the deficits won’t be shrinking in the near future.

A jump in oil prices and a reversal of risk aversion caused the South African rand, Mexican peso, and Australian dollar to rally. South Africa led all currencies vs. the US$ overnight, with a .54% appreciation. Mexico’s peso rose for a second day as oil moved back above $72 per barrel. Oil revenue funded 38 percent of the Mexican government’s budget last year, so the peso is somewhat linked to the price of crude. The jump in oil also helped the Canadian dollar reverse earlier losses.

The Australian dollar rallied as risk investors moved back into higher yielding currencies, and good news in the Asian stock markets continued the rally. The Aussie dollar also benefitted from the rally in oil, Australia’s fourth most valuable raw material export. The Aussie dollar is one of the best performers over the past 3 months, with only the New Zealand dollar and Brazilian real out performing it vs. the US$.

Currencies today 8/20/09: A$ .8289, kiwi .6731, C$ .9105, euro 1.4219, sterling 1.6461, Swiss .9376, rand 7.9792, krone 6.055, SEK 7.1810, forint 191.02, zloty 2.9211, koruna 18.009, yen 94.15, sing 1.4477, HKD 7.7508, INR 48.695, China 6.8318, pesos 12.8717, BRL 1.8415, dollar index 78.62, Oil $71.92, 10-year 3.47%, Silver $14.01, and Gold… $943.27

That’s it for today…Hope everyone has a Tub Thumpin Thursday!!

Chris Gaffney

Source: Stocks Push the Currencies Higher…

Maybe it’s because the government hasn’t actually got around to disbursing most of the cash yet. Maybe it’s because debt-laden Americans are simply saving the stimulus dollars rather than spending them. Maybe it’s because the Recovery Act was really nothing more than a congressional wish list of pet spending programs.

US News & World Report editor Mort Zuckerman, writing in yesterday’s Wall Street Journal, says there are 9 reasons we are in even more trouble than the 9.5% jobless rate indicates.

1. June’s total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

2. More companies are asking employees to take unpaid leave. These people don’t count on the unemployment roll.

3. No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn’t searched for work in the four weeks preceding the survey.

4. The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

5. The average workweek for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That’s 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

6. The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

7. The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

8. The goods producing sector is losing the most jobs – 223,000 in the last report alone.

9. The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

In the latest sign the economy of the world’s top consumer was still struggling, data on Thursday showed U.S. employers cut 467,000 jobs in June and the jobless rate rose to a 26-year high. Euro zone unemployment climbed to a 10-year high.

After all, just consider that:

• The U.S. unemployment rate just spiked to 9.4% for May, up from 8.6% in April, meaning the nation’s jobless rate is now at its highest level in more than 25 years.
• Throw in the fact that the current jobless rate does not include people who have taken part-time jobs below their skill levels to make ends meet (a little-referred-to situation calledunderemployment), and the “real” unemployment rate soars to a staggering 16.4%.
• More than 6 million workers have lost their jobs since the recession started in December 2007, meaning one in 20 jobs has disappeared – many of them forever.
• A total of 14.5 million Americans are now unemployed. The number of long-term unemployed (those without jobs for 27 weeks or more) recently increased by 268,000 to 3.9 million and has tripled since the start of the recession.

But that’s not the worst of it. Experts are projecting an economic rebound that will take hold late this year – early next year at the latest. At the same time, however, economists are starting to whisper about a “jobless recovery,” an upturn in which the economy and corporate profits advance, but virtually no new jobs are created to overcome the years of layoffs that preceded the rebound. In fact, the U.S. Federal Reserve said the U.S. economy might not return to its “normalized” unemployment rate of roughly 5% until 2013, Argus Research Chief Economist Richard Yamarone wrote in a recent report.

So while there appears to be some light at the end of the tunnel for the economy in general, the outlook is somewhat more challenging for those who are unemployed, underemployed, or who are currently working but who still harbor dreams of “career advancement.” As bleak as this all may sound, jobseekers (both employed and unemployed) shouldn’t be deterred: With a sound strategy, and four simple secrets, it’s still possible to survive – and even thrive – in a jobless recovery. We’ve labeled them as the “Four P’s” – Plan, Pinpoint, Pounce and Persevere.

Planning to Win

It’s a well-worn adage, but it’s also a truism: Those who fail to plan are essentially just planning to fail. Have a plan to keep your life on track while you see that new career opportunity.

When “joblessness” strikes, it usually does so in one of two ways.  It either catches you completely off guard – often with a hastily called series of employee meetings, or that Friday afternoon summons to the boss’ office – or you’ve seen the handwriting on the wall (or in your company’s financial statements), and so you knew it was only a matter of time. Either way, if you let the search for a new job consume 100% of your life, you may end up losing more than just a regular paycheck.

By far, the largest consequence when you lose a job is the loss of regular income. Having a plan to deal with this change is just as important as getting a new job.

To create this plan, start by asking this question:  Do you have enough cash on hand, or can you access the needed funds, to pay all your bills, while you’re looking for a job?

If your answer is “yes,” congratulations.  You’re much better off than the majority of people losing jobs right now.  For the purposes of this article, go ahead and skip to the second “P” – Pinpoint.

But if you’re like most unemployed Americans, you depend on a regular paycheck to meet your financial needs.  Once that income stops, you’re going to have to make some difficult choices based on your financial situation.  Waste no time in taking the steps to address these issues head-on by:

• Contact your creditors:  With such liabilities as a credit card, credit line, or outstanding medical bills, if the creditor in question doesn’t have a program in place to suspend your account for a couple of months while you track down that new job, then they likely have a program to reduce the interest rate and modify your payments.  Believe it or not, they’ll work with you, especially right now.  The last thing they want is for you to default on the loan.  The earlier you contact them, the better off you’ll be – especially in the long run.

• Micro-budget yourself:  Figure out what you can and cannot do without.  The longer your job search lasts, the easier it becomes to do without cable television, dry-cleaned clothes, making that weekly sojourn to your local restaurant, or stopping every day for that morning muffin and coffee. Scrutinize your bank statement. Consumers are often surprised how often they’ve accumulated automated payments or account debits – which they’ve forgotten about. Look closely: If you’re still making regular payments to magazines, dating services, TV-based services, or even mutual funds, look at those you can stop.  You’ll be surprised at what you can eliminate from your monthly expenses once you know what’s actually being paid for.

• Seek Alternative Income: Do this immediately. Access other income sources as soon as you can.  If you’re eligible, apply for Unemployment Compensation; sometimes it can take weeks for this to kick in, so the sooner you apply, the sooner you can begin to collect an income.  If needed, find another source of income – you’ll be surprised how many opportunities are out there for people who are willing to take on shifts outside of the 9 to 5 norm.

As you work through these necessary tasks, make time to jumpstart your job-hunt, as well. Unless you’re forced to take the first real offer that comes your way, don’t be afraid to make the most out of this situation by including your dream job in process. The worst that can happen is that you don’t land that particular job.

But you just might do it.

Just as with the “Plan” phase of your job search, you’ll create the best chance for success in the job-hunting phase if you “Pinpoint” exactly what you’re looking for.

Pinpointing Success

By pinpointing your objectives, you have to understand just where you want to be. But you also need to pinpoint just how you intend to get there, and to be realistic about what you’re up against. It’s the last of those three that’s often the toughest to see and understand. So let’s take a closer look.

Understanding the Challenges: As we noted just moments ago, it’s not too difficult these days to get a pretty good idea of the overall unemployment scene: The official unemployment rate was last this high in 1983, and it’s going to get higher before it hits its apex and heads lower. But you also need to understand just what the hiring situation is in the specific industry you wish to work in – as well as the specific geographic market where you hope to work.

On an industry-wide level, The U.S. Bureau of Labor Statistics Web Site (www.bls.gov) is a good place to start.  By checking out their monthly Economic Statistics reports, you can get a clear picture of industry-specific performance in the U.S.

For example, in the Employment Situation Summary for May 2009, we can see that both the education/health services and leisure/hospitalitysubsets of the service-providing industry added jobs last month: 44,000 and 3,000 jobs, respectively.

Whereas, the goods-producing, manufacturing, and service- providing sectors were down 225,000, 156,000 and 120,000 jobs for the month, respectively.
By combining industry-wide knowledge with more specific resources available for your cities and states on Web sites provided by local newspapers (in my local area, that would be The Baltimore Sun or The Washington Post, for example), social media networks (like Craig’s List or Facebook) and jobs sites (such as Monster.com orCareerbuilder.com), you’ll gain a much better idea of the job market available to you right now.

Define Your Goal: This is the point most people start at when job hunting because they think it’s the easiest to knock out.  Well, in part, they’re right.  There’s no better authority than you when it comes to knowing what you can do or want to do.

But there’s a mistake most jobseekers make – a mistake you need to avoid at all costs: Don’t sell yourself short, and don’t “pigeon-hole” yourself by thinking that your skills will only allow you to do a very narrowly defined job. Granted, for certain specific trades – such asHVAC installation and service, plumbing, or auto repair – you may be looking for highly specialized work.

In Corporate America, however, people who’ve worked in the divisions or departments essential to business – such as marketing, sales, human resources, logistics, or operations – jobseekers often don’t see those additional possibilities. If someone has spent the last 11 years working in HR for an accounting firm, they may not realize that they have the skills or experience needed to do a similar job within a school system, a hospital or health-care center, or a startup technology firm. And they could end up missing out on some good-paying and career-rejuvenating opportunities in the process.

That’s when the marriage between knowing what you’re up against and know what you want to do becomes critical.  Once you’ve identified which industries are the go-to segments for employment, you just have to look for the companies within that industry that offer positions in which you’ve had all of that experience.  Sometimes, though, you may need to persuade the decision-maker for the position in question that your experience in one industry lends itself to the other.

And finally, understanding of the challenges you face may also give you an entrée into the industry that houses your dream job.

Of course, you need to be somewhat realistic, even as you act with enthusiasm and aggressiveness. For example, if you always wanted to be a major league relief pitcher, but are now 34 years old with eight years of accounting experience to your credit, the chances are pretty good that the New York Yankees aren’t going to be phoning you to offer a mound tryout. However, the Bronx Bombers – like any other business – do have an accounting division, and your experience may be a perfect fit for what they’re looking for.

Remember that your sudden joblessness may give you the opportunity to get into an industry that you’ve always wanted to be in.  Now, though, you have the requisite experience within one of the departments common to every company, that makes you a much more attractive candidate for that position.

Now, you just have to be able to seize an opportunity, once you’ve identified it.  And that brings us to the third “P” – Pounce.

Pounce on That Possibility

Too many job seekers begin their search in an all-out desperation mode – thinking they have to find a job as soon as possible.  Even if that’s true in your case, if you’re not prepared to make the most out of every job-seeking situation you enter, you may end up blowing the best chance – at the best job – that you’ll ever see.

So, take a page from the Boy Scouts: Be prepared – to pounce.  That is, prepare for the best possible scenario, as if you’re going to hit the job-seeking jackpot.  For example, what happens if the first company you contact asks you to send your resume and references right away, so the chief executive and the head of HR can look them over this morning and then have you in that afternoon? If you aren’t prepared, you can’t pounce on the prospects that may come your way.

Well, if your answer to that request is “I can e-mail whatever you’d like right now.  What time this afternoon would you like to meet?” you’re on your way.  But if the last time you looked at your resume was six years ago, during your last job search, or you last spoke to your best prospective reference three years ago (and don’t even know where they’re working today), chances are you’ll still be job hunting long after someone else is happily seated (and working) behind the desk that should have been yours.

So even before making that first call or typing in that first word for an online search, make sure that you have the following information updated, available, and ready to be sent at the drop of a hat:

1. Resume: More than just having it updated, make sure that you know it backwards and forewords.  Be able to explain gaps in your employment history, or why you’ve recently jumped from job to job.  The best plan: Have a general template that you can individualize or customize in order to pounce on a specific job opening.
2. Cover Letter: In many cases, the cover letter is just as important as your resume.  It should be your Sports Centerhighlight reel, but it should also be concise. Like you have with your resume, prepare a cover letter template, so that you can customize information for different openings, catering your comments to specific requirements or requests.
3. References: At a minimum, you should have the names and contact information (phone and e-mail) for three business and personal references.  For businesspeople, include their titles and company names.
4. Samples of work: For positions in such “creative” fields as copywriting, graphic arts, architecture, or industrial design, to name a few, you’ll be asked to submit samples of your work.  Make hardcopies and electronic files of whatever you can, so that you can submit them in multiple formats.  Never give away originals, thinking that they’ll be returned – chances are, you’ll never see them again.

In addition to having the documents and materials above ready to go with a moment’s notice, you should also have the following information and materials readily available:

1. Your schedule for the week:  If you’re asked when you’re free later in the week, you need to be able to answer that question immediately.  The worst thing you can do tell someone that you’re meeting with at that moment, or that you’re talking with on the phone, that you’ll get back to them with that information.  You may not be able to connect later, for a variety of reasons.  Then when you do re-connect, you window of opportunity may have closed.
2. Clothes for an interview: Some laugh at this suggestion as oh-so-obvious, but you’d be surprised how many times people will tell us that they were called in for an interview – only to realize that their best suit was still rumpled from their last interview, three weeks ago. You don’t have to go out and purchase a new suit for every interview opportunity, but if you’re asked to come in to talk that day, and you don’t have time to wash, iron or otherwise clean appropriate clothing, you run the risk of making a bad impression – and losing the job.

Don’t Give Up

It goes without saying that this is one of the toughest and most-challenging periods U.S. job seekers have faced. But it also goes without saying that you can’t give up. That’s why the fourth of our four insights – the “Four P’s” is perseverance. Hope for the best, but don’t be discouraged if no job offer is immediately forthcoming. Prepare for the long haul by following the game plan we’ve identified, and use that as a survival kit that will get you through to the long run, where those who persevere usually win.

Source: The Four Secrets to Career Success in a Jobless Recovery

[Editor's Note: The first in an occasional series that looks at unique strategies for navigating the jobless recovery.]

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/plummeting-retail-sales-in-april-bury-economic-%e2%80%9cgreen-shoots%e2%80%9d/16641 http://www.contrarianprofits.com/articles/plummeting-retail-sales-in-april-bury-economic-%e2%80%9cgreen-shoots%e2%80%9d/16641#comments Thu, 14 May 2009 13:00:12 +0000 Don Miller http://www.contrarianprofits.com/?p=16641 Those elusive “green shoots” that economic optimists had been digging up lately were buried under disappointing data from the Commerce Department in Washington yesterday (Wednesday) when it was revealed that retail sales in the unexpectedly dropped in April.

Sales at U.S. retailers dropped 0.4%, the eighth monthly decline in the last 10 months, following a revised 1.3% drop in March that was larger than previously estimated.  Excluding auto dealers, sales fell 0.5%

Economists had expected an increase of 0.5% to 1.0%.  Since July, retail sales have shown increases only in January and February, and those were attributed to post-holiday sales.

The disappointing numbers indicate surging unemployment and the worst housing market in decades could temper consumers’ appetite for spending for years, analysts…

• Consumer credit in the United States fell by a record $11.1 billion in March after the jobless rate reached its highest level in a quarter century and banks made it harder to get loans in an effort to firm up their balance sheets.  Consumer credit fell by $2.55 trillion, almost three times more than forecast and the most since records began in 1943, according to a Federal Reserve report released yesterday (Thursday) in Washington. “When you have record job losses, you have to expect record declines in spending and economic activity in general,” Richard Yamarone, chief economist at Argus Research Corp. in New York told Bloomberg.

• General Motors Corp. (NYSE: GM) said it burned through $10.2 billion in the first quarter as it tapped into federal bailout funds to survive a sharp decline in global sales that overwhelmed its cost-cutting efforts.  Revenue dropped by almost half to $22.4 billion as the company cut production by about 900,000 vehicles and worked to run down costly inventories in the United States and Europe.  Chief Financial Officer Ray Young said there was evidence consumers were scared away from GM cars and trucks because of concern the automaker was headed for bankruptcy, Reuters reported.

• Delinquencies on commercial mortgages in the U.S. jumped to the highest levels in over 11 years in April as scarce credit made it difficult for landlords to refinance loans, Bloomberg reported, citing a report from property research firm Trepp LLC.  About 2.45% of loans are now 30 days or more behind in payments, more than five times the year-ago number said the report. “It’s about as bad as it’s ever been,” said Thomas Fink, a Trepp senior vice president. “I don’t think we’re done yet. Where it’s going to top out, I don’t know, but we’re not done.”

• Nearly two-thirds of U.S. retailers posted better- than-expected monthly sales results for a second straight month in April, giving fresh evidence that consumer spending is warming up. Most retailers reported April sales at stores open at least a year that topped Wall Street estimates and a handful said their first-quarter results, which start landing next week, will be better than expected. “Overall, you are seeing some signs of a return to discretionary purchases throughout different areas of retail,” Barclays Capital PLC (NYSE: BCS) analyst Robert Drbul told Reuters.

• The U.S. Justice Department’s proposed budget calls for adding more FBI agents to investigate mortgage fraud and white-collar crime, Attorney General Eric Holder said on Thursday. In prepared testimony to a Senate appropriations subcommittee, Holder said the proposed $26.7 billion budget includes a 3.8% increase from the previous year for combating financial fraud for fiscal 2010, Reuters reported.  Increased funding would be used for “additional federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the federal government’s investment of resources in the financial crisis and the American public,” he said.

• Boeing Co. (NYSE: BA) lost a deal for 25 of its 787 Dreamliners, the biggest order cancellation yet for the plane, meaning the giant jetmaker now has lost one more contract this year than it has won.   The scrapped deal, valued at about $4.44 billion, takes Boeing’s cancellations in the first four months to 59, versus 58 purchases, according to data published today on the Chicago-based company’s Web site, Bloomberg reported. Airbus SAS (NYSE: SPR) said earlier it has 11 net orders after signing 30 agreements and losing 19. The 787 remains Boeing’s best-selling new plane ever, with 861 contracts remaining. The jet, built mostly of composites, has suffered four delays because of defects, parts shortages and redesigns and is due to fly by the end of next month before entering service in the first quarter of 2010.

Investment News Briefs Friday, May 8, 2009