somethings wrong!

More BOGUS numbers?

August 6, 2012

On Friday, the market positively rejoiced over the latest numbers from our friends at BOGUS, but are they all they’re cracked up to be?

The pundits were hoping for 100,000 or so but the number came in at 163,000…causing the HFT (those pesky high frequency trading) computers to shift into overdrive and force the Dow up past the elusive 13,000 and propel the S&P towards the equally elusive 1,400.

How much of this was general enthusiasm….the so-called “risk on” trade…and how much was the shorts ducking for cover, we don’t know…or care.  All we know is that the market is and will continue to be in a manic mood as we meander through the second half of the secular bull market we now find ourselves in.

So the July employment report showed nonfarm payrolls weighing in with 163,000 additions, up from the previous month’s 64,000.  This was a big surprise, especially given the recent run of bad news, like the Institute for Supply Management’s index of business activity dipping  below 50 (the dividing line between expansion and contraction), for the second month in a row in July.  That had not happened since mid-2009 when everyone thought the world was coming to an end (now, of course, we know that the world officially ends on 12/21/12).

But here’s what we can figure out.  The index of business activity drops to lows not seen for 3 years yet the folks at BOGUS (remember…that stands for the Bureau of Goosed-Up Statistics) saw it differently.   By the way, BOGUS used to be called the Bureau of Ginnied-Up Statistics….but all the Ginnys of the world became upset that their lovely name was being associated with such frivolity.  And the folks at Bombay and Gilberts were not impressed either.  Hopefully the geese will be less sensitive.

In any event, the BLS / BOGUS surveyed that factory jobs increased by 25,000 last month. Firstly…what is a survey?  Come on now.  How definitive can those numbers be?

But wait…there’s more.  The Goosed-Up statisticians added 377,000 jobs for seasonal adjustment. That just happened to be the largest such adjustment in July for the past 10 years. Wow! Who knew?

But wait…there’s even more.  Let’s not forget the invariably reliable (excuse the facetious tone) birth/death model that miraculously added another 52,000 and voila…you have way more than 163,000…in fact, way, way more…like almost 430,000.

That’s a nice big number so how come the U3 unemployment number edged UP to 8.3% and the U6 number representing under-employed as well, breached 15% again?

We’re more confused than normal.  But who cares…the market liked it and so Gentle Ben’s asset bubble remains intact…for now.

Why should we worry that 1 in 7 Americans remains unemployed or under-employed.  And that’s only counting the ones who ostensibly count.  What about all those others who have simply given up, disappeared off the rolls (but hopefully not off the rails)? In fact, according to John Williams, over at Shadow Stats, the real number should be above 22%.

Take a look at this Fox News interview.

http://video.foxbusiness.com/v/1748956928001/the-real-unemployment-numbers/

But OK…let’s cut the BOGUS folks some slack and accept that their 163,000 number is spot on.  Great…but we all know that we need to create 150,000 new jobs every month just to keep up with population growth (organic and through immigration).  So we beat it by 13,000 in July but missed it by 86,000 (150,000-64,000) in the preceding month so we’re still behind by 73,000….and that’s just counting two months.  Hardly anything to crow about.

But the market doesn’t care and the mainstream media likes to portray rosiness whenever it can…so a combination of market exuberance, short covering and effusive news coverage pushed the market up, where it remains as we go to press today.  So all is good with the world….until it isn’t!

We’ll talk more about Mr. Market in a day or so…it will be a nice break from our debt dilemma discussion.

Finally…here’s CBS reporting the BOGUS news.  Everything is good with America…unless of course, you happen to be 1 of those 7 un- or under-employed Americans who have the time to watch such drivel.

http://www.cbsnews.com/8301-505123_162-57486029/job-creation-picks-up-steam-in-july/

 

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More on the big debt dilemma and more from the BOGUS…err…BLS

August 5, 2012

Well…another week and another seven hundred million dollars ($700,000,000) added to the national debt.  We’re now over 15.9 trill and on record pace to hit 16 trillion.  Wow…if this were an Olympic race, this would be a world record for the ages.  Unfortunately, this is no game or athletic event.  This is an act of historic lunacy that has real life ramifications for literally hundreds of millions of people, both here and around the globe.  When you are the world’s leading economy, one would think you would have a responsibility to act responsibly but unfortunately, the children masquerading as our political leaders don’t think that way.

In researching this post, we went looking for periods of other such lunacy, hoping and expecting to find some interesting tidbits on such fabled fellows as the pyromaniac Emperor Nero or the fine living Louis XIV of France or even Louis XVI (his grandson, who literally lost his head over what amounted to misuse of sovereign funds).

But under the Google search heading of “Greatest spenders in history” we could only find the name of the 44th president of these United States of America…one Barack Hussein Obama II, formerly known at Punahou School in Honolulu, as Barry Obama…a decent basketball player and apparently somewhat of a connoisseur of the finest pakalolo available in the Hawaiian Isles.  Such a standout achievement (the spending, not the smoking) was deemed worthy of our attention so we delved further to discover that, in fact, President Obama may hold the dubious honor of the greatest spender of all time.

Take a look at the following graph, which shows the progression of the debt total since 2008 (Courtesy of CBS).  George W. Bush did a pretty stellar job in his two terms of office, adding almost $4.9 trillion over 8 years but President Obama has eclipsed that amount, ringing in over $5.3 trillion since his inauguration.  And let’s not forget…at $100 million per day and about 4 months to go until the election, his could well be an Olympic level performance.

 

Looking at it another way, under the Obama administration, the U.S. government has accumulated more new debt than it did from the time that George Washington became president right up till William Jefferson Clinton (remember him…good old Bill Clinton) took office.

Now…you’re probably wondering where all that money went as chances are, you are not feeling any wealthier.  In fact, during the time of both presidents mentioned above, the real income of the average American has declined, not to mention the horrendous real and imagined (by the BLS folks) unemployment currently beguiling our economy.

Well, it seems that in addition to waging real wars around the globe, the good old USA has been waging a very expensive war on poverty.  Remember, that was the other war that LBJ escalated, aside from the one across the Pacific in Vietnam.

Brief digression…don’t you think that the foreign policy wonks would have thought a bit more about sending troops into a country like Vietnam, which:

  1. Beat back three invasions by the then master of the universe, Genghis Khan and his Mongol hordes
  2. Had just recently defeated and thrown out the army of one of the world’s strongest countries…hint…starts with F, ends with E, has a capital city with a large tower and a populace who like to retire early, eat cheese and drink wine…and take August off.

Of course you would think twice after that fiasco, but American foreign policy folks think differently from us.  Otherwise, why would they have suggested sending troops into another country, starting with A and ending with the first name of a fabled comedian named Stan (Laurel), after this country…Afghanistan…for those with no sense of phonetics or comedic history…had:

  1. Never been defeated militarily by the greatest empire of the time, Great Britain
  2. Just defeated and tossed out one of the most powerful and brutal occupying regimes in history…hint…their country starts with R and ends with A, crosses 22 times zones and has a lot of citizens who enjoy fish eggs and vodka.

So our geniuses figure that in both cases, superior American troops (which may be true) could venture in and win where other much larger and extremely lethal forces had tried and failed.  History may not repeat but stupidity and hubris certainly does.  Perhaps the same idiocy is behind the massive spending that accompanied and continues to accompany the other LBJ war, that War on Poverty.

So, to get a sense of where the money went…and that is the trail we are following…take a look at this graph.

 

No gravity here! Just upward and onward...until?

 

It’s not working so let’s throw some more money at it.

Now take a look at this graph of the national debt over the same period and see if you can see any similarity.

 

Hmmm...no gravity here either...yet!

 

Here we are then…pushing 16 trillion in debt, with 8.3% “official” unemployment and diminishing GDP.  Well something must be working, right?  All that money, spent on wars and welfare…someone must be better off, aren’t they.  Apparently not, at least if you exclude the increasingly wealthy, powerful and influential political and entertainment classes.  For the rest of us, US poverty levels are on track to rise to being the highest since the 1960s…when we initially started throwing money at the so-called “War On Poverty”.

http://www.huffingtonpost.com/2012/07/22/us-poverty-level-1960s_n_1692744.html

http://articles.boston.com/2012-07-23/nation/32786966_1_poverty-rate-food-stamps-job-market

At Craven Capital, we are beginning to conclude that the US might be far better off seeking peace on everything, than pursuing war on anything.

And let’s see who else we can blame politically for this mess?

Well, our congressional leaders have done their part, of course.  We’ve already seen that Barack Obama is the clear Olympic Champion of Debt, with GW Bush coming in a distant second but still eminently qualified for the team.

But squandering such large sums is a team effort.  It has to be.  No one can possibly do it all by themselves.  So let’s look at some of the other modern contenders in the following graph.

Gingrich and Hastert are clearly not holding up their part of the debt bargain, but Nancy certainly is!

Well, it looks like the lovely Nancy Pelosi has excelled herself and deserves her place on the Olympic Debt Team of the century.  But can we really blame her for taking her eye off the ball…after all, she was spending so much time scrutinizing the 2,700 pages of the Patient Protection and Affordable Care Act (aka Obamacare) it was hard to watch where all the money was going.

Oh…you think that her time was spent granting O-Care waivers to her favored constituents instead?  Good point.

http://nation.foxnews.com/nancy-pelosi/2011/05/17/pelosi-caught-hand-obamacare-waiver-cookie-jar

http://theweek.com/article/index/215375/the-obamacare-waivers-in-nancy-pelosis-district-corrupt

But let’s be clear here. This is not a political witch hunt.  We’re just having some fun trying to figure out who should qualify for our Olympic Debt Team of the century.

As stated in the previous post, most of us have sipped from the cup of credit at some point and after all, we elected these brilliant individuals and watched our reality shows and sports events while they fiddled in true Nero fashion.

This almost 16 trillion dollar binge that we have been on over the past 20-30 years has fueled the greatest standard of living the world has ever seen, or so we think. It’s not real.  It is temporary…a mirage.  We have stuff but do we have value? We have been living way above our means for so long that we do not have any idea of what “normal” is anymore. How many bedrooms and bathroom do we really need anyway?  As best we can tell, human beings can still only use one toilet at a time.

Let’s face it, you cannot solve a debt problem with more debt. Every debt addict hits “the wall” eventually and the USA will do so as a nation.  Can we really afford to be buying processed food for 50 million people and do we really need 4,500 military installations, including 700 bases overseas?

At some point the weight of our national debt is going to cause our financial system to implode, and every American (both born and as yet to be born) will feel the pain of that collapse.  Under our current system, there is no mathematical way that this debt can ever be paid back.  Our national assets are around $2.7 trillion and our unfunded current and future liabilities exceed 50 trillion (and could be much more).  The road that we are on will either lead to default or to hyperinflation or both.  We have piled up the biggest debt in the history of the world, and if there are future generations of Americans they will look back and curse us for what we did to them.  We have sold them into indentured servitude.

It’s really not about Republicans or Democrats.  We’re all to blame.  That’s the sad truth and the bad news.

So…is there any good news?  And what can we do about this mess anyway?

There is good news and reasons to be optimistic, which we will go into more detail about in future posts.  Suffice to say, there is a reason why these United States became the most prosperous country in the history of the world.  Part of it is natural and part is human.  Stay tuned.

In the meantime, for some comedic relief let’s turn to the most recent BOGUS…err…BLS, numbers. Sorry, but that will have to wait till tomorrow…

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So…who’s to blame for this big debt mess?

July 28, 2012

Could it be any or all of these characters? 

In reality, most of us are to blame to some extent,  because we all sipped from the ever-expanding cup of credit at some time.  Whether it was a mortgage, student loan or a credit card or 20, most all Americans enjoyed the benefits of the credit bubble that has arguably been inflating since the banksters got together on Jekyll Island way back in 1910.  The purpose of that meeting was to figure out how to tame Mr. Market after the most recent panic in 1907.  JP Morgan was the driver, as he had almost singlehandedly directed financial traffic during that panic.

Funny how JPMorgan is still directing traffic to this day…with good old J. Pierpont being replaced by dashing Jamie D.  Silly banksters always think they can tame Mr. Market but Mr. Market cannot be tamed (a discussion as to why is coming in the future).  But banksters are nothing if not persistent.

Anyway, the creature born in 1910 and ultimately released from Jekyll Island in 1913 became known as the Federal Reserve, which continues to terrorize many to this day.   You can read an interesting account here:

http://www.jekyllislandhistory.com/federalreserve.shtml

But should we hold the Fed primarily responsible for our current debt dilemma?

Maybe….but they had help.

In 1933, FDR (which could also stand for First Dictator of the Republic…if that title had not already gone to Honest Abe Lincoln for his numerous restrictions on civil liberty and other atrocities) confiscated all privately held gold in the USA, thereby eliminating the only real competition to the paper dollar.  Remember, the government is often not fair or just and in this case it was neither.  Good old FDR bought the citizens’ gold for $20.67 an ounce (the going rate at the time) and once he had all he could get his hands on, revalued it up to $35 per ounce…a nice little racket indeed…which anyone else would go to jail for.

So by eliminating the only real historical currency that could compete with paper, FDR should get a lot of the credit for creating the debt bubble.   But we have to turn to the Grand Old Party and tricky Dick Nixon to uncover the ultimate culprit.   FDR may have confiscated the gold and ripped off the paying public by hijacking the price but at least he left the gold standard intact.  Under the old rules, technically and practically, each US dollar was redeemable for gold at $35 per ounce.  In the 60s, fearing that the US dollar’s strength might be waning, countries like France and Spain wanted to be paid in gold, not paper…which they were.

But this was depleting the treasury…and no emperor or president worth his salt likes to see his treasury emptied.  So Tricky Dick closed the gold window on August 14, 1971…presumably while the French and Spanish and everyone else in the Northern Hemisphere were on holidays.   From that day on, the dollar was backed by….you guessed it…”the full faith and credit of the USA”.

Given that we now owe ginormous amounts of money to everyone around the globe, that backing is looking a bit tenuous.  Ultimately we will have lost faith and have no credit.

Anyway, once Tricky Dick had done his work and finished nailing the gold window shut, the proverbial horse was out of the barn and galloping to the next county.

At the time (as of June 30, 1971) the national debt was $398 billion against a GDP of $1.127 trillion, which is a reasonably manageable debt to GDP ratio of 35%.  Since then, our GDP has grown 14 times to around 15 trillion but our debt has grown 40 times.  How in God’s name did that happen?

Well, once Tricky Dick had taken the dollar off any ascertainable standard like gold, all bets were off.  The Fed could literally print money without any physical thing backing (or restraining) it.  Once printed, that other beast known as the Fractional Reserve Banking system could be unleashed to create almost unlimited amounts of funny money.

Of course, the full faith and credit of the USA has no limits and so neither did the politicians.  Elected officials excel in good news and shrink in the face of bad.  Printing money is the easiest of options and so that is the option they select.  Far better to print now and get elected than face an angry electoral backlash and Heaven forbid, have to go back to work in the real world…assuming there is a job to be had.

Imagine all these folks trying to find jobs that don't involve spending someone else's money?

 

 

 

 

 

 

Would you hire these people? Sorry...but if you live in the great state of CT, you already did (AP Photo / Jessica Hill)

 

So who do we blame for the debt? 

Well the Fed provided a system for unlimited funny money but it was physically restricted by the gold backing.

FDR helped pave the way by eliminating the only real alternative currency.

Tricky Dick Nixon removed the last remaining control providing the opportunity for politicians to spend, baby, spend.

So every politician is surely culpable…some more so than others.  But all of us are too.  They are our politicians after all.  We elected them.  And we all enjoyed some direct or indirect benefit from the great credit bubble.   And the banksters are clearly guilty…but you’ll never convict them.  They already lack any and all conviction.

So…is there anyone not to blame.  Sure…but ironically it’s the unborn future generations of Americans, who, while blameless, will have to suffer the consequences.   It will be their financial equivalent of original sin….unless, of course, we get our house in order in the meantime.  We can, but it will take a whole new breed of political leadership and a conviction by all that excess debt is a dangerous thing.

But try telling that to Gentle Ben (Benanke), Tiny Tim (Geinther) or Super Mario (Draghi).  Although not elected officials, they all want to keep their jobs too.

Sad to say, but national bankruptcy may be our only salvation.  Let’s hope we find fiscal religion before that happens.

 

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Where does the market go between now and the end of the year?

July 21, 2012

Interrupting our discussion on debt to answer a question….

We were asked by a client recently about what we think will happen between now and the end of 2012.

While we are never backward about coming forward with opinions, making predictions is a dangerous game, especially if one is silly enough to attach a date…or worse yet…a time and a date.

But at Craven we are nothing if not keen observers…so let’s do some observing to see if it helps us form an opinion.

Firstly…where are we now?  We need to know because it’s hard to get to somewhere if you don’t know where you are.

We believe that we are somewhere between 40-60% of our way through a secular bear market.  We believe that this bear came out of hibernation in the spring of 2000 and may continue through the end of the decade…but if we have to guess…it will end on April 11, 2019 at 3.21 pm to be exact, at which point, we predict the next secular bull market will begin.

Woops….remember that it’s OK to make predictions, just don’t attach a date and especially a time.  Oh well, let’s see how that one turns out.

But returning to being serious…yes, we believe that we are approximately midway through a secular bear market.  Why do they call it “secular”?  It is loosely derived from the old latin word for “era” so a secular bear market is a market for our era…in other words, for too long.  The last secular bull market ran from the early 80s to the late, late 90s and a bit beyond but it ultimately crashed when the inevitable pin came in contact with a very large technogoly/internet inflated bubble.

After that, Alan (let’s paint the town gray) Greenspan did what central bankers do best…created another bubble, this time in real estate, by deflating rates and pumping money into the economy.  Real estate owners thought they were rich and getting richer and turned their homes into ATMs from which they made up for lost earning power and demolished portfolios by sucking out the equity in their homes.  In other words, they supped heartily from the Fed filled cup of credit.  We’ll come back to that debt discussion in future posts.

So even though the early 2000s felt good, it was a sugar high and we were really in the early throes of the bear market.  2008 was a wake-up call for everyone except those few who were the most alert and now we find ourselves in the grip of a pretty cranky bear…a close relative of that same angry bear that reigned supreme from 1965 through the late 70s and early 80s.

Take a look at the two graphs that follow…courtesy of Ed Easterling and the very wise folks at Crestmont Research.

60s Bear vs. Current Bear

 

But what has all this got to do with a prediction for what might happen between right now through the end of the year?

Actually, quite a lot because we think that we are now entering a soft patch within an extended sea of quicksand.

Despite Gentle Ben’s money printing and yakking the market up, there are signs of cracking everywhere.  The ECRI Weekly Leading Index is indicating a recession is either here now or will begin in the next few months…and will probably be really noticed by most people after all the election hoopla is behind us.

Let’s take a look at some of these indicators:

  • Consumer confidence is sagging.  Both the Conference Board index and the University of Michigan Survey are at their lowest levels of 2012.
  • Vehicle sales are dragging with May and June being the two weakest months of the year (wait, that’s because the warmer weather induced everyone to buy earlier…er…OK).  What if it didn’t?
  • Retail sales have dropped for three consecutive months.  This is a relatively rare event.  It happened four times in 2008 but you had to go back to that angry bear in 1967 for the last one before that.
  • On the much vaunted manufacturing front, the ISM manufacturing index for June fell 3.8 points to 49.7, its first sub-50 reading since the so called recovery began.
  • The ISM non-manufacturing index for June dropped to its lowest level since January 2010.
  • Factory orders are down and plans for capital spending and new hiring have dropped sharply.
  • The Philadelphia Fed Survey for July was negative (below zero) for the third consecutive month.
  • The small business confidence index declined in June to its lowest level since October and has now dropped in three of the last four months.  No wonder…with all the bad stuff happening in the economy already and then toss in Obamacare.  Small business is the lifeblood of the country but for how much longer?  [Side note..we happen to believe that small business will make a big, big comeback one day…but no exact date or time here].
  • On the all important jobs front June payroll numbers were weak once again and averaged only 75,000 in the second quarter (that’s if you believe the BOGUS…we mean the..BLS numbers).  But even by “official” numbers, the latest weekly new claims for unemployment insurance jumped back up to 386,000 and the last two months have been well above the numbers seen earlier in the year.
  • June existing home sales fell 5.4% to its lowest level since the fall of last year and mortgage applications for home purchases have been stagnant, despite the record low rates.
  • Europe continues to be a mess with a number of the EZ countries already officially in recession.  And keep a keen eye on Spanish (and Italian) bond rates.
  • The Shanghai Composite is in a major downtrend, declining 28% since April 2011.  China is coming down from a major real estate and credit boom and a hard landing is imminent.

In the meantime, the stock market is ignoring these fundamentals as it did back in early 2000 and late 2007 while it relies on Gentle Ben to come to the rescue yet again.  And he will.

But each time he comes back with a fresh bottle of vodka to refresh the punch bowl, poor old Ben has had to sneak more and more water into that vodka bottle to make it appear like it is full of the real stuff.  So with each additional replenishment, party goers are getting less of a buzz and that fading feeling is starting to happen much sooner than it did the first or second time.

What’s vodka and a punchbowl and a party have to do with economic predictions you might say?  Well, in the world of crony-capitalism….everything.    Replace vodka with funny money and party goers with proprietary traders and market speculators and you have the real world in which we live.

The market is waiting on Ben to print more money (pour more vodka).  President Barack is eager to help him pour because he would like to see a juiced up market heading into November.  The market expects Ben to pour and Barry to tilt his elbow up even further to increase the flow.

But the indicators on Main St. tell us otherwise.  While volatility is almost non-existent, the 10-year treasury yield hovers persistently south of 1.5% and is slipping quietly toward 1.45%.

So….finally…our prediction!  Well, it’s not so much of a predication as an opinion.  And if you are in the money management business, you’d better have an educated opinion because as the old saying goes…”if you don’t stand for something, you’ll fall for anything”.

Thus, while the economic indicators are telling that we are heading into another period of slow, or no, growth…the market is expecting another thing.  Therefore we predict / opine that they will both be right.

In the short term, we expect the market to pull back, which may create a lovely buying (or put selling) opportunity.  This pull back will be met with more vodka into the US and (most likely) the global punchbowl.  The party goers will celebrate accordingly, causing the market to rebound quite smartly through year-end…or at least through the election.

Thereafter, however, things will probably turn ugly as even the market realizes that a lot of that vodka was just plain tap water.  Market euphoria could rapidly turn into a hangover of gargantuan proportions.  That will be very bad for the market…but possibly very good for those bargain hunters among us.

Remember, we are in the middle of a secular bear market.  Right now the bear may be taking an afternoon nap but he’s not hibernating.  Invest accordingly.

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Deficits just don’t matter…or do they?

July 19, 2012

The cure for debt is NOT more debt…

At Craven Capital, we suspect that we’re not the only ones lying awake at 3 a.m. worrying about debt.  Most of us worry about our personal debt and how to reduce or get rid of it.

But what about the other invisible debt that every one of us is carrying on our personal balance sheet?  What invisible debt, you might be thinking.  “I don’t have any invisible debt.  My debts are all too clearly visible”. 

The invisible debt is that $51,000 (give or take) that is your share of the national debt.  And our share too…and everyone else in the “land of the free”.

What….you might say…where the _____ did that come from?

Well…let’s do the math.

Roughly we have 314,000,000 people in this county and at last count, the national debt was closing in on $16,000,000,000,000 (16 trillion)…but who’s counting.

We’ll tell you who’s counting…the folks who are owed the 16 trill.  That’s who.  Those folks are counting on being repaid and a large, large number of them are not Americans.

By now you are thinking….”that’s not my problem….that’s the government’s problem.  They borrowed the money, let them pay it back”. 

Ah…but that’s the problem….the government has no money.  To which you respond…”yes, I know. They are broke”.  To which we respond…No…the GOVERNMENT HAS NO MONEY, PERIOD, FULL STOP, NEVER DID, NEVER WILL!

Every cent that government spends has to come from its taxpayers.  Yes, it has a printing press but to maintain any vestige of legitimacy (and therefore confidence in the currency) the government must account for all money printed.  Thus you have the Fed printing and the treasury borrowing.  This is done on a cash basis because accrual accounting is only for the rest of us who must recognize that future unfunded liabilities actually exist.  If we add in Social Security, Medicare, Medicaid and the future unknowable costs of Oh-What Do I-Care, your $51,000 starts to look more like $251,000.

When your government spends approximately 40% more than what it collects in taxes from its funders (that’s us folks), it borrows the balance.  But remember, THE GOVERNMENT HAS NO MONEY.  So it is using the good credit of future generations of American taxpayers to fund that balance…and it’s been doing it for far too long.

Think about it…the government spends all of the taxes it collects (confiscates may be a better term) from current taxpayers, but that’s not enough. So then it borrows the balance from future, many as yet unborn, American taxpayers.  Is this fair?  Of course not!  It is like us selling our future unborn children into serfdom in order to fund our current lavish lifestyle.

Of course, it’s not fair.  But governments are rarely fair…or just.  But now we are starting to hear the official mantra that no one could possibly be successful in this country…if not for the government paving the way.  Hogwash!  Utter hogwash!  But, the bigger the misspeak…the more likely it is to ring true.

Stay tuned.  In future posts we’ll be looking for who to blame for this mess.  We suspect that the lineup could be very long…and quite illustrious.  We’ll also examine what it all means to us…and what we can do about it.

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Should the BLS be renamed the BOGUS (Bureau Of Ginnied-Up Statistics)?

July 16, 2012

We’ve been thinking about the unemployment number lately because it just doesn’t seem to want to go down.  Well, of course it doesn’t because the economy doesn’t seem to what to go up. Genius!

But how does the BLS come up with the unemployment numbers so frequently and with such seeming accuracy.  Well…if you really want to know…it guesses them.  Yes, you heard it right.  The numbers are guesstimates at best…in some cases supported by voluntary surveys…which we all know are infallible.  Right!

Take the numbers from July 6th for example, which were reported for June, 2012.

The BLS represented that non-farm payrolls increased by 80,000 new jobs in June. Sounds good…well OK…right?

Not really.  At Craven, we’re guessing that it was more like a loss of 40,000 jobs.

Why…because the gentle lads and lasses at the BLS concluded that new businesses that started up in June created 126,000 new jobs.  Wow…fantastic…right?  Wrong.

This is a total guess based on what they call the birth/death ratio…which has nothing to do with crying babies or funeral parlors but does have something to do with fantasy land.  You just have to give it a fancy moniker like “the CESBD adjustment”, to make it sound official and therefore accurate…which it is not.  If it was, why would they have to constantly revise it.

The BLS really has no idea what new businesses started, let alone how many employees these new businesses hired.  Reality check!  When a small business starts up, it does not usually go out and hire up a storm of new employees.  Usually, such businesses are thinly capitalized and these days, so much of a new small business set up can be done using third party contractors and / or the web, that the need to hire employees is reduced from the get go.

The 126,000 number was added against the loss of 44,000 jobs to create the illusion of a positive number for the release of the June jobs report.   In reality the jobs number was probably flat to a loss.  But no one wants to hear that.

Everyone knows that the US needs150,000 new jobs each month just to break even with population growth, and we need millions more to put displaced workers back in a job.  It is just not happening but these bogus numbers help to perpetuate the fantasy so Gentle Ben can hope that the market will somehow make everyone rich and spendthrift again.

So the next time you hear the unemployment numbers move the market one way or the other, remind yourself that the BLS may have one too many syllables in its title…and be wary….especially as we get closer to November.

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Why get hyped up about Hyper-Inflation…and an absolute must read from Chris Martenson which says it better than we ever could!

July 11, 2012

So we’ve looked at Deflation and Inflation.  Time to take a look at the big Kahuna of the ion world…Hyper-Inflation.

And after all, what really is Hyper-Inflation anyway?  We’ll give you a hint…it’s as simple as Sally telling Harry that he’d better buy something / anything this morning with that paper in his pocket because it’s certain to buy less of it this afternoon.

Once the requisite amount of printed money is out there, the tinder box is ready and it becomes a state of mind as to when the flame is lit.  After all…what is a dollar worth these days…whatever the general consensus thinks it’s worth, because it’s not backed by anything other than the full faith and credit of Uncle Sam…currently the greatest debt-laden deadbeat in the history of the world.  So if Sally and Harry decide it’ll be worth less this afternoon than it is worth this morning…and take action accordingly…the horse is out the gate.  And it will take a mighty fast and strong central bank to catch it.  Sorry, but we don’t see Gentle Ben as being either fast or strong (and by then, his helicopter will have been grounded by a desperate and dispirited congress).

Do yourself and your loved ones a big favor…AND READ THE ARTICLE IN THE FOLLOWING LINK!!!

At Craven Capital, we pride ourselves in recognizing people smarter than us and to the extent that they will permit…aligning our thoughts and actions with theirs.

We were mid-way through our series on “Ions” when this piece fortuitously crossed our desk…perhaps because at Craven, we are also big believers in serendipity.

In any event, this piece from Chris Martenson is a brilliant encapsulation of the Ions.  Please read it and if you have time, read the book “When Money Dies” by another very wise man, Adam Fergusson referenced therein.

We have read it…and as Mr. Martenson points out, the poignancy of the frontline accounts are harrowing, to say the least.   Forewarned is forearmed, so they say…or to put it another way…to know and not to do…is not to know.

http://www.peakprosperity.com/blog/79219/our-money-dying

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Inflation lurking in the wings and in the supermarket…and meanwhile in Japan…“itai” says Mrs. Fukunaga!

July 10, 2012

Recently, we were thinking about Deflation.  Let’s take a look at the next ion in our inventory….the often referenced but little understood ion…Inflat-ion.

As you probably know or can sense, central bankers, with the possible exception ofGermany…who had a nasty dose of it in the 1920s – are gloriously enamored of inflation.  They want more of the stuff.  For gosh sakes, Gentle Ben even did his thesis on why inflation is divine and deflation is evil.

So the central bankers…you know…the Fed, ECB, Bank of Japan (more on them in a minute) print like there’s no tomorrow.  Do they know something we don’t?  I suspect not.  More like they don’t know what they don’t know.  And what they don’t know might hurt them…and probably will hurt us.

So the bankocrats print money (remember, it does grow on trees after all) and that money finds its way to their banker friends and that’s where it sits…for now.  But under the fractional reserve banking system that these geniuses devised, once that money gets out and about and attains some “velocity”, it can be quite a chore to get it back under control…just ask Paul Volcker.

So while we have deflationary influences, a heck of a lot of money is out there…just waiting for it’s chance to really rumble.  Take a look at the graph below courtesy of John Williams at ShadowStats (who actually tells it like it is…not the way our government would have you believe…certainly an inconveniently truthful site you might consider worthy of visiting).

 

See all that gray stuff sloshing around.  That’s money…well, printed currency anyway.

We’ve already seen the early effects resulting from QE 1 and 2.  The money went to the banks who either hoarded it or used it to speculate on real stuff (like grains and gold) which pushed the prices of many of our normal commodities higher.  It’s all supply and demand which resulted for us regular folks as sort of trickle-down economics…but not the way Reagan envisaged.  For us wee folk, this trickle-down effect comes in the form of higher prices…at the pump and at the supermarket.  Have you ever noticed how food products are either getting more expensive or are shrinking in size…or both?  That’s the insidious effects of inflation in action. Notice that I did not say that it is inflation per se.  Also interesting that the “official” CPI excludes the two essentials that are most affected by inflation…energy and food.  Go figure?

And after all, what really is inflation anyway?  We’ll give you a hint…it’s as simple as Sally telling Harry that he’d better buy something essential with that paper in his pocket today because it’s likely to buy less of that essential tomorrow.

So that’s why we answer “yes” when asked if we will have deflation or inflation. We already have both…it’s just a question of where you look.

Spare a thought for Mrs. Fukunaga…and wonder…could it happen here?

Speaking of which, let’s take a quick look over to the Land of the Rising Sun, where the Japanese government is once again putting the slipper into poor Mrs. Fukunaga.  For years, Mrs. F and all her fellow loyal Japanese citizens saved diligently and bought JGBs (Japanese Government Bonds).

For the last couple of decades, they received a pittance in interest as the government shuttered rates and unleashed the printing press.

This lack of interest now means that poor old…yes, she is not as sprightly as she once was…she is part of the 23% of Japanese who are over 65…has not allowed Mrs. F. to accumulate enough interest to live off.  So she and her cohort are having to spend their principal to survive.

How does the Japanese government reward her loyalty for saving all these years via their JGBs. Of course, they do what bureaucrats do so well…they stick it to her…by increasing the current consumption tax by 100%…from 5% to 10%.

So think about this for a moment.  Mrs. Fukunaga did the right thing all her life.  She worked, she saved, she invested in Japan (95% of Japanese debt is domestic).  In return, she got paltry rates of interest that require her to now invade principal to survive….and all the while, the government squandered trillions of yen in a failed Keynesian attempt to stimulate an inherently flawed economy (Japan has the worst debt to GDP ratio in the world at over 200% and is a debt bubble looking for a pin).

So now they sock it to poor, increasingly old Mrs. F as she consumes her remaining savings…the government collecting a 10% stipend as she spends down to survive.  Could it happen in the good old US of A.  You better believe it.

Incidentally, “itai” is Japanese for “ouch”.  How soon until we all start feeling a lot more pain.  Don’t say we didn’t warn you.

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Thinking about Ions…and is Barrons’ front page a bad omen for bonds?

July 8, 2012

At Craven Capital, we’ve been thinking a lot about ions lately.  No…not those negative ions associated with crashing waves on the seashore that make you feel so positive.  The other ions that can make you feel so…well….negative.  You know them…Inflat-ion, Deflat-ion, Stagflat-ion and of course the big kahuna…Hyper-inflat-ion.

These days, it seems like a lot of people are thinking about ions.  When we are asked which ion we think will happen, we politely answer “yes”…because we think that all the ions could very well happen and to a certain extent…happen simultaneously.  Why?  Well…think about it for a moment.

Let’s start with Deflation.  We are definitely in a deflationary environment to some extent.  Wages are stagnant and falling which is deflationary.  Productivity is increasing in some areas (think computers and technology) which helps to bring down prices…which is also deflationary.  And most of all…the developed world is deleveraging from debt.  Baby boomers, of which we are not so proudly part, are wishing and wanting debt out of our lives so fast, it hurts. To any extent that we can, we are getting rid of debt and that means we are not using our money to buy stuff.  We are getting rid of stuff instead and using that money to get rid of debt.  That is definitely deflationary.

But what is deflation anyway?  As you know we like to keep things simple at Craven so we think it’s as simple as Sally telling Harry to keep his paper money in his pocket for now, because that cute IPad thingamajig that he’s wanting to buy today will likely cost less tomorrow.  Like all things economic, it is ultimately a state of mind, a perception of a future reality.   Economics, contrary to popular belief, is not a science…as much as the economists would want it to be…but that’s a topic for another day.

And that’s definitely enough ions (negative or positive) for today…we’ll continue our not so scientific discussion tomorrow.

In the meantime, we couldn’t help but notice the cover of Barrons yesterday morning.  Now, in the interests of full disclosure, let us say that we like Barrons.  We read Barrons and we occasionally enjoy the company of the very smart Barrons guys and gals.  They are good and bright folks and quite sociable.  But their editorial staff have a habit…not as bad as Time Magazine, by a long shot…of seeing their cover stories presaging a coming collapse.

http://www.usatoday.com/money/perfi/stocks/story/2012-04-25/stocks-magazine-cover-curse/54538018/1

So when we saw that this week’s cover was all about the best bond funds, we cringed a little.

http://online.barrons.com/home-page

As stated, we like Barrons and we’ve got nothing against bond funds per se….but we worry that bond funds have become so very popular at a time when interest rates (ergo yields) are so very low and really have not that much further to go.  Such perceived flights to safety can easily become unhinged when the demons of inflation take flight…or those nasty bond vigilantes come after Uncle Sam.  Both potentialities are lurking uncomfortably in the shadows.  At Craven, we prefer to know what we own and when, for example, Coke is paying far more in dividends than interest on its bonds and we have a chance to accumulate additional yields by way of covered call premiums on the Coke stocks we own, why should we rush off with the herd into a bond fund?

The problem with herds is that they tend to be skittish.  If we decide to own a bond, we would prefer to keep it or sell it when we choose and not be forced to liquidate prematurely because all our fellow buffaloes have their furry hides in a flutter.   And we don’t see any advantage to being a creditor of any company like Intel or Altria, with their fortress like balance sheets, fat margins, deep moats and oodles of free cash to pay us our handsome dividends.  So keep a keen eye on bonds and bond funds…and watch out for that shadowy figure in the corner…he might just be a vigilante.

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Will Germany go Neuro-tic….and is Jamie pulling a slick PR move?

June 28, 2012

There is so much to think about these days.  The Supremes rule on Barry’s plan to keep us all nicely covered and eligible for the best medical care that simply can’t be afforded.  There is so much conjecture out there from pundits far smarter than us so we’ll leave it to them to opine on things of such significance.

But at Craven we do love history…and especially the way it rhymes….often in the most ironic of ways.  Think about Germany for example.  After WWI (you know… “the war to end all wars”) Germany went through the most horrendous inflation, which ultimately became the infamous hyperinflation of the Weimar Republic in the early 1920s.  The Germans still feel the psychic pain…pain which was made far worse by France’s insistence on full reparation payments.  France was the big dog in Europe at the time and ran a healthy surplus.  Can’t you see the interesting and ironic historical rhyme?

Now, Germany is the big dog of Europe.  And France is beholden to them.  And Angela’s mob are holding tough…demanding reparations in the form of political sovereignty in order to instill fiscal discipline on those easy going Latins to the south.  But just like France needing Germany’s  coal from the Ruhr…which they ultimately tried to take by force…Germany needs its Latin friends.  When exports represent 45% of your GDP and the Chinese and Indians are sputtering a a wee bit, it’s even more important that they maintain a level (from their perspective anyway) trading arena.

But what if the Latins cried…”no mas” and decided to toss Germany out for their perceived lack of generosity?  After all, they have all the votes on the Euro commission.  What would happen?  Well…we think it unlikely…for like Goldie and Ben….they all need each other.  But what if they did?

In that case, we suspect that Germany would align with some mates to the west and north (think Holland, Finland, Belgium et al) to form the Neuro (the northern Eurozone) of responsible nations while the rest of those ditherers (possibly excluding basket case Greece) would align to form the Seuro….with France once again the top wolf of a very weak pack.  This idea was floated a couple years back and is not new…but maybe it’s an idea whose time has now come.

And now onto the world’s best looking banker…Jamie Dimon.  Not only is he good looking but he is smart.  Don’t you just hate people like him…good looking, smart and…rich!  So his $2bill loss is now looking far larger…but how far?  We suspect that good old..but young looking…Jamie is pulling a swifty.  The word is now leaked that the loss could be as much as $9bill, which would make a big hole in this year’s earnings indeed.  Our word from the street…and we are only about 100 yards from Wall St. (way too close for comfort)…is that the loss is probably more around 5 bill. So in this world of sound bites, fleeting memories and jaundiced perceptions, don’t you think it would be a smart move to leak 9 bill to set expectations low and then announce on July 13 (Black Friday for those into such things) that golly gee…the loss is actually so much less than perceived.  Then, instead of focusing on 2 bill ballooning out to 5, the market can swoon and say…”well, thank God…it wasn’t 9 bill after all…such good news”.   Let’s see if Jamie is really as smart as he is good looking.

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