Employment: A dirty little secret and more graphs

"First, anyone who adds (or subtracts) the Not Seasonally Adjusted (NSA) birth/death model numbers from the headline SA payroll employment is clueless. Someone sent me this "analysis" today: "... you exclude the 62K from McDonalds hirings, and 175K from the Birth Death Adjustment, and end up with.... +7K jobs". That is complete nonsense. The key issue with the birth/death model is it misses turning points; otherwise it is an important part of the monthly estimate.

Second, I was reminded of a "dirty little secret" when I read Paul Krugman's column this morning. Krugman wrote about how the "D.C. economic discourse is saturated with fear" of "invisible monsters", but that no one seems to care about the very real plight of the millions of unemployed.

Actually it really isn't much of a secret that Wall Street and corporate America like the unemployment rate to be a little high. But it is "dirty" in the sense that it is unspoken. Higher unemployment keeps wage growth down, and helps with margins and earnings - and higher unemployment also keeps the Fed on the sidelines. Yes, corporations like to see job growth, so people have enough confidence to spend (and they can have a few more customers). And they definitely don't want to see Depression era unemployment - but a slowly declining unemployment rate (even at 9%) with some job growth is considered OK...."

at http://www.calculatedriskblog.com/2011/05/employment-dirty-little-secret-and-more.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful

"Thoughts on the Jobs Report Thoughts on the Jobs Report

On the surface, this was the third consecutive solid jobs report, not as measured by the typical recovery, but the best back-to-back reports we have seen for years. The Payroll Survey Establishment Data showed employment up by 244,000.

At that pace of hiring, the unemployment number would ordinarily drop, but not fast.

Instead, the unemployment rate ticked up. The reason is beneath the surface, employment fell by 190,000 according to the Household Survey.

According to the Household Survey, the number of unemployed rose by 205,000. Another 131,000 dropped out of the labor force or the unemployment rate would have been even higher.

Which survey to believe?

It is hard to say on one month's data. However, during a recovery the household survey is supposed to lead. Moreover, the household survey is more consistent with three recent reports.

1. Weekly Unemployment Claims Soar to 474,000; Bogus Excuses Offered
2. Oil Consumption Demand Destruction vs. Speculative Futures Positions
3. Non-Manufacturing ISM Plunges Below Prediction of All 73 Economists, New Orders Collapse, Prices Firm; Did Rosenberg Capitulate at the Top?..."

at http://globaleconomicanalysis.blogspot.com/2011/05/bls-jobs-report-nonfarm-payroll.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Marc Faber : stocks will go up because of money printing

"Marc Faber “The more things will go bad, the worse things become, the more the money printer at the Fed, Mr. Bernanke, will print,” “He will print endlessly. Even if things go bad economically, you could have no revenues at companies and no earnings and stocks will go up because of money printing.”

at  http://marcfaberchannel.blogspot.com/2011/05/marc-faber-stocks-will-go-up-because-of.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29

The IMF’s Switch in Time

"The annual spring meeting of the International Monetary Fund was notable in marking the Fund’s effort to distance itself from its own long-standing tenets on capital controls and labor-market flexibility. It appears that a new IMF has gradually, and cautiously, emerged under the leadership of Dominique Strauss-Kahn.

Slightly more than 13 years earlier, at the IMF’s Hong Kong meeting in 1997, the Fund had attempted to amend its charter in order to gain more leeway to push countries towards capital-market liberalization. The timing could not have been worse: the East Asia crisis was just brewing – a crisis that was largely the result of capital-market liberalization in a region that, given its high savings rate, had no need for it.

That push had been advocated by Western financial markets – and the Western finance ministries that serve them so loyally. Financial deregulation in the United States was a prime cause of the global crisis that erupted in 2008, and financial and capital-market liberalization elsewhere helped spread that “made in the USA” trauma around the world.

The crisis showed that free and unfettered markets are neither efficient nor stable. They also did not necessarily do a good job at setting prices (witness the real-estate bubble), including exchange rates (which are merely the price of one currency in terms of another).

Iceland showed that responding to the crisis by imposing capital controls could help small countries manage its impact. And the US Federal Reserve’s “quantitative easing” (QEII) made the demise of the ideology of unfettered markets inevitable: money goes to where markets think returns are highest.

With emerging markets booming, and America and Europe in the doldrums, it was clear that much of the new liquidity being created would find its way to emerging markets. This was especially true given that America’s credit pipeline remained clogged, with many community and regional banks still in a precarious position.

The resulting surge of money into emerging markets has meant that even finance ministers and central-bank governors who are ideologically opposed to intervening believe that they have no choice but to do so. Indeed, country after country has now chosen to intervene in one way or another to prevent their currencies from skyrocketing in value.

Now the IMF has blessed such interventions – but, as a sop to those who are still not convinced, it suggests that they should be used only as a last resort. On the contrary, we should have learned from the crisis that financial markets need regulation, and that cross-border capital flows are particularly dangerous. Such regulations should be a key part of any system to ensure financial stability; resorting to them only as a last resort is a recipe for continued instability..."

at http://www.project-syndicate.org/commentary/stiglitz138/English

Marc Faber : Gold is Cheap

"Marc Faber in an interview with moneycontrol recently said that he does not believe that Gold is in any kind of bubble , in fact it is still cheap at these prices :..."... In gold and silver terms, Marc faber said , the Dow Jones over the last 10 years has already lost more than 80% of its value. "If it were a bubble a lot of people would have gold. The whole world would be trading gold 24 hrs a day. But I don’t think it’s really a bubble. I think may be gold is cheap."..."

at  http://marcfaberchannel.blogspot.com/2011/05/marc-faber-gold-is-cheap.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29

Hoppe: “Economic Crises: How to Cause Them and How to Make Them Worse by ‘Curing’ Them”

"As I noted here, Professor Hoppe recently delivered the speech “State or Private Law Society?” in April 2011 at the 2nd Austrian School Conference, Mises Institute Brasil, in Porto Alegre.
His second talk delivered at the same conference, “Economic Crises: How to Cause Them and How to Make Them Worse by ‘Curing’ Them,” is now also available..."

at http://blog.mises.org/16808/hoppe-economic-crises-how-to-cause-them-and-how-to-make-them-worse-by-curing-them/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29

US To Reach Debt Limit on May 16 - Treasury Asks For $2 Trillion Increase

"This is from Reuters:

"The following are highlights from the U.S. Treasury Department's announcement on Wednesday of its quarterly debt refunding, which will raise $72 billion in new cash.

The Treasury said it would auction $32 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds next week.

When the note and bond sales are settled on May 16, they will exhaust the government's remaining borrowing capacity under the $14.3 trillion statutory debt limit. This will require the government to employ emergency measures to continue borrowing, but these will only be sufficient until Aug. 2, according to Treasury projections. The measures include dipping into two federal employee pension funds.

Treasury officials reiterated their view that they believe Congress will raise the debt limit in time. A Treasury official said that reduced auction sizes or frequencies were options that could be considered to refund maturing debt in case the debt limit increase was delayed."
 

The Treasury is reportedly asking for a $2 Trillion increase again according to Reuters:.."

at  http://jessescrossroadscafe.blogspot.com/2011/05/us-to-reach-debt-limit-on-may-16-will.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Peter Temin: Macroeconomics Has Lost Its Way

"Here are a few passages from a much longer interview of Peter Temin:

Peter Temin in Conversation with The Straddler: ...In my opinion, macroeconomics has lost its way. The kind of models that many people use—general equilibrium models—start from assumptions of ... omniscient consumers, and various like things which give rise to an efficient economy. As far as I know, there has never been an economy that actually looked like that—it’s an intellectual construct. But many people claim that the outcomes of that economy are natural outcomes. When you say “natural,” you already have an emotionally laden term. Deviations from the “natural”—say, like, minimum wage laws, or unions, or governments that give food stamps, or earned income tax credits—are interferences with the natural order and are therefore “unnatural." ...
The general equilibirum view tends to lend support to those who want to make the economy more efficient in the sense of having fewer “distortions”—you know, all of these neutral economic words—from taxes, from labor unions, from minimum wages, and so on. Now, what has happened in the last thirty years—and this is what Hacker and Pearson note in their book [Winner-Take-All Politics]—is we have gotten ourselves into a feedback situation. As people have gotten richer, conservative people have funded organizations which generate economic research promoting their political views..."

at  http://economistsview.typepad.com/economistsview/2011/05/peter-temin-macroeconomics-has-lost-its-way.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

CREDIT SUISSE: THE END OF QE2 WILL LEAD TO A SELL-OFF

"There is still a heated debate over QE2′s end and how it will impact the markets. Credit Suisse is making the case that QE2 can only have a negative impact on the market. Doug Cliggott, US Equity Strategist, explains his rationale for an equity market decline:..."

at http://pragcap.com/credit-suisse-the-end-of-qe2-will-lead-to-a-sell-off

Why Do Humans Behave Irrationally?

"For all our advancement as a species, we are unable to explain why humans behave irrationally. Why financial markets, for example, do their own thing like cartoon characters that remain suspended in thin air -- and do not fall down -- after they have clearly gone over the edge!
Why does the equivalent of gravity not kick in for individual and collective human behaviour which can at best be described as irrational on some occasions, and on others, as bordering on the insane. Most of us are quite capable of ignoring fundamentals for a long time until they completely overwhelm us.

Quantum cognition seeks to answer these fascinating questions whilst paving the way for advanced humanoid robots and multi-tasking software agents.

Mysterious Cognitive Phenomena
Is there a deep and mysterious relationship between quantum mechanics, human psychology, and cognition? Quantum cognition is an emerging field of scientific research that applies ideas from quantum mechanics and quantum computing to develop radically new models for a variety of cognitive phenomena including:

1. Human memory;
2. Information retrieval;
3. Human language;
4. Human judgement;
5. Decision making;
6. Social interaction;
7. Personality psychology;
8. Philosophy of mind;
9. Atemporal reality of our eternal Self-hood; and
10. Advanced artificial intelligence..."

at http://www.businessinsider.com/why-do-humans-behave-irrationally-quantum-cognition-2011-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1LPYOsqHZ

ISM MISSES BY A MILE – IS IT TIME TO PANIC?

"This morning’s ISM Services report missed estimates substantially. Headline came in at 52.8 vs expectations of 57. The underlying data was even worse. New orders tanked 11.4 points to 52.7. Unemployment fell to 51.9 from 53.7. Meanwhile, prices, though falling, remain at very high levels..."

at http://pragcap.com/ism-misses-by-a-mile-is-it-time-to-panic

Portugal Negotiates $116 Billion Bailout Loan, Bond Market Yawns

"Portuguese Prime Minister Jose Socrates is singing the praises of a $116 bailout on good terms, even though two weeks ago he denied the need for Portugal to take a loan at all. The bond market responded with a big yawn.

Please consider Portugal Says It Has Negotiated a Bailout Loan of $116 Billion..."

at http://globaleconomicanalysis.blogspot.com/2011/05/portugal-negotiates-116-billion-bailout.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Reinhart: Bad Loans Clogging the Arteries of the Financial System

at http://www.ritholtz.com/blog/2011/05/reinhart-bad-loans-clogging-the-arteries-of-the-financial-system/

Silver Down 12%, Big Default Rumored at Comex

"We managed to miss out on the parabolic rise of silver, which has now been followed by a stomach-churning 12% fall in thin holiday trading. And commodity markets are less deep than securities markets. Recall that the famed peak of gold in 1980 to $850, was a violent spike up, vasty high than the level two days earlier or two days later.

Silver in particular has been closely watched due to the presence of very large short interests which were apparently partially closed out late last week leading to some very serious intraday volatility.

Today we have this cheery development, courtesy Jesse:


Now this wild ride might not be newsworthy in and of itself, but it is also accompanied by rumors of Serious Pain, presumably at JP Morgan, which quite a few market participants think has been on the wrong side of this trade:

The Comex is facing a default, and the powers that be are very nervous since it involves at least one of the TBTF monstrosities.
Shock and awe in the thin Sunday night trade, running the stops of the new futures holders whose options were filled. Even more heavy handed and blatant than usual.

Shedlock (hat tip reader furzy mouse) is of the view that everyone who wanted to buy silver is “all in”. The rapid runup in the last few months looks like a classic blowoff, and I’ve been more generally of the view that we are having a 2011 rerun of the liquidity-fuelled commodities bubble of the first half of 2008. But we only saw some hedgies (apparently including Magnetar!) get serious bloody noses by getting that trade wrong. A big default at an exchange by a major bank is a whole different kettle of fish. And with this a holiday in London, we aren’t getting as much gossip intelligence as we normally might. Stay tuned!..."

at http://www.nakedcapitalism.com/2011/05/silver-down-12-big-default-rumored-at-comex.html

In Growing Chinese Dominance, a Wake-Up Call for America

"The world's two economic superpowers will meet soon for the third installment of their Strategic and Economic Dialogue. Beyond the specifics, the real issue for the United States and the world is China's looming economic dominance. President Obama's State of the Union address, after President Hu Jintao's visit in January, showed the level of anxiety that policymakers feel about China as a potential rival and perhaps a threat, with growing economic, military, and political power, including its bankrolling of American debt. But judging from the reaction to the president's speech, that threat is not viewed as imminent. The same was said, some pointed out, of the rise of Russia and Japan, 40 and 20 years ago, respectively, and those threats turned out to be false alarms. But what if the threat is actually greater than policymakers suppose?

According to the International Monetary Fund, for example, total US gross domestic product in 2010 was $14.7 trillion, more than twice China's $5.8 trillion, making the average American about 11 times more affluent than the average Chinese. Goldman Sachs does not forecast the Chinese economy overtaking that of the United States until 2025 at the earliest. Americans also draw satisfaction from their unmatched strengths of an open society, an entrepreneurial culture, and world-class universities and research institutions.

But these beliefs may be overly sanguine. The underlying numbers that contribute to them are a little misleading because they are based on converting the value of goods and services around the world into dollars at market exchange rates.

It has long been recognized that using the market exchange rate to value goods and services is misleading about the real costs of living in different countries. Several goods and services that are not traded across borders (medical care, retail services, construction, etc.) are cheaper in poorer countries because labor is abundant. Using the market exchange rate to compare living standards across countries understates the benefits that citizens in poor countries enjoy from having access to these goods and services. Estimates of purchasing power parity take account of these differing costs and are an alternative, and for some purposes a better, way of computing and comparing standards of living and economic output across countries.

My calculations (explained in greater detail on the Peterson Institute website) show that the Chinese economy in 2010, adjusted for purchasing power, was worth about $14.8 trillion, surpassing that of the United States. And, on this basis, the average American is "only" four times as wealthy as the average Chinese, not 11 times as rich, as the conventional numbers suggest..."

at http://www.piie.com/publications/opeds/oped.cfm?ResearchID=1823&utm_source=feedburner&utm_medium=%24%7Bfeed%7D&utm_campaign=Feed%3A+%24%7Bupdate%7D+%28%24%7BPIIE+Update%7D%29

Manufacturing ISM Prices Paid Hits Another High, Up 22nd Consecutive Month; Inflation Hysteria?

"...The ISM Prices Index registered 85.5 percent in April, 0.5 percentage point higher than the 85 percent reported in March and the highest reading since July 2008 when the index registered 88.5 percent. This is the 22nd consecutive month the Prices Index has registered above 50 percent. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, 17 report paying increased prices during the month of April. No manufacturing industry reported paying lower prices on average in April..."

at http://globaleconomicanalysis.blogspot.com/2011/05/manufacturing-ism-prices-paid-hits.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Economics in Crisis

"The most interesting moment at a recent conference held in Bretton Woods, New Hampshire – site of the 1945 conference that created today’s global economic architecture – came when Financial Times columnist Martin Wolf quizzed former United States Treasury Secretary Larry Summers, President Barack Obama’s ex-assistant for economic policy. "[Doesn’t] what has happened in the past few years,” Wolf asked, “simply suggest that [academic] economists did not understand what was going on?”

Here is the most interesting part of Summers’ long answer: “There is a lot in [Walter] Bagehot that is about the crisis we just went through. There is more in [Hyman] Minsky, and perhaps more still in [Charles] Kindleberger.” That may sound obscure to a non-economist, but it was a devastating indictment.

Bagehot (1826-1877) was a mid-nineteenth-century editor of The Economist who published a book about financial markets, Lombard Street, in 1873. Summers is certainly right: there is an awful lot in Lombard Street that is about the crisis from which we are now recovering.

Minsky (1919-1996) is best approached not through his collected essays, entitled Can “It” Happen Again?, but rather through the use Kindleberger (1910-2003) made of his work in his 1978 book Manias, Panics, and Crashes: A History of Financial Crises. Asked to name where to turn to understand what was going on in 2008, Summers cited three dead men, a book written 33 years ago, and another written the century before last.

Summers then enlarged his answer to include living economists: “Eichengreen, Akerlof, Shiller, many, many others.” He talked about “the revolution in finance as it was realized that asset prices show large volatility that does not reflect anything about fundamentals,” but added that “macroeconomics [did not] keep up with [this] revolution.” As a result, “to the great detriment of contemporary macroeconomics,” his fellow economists did not understand asset prices, manias, panics, and liquidity.

For Summers, the problem is that there is so much that is “distracting, confusing, and problem-denying in…the first year course in most PhD programs.” As a result, even though “economics knows a fair amount,” it “has forgotten a fair amount that is relevant, and it has been distracted by an enormous amount.”..."

at http://www.project-syndicate.org/commentary/delong113/English

Sachs: The Global Economy’s Corporate Crime Wave

"Jeff Sachs says rich countries should not be "pointing the finger at poor countries" over corruption:

The Global Economy’s Corporate Crime Wave, by Jeffrey D. Sachs, Commentary, Project Syndicate: The world is drowning in corporate fraud, and the problems are probably greatest in rich countries – those with supposedly “good governance.” Poor-country governments probably accept more bribes and commit more offenses, but it is rich countries that host the global companies that carry out the largest offenses. ...

Hardly a day passes without a new story of malfeasance. Every Wall Street firm has paid significant fines during the past decade for phony accounting, insider trading, securities fraud, Ponzi schemes, or outright embezzlement by CEOs. ... There is, however, scant accountability. ... When companies are fined for malfeasance, their shareholders, not their CEOs and managers, pay the price. ...

Corporate corruption is out of control for two main reasons. First, big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on. Second, companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or ... beneficiaries of corporate profits. ...

Even if governments try to enforce the law, companies have armies of lawyers to run circles around them. The result is a culture of impunity, based on the well-proven expectation that corporate crime pays. ...

So the next time you hear about a corruption scandal in Africa or other poor region, ask where it started and who is doing the corrupting. Neither the US nor any other “advanced” country should be pointing the finger at poor countries, for it is often the most powerful global companies that have created the problem..."

at  http://economistsview.typepad.com/economistsview/2011/04/sachs-the-global-economys-corporate-crime-wave.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

Goldman estimates 3.5 million Excess Vacant Housing Units

"Some key numbers for the U.S. economy are: 1) the current number of excess housing units, 2) how many new households are being formed each year, and 3) how many housing units are being added to the housing stock each year (at a record low this year).

Unfortunately reliable data for the first two numbers is unavailable except with a significant lag.

I've used the quarterly Housing Vacancy Survey (HVS), but that is not really designed for this purpose.

Goldman Sachs put out an estimate yesterday of 3.5 million units based on the HVS: "Based on data from the Census Bureau, we estimate that about 3.5 million housing units currently sit vacant, above and beyond normal seasonal and frictional vacancies." They calculated a range of 2.5 to 4.5 million units based on different assumptions..."

at  http://www.calculatedriskblog.com/2011/04/goldman-estimates-35-million-excess.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

Japan Resumes Hyprintspeed Part 2: Presenting.... One QUADRILLION

"Part 2 of our "Japan resumes hyprintspeed speed" series comes courtesy of The Privateer's Bill Buckler who has discovered that quadrillion is the new black.

The latest projections from the Japanese Finance Ministry regarding the fiscal year which started on April 1 make for sobering reading. They say that Japan’s “public” (funded) debt will probably rise by 5.8 percent this year - to 997.7 TRILLION Yen ($US 12.2 TRILLION at current exchange rates). Should these projections be even slightly on the optimistic side - and government financial projections always are - then Japan could easily be looking at a public debt of 1,000 TRILLION Yen by March 31, 2012.

There is another way of expressing 1,000 TRILLION. It is the same as ONE QUADRILLION.

The sheer magnitude of these numbers has long been a talking point for the watchers of international finance. Now, they are becoming very nervous indeed. The OECD has recently “urged” the Japanese government to “do something” about their deficits, especially in the wake of the earthquake disaster. Noting that Japanese sovereign debt is about to hit 204 percent of GDP, they suggested that Japan’s current sales tax be “at least” doubled from its present 5 percent to 10 percent. The Japanese Foreign Ministry politely declined to comment on this suggestion, contenting themselves with assuring the OECD that - “We will continue to work to maintain and secure trust in Japanese government bonds.”

At this, a line from Rosencrantz and Guildenstern are Dead comes to mind: "Eternity's a terrible thought. I mean, where's it all going to end?" While this has been mostly a rhetorical question over the ages, G7 central planners are set to provide a definitive answer very soon..."

at  http://www.zerohedge.com/article/japan-resumes-hyprintspeed-part-2-here-comes-one-quadrillion?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29