Bearish News

These two charts, via ContraryInvestor.com (subscription), show another side of the jobs equation. The first shows overall labor participation. The last 10 years have not been kind, and declines in the overall % of employed Americans have accelerated. Just wait till the baby boomers all retire on Social-Security and Medicare.

The historical data is interesting, especially the big jump during the 1960′s-80′s. Presumably this is due to the shift from one-worker to two-worker households, as more women entered the workplace.

The second chart shows the # of weeks the average person has been unemployed. Not pretty, as you can see. Eventually many of these people become discouraged, and are no longer counted as unemployed, as they are not “actively” looking for work.

So while November’s “surprise upside” #s were less-bad, the employment situation is still ugly. And much of November’s relative rosiness was due to seasonal adjustments and temporary Holiday jobs.

Buckle up and be ready for a double-dip. It seems inevitable, to me at least. The real test comes if/when the Fed stops buying Freddie/Fannie debt Spring 2010, as they currently plan to.

I’m convinced the programs will be extended once it becomes clear just how dependent this “recovery” is on government printing. Once they announce the “unforseen” need for continued bailouts and printing, inflation expectations will rise.

My guess is that Bernanke/Geithner, et al, will feign shock when things turn south as the current programs expire. But do they seriously expect the real markets to be take over after ending a $1.25 trillion MBS crack-binge?

The smart money is betting on moral hazard. From Reuters:

He highlighted the attractive yields on credit issued by GMAC due in Sept 2011, the former General Motors automotive financing company that the U.S. government propped up at the end of 2008.

By Paulson’s thinking, the government involvement is equivalent to an explicit guarantee on GMAC’s finances.

‘So instead of buying (a) Treasury bond which yields 84 basis points, I can buy GMAC which is almost, I consider equivalent to a government bond and I can get 11 percent. That is why we have allocated so much money to this particular security,’ he said.

John Paulson knows the deal. The government has made a policy of bailing out bondholders, and not forcing them to take losses.

He knows this policy is a long-term disaster (hence the gold bet). But if you can’t change it, why not profit from it? A great example of why it’s dangerous to be short (for now). Back in April I warned bears about this problem in More Bailouts and Inflation Loom.

Paulson: Gold is the best currency

Everybody knows Paulson likes gold. In the same article he he offers some interesting insight as to exactly why he’s so bullish.

Even as credit and equity markets looked attractive, he did reiterate his concerns that over the long-term inflation will be a problem because the government’s mountain of stimulus cash will be difficult, politically, to withdraw from the economy.

‘Therefore we are concerned about high rates of inflation in the future. As an investor I became very concerned about having my assets denominated in U.S. dollars,’ he said.

‘So I looked for another currency in which to denominate my assets in. I feel that gold is the best currency.’

hat tip TraderMark

Who woulda thought the Hummer loophole would end badly? Another example of what happens when the government meddles in markets.

Lots of other food for thought in this chart by Jake from Econompic.

This is a re-post from Karl Denninger’s site, which appears to be having technical difficulties. Hope Karl doesn’t mind.