Bearish News

In Mr. Krugman’s recent post, Commodities: This Time It’s Different, he admits Fed actions may be playing some role in spiking commodity prices.

According to Krugman, though, it’s more important to focus on “fixing” unemployment. Even if his proposals could stimulate employment efficiently, it’s a hard argument to make. From the start:

I’ve been getting a fair bit of correspondence insisting that political unrest, in the Arab world and elsewhere, is being caused by … Ben Bernanke. You see, quantitative easing is responsible for rising food prices, which leads to riots, which — OK, there are a lot of broken links in that chain.

China is primarily to blame, per Nobel Laureate Krugman. It’s their strong(er) economy, surpluses, currency manipulation (lol glass houses), and lack of consumer overspending and debt. Those are the real problems. And hoarders! Chinese farmers are hoarding cotton, apparently (though he admits that there’s no real proof of significant hoarding.)

First and foremost, China: it’s clear from news coverage that Chinese demand is driving the markets. As I and others have been pointing out, we’ve got a bifurcated world right now, with advanced economies still depressed but emerging economies in an inflationary boom; commodity prices are reflecting the boom part of the picture.

But Chinese demand isn’t just a matter of fundamentals: all the evidence suggests that there’s a lot of physical hoarding going on. Chinese farmers are apparently hoarding lots of cotton, while China is holding record stockpiles of iron ore.

Now, what about food prices?

Not much evidence of hoarding, as far as I can tell. So this is straightforward supply and demand. Demand may be up to some extent because of that emerging-market boom.Oh, and what about Ben Bernanke? Well, to the extent that emerging markets are insisting on a fixed exchange rate against the dollar in the face of obvious overvaluation, that contributes to the boom and hence to demand.

But I don’t think it’s reasonable to demand that the Fed stop fighting US unemployment in order to keep Chinese currency manipulation from leading to cotton hoarding by Chinese farmers [talk about being confused, and on the wrong side of history... -Adam].

Sure, increased demand is part of the equation. China should let the Yuan rise over time, and I suspect they will. The big point is that Krugman and others continue to discount all negative side-effects of loose money, deficit spending, bailouts, etc. These things have consequences, tanstaafl.

Fed liquidity is not helping the situation.

Egyptian Revolution Jan 25th 2011 – Take what’s Yours! from JoeChaban on Vimeo.

Guest post by Bradford Hansen, CEO of CSLFinancialGroup.net.

One of the biggest questions we have had this week is what happened with the job rate last Friday. Why did it go from 9.8% to 9.4% when the job market is still very tough?

The answer is that the workforce shrank officially by 260,000 jobs. Unofficially, according to the most recent census data, our workforce should actually be growing by about 125-150,000 people per month. So, how is it possible for the BLS to shrink the workforce? It all depends on how you ask the question, literally. The unemployment rate is determined by a phone survey.

These are the questions the surveyor is supposed to find the answers to.

1. Are you employed full time?
2. Are you employed part time?
3. Do you want a job?
4. Are you available for a job?
5. Have you looked for a job in the last four weeks?

Remember, that even if you work 1 hour the BLS considers you officially fully employed. Currently, we have about 9 million people who are working part time, but want a full time job. Obviously your answer to the first 3 are no brainers, a “yes” to those puts you in the workforce regardless of employment status! It’s #4 and #5 that can get you kicked out of the workforce statistic, according to the BLS.

Let’s say you want a job, but are not available because you have gone back to school, you are now officially out of the workforce. Or if you have been unemployed for a while and you give up looking, you are also now considered to be out of the workforce.

Also, people who want to work but decided to give up and collect their social security are now, according to the BLS, officially out of the workforce. So, as you can see because of the way the BLS keeps track of the unemployment rate, it’s actually possible for the job market to get worse causing the official rate to go down. As people give up, retire, or go back to school, the workforce will continue to officially shrink.

CSL Financial Group’s outlook for jobs.

We’ll keep this short and to the point since most people don’t want to hear this. Currently, we have 25 million people either unemployed or underemployed, this is the official number of people who want to work a full time job.

Now, during the 1990’s, we had the internet revolution, the dot com bubble, and towards the end of the decade housing started to pick up. During that decade 22 million jobs were created. That means even if we froze the current population and didn’t have any new adults enter the workforce, not only would it take more than a decade to absorb the people who are currently unemployed, but it would take something like a new internet boom. We would need to see a new driver for jobs. Currently, in our opinion, there is no driver for jobs. There are only trillion dollar deficits trying to keep the old ones around.

With that said, use this knowledge accordingly. If you have a good job or are offered a job that isn’t ideal, work because there is no guarantee that people are going to find jobs this decade.

Market Update

Today, the market is going to have to deal with what we just talked about, a lower rate with more people losing jobs. This morning the BLS reported that 445,000 people filed for initial jobless claims, Wall St. was expecting that number to be around 400,000.

Now again, we hate to sound like we are bears or pessimists for telling the truth, but we wouldn’t be giving you an honest assessment if we didn’t mention the raw data. Remember, we said seasonal adjustment which means the BLS was in charge of how much to offset a post holiday number. Ignoring the seasonal adjusted number and looking at the actual claims, initial jobless claims surged to 770,413 people, up 191,686 from last week.

We have to admit this is a jaw dropping number, especially with what’s reported to the public. In fact, this is the largest number we have seen in a year for weekly jobless claims.

Bradford Hansen is CEO of CSLFinancialGroup.net. Re-published with permission.

Guest post by Stefan Karlsson, independent Swedish economist.

Advocates of tax cuts are often accused by the left of advocating “trickle down economics”, which is the idea that if you give the rich a lot of money, it will trickle down to the rest of the population.

In reality, the economic case for tax cuts certainly doesn’t lie in any “trickle down” idea, something which is illustrated by the fact that it applies to tax cuts for people with low or moderate income as well. Instead, it is based on the insight that if you improve incentives, then more wealth will be created.

However, as is pointed out here,  Bernanke is in fact making the case for “quantitative easing” on the basis of “trickle down economics”, when he says it will boost the economy by the “wealth effects” that higher stock prices creates. And as the richest 1% in America owns 51% of stocks and mutual fund assets while the bottom 50% only owns 0.5%, “quantitative easing” is thus a big redistribution scheme in favor of the wealthy.

Ironically, most of the leftists that complains the most about the increase in inequality is in favor of this inequality increasing scheme.

Republished with author permission.