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March, Friday 09, 2012

DOW + 14 = 12,922
SPX + 4 = 1370
NAS + 17 = 2988
10 YR YLD +.02 = 2.04%
OIL + .84 = 107.42
GOLD + 14.00 = 1714.50
SILV +.44 = 34.42
PLAT + 22.00 = 1688.00
The S&P 500 managed to post a gain of 0.1% for the week; so, even with the big drop on Tuesday, the S&P notched its 4th consecutive weekly gain.

This morning we got the monthly jobs report; the headline number showed the economy created a net 227,000 jobs in February. It is generally estimated that we need a job creation rate of 150,000 per month just to keep up with population growth, just to tread water. Now we’re finally getting that growth. February marked the third straight month in which payroll jobs rose by more than 200,000. Gains could be seen in a range of industries: professional and business services, manufacturing, and health care. The construction and retail trade sectors shed positions.

Every month, when the Bureau of Labor Statistics reports the jobs figures, it revises the previous two months’ reports. Looking back, BLS has determined that more jobs were created in December 2011 and January 2012 than originally thought. The December jobs gain, originally reported as a 200,000 gain in January, was revised to 223,000. January’s job total, originally reported as a gain of 243,000, was revised upwards to 284,000. In other words, BLS discovered an extra 61,000 jobs. Compared with February 2011, 2.021 million more Americans have payroll jobs. In the past two years, the private sector has created 3,938,000 jobs.
The BLS compiles unemployment data through two surveys. The establishment survey, in which BLS calls up companies and asks them how many people they’re employing, produces the payroll jobs figures. The household survey, in which BLS calls people and asks them if they’re working, produces the unemployment rate and a different measure of employment.
In February, BLS determined the number of Americans who were working was 142.065 million, up from 141.637 million in January 2012, and up significantly from 139.551 million in February, a year ago. That’s 2.514 million more Americans working today than a year ago.  Still, that is a scary number; less than half the population of the country works.
In February, the labor force, the labor force participation rate, and the employment-to-population ratio all grew. They still remain at depressed levels. The U-6, an unemployment rate that takes into account frustrated job seekers and people who are working part-time but would prefer to work full-time, fell to 14.9 percent. That’s high, but it’s the lowest level since January 2009.
In 2011, government cut an average of 22,000 per month; this included local, state, and federal government  jobs. In January, the government sector reduced employment by a 1,000 positions, and in February, governments cut 6,000 positions. So, the rate of loss of government jobs is slowing.
The average workweek was unchanged at 34.5 hours. Average weekly earning increased one-tenth of one percent from $803.16 to $804.20. Over the past year, average weekly earnings are up just 2.5 percent, while average hourly earnings are up 1.9 percent. This is really sluggish earnings growth and wages are not keeping up with increases in the price of food, gasoline, and health care.
There are a total of 12.8 million Americans unemployed and 5.4 million have been unemployed for more than 6 months. Still very grim.
Part of the improvement in jobs may be attributed to mild winter weather. Higher gas prices might prove a drag on future job gains. It is probably foolish to think an economic downturn in Europe won’t have an impact on the U.S. Plenty could happen, but the jobs report was pretty good, not great but pretty good. The unemployment rate didn’t decline, but that’s because long-term unemployed are trying to get back into the job market. The numbers are improving but the numbers are still very low and very far from normal. And we could see this positive trend turn in a heartbeat. If job growth stumbles from here, there is no recovery and there is no way to avoid a downturn. However, it would be a huge stretch to anticipate a cyclical downturn based on the current trend in jobs growth.
If this pace of jobs growth can be sustained, then some people think the Federal Reserve might be able to hold off on further economic stimulus, but apparently the markets didn’t see it that way; the response was mildly positive. The Fed can’t back away from economic  stimulus; there is no exit plan from accommodation. Wall Street is still expecting the Fed to crank up the printing press, or to keep the printing press busy. And the most likely path is for accommodation in housing. Home values are down one-third in the past six years; that’s the national average; far worse in many areas. Even with low interest rates, refinancing has been difficult, in large part because of negative equity. That is about to change.
We talk about the Fed cranking up the printing press and sometimes we hear reference to things like the “massive” stimulus, but it really hasn’t been so overwhelming. Total nondefense spending at all levels rose from 27.2% of potential GDP in the last quarter of the Bush Administration (2008Q4) to a shocking 29.9% by 2010Q4, before declining to 28.4% in the last quarter for which data are available for.  That’s not to say that the Federal government did not increase spending; merely that to a large extent it was offsetting the contraction at the state and local levels of government. The fact that real interest rates have zoomed toward negative merely confirms the fact that government spending could not compensate for the massive collapse in private consumption and investment spending.
About a year ago, Lloyd Blankfein, the CEO of Goldman Sachs said Goldman was doing God’s work. I nearly choked on my coffee when I heard that, but maybe it explains this next bit of news. Banks are foreclosing on churches in record numbers. Since 2010, 270 churches have been sold after defaulting on their loans. In 2011, 138 churches were sold by banks, an annual record. That compares to just 24 sales in 2008 and only a handful in the decade before. The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Typically, churches have commercial mortgages, and it’s common practice for banks to refinance such loans when they come due, but banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets. The problem is negative equity.  Property values have dropped and the appraisals don’t justify rolling over the loan. And it’s not just churches.
Right about the same time as the jobs report this morning, the Commerce Department reported the trade deficit widened 4.3% in January to $52.6 billion from $50.4 billion in December. That December number was revised from an earlier guesstimate of $48.8 billion. economists at Goldman Sachs cut their estimate for first-quarter GDP to 1.8% growth from a previous estimate of a 2% rate. Analysts at J.P. Morgan Chase also reduced their first-quarter forecast, to 1.5% GDP growth from the 2% previously projected.
The International Swaps and Derivatives Association says the Greek default will trigger payouts on $3 billion dollars of default insurance. The rest of the Greek debt, 95%, was restructured using collective action clauses to cram down the value of the old bonds. And so it appears the smart boys and girls at the European Central bank have managed to pull off an orderly restructuring and at the same time they allowed a very small credit event to be triggered; so they can still claim that Credit Default Swaps are still an effective tool to hedge exposure. This was an important distinction that will probably prevent the derivatives market from collapsing and also prevent Portugal, Spain, and Italy from defaulting on their debt, at least for now.
Meanwhile, the  International Swaps and Derivatives Association along with the Securities Industry and Financial Markets Association are suing the Commodity Futures Trading Commission. That’s a mouthful, it basically means the big banks are suing the regulators, claiming the regulators didn’t consider the costs and benefits of the the Dodd-Frank Act. The CFTC says they put out proposals asking for comments on the costs of regulations but the banks don’t provide much data. Instead, they’ve sued. I’m guessing the banks didn’t want to include the cost of blowing up the global economy. And as the CFTC was responding to the lawsuit stuff, they let slip this little tidbit; hedge funds and other speculators increased their positions in the energy markets 43% in January of this year compared to June of 2008.
As of Super Tuesday,  Super PACs, Political Action Committees have spent more than $66 million on the GOP primaries, more than the total Super PAC spending during the entire 2010 midterms, this according to a report issued today by the Center for  Public Integrity.
Meanwhile, the Government  Accountability Office issued a report today that as of January 31, 2012, 341 institutions had exited CPP, the Capital Purchase Program. This is the preferred stock and warrant purchase program conducted by the Treasury as part of the Troubled Asset Relief Program, or TARP. Starting in October 2008, over 500 banks sold the Treasury between $250 billion to $700 billion of preferred stock. So, a little more than half the banks are now out of the CPP because they have repaid the purchases with funds from other federal programs. Institutions continue to exit CPP, but the number of institutions missing scheduled dividend or interest payments has increased. Much of the government-supplied TARP funding (to small banks) was replaced by the Small Business Lending Fund passed in 2010.How many times can these guys dip into the taxpayer till? They got bailed out by the taxpayers, then repaid the kindness by paying us back with our own money they qualified for from other tax-funded agencies — plus they kept those huge bonuses and all those subsidies and tax loopholes in place? These guys really do understand Return on Investment.Too Big Too Fail will have no problem buying whatever deregulation and legislation it desires.  Big score for those on the revolving door between banks, lobbying, and the Fed. And, to think… our Super PAC century is only in its infancy.
Statistics from the World Intellectual Property Organization show that more patents originate in Japan than in the U.S., that South Korea overtook Germany to take third place in 2005, and that China has just overtaken Germany too.
The average South Korean works about 39 percent more hours per week than the average American. The school year in South Korea is 220 days long, compared with 180 days in the U.S.
As a share of gross domestic product, the United States spends twice what Japan spends on health care and more than three times what China spends. Yet life expectancy in the U.S. has risen from 70 to 78 in the past 50 years, compared with leaps from 68 to 83 in Japan and from 43 to 73 in China.
You can buy Credit Default Swaps on sovereign debt, and corporate debt, and on countries, and on companies. You can’t buy credit default swaps on gold. Why? Because gold doesn’t default. Never has. Never will. The Federal Reserve has not figured out a way to print gold.  There is no counter-party risk to holding gold in your portfolio. And these are just a few of the reasons to own gold, physical gold, coins or bullion. 
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