Unemployment

When the “best” of today is far worse than the worst of the worst in 70 years

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The St Louis Fed records that in the last 70 years, the average time one is in a state of unemployment (i.e. duration) in America is now 25 weeks (6 months). Assuming that we are in the sweet spot of a tight labour market we can see clearly that this  post-GFC ‘recovery’ at its best is 25% worse than the worst we have seen over seven decades of post recession recoveries which has barely nudged over 20 weeks. Looking at CEO Bullard’s remarks in a presentation back in April 2016, titled ‘Slow normalization or no normalization?’ that these are extraordinary times.

US unemployed since 1948 – trend is our friend?

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This is a chart of unemployed persons in the US since 1948 published by the St Louis Federal Reserve. The shaded sections denote recessions. Interesting to note that the we are skirting the red line at present, one that has seldom been breached in 70 years. Will history be bunk or will the trend confirm economic slowdown? An eerie looking chart.

Poverty in America +16mn since 2000. +9mn since 2008

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Remember the feel good video Obama proudly displayed alongside his White House economics flunky. Poverty had fallen by the fastest rate since the 1960s. What a crowning achievement. While much praise was heaped upon this shift on searching through the St Louis Fed’s FRED stats database, the picture is disturbing. It is actually little to do with partisan politics but a cry from the disaffected to get anything to change their fortunes.

Let’s take a look at Ohio, a key swing state at the election. While Democrats were patting themselves on the back and staring at the huge drop in the unemployment rate…

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…poverty was climbing sharply. In fact ever since the tech bubble collapse, the plight of Ohioans has just gotten worse. From 1.1mn in poverty it is now over 1.8mn.

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On a national level there is little reason to cheer either. Since the tech bubble collapse America has added 16mn to the poverty queue. 7mn under Bush and another 9mn under Obama. This still remains a monstrous challenge for Trump to fix.

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When looking at poverty on a country level America (15%) fairs better than the UK (23%), EU (26%) and Greece (37%). One table that sends chills down my spine is unemployed persons. This trend has been rock solid for almost 70 years. When unemployed persons hit the following line, the US economy tends to head into recession (the grey shaded areas).

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With the Fed putting the brakes on low interest rates and the world economy drunk on debt there comes a time for payback. The press can be critical of his appointees and ridicule his executive orders but there is no question as to why he won. He answered the call to the increasingly impoverished people that missed out on the fruits of low interest rates and asset bubbles (incl 20,000 Dow). With more political turmoil awaiting us throughout Europe in the form of elections in France, Holland and Italy we are staring down the barrel of high risk geopolitical stakes.

We better hope he makes America great again with his policies of deregulation and downsizing government. The more the media and shocked liberals protest, loot, pillage and divide the more they trigger exactly what they do not want. For those calling for his impeachment be careful what you wish for. The world will not handle destabilized American politics. The world is well overdue a massive slap in the face. It needs to wake up. We are at a far more important economic juncture than at any time in the past 90 years. Victimology won’t help us. Virtual signaling is pointless. This has nothing to do with race, gender, sexual orientation or religion. These charts show we’ve been drinking our own Kool-Aid for too long. Governments have ignored your wishes and covered up gross negligence along with group think central banks via decades of crony-capitalism.

Trump has much to prove but a larger part of America is well behind the ‘change’ his administration could bring that decades of GOP and Democrat governments have failed to. Yet I ask all those who who litter social media and ask Americans to rise up and do their patriotic duty to resist Trump, “exactly what solutions do you have in mind?” As far as I can see your protesting  is little more than moral preening. You complain yet have nothing to offer in return. We are no longer living in a world where things are free. Eventually someone has to take a haircut. One things is a certainty though. The liberals that cry equality will be the first to cut and run if they become the target of common sense. Let that sink in.

Goldman Sachs to cut 30% of Investment Bankers in Asia

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Goldman Sachs (GS) has  long been regarded as a leader in the financial services sector. Bloomberg reports that the company is looking to reduce 30% of its Asian Investment Banking (IB) team.  GS’s Return on Equity (ROE) can be seen here. They are 1/3rd of those at the peak in FY2007. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.

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Looking at other juggernauts Deutsche Bank is awful on any measure. It has been on a long term slide since the blow up during GFC

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Even National Australia Bank with its tail up on housing in Australia has not exactly seen ROE improve.

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In Japan,  Mitsubishi  UFJ Financial Group has not set the world on fire.

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While central banks keep running the line that things are “pleasing”, financial services companies aren’t feeling the love.

 

Funniest thing I’ve heard all week if it wasn’t so serious

unemp“The FOMC is not a body that suffers from group think” – Fed Chair Janet Yellen. Normally I have to wait to read the FOMC Minutes some 3 weeks after the FOMC meeting to be stunned at the ridiculous language used to cover up the fact they have no idea. I reported last time that the Fed said “The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff’s assessment that both monetary and fiscal policy appeared to be better positioned to offset large positive shocks than adverse ones.”

In the press conference Yellen said “Why didn’t we raise”? It does not reflect a lack of confidence in the economy…let me try to set out again…we are generally pleased with how the US economy is doing… evidence is that the economy is expanding more strongly…we don’t see the economy as overheating now…we continue to progress toward our objectives”.” The last sentence beggars belief. If the FOMC keeps lowering forecasts I would argue the objectives are progressing toward you. That’s right you have to cut forecasts to make it sound as though you have credibility.

If things are so peachy why has the Fed lowered its 2016 and  long term GDP growth target to 1.8%? One reporter sensibly asked “if you’re cutting growth predictions, where is the inflation coming from?”  Yellen suggested that the risk of labour market tightness with a healthy hiring outlook but lower productivity.

I thought the use of the word “overheat” by Yellen several times was mind boggling. If the US economy is at risk of overheating on 0.37% rates and you’ve just cut forecasts to 1.8% long term growth, what does that suggest for a normal operating GDP level? There is no way anyone can take central bankers seriously. The language she used in the press conference was a total fiction.

I updated the following chart on US unemployed persons which shows ominous signs of picking turning points of economic weakness over the last 60+ years. Since May 2016, the number is up over 400,000. It will be interesting to see if the September labour stats due in early October show unemployed rising north of 8mn. We’ll know soon enough.

US unemployed & recessions over 66 years

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Once again, another chart highlights over the last 66 years, US unemployed persons trends have been very linear. Of course the number of unemployed as a % of the population has not varied much at peaks and troughs but the  red line in the above chart looks pretty convincing.

Of course the authorities will pat themselves on the back for their amazing guidance but as I continue to warn, recession (and I use that term sparingly) in the US is around the corner. Weaker payrolls, truck orders, a more doveish Fed all point to stampeding toward the exits yet markets still live in wonderland. Although surely the markets are wondering what breaks the 18,000 on the Dow or 2,100 on S&P?