While employment fell by less than expected, the unemployment rate still edged up to 9.6% in August from 9.5% in July.

First-time claims for unemployment benefits were down a bit  in the week ended August 28th with the decrease offsetting an upward revision to the previous week’s data. The Labor Department said that initial jobless claims edged down to 472,000 from the previous week’s revised figure of 478,000.

Labor productivity in the second quarter fell by much more than had originally been estimated. The report this week showed that labor productivity in the second quarter fell by a revised 1.8% compared to the previously reported 0.9% drop. Meanwhile the Labor Department said that the increase in unit labor costs was upwardly revised to show 1.1% growth compared to the more modest 0.2% increase that had been reported previously. The upward revision to the pace of labor cost growth was in line with economist estimates.

An index of home purchase contracts for previously owned dwellings unexpectedly increased 5.2% in July over June, the National Assn. of Realtors said Thursday, a modest note of good news for the U.S. housing market. The pickup in contracts, which typically take about one or two months to convert into closed deals, or sales, follows two consecutive months of declines and a report last week that sales of previously owned homes plunged 27.2% in July.

ABC News reported on Tuesday that its weekly index of U.S. consumer confidence fell in the latest week, remaining deeply in negative territory. The ABC Consumer Comfort Index fell to -45 for the week ended Aug. 29 from -44 in the previous week. a separate report – But in another report – The Conference Board Consumer Confidence Index® which had declined in July, improved moderately in August. So take your pick consumer confidence is either up or down.

The Institute for Supply Management’s “Purchasing Managers Index,” which reflects the percentage of purchasing managers reporting better business conditions than in the previous month, registered 56.3 percent, up from 55.5 percent in July, and the 16th consecutive month of readings over 50 percent, a level that indicates growth in the manufacturing sector. There are many questionable things about this repot on one can google it learn more.

This chart and others are at the website of the  Federal Reserve Bank of Minneapolis and it shows the 11 recessions since World War 2. Across the bottom are the number of months since the beginning of each recession and vertically is the percentage change in employment. The black dots are when the recession officially ended, and this current recession, though officially has ended, has had the largest decline in employment while the others had by this many months already gone back to their starting employment levels – except for one from 2001.

Stocktiger.net

In multiple posts Paul Krugman is saying “I told you so”. For example, please consider Nobody Could Have Predicted

Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s: Fiscal policy works when it is tried.

But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.

So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.

I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.

Stimulus and Full Employment

The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.

Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.

Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?

Full Employment Made Easy

Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn’t we effectively do just that?

Here is a snip from “Contained Depression” that suggests we did.

We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.

Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment benefits and another 4.7 million are receiving extended benefits. Thus 63% of those unemployed are receiving benefits. Being paid while not working also masks the depression.

Spitting at the Moon

Suppose that instead of handing out free money to 9.2 million unemployed, we hire them at minimum wage to spit at the moon. GDP would rise because all government spending by definition adds to GDP, regardless of how unproductive the activity really is.

Such a move would allow Krugman the wonderful opportunity to crow about rising GDP.

Moreover, unemployment would crash to seven percent or so. That would really get Krugman crowing. Yet, would anything have changed about the true state of the economy? Clearly the answer is no.

Suppose government hired all 14.6 million unemployed to spit at the moon. Would that get the economy humming? For any longer than the jobs to spit at the moon lasted?

The above examples may sound absurd, but the the result is much the same whether we hire people to spit at the moon vs. paving roads that don’t need to be paved. The main difference is money will run out faster hiring road workers because of the wasted material and equipment costs.

Practical Example

In actual practice, tax credits for housing was an abysmal failure. Would doubling that program have achieved different results? Would wasting the same out of money to repair schools or build new schools have done any better? Once again the answer is no. The only difference in any of these examples is the burn rate at which stimulus money is wasted.

Only Genuine Demand Will Fix Economy

What will get the economy humming is better tax policy, scrapping Davis-Bacon, dumping public union workers wherever possible, slashing defense spending, and letting home prices bottom.

Real demand for housing will step up as soon as there are bargains. Instead we have policies to prop up home prices.

Lesson of Japan

The lesson of Japan is the same as the lesson of home tax credits in the US – Stimulus programs do not work period, regardless of size. In Japan, every program failed. Japan is now in debt to the tune of 200% of GDP.

Some suggest Japan is no worse off for it. Nothing could be further from the truth. Japan squandered massive savings in the stupidest manner possible, building bridges to nowhere, and now its citizens are aging, in need of drawing down their savings.

Unfortunately those savings were squandered.

Japan is poised to blow up, however, the timing is uncertain. Sadly, the US is on the same path and Krugman is hellbent to get us there faster.

Consumer Credit Inflection Point

Let’s review Are we “Trending Towards Deflation” or in It?

The key problem for Bernanke is we have reached theConsumption Inflection Point – No One Wants Credit; Consumer Spending Plans Plunge

Keynesian Policies Fail

Keynesian stimulus measures have failed and will continue to fail. Please see Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives for details and an online interview.

We have wasted $2 trillion fighting deflation. It has not produced any jobs.

The correct way to spur growth is by fostering an economy that supports economic growth. For details, please see Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It.

Keynesian Cures Worse than the Disease

Krugman has the wrong definition and the wrong worry. However, he is correct in his call for deflation. Unfortunately, this will lead to a bunch of “I told you so” kinds of posts from Krugman, in spite of the fact his cures are worse than the disease.

Indeed, Keynesian “cures” are one of the reasons this economy is in the mess it is in.

The final analysis shows that the real threat is not of deflation, but of absurd Keynesian and Monetarist attempts to prevent it. The Greenspan-Bernanke housing bubble (and subsequent crash), and decades of futility in Japan should be proof enough.

Nobody

For another “I Told You So” Krugman post, please consider Nobody

The truth is that some of us were practically screaming back in January 2009 that the administration was proposing too small a program. Start with Stimulus arithmetic (wonkish but important) and work forward. And no, the point isn’t that I’m so smart — it is that given the forecasts we had at the time, and given historical experience of recessions after financial crises, it wasn’t at all hard to see that the plan was too small. Things have been worse than expected — but not that much worse.

And why does this matter? Because the best chance Obama et al have to change things now is to make the case that we need to do more, and that Republicans stand in the way. Yet here they are, apparently trying to run on the claim that they had it right all along, or something. Is this just boneheaded political strategy? Is it about the egos of the advisers who called it wrong?

I Told You So

The easiest predictions in the whole world were ….

1. Stimulus would fail no matter how big.
2. Krugman would brag “I Told You So”.

Three things about Krugman that irk me to no end are …

• His failure to look at the seen and unseen consequences of his proposals
• His failure to address the question as to what happens when stimulus ends
• His failure to look at structural problems

Ability for government borrowing is not infinite (at least without major economic repercussions). One easy to see problem is interest on the national debt will consume all tax collections if we stay on this path. Moreover, expiration of housing tax credits provides a clear example as to what happens when stimulus ends.

The Invisible Cavlalry

My friend HB has written an excellent article on similar lines. It turns out prosperity is not around the corner after all. Please consider Paul Krugman and the Invisible Cavalry

Averting the Great Depression Again

Throwing money at problems cannot ever work, but that especially holds true when structural problems like union salaries and public pension promises are left intact.

Just because Krugman was correct that stimulus would fail does not make him correct about the reasons why, or what the correct policy actions should have been. The irony as my friend points out, is Krugman’s 2009 proclamation “So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government”.

Now we need big government to save us again. Spare me the sap. Big government is clearly the problem, not the solution.

Mike “Mish” Shedlock

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Thinking About Bonds

By Kevin Brekke

With the great bond stampede that began in 2009 continuing, giving rise to the very real possibility of a bond bubble, we decided to check the relationship between bond returns and bond fund inflows to see if there might be a correlation. Take a look at this chart:

As suspected, the rise and fall in total return from bond funds is accompanied by an influx or exodus of bond investors. Data to construct the chart were taken from the Investment Company Institute’s (ICI) 2010 Fact Book where they state,

ICI continues by noting that secular and demographic trends have tempered the appetite for equities. An aging population tends to become risk averse, and the Baby Boomers are entering retirement and seeking a safer alternative to the stock market. This occurrence is clearly shown on the right side of the chart. Following the stock market crash in 2008, investors exited stocks and bonds as general panic prevailed. As investor calm returned, a tidal wave of new money flowed into bond funds, turning 2009 into a record year.
And the popularity of bond funds continues. So far this year, investors have funneled $200 billion in new money into bond funds. 2009 was also a record year for total assets and net new capital in bond funds from retirement accounts.
That is the view through the macro lens. Switching to a wide-angle lens gives one pause.
We can’t help but draw similarities to the housing bubble that began inflating at the start of the new century. As home prices started escalating, they drew the attention of a growing pool of investors. And soon this becomes a self-reinforcing phenomenon; higher prices attract greater numbers of investors that drive prices higher. Likewise for bonds. Bond returns are rising because bond returns are rising. Got it?
We have entered the terminal phase of a bond bull market ushered in thirty years ago by Paul Volcker, who drove interest rates over 20%. With 30-year U.S. government paper now under 4%, the easy profits have been made and the low-hanging fruit consumed. Investors today are shimmying out on a very tall and thin branch in search of higher “total return.” The snapping of the branch – sending investors big losses – may not be imminent, but it is inevitable.
As we at Casey Research have discussed and warned about often, the fiscal misadventures of the U.S. government will have their consequences. And one of the first victims will be bond investors as interest rates are forced higher, much higher, to attract buyers, particularly foreign buyers. When this happens, the total return on bond funds will be smashed.
The sad and pathetic irony: to escape the beatings endured in the stock markets, millions have sought safety in bonds. The punishment is not over.
We are afraid an awful lot of investors will be left asking, “What was I thinking?”

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If you want true protection from the ongoing economic turmoil, investing in precious metals and major precious metal stocks is the way to go. Even in the Great Depression, those who held physical gold and large-cap gold stocks like Homestake Mining gained… while most other investors lost everything they had. Read here why those investments will become even more valuable in the near future.

Want to know what I think are the four cornerstones of sound options investing? They aren’t complicated, yet they seem to be elusive too much of the time. They are…

1. Invest in options that respond well to the underlying stock’s movement (high delta)
2. Minimize time decay (the natural erosion of an option’s value over time)
3. Buy enough time to capitalize on major moves (you don’t have to hold it the whole time)
4. Minimize volatility (since volatility can shake up your confidence and your account balance)

Don’t worry – you won’t need a PhD in mathematics, nor will you need to be a seasoned options trading veteran, to apply these four principles. All you need is a little willingness.

1) Invest in options that move well with the underlying stock.

If you’ve ever heard the term ‘delta’ as it pertains to options trading, this is what they’re talking about. Delta is the degree to which each individual option changes with respect to every $1 change in the underlying stock’s price.

For instance, a call option with a delta of 0.30 (30 cents) would increase in value by 30 cents for every dollar’s worth of gain for the stock. That would be a relatively low delta. A relatively high-delta call option might move by 90 cents (a delta of 0.90) when the underlying stock gained a buck.

Obviously high-delta options are more desirable if you’re making a directional forecast for a stock.

(Note that the delta can change as an option moves deeper in the money or deeper out of the money, and as time passes. For our purposes though, you just need to understand the concept.)

2) Minimize your time decay right off the bat.

Have you ever noticed you pay a little more for options than they’re mathematically worth? For instance, a call option with a strike price of $30 on a stock that’s trading at $35 is intrinsically worth $5. However, you may have to pay $7 to own the call option.

That additional $2 is considered to be ‘time premium’. As time passes – even if the underlying stock’s price doesn’t change by a penny - an option’s time premium will sink. As expiration approaches, the time premium will eventually be whittled away to zero…meaning the option will eventually only have intrinsic value (or what the option is mathematically worth).

Option traders call this time decay ‘theta’. Needless to say, keeping theta to a minimum is critical to your long-term profitability.

Continue Reading Here

ETF Trading Signals – Low Risk Entries for ETF Funds HERE

SPY – SP500 Exchange Traded Fund – 60 Minute Chart

The market is currently in a down trend which means bounces get sold. But if you take a look at the buying volume ratio at the bottom of the chart you will notice that in an uptrend buying surges are the beginning of a rally, and during a downtrend buying surges are the end of a rally. I also want to mention that a lot of volume traded at this current level which you can see on the volume by price bars on the chart. This means there will be a lot of sellers to overcome before breaking to the upside.

The situation the market is at now makes things difficult to tell if this bounce will get sold, or if its just the starting of a rally. There are several arguments for each side but the one which I think has the most influence is the buying volume. It was very strong on this current bounce. It feels more like a rally but we will not know for sure for a couple days…

That being said, if the SP500 moves up Thursday then I would consider the market to be in an uptrend and exiting any short positions is a smart play. But if this bounce is sold and the market drops, then the 3% rally on Wednesday could all be given back and then some.

GLD Gold Exchange Traded Fund – 60 Minute Chart

Gold has continued to grind its way up to the previous top. Problem is the volume has been very light and that tells me there is not much demand for gold at these elevated prices. While we are still long gold it is crucial to have your protective stop in place so we lock in as much profit as possible for when the sharp selling spike happens.

In short, the market feels like its trying to reverse back up but at this time its still in a down trend and trading under a key resistance level. READ MORE

ETF Trading Signals – Low Risk Entries for ETF Funds HERE

A portfolio of technologies needed to achieve the carbon emissions under the BLUE Map scenario
So what needs to be done to make this work? Well, gird your loins – the “top priority” will be to increase energy efficiency, reduce energy consumption, and lower energy intensity.
But there’s also some exciting news. The revolution is already under way.
On a global scale, total investment into technology and its deployment between now and 2050 would be about US$45 trillion – 1.1% of average annual global GDP over the period. The good news is, that investment has already begun all around the world.
Even as China grudgingly accepts the mantle of the biggest energy consumer, investment dollars are being poured into renewable energy research. China has already surpassed the United States as the largest producer of clean energy, whether it be hydro, wind, solar, or nuclear.
Germany, Europe’s powerhouse, is lining up renewable energy to compete with nuclear. Currently getting 10% of its energy from renewable energy, Germany’s renewable numbers for 2020 are projected at 38.6% electricity, 15.5% heating and cooling, and 13.2% of the transport sector.
And in the United States, the Obama Administration has been pushing for, and encouraging, clean energy research and development since it came into power. On display are a variety of subsidies and loans guaranteed to tempt even the most conservative producer.
Whether it’s the 30% cash up-front that the government is willing to give renewable energy projects or the vast amounts of cash injections into various energy technologies programs, renewable energy is set to take off in America.
For those investment portfolios that have taken a hit from the BP and Enbridge oil disasters, the IEA report is only going to spur up greater interest in the renewables game. Knowing which companies are enjoying political favor from Washington to Berlin and are at the receiving end of substantial grants is a sure-fire way to repair the damage.

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Find out which renewable energy company – poised to take a moon shot – is Marin’s personal favorite right now. Read more here.

The level holds again, September starting strong

The much-watched 1,040 level on the S&P 500 held on its 5th test since the April highs. My toe dip last Friday turned into an aggressive long yesterday as we saw strength off the open. Of course, reversal trades are never easy and the late-day sell-off tricked me into selling about 1/3 of my position before the close as I started to fear a gap down through 1,040. Alas, the gap up came and the willingness to be a buyer at the 1,040 level is being paid today compounded by a very bullish data point at 10 AM: August ISM data handily topped estimates and came in ahead of July readings. ISM’s Ore was quoted as saying they’re seeing a “major restocking” occurring.

I realize I didn’t get a post out yesterday telling everyone I was buying so writing today talking about how I bought is somewhat useless. Yet, it’s my post so I get to write what I want and you could have seen my portfolio on T3Live.com (and the shameless plug…I’m on a roll today

My rationale for being a buyer was based on many factors which I explained in a long post over the weekend. Long bonds finally had a downtick signaling that, at the very least, momentum in that market had stalled opening up the possibility of a shift to equities. Doctor Copper, my leading indicator, is in breakout mode after showing hardly a whiff of weakness through August as equity markets dropped 4.7% for the month. And, although I generally despise sentiment readings, suffice it to say that sentiment was really poor. All these data points aligned with a level where I believed risk/reward was drastically in my favor.

We’ll see how this all plays out but I think yesterday was the buy of 2010 and I’m holding for much higher prices. We’ll see how long it takes to eat those words

“Make Enough Money in the First 59 Minutes of Trading to Take Off and Do Whatever You’d Like for the Rest of the Day”