Hey, President Obama, It's Time You Took Responsibility For Our Horrible Jobs Problem


obama

The US jobs report came out this morning, and it was simply dismal. This week we look at not only the jobs report but also “what-if” proffers for the US and global economies.

There’s a lot to cover, so let’s jump in. 

First, there were only 18,000 jobs created in June, the lowest since September 2010. While private employment rose by 57,000, government workers dropped by 39,000, continuing a trend as governments at all levels work to cut their budgets. Long-time readers know I think it is important to look at the direction of the revisions, and we got no help. May was revised down by 29,000 jobs and April a further down 15,000.

I saw some headlines and talking heads in the mainstream media saying the poor number was due to “seasonals,” and I just shook my head. If you are that reflexively bullish when presented with what was clearly a bad report, how can you be taken seriously? You know who you are. And then Philippa Dunne of the Liscio Report sent the following note. She is one of the best data mavens there is on jobs and employment.

“After the release, some bulls turned to that old reliable excuse – bad seasonals. According to one analysis making the rounds, had the BLS used last year's factor – computed, of course, using exactly the same concurrent technique as this year's factor – the gain would have been 221,000! (Whoever did this made a mistake by comparing the NSA and SA levels for the two months – you have to compare the over-the-month changes.) Still, if you're going to play this game, you should be consistent, and apply last year's seasonals to several months, not just one. If you do that, May's gain of 25,000 would turn into a loss of 19,000, and June's gain would be a mere 73,000, all total payrolls. In any case, why should you do that? The seasonals are recomputed every month based on recent experience and calendar quirks, and should be more aggressive in a recovery. (Hope we won't be using the trend set in the depth of the recession as the bar going forward.) Also, there is no adjustment to the headline number – the sectors are adjusted separately (96 different industries at the 3-digit NAICS level, to be precise) and the total is the sum of those components. The whole argument is bogus.”

The household survey was even worse. Total employment fell by 445,000. Full-time employment is down by 0.5% in the last year, while part-time is up 3%. David Rosenberg calls this the just-in-time labor market. The total number of unemployed rose to over 14 million. If you count the discouraged workers not in the official unemployed, the total number rises to 20.6 million, up 483,000 last month. This put the unemployment rate back up to 9.2%.

So How’s That Stimulus Thing Working Out?

We were told that the stimulus would have us down to 6.5% unemployment by now. The team at e21 has the real story:

“Back in January 2009, Christina Romer and Jared Bernstein of the Obama administration produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan. The estimates, along with real unemployment rates, are posted below:

 

 

If you update the graph for today’s report, you find that there is another red dot higher than the last one. The last three months have seen the unemployment rate rise (chart from e21). They further note:

“For example, there is new research that suggests that the stimulus may actually have resulted in a net loss of jobs. Regardless of the exact number of jobs lost or created, however, the fact that some economists are even arguing that it had a negative impact tells you that the stimulus may very well have been a wash overall.

“Larry Lindsey offered his own review of the stimulus this week, arguing that it failed what’s colloquially known as the Sharp Pencil Test. As he explains, ‘if you sit down and do a back of the envelope calculation of the [stimulus] program’s costs and benefits, there is no way to conjure up numbers that allow it to make sense.’ Here is more on how Lindsey applies this test to the stimulus:

“ ‘[E]ven if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.’

“At minimum, the public now deserves a response from policymakers about what they have learned from 2009 and 2010 – about what actually does and does not help get the economy growing and producing more jobs.”

The small businesses that are the real drivers of employment are not participating the way they do in a normal recovery. Bill Dunkelberg, fishing buddy and the chief economist for the National Federation of Independent Business, writes me this afternoon:

“Writing about our current weak economy (Philadelphia Inquirer Currents, June 26), Mark Zandi argued that employment will improve because ‘…U.S. companies are in great financial shape’. Dr. Zandi must be referring to companies like GE which just posted profits of $17 billion (and paid no income taxes) and whose CEO is the head of President Obama’s job creation committee. This is the view in Washington and Wall Street that only thinks in terms of the “biggies” (that make large donations to re-election committees). For perspective, GE employs about 150,000 people in the U.S. Last week, over 400,000 people filed initial claims for unemployment (e.g. lost their jobs). There are 6 million firms in the U.S. that employ 1 or more workers. This includes GE, but 90% of them have fewer than 20 employees. These firms are not ‘in great financial shape’ as Dr. Zandi asserts. In a recent survey of a sample of 350,000 of them, 46% reported that profits were still falling two years into the ‘recovery’ compared to 18% reporting that earnings were improving. Firms like GE might hire more due to their good fortune, but there aren’t many of them and they don’t employ many workers anyway. It’s the small businesses that Treasury Secretary Geithner said must be taxed more to support government that provide the needed jobs, not ‘tax-free’ GE. Regulations such as the new mandatory sick leave passed by City Council are detrimental to the job creation needed by making labor more expensive to hire, a bad idea.

“Dr. Zandi also suggests that state and local governments be given more funding to prevent the predicted loss of 250,000 public sector jobs over the next 12 months, funded I guess by more debt, since the Federal government is a bit short of cash (like $1.5 trillion in deficit). ‘Ending this job loss would go a long way to lifting the job market,’ he asserts. My math says that would reduce job loss by about 5,000 per week. With monthly job loss over 400,000, this hardly makes a difference. Government employment has become bloated because governments don’t have to worry about profitability. When faced with budget problems, politicians tend to make cuts in services like libraries or police protection that hurt voters to show taxpayers why the government can’t live with less instead of cutting patronage jobs and the like whose efforts would not be missed. Government can’t create jobs, but it can create a lot of policies and taxes that prevent jobs from being created.”

I wrote last year about the studies that show that on a net job-creation basis, large businesses reduced their employment over the last two decades. Of course, there are exceptions; but on average, large businesses are not where you get new jobs.

And many of the jobs we got this last month, as few as they were, were not of the high-paying variety. Leisure and hospitality were up 34,000. The average work week was down, and earnings dropped a penny an hour. After inflation, workers are behind, year over year.

By the way, I get the unemployment thing. Today we found out that my daughter Amanda has lost her job. Sales at the place she worked were down a lot. Another two of my kids can’t get enough hours. At 17, Trey is looking for a job, but so far no luck. It’s tough out there. Let’s look at a few charts from David Rosenberg. First is the average duration of unemployment, which has risen to an all-time high.

 Even worse, 44% of those unemployed have been so for at least six months, again close to an all-time high.

 OK, I have to use just one more chart, which shows how bad things really are.

 

This Time Is Different

I have quoted at length in past letters from Ken Rogoff and Carmen Reinhart’s masterful work, This Time is Different. While the market may have been surprised by such a low jobs number, it is PRECISELY what is typical following a credit crisis, as they demonstrate in their book.

And now the Fed is done with QE2 (except that they will take the mortgage roll-off from their portfolio and use it to buy treasuries), and the fiscal authorities are going to put the brakes on government spending, or at least slow things down.

Everything is very fluid, but the headlines in today’s Wall Street Journal suggest a deal on the order of $4 trillion in on the table. I assume it will be back-loaded, but it is a start. But assume that the first year sees real spending cuts of $200 billion. That is a reduction of 1.5% in GDP. It’s that pesky old equation I keep using:

GDP = C (total consumption) + I (Investments) + G (government Spending) + net exports

Now, the literature suggests that the effect on the economy from a reduction in G should be over within about 4 quarters, on average. But then we reduce “G” again the next year. Maybe not by as much overall, but at least by another $50-100 billion. This is going to put a real headwind in the face of economic growth for years, but we simply have to do it or we become Greece.

The economy will already be slowing down. A recession in 2012 is a real possibility if there is any type of shock coming from Europe, and what will happen there is anyone’s guess. I think most European leaders are basing their thinking more on hope than on reality. When Greece defaults there will be a domino effect; you can count on it. And you could actually see a banking crisis before we get actual sovereign defaults.

Gentle reader, you need to understand that the market does not get it. Neither in Europe nor in the US. When someone says the market has already priced in a default, go back and ask them how well the market priced in a crisis in the spring of 2008. The market doesn’t know jack.

I got a lot of internet buzz from a throwaway line in an interview on CNBC in London. I said that if the market knew what Bernanke and the leadership of the central banks talked about after their third glass of wine, the market would wet its pants. That is not to suggest I don’t think Bernanke or Trichet can hold their liquor. It means that they get the problem more than they let on in public and are simply trying to stem as much damage as they can.

Banking crises are followed by credit crises by 2-3 years. It is getting close to that time. We need 3-3.5% GDP growth in the US to really make a dent in jobs. We are not going to get it. There is nothing we can do other than Muddle Through as best we can. Prepare accordingly.

 

Vancouver, New York, and Maine

 

I am home for a few weeks. In late July I head for Vancouver to speak at the Agora Wealth Symposium. Then the next week I go to New York for a few days, before heading up with my youngest son, Trey, to Maine for the annual Shadow Fed fish fest organized by David Kotok. It is one of the highlights of my year. So many friends are there. More on that in coming weeks.

In New York I’ll be meeting with Barry Habib. We will soon be announcing a joint venture that we are both excited about. Barry launched the Mortgage Market Guide and sold it a few years ago and is ready for a new venture. As an aside, Barry is the producer of Rock of Ages, a major Broadway hit that is now being done as a movie with Tom Cruise, Catherine Zeta-Jones, Paul Giamatti, Russell Brand, and a lot of other stars. (Barry, how do I get invited to the set?)

If you want Barry’s take on housing and mortgages, he was on CNBC this morning for an in-depth interview. I am proud to be his friend and look forward to working with him. You can see it at http://video.cnbc.com/gallery/?video=3000031675 .

That’s it for this week. I have to say, this has been one of the roughest weeks emotionally and personally for me in a very long time. Nothing that is world-ending, but sometimes being Dad is tough. This is the first week in many years that I did not get my usual 30-40 hours of reading and research in. I am so far behind, but I will catch up.

And a huge thanks to Louis and Kelli Gave, who let 14 of us invade their vacation lake home in Oklahoma with 6 of my kids and their families and friends. It was a great 4th of July. And to see some of the tornado damage up close was amazing. We are so fragile; we have no idea.

Have a great week. Enjoy your friends and families this summer.

Your thinking more about the important things in life analyst,

John Mauldin
John@FrontlineThoughts.com

 

Copyright 2011 John Mauldin. All Rights Reserved

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Can I Settle My IVA With a Redundancy Payment?

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If you are made redundant while in an IVA, we consider whether you will be able to settle the arrangement in full with your redundancy money. If you are made redundant and receive a redundancy payment while you are in an individual voluntary arrangement (IVA), the basic rule is that all of the money you receive should be paid to your creditors. This is because a redundancy payment is classed as cash windfall.

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SHAME ON THE REPUBLICANS: Their Behavior Is "Economically Illiterate And Disgracefully Cynical"


John Boehner

One of the most-respected and economically intelligent publications in the world, The Economist, has turned against the Republican party for its disgraceful behavior with respect to the US debt-ceiling negotiations.

The Republicans, the Economist points out, would rather disrupt the US economy and put the country into default than compromise on a long-term deficit and debt reduction plan.

This behavior is an abdication of the Republicans' responsibilities as elected officials.  It puts the Republicans' self-interest ahead of the country's. 

The Republicans' stance on the debt-ceiling has now gone so far, in fact, that the Republicans appear to be trying to disrupt the economy in order to improve their chances in the next elections, rather than address an economic crisis that threatens to affect millions of Americans.

This is not practical or responsible. It's also not patriotic. It's traitorous.

The Economist, it must be noted, is a pro-private-sector, anti-big-government publication. For more than a century, the paper has extolled the virtues of free enterprise and free-market capitalism and railed against government bureaucracy, fiscal irresponsibility, and stifling regulation. The Economist should be the Republican Party's closest ally when it comes to getting the US back on track. And yet, thanks to the Republicans' extreme stance with respect to tax increases and their recklessness and self-interest with respect to the debt-ceiling, the paper has turned against them.

The Economist points out that the Republicans original strong stance on the debt-ceiling did force President Obama to do something he should have done a long time ago: Acknowledge America's debt-and-deficit crisis and put forth a long-term plan to address it.

In response to the Republicans' resistance, the President floated a plan that might save $2 trillion over the next decade. And he has since floated one that might save $4 trillion. 

Assuming the economy continues to recover, these savings would be a strong start in getting the country back on track--and the Republicans deserve credit and plaudits for forcing the President to propose them.

But far from declaring victory and then doing the right thing for the country, the Republicans are continuing to behave like dogmatic lunatics -- insisting that, no matter what, no deficit reduction plan include any tax increases.

This, the Economist rightly observes, is "economically illiterate and disgracefully cynical."

It is also a departure from the Republican Party of old, which was actually economically responsible and was therefore willing to raise taxes if and when it needed to. Any intelligent plan to get the US's house in order must involve both spending cuts and tax increases: We just can't do it with spending cuts alone. The Great Republican Hero that today's Republicans often invoke, Ronald Reagan, raised taxes when he needed to. And America's current tax burden, the Economist observes, is as low as it has been for decades.

It's time for the Republican Party to grow up and start acting on behalf of the country. Specifically, it's time for the Republicans to end their reckless, cynical game with respect to the debt ceiling and compromise on a long-term debt-and-deficit reduction plan.

Read the Economist's editorial here >

Now Read: Finally, Someone Is Talking Sense About Our Huge Debt And Deficit Crisis -- Obama

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An Overview Of Bad Debt Consolidation

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Over the last ten years, a niche industry has cropped up in the financial world. This niche is bad debt consolidation. With the economy worsening many people have started paying much more attention to their credit and to their debt load, and are looking for ways to reduce the amount of overall monthly outflow that they pay.

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Learn How to Ignite Your Economy

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How would you like to be financially free? That is my goal! Recently I completed an excellent energizing six week on-line course on financial literacy and learnt steps towards financial freedom. Financial freedom is defined as stepping away from your work, living comfortably, and having enough residual income to pay bills and expenses. Working in a successful business and having no time to spend your money, is not financial freedom, even with mounds of money coming in. Having people run your business successfully so you work when you want to, on the other hand is financial freedom. Today I will address three areas of personal learning towards financial freedom, the external world of my economy, the internal world of my economy, and my personal self care.

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You Won't Find These Stocks in Dividend ETFs

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

With investors clamoring for income from dividend stocks, interest in exchange-traded funds that focus on dividends has never been stronger. But before you invest in a dividend ETF, you need to ask one question: Does that ETF own the dividend stocks you really want in your portfolio?

The dividend difference
At first glance, you might think that dividend ETFs would be pretty much identical. To a large extent, that turns out to be correct. The Vanguard High Dividend Yield ETF includes mega-caps Chevron and Coca-Cola near the top of its holdings list, as does Vanguard's other dividend ETF, Vanguard Dividend Appreciation. And while the SPDR S&P Dividend and iShares Select Dividend ETFs have some smaller companies in their top 10 holdings, they largely share the same holdings as their peers.

But when you look closely at the entire portfolios of these ETFs, what you'll find most startling isn't what you see but rather what you don't see. Dividend ETFs have some glaring omissions that many dividend investors will want to remedy on their own. Let's take a look at what stocks are missing from most of the major dividend ETFs.

The REIT stuff
High-yielding real estate investment trusts have taken the dividend world by storm. In particular, Chimera Investment (NYSE: CIM  ) , American Capital Agency (Nasdaq: AGNC  ) , and Annaly Capital (NYSE: NLY  ) are among the group of mortgage REITs that pay dividends of greater than 10%. You'd think that dividend ETFs would be tripping over each other to own these high-yielding investments. But you won't find Annaly, American Capital Agency, or Chimera in any of the dividend ETFs I've mentioned. 

The explanation may well be as simple as the fact that REITs differ from traditional stocks. To comply with tax laws, REITs have to distribute the vast majority of their income in dividends. That leaves their payouts vulnerable to fluctuations in earnings, which in turn makes their dividends more volatile than those of most stocks. Leaving them out of ETF portfolios reduces dividend ETF yields, but it makes payouts more stable -- a key consideration for many dividend ETF investors.

Mastering dividends
Another area that gets short shrift among dividend ETFs is master limited partnerships. MLPs offer not only impressive yields but also some tax-deferral benefits stemming from their investments in energy and natural resources. You won't typically find the double-digit yields that mortgage REITs offer, but MLPs Inergy (NYSE: NRGY  ) , Terra Nitrogen (NYSE: TNH  ) , and Penn Virginia Resource Partners (NYSE: PVR  ) have attractive payouts that dwarf what most traditional stocks pay.

Again, though, MLPs may get left out of dividend ETFs because of their unusual structure. As partnerships, MLPs can cause tax headaches for investors, and owning them in an ETF would in turn potentially bring those complications to ETF shareholders as well.

Mind the gap
So if you want exposure to the full range of dividend stocks, what should you do? You have two main choices.

One option is just to buy your favorite dividend stocks separately. So in addition to one of the dividend ETFs discussed here, you could buy selected mortgage REITs, MLPs, and any other stocks you don't find among your ETFs' holdings.

As an alternative, you could supplement your all-purpose dividend ETF with ETFs geared toward those omitted categories. For instance, iShares NAREIT Mortgage (NYSE: REM  ) includes Annaly, Chimera, and American Capital Agency. Alerian MLP ETF similarly owns shares of a variety of MLPs.

Whichever method you decide, don't let your dividend ETF selection disappoint you. By minding the gaps in their coverage, dividend ETFs can still serve you well.

ETFs aren't always the answer for the best dividends, though. Take a look at the Fool's free special report on 13 great dividend stocks that belong in your portfolio and learn how to skip the middleman in your quest for great dividend payers.

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Source: http://www.fool.com/investing/etf/2011/07/08/you-wont-find-these-stocks-in-dividend-etfs.aspx

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Debt Consolidation - Use That Big Brain In Your Head For Best Results

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There are many theories on the best route to take for debt consolidation. Everybody's got an opinion. At the end of the day, none of the plans make any sense if you can't adhere to them. So the best plan may not be the best plan for you.

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Why You Should Shop Carefully for Retail Stocks

Retail stocks surged Thursday, as June same-store sales sparked investor euphoria. The jump probably stood out even more sharply against a still-tough economy for many U.S. consumers. However, if this sudden elation has you thinking about snapping up retail shares yourself, make sure you shop with more than a little caution.

The Scoop on Same-Store-Sales
Same-store sales -- also known as comparable-store sales, or "comps" for short -- are a very closely watched retail metric. Comps track sales growth in retailers' stores open for at least a year, helping investors gauge the success of a retailer's brand. Some retailers report this figure monthly, giving investors the most informational bang for their buck, while others report the figure quarterly.

Either way, investors should always weigh the data carefully, taking it with a grain of salt and a heaping shovelful of historical context.

June's same-store sales included several major retail victories, including Costco's (COST) 8% surge. For a little of that historical context I mentioned, Costco's comps increased 4% last June; thus, its gain this time around doesn't simply owe to an easy comparison with a lousy month last year. The warehouse chain keeps piling on increased sales and consumer traffic, testifying to this company's brand strength and customer loyalty.

One of the most impressive June same-store sales gains came from Limited Brands (LTD), the name behind Victoria's Secret and Bath and Body Works. (Ironically, the company's no longer associated with its former namesake, the mall-based store The Limited.) Limited's June comps increased by 12%, which is quite impressive compared to its 6% increase in same-store sales last June.

On the other hand, struggling Gap's (GPS) same-store sales nudged up 1% in June. Last June, Gap's comps stayed flat compared to a 10% decrease in June 2009. In this case, same-store sales tell us that Gap may be slowly improving -- but it's not really back.

Don't Get Sucked Into Making an Uninformed Impulse Purchase
June retail sales looked pretty heartening, but one good month's comps data doesn't tell the whole story. Digging in for historical same-store sales information, including sales and earnings over time, creates a far better picture of a company's success.

In other words, avoid those impulse purchases when other investors get caught up in the moment. Just like the most successful shopping trips, taking the time and doing the research can help you pick the best stocks at the best prices.


Motley Fool analyst Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Gap, Limited Brands, and Costco Wholesale.

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Source: http://www.dailyfinance.com/2011/07/08/shop-carefully-for-retail-stocks/

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