Imprudent Reactions And False Hopes

I love imprudent reactions.  In fact when it comes to silver bullion there have been plenty of days in which I have witnessed tremendous kneejerk reactions.  In the past 40 months seemingly these kneejerk reactions have often been centred on some sort of "goldilocks" framework, and spun in headlines about the US economy getting better and better.

From the mordant timbre of the first paragraph surely the reader knows by now where we are heading.  That is to say that Nobody can predict how long governments can get away with forged growth, fake money, false financial stability, bogus jobs growth, phoney inflation numbers and fake income growth. My feeling is that confidence, especially when it is unwarranted, is quite a thin veneer. When confidence is lost, that loss can be stark, impulsive and simultaneous across a number of markets and sectors.

Let’s consider just one chart.  If, for example, the US economy was beginning to look bright once again and if indeed the headline data were correct what do you make of the following statistics?

You are staring at the difference in number of jobs since 1990 between those in manufacturing and those working as bartenders and waiters.  You can see from the chart that waiters and bartenders by numbers are almost the same as those in manufacturing jobs.  How can this be?

Well the truth is that there has been little or no manufacturing resurgence to discuss as the Obama administration had hoped there might be in relation to the manufacturing sector but there has been one hell of a pick-up in those willing to bartend and serve.  This is an indication that low paying non career jobs have been at the forefront of many of those gutless job reports that are ultimately nothing but headline fodder.

The truth is that in the world’s largest economy there has been a growing number of economists, analysts and otherwise generally knowledgeable people who suggest that the US has never actually left the recessionary phase; at least not as they have historically when we look at growth.

In fact official recession calls are actually the responsibility of the National Bureau of Economic Research (NBER) and more specifically the Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions.

The last statement they made was in September of 2010 and it marked the moment in which the NBER officially called the end of the recession.  So as far as they are concerned the US is well into the next big boom cycle.  Other than this data there is a definite lack of updated information regarding where the economy might be.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

• Industrial Production
• Real Personal Income (excluding Transfer Payments)
• Nonfarm Employment
• Real Retail Sales

None of these have been spectacular but numbers get changed, altered, manipulated and rearranged all the time.  The overall picture of the US economy has been one of slow recovery from the post 2008 era with a clearly documented contraction during the winter last year and early this year, as reflected in Q1 GDP. Data for Q2 and Q3 supported the consensus view that severe winter weather was responsible for the Q1 contraction -- that it was not the beginnings of a business cycle decline. However, the average of these indicators in recent months suggests that, despite the Q2 rebound in GDP, the economy remains near stall speed. We believe that without significant near-term improvement it will be very difficult to avoid rolling over into another business cycle downturn.

When I consider this data the single largest problem I am faced with, and one of the reasons I continue to invest in physical bullion, is the lack of transparency or updated data to show what affect the enormous amount of money printing has had on these numbers.  I can conclude that despite all of the quantitative easing and rounds of support from the FEDS in the US that this picture and indicators like the big four should be far better off by this point in time.

It has become overwhelmingly clear that many governments have essentially given up and instead have moved to a non-transparent quantitative easing economic approach as opposed to using solid, fundamental policies to create sustainable, strong growth in output, incomes, innovation, entrepreneurship and good jobs. 

For the first time in my history of 41 years and it appears for the first time in history the world’s largest governments that they have essentially given up on policy to drive growth generation and instead have delegated the task to the central bankers.

The last evidence for an argument of where the US economy stands pertains to the age cohort we refer to as the “Millennials”.  These are individuals who currently fall under the age of 35.

If we are to witness a true rebound in terms of real economic growth, especially as it relates to the “Big Four” economic indicators, then we must see improvement in the upcoming age cohorts in terms of their economic stability and we are not.

The Wall Street Journal actually did a nice job more recently in explaining the situation in chart form:

From this chart you can clearly see the juxtaposition of debt versus median net worth in this age category.  It is devastating to think that this age cohort will have less than us but it is appears more than likely they will.  They will be inheriting more debt than ever before, using more debt to get themselves educated and attempting to enter a job force which is delving out fewer career positions than ever before in recent history. 

In addition to this you can see from the left side of the above chart that they are now saving less than ever before.  IN FACT they now have a savings rate that has reached a negative percentage point.  The turnabout in savings tendencies shows how the personal finances of millennials have become increasingly hazardous despite five years of economic growth and sustained job creation. A lack of savings increases the susceptibility of young workers in this falsehood economy, leaving many without a financial headrest for unexpected expenses, raising the difficulty of job evolutions and leaving them further away from goals like eventual homeownership, zero debt living and eventually retirement, the age of which will likely be much higher in their future.

Wealth has been built on the backs of savers.  These are but a couple of examples for which myself or any other decent analyst could ramble on about ad nausea until the sky began to fall.  Or we could just pick up a copy of the mainstream business magazines and read the headlines.  I am sure those will put us at ease.  Until the truth returns to the system and until we are all willing to take a big cut in our standard of living we continue to live on borrowed time.  I will continue to own physical bullion in the form of gold and silver until that time comes.

Yours to the penny,

********

Darren V. Long is Senior Analyst with Guildhall Wealth Management Inc.  Darren is a speaker, writer and financial commentator on gold, silver and the economy. He can be heard weekly on “The Real Money Show” on 640 am radio in Toronto discussing all facets of the precious metals markets. Listen to replays of all shows on www.therealmoneyshow.com 1.866.274.9570 www.guildhallwealth.com  now with an eStore and www.guildhalldepository.com or email at: investing@guildhallwealth.com