STUBBORN FACTS

Facts are stub­born things; and what­ever may be our wishes, our incli­na­tions, or the dic­tates of our pas­sion, they can­not alter the state of facts and evi­dence.“ —John Adams

A More Detailed and Real­is­tic Look at Unemployment

We’ve long been skep­tics of “offi­cial” gov­ern­ment fig­ures. And we leave it to John Williams at Shadow Gov­ern­ment Sta­tis­tics to paint a more detailed and accu­rate pic­ture of the U.S. unem­ploy­ment rate. As believ­ers in the maxim “pic­tures paint a thou­sand words” – to us, the Shadow Gov­ern­ment Sta­tis­tics Chart below is an eye-opener.

Per Williams’ site the unem­ploy­ment stats in the chart are explained as follows:

1) “The U-3 unem­ploy­ment rate is the offi­cial monthly head­line num­ber.“

2) “The U-6 unem­ploy­ment rate is the Bureau of Labor Sta­tis­tics’ (BLS) broad­est unem­ploy­ment mea­sure, includ­ing short-term dis­cour­aged and other marginally-attached work­ers as well as those forced to work part-time because they can­not find full-time employ­ment.“

3) “The seasonally-adjusted SGS Alter­nate Unem­ploy­ment Rate reflects cur­rent unem­ploy­ment report­ing method­ol­ogy adjusted for SGS-estimated long-term dis­cour­aged work­ers, who were defined out of offi­cial exis­tence in 1994 (our empha­sis). That esti­mate is added to the BLS esti­mate of U-6 unem­ploy­ment, which includes short-term dis­cour­aged work­ers.“

4) In other words, the chart indi­cates the “real” unem­ploy­ment rate is far higher than the head­line 10% rate. When short-term dis­cour­aged and marginally-attached work­ers, those forced to work part-time because they can­not find full time employ­ment, and long-term dis­cour­aged work­ers are added together – the U.S. unem­ploy­ment rate hov­ers around 22%.

A Sober­ing Assessment

In the Jan­u­ary 8th com­men­tary “Man of the Year” – included a chart show­ing that we now may be in the “eye” of what could turn out to be a mort­gage re-set hurricane.

In his Jan­u­ary 10, 2010 com­men­tary at www.telegraph.co.uk titled, “Amer­ica slides deeper into depres­sion as Wall Street rev­els” – Ambrose Evans-Pritchard writes:

“The labour force con­tracted by 661,000. This did not show up in the head­line job­less rate because so many Amer­i­cans dropped out of the sys­tem. The broad U6 cat­e­gory of unem­ploy­ment rose to 17.3pc.

That is the one that mat­ters. Wall Street ral­lied. Bulls hope that weak jobs data will post­pone mon­e­tary tight­en­ing: a sil­ver lin­ing in every cat­a­stro­phe, or per­haps a fur­ther exhibit of mar­ket infantilism.

The home fore­clo­sure guil­lo­tine usu­ally drops a year or so after peo­ple lose their job, and exhaust their sav­ings… Real­ty­trac says defaults and repos­ses­sions have been run­ning at over 300,000 a month since Feb­ru­ary.

One mil­lion Amer­i­can fam­i­lies lost their homes in the fourth quar­ter. Moody’s Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck’s Grapes of Wrath…

The home seizures are occur­ring despite fran­tic efforts by the Obama admin­is­tra­tion to delay the process… This pol­icy is entirely jus­ti­fied given the scale of the social cri­sis. But it also masks the con­tin­ued rot in the hous­ing mar­ket, allows lenders to hide losses, and stores up an ever larger over­hang of unsold prop­er­ties.

It takes heroic naivety to think the US hous­ing mar­ket has turned the cor­ner (apolo­gies to Gold­man Sachs, as always).

The fuse has yet to det­o­nate on the next mort­gage bomb, $134bn (£83bn) of “option ARM” con­tracts due to reset vio­lently upwards this year and next. US house prices have eked out five months of gains on the Case-Shiller index, but momen­tum stalled in Octo­ber in half the cities even before the lat­est surge of 40 basis points in mort­gage rates. Karl Case (of the index) says prices may sink another 15pc.

“If the 2008 and 2009 loans go bad, then we’re back where we were before – in a night­mare.”

David Rosen­berg from Gluskin Sheff said it is remark­able how lit­tle trac­tion has been achieved by zero rates and the great­est fis­cal blitz of all time. The US econ­omy grew at a 2.2pc rate in the third quar­ter (entirely due to Obama stim­u­lus). This com­pares to an aver­age of 7.3pc in the first quar­ter of every recov­ery since the Sec­ond World War…

For the record, man­u­fac­tur­ing capac­ity use at 67.2pc, and “auto-buying inten­tions” are the low­est ever.

The Fed’s own Mon­e­tary Mul­ti­plier crashed to an all-time low of 0.809 in mid-December. Com­mer­cial paper has shrunk by $280bn ($175bn) since Octo­ber. Bank credit has been rac­ing down a hair-raising black run since June. It has dropped from $10.844 tril­lion to $9.013 tril­lion since Novem­ber 25. The MZM money sup­ply is con­tract­ing at a 3pc annual rate. Broad M3 money is con­tract­ing at over 5pc.

5) The stock mar­ket has become a lag­ging indi­ca­tor. Tear up the text­books.”

Sober­ing words indeed.

And while Mr. Pritchard’s com­men­tary reflects his per­sonal opin­ions

It’s also loaded with cold, hard, facts which, as unpleas­ant as they may be – are dif­fi­cult for us to deny.

And we’re in the fact busi­ness. Rather than denial – we’ve cho­sen to embrace the facts – because after all, they’re what real­ity is based on.

And only in real­ity lies opportunity.