Nov. 2010 Employment Report Analysis

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site: http://www.bls.gov/
Market Relevance: VERY HIGH
Management Value: VERY HIGH

To learn about the official release please follow:
http://www.blueworldassetmanagers.com/explanation.html

"Brain surgery is not rocket science to a brain surgeon".

Friday, December 3, 2010

Blue World Employment Situation Analysis
Occasionally I feel the need to give our economic report analysis posts a nickname. A recent example was "Reality vs. Rhetoric". The only one I can think of for this one is:

THANK GOD WE, AT BLUE WORLD, ARE NOT EXPERTS!

All I've been reading all week are articles talking about how employment may have strengthened in November. Really? Based on what? A few more shoppers than last year? That is ridiculous. I really don't know where the experts think these jobs are coming from but there is not a single indicator to suggest a material improvement in the employment situation has or will occur anytime soon. GDP growth includes too much inventory, has been revised sharply lower for the next year and prospects based on foreign trade have dimmed. Housing, bad. Construction, bad. Manufacturing, bad. (See "Is the Table Set for the Double Dip"? http://blueworldassetblog.blogspot.com/) Friday the TV, radio and internet were peppered with adjectives like "surprised", "shocked", "appalled", "stunned", "dazed", "shaken", "dismayed"," horrified", "aghast", etc. These adjectives were being used to describe the reactions of the "experts" to the employment numbers. Well, let's all take a moment to THANK GOD WE, AT BLUE WORLD, ARE NOT EXPERTS!

So, perhaps a little less expert-bashing and a little more uninformed, uneducated, novice analysis would be of greater value.

The Household Survey (Table A) reports an unemployed rate of 9.8 percent, up two tenths of a percent from October '10. More importantly the total private sector only added 50,000 jobs and of those only 39,000 were non-farm positions according the Establishment Data on Table B. Section U-6 of Table A-15, Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force, remains at a staggering 17 percent. If you have read us at all you will know that the most disconcerting number in this report is the 5.1 percent unemployed rate for those at least 25 years old with a bachelor's degree, or higher. That is a jump from October '10 of .4%. That is a BIG scary number. Manufacturing and construction lost jobs while the number of unemployed for over 27 weeks continues to climb.

We see not a single surprise in any of these numbers. Jobs, simply, are not created based on nothing. The only reason payrolls grow is in response to an increasing demand for products and services in the private sector. Jobs and demand do not operate in parallel. They operate in circuit. Right now that circuit is in "vicious cycle" mode. Unemployment is high, so many Americans have no disposable income. No disposable income translates to decreasing demand for even the most basic necessities. Decreasing demand leads to decreasing need for labor. It should therefore be no surprise that healthcare is among the few industries adding jobs consistently throughout this recession. The baby boomers are aging and requiring more and more care. Increased demand equals increased employment. It is no mystery.

Employers need a reason to believe that demand will increase. They need to feel the political and regulatory environment is stable and supportive of business activity. Until that happens anyone who predicts an improvement in the employment situation and, therefore, the economy must be...an expert.

We remain in a very defensive posture with our investment strategies and will for the foreseeable future.

Thank you for reading and...stay tuned!

Release Site: http://www.bls.gov/

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced for accuracy and footnoting. The analysis represents the opinion of Blue World Asset Managers, Ltd. who are not giving advice and does not warrant or guarantee predictions based on its analysis.

Is The Table Set for the Dreaded Double-Dip?

"Brain surgery is not rocket science to a brain surgeon".

The Table is Set for the Dreaded "Double Dip"
Back in the summer I posted blogs about the four questions I/Blue World was being asked most often. One of those was regarding the likelihood of a double dip recession. It would be valuable to go back and review that one now.

http://blueworldassetblog.blogspot.com/2010_06_01_archive.html

If you are not inclined to read the whole post the short answer was "no" if you believed we never really emerged from the first dip and "yes" if you believed a recovery was underway. A lot has happened since then and after the over-important, under-meaningfully-analyzed events of the past two weeks Blue World feels we have enough information to render a more evidenced based opinion.

The National Weather Service in Chicago, IL has issued a Tornado Watch for the following counties ...
Is Blue World definitively predicting a "double-dip"? Of course not. Too many things can change, literally, overnight. Look at this post like the difference between a tornado watch and a tornado warning. A tornado warning means there is a verified tornado already formed and coming. A tornado watch means that all the conditions favorable for a tornado to form exist. Consider this, therefore, to be a "Double-Dip Watch". It is significant because everyone has just started to relax a little bit.

Numbers can be misleading...AND used to mislead.
You all know I write these to cut through the headline nonsense in an effort to offer some actionable intelligence for business managers at any level. There has been a pant-load (my favorite e-trade baby phrase) of economic data that is being spun as positive. It's not positive. Let's summarize some key indicators.

Inflation
This is the condition during which the stuff we buy every day starts to cost more. We are being told it is OK to keep interest rates low because inflation is in check. Really? How do you say that with a straight face to real people who are buying milk, food, gasoline, etc.? Blue World watches the commodity prices every day and, I assure you, nothing is getting cheaper. Have a look at the following links to price charts for some staple items and raw materials then let me know how tame inflation looks to you. Some of these sites have interactive functionality if you care to play with some parameters.

Gasoline:
http://www.GasBuddy.com/gb_retail_price_chart.aspx?city1=USA Average&city2=&city3=&crude=n&tme=1&units=us

Weekly Corn: http://futures.tradingcharts.com/chart/CN/W

Weekly Cotton: http://futures.tradingcharts.com/chart/CT/W

Weekly Live Cattle: http://futures.tradingcharts.com/chart/LC/W


The Fed and Quantitative Easing (QE 2)
Normally we consider increases in personal spending a good sign that confidence is on the rise and, consequently, people are willing to start spending more money. We could believe that even more if we are told productivity is up. Unfortunately, those numbers can mean that the stuff we have to buy is getting more expensive and few people are doing the work of many, respectively. You know the unemployment rate is still hovering between 9% and 10%. After looking at those charts do you think inflation is really in check? That leads us to the double whammy. Not only is the stuff we need getting more expensive, but the money we use to buy it is losing power. The Fed has, inexplicably, decided to make the dollar even weaker than it was by buying long-term debt with short-term money in another effort to "stimulate" the economy. Trading more expensive long-term debt for cheaper short-term debt is roughly akin to paying the minimum on your credit card. It allows you to avoid late charges in the short term but does nothing to diminish the total interest-bearing amount you owe. Therefore, you have made things better in the short term but the underlying long term problem keeps getting bigger. When you hear them talk about "kicking the can down the road" this is all they mean. It is funny (embarrassing) to hear our President scold China for manipulating their currency in order to make their products more attractive and then explaining that our currency devaluation was the unintended consequence of the primary goal of "economic stimulus". HUH?? Net results, my friends. Net results.

Employment (http://www.bls.gov/)
We write about this one almost every month so I won't spend a great deal of time on it here. We'll just hit some key stats. You can review our longer analyses by clicking on the archive buttons at this site. Let's summarize the trends ending with the most recent report. Professionals are still out of work at unprecedented rates. I keep saying that but they are, unfortunately, becoming quite "precedent-ed". The total number of those leaving the hunt for work continues to edge up. That kept the overall rate unchanged even though the picture had worsened. The average time out of work has also increased. So, of the jobs that were created, where are they? The biggest increases came in the private service providing sectors with the largest single sub-piece being temporary services. Not a good growth indicator. Manufacturing lost jobs. That leads us to GDP.

Gross Domestic Product (GDP) (http://www.bea.gov/)
They reported a rise in GDP. Be careful. As always, the truth hides in the detail. GDP includes everything produced whether it was sold or not. A big piece of the increase was inventories. In other words, a lot of stuff was produced but not sold so stuff is piling up. Remember what we said about manufacturing losing jobs? That does not bode well for demand and inventories could start collecting dust...and interest.

Bush Tax Cuts
First, inoculate yourself against the "language". The administration would have us think that they are offering tax breaks for the middles class. They are not. They are only arguing over keeping rates as they are. There was tremendous optimism in the business community that the White House position on extending the Bush tax cuts would apply to everyone following the election. Since Wednesday, November 3, 2010 the song sounds the same. The President continues to favor the extension for the "middle class" but not the "wealthy". Please remember that the definition of "middle class" and "wealthy" has been ARBITRARILY defined for purposes of this conversation. So, if we take those making $250k+per year, call them "wealthy" and let their taxes go up what effect does that have? Simple, really. You are extending existing income tax rates for the body of people who don't have any income. How will that help? This is the largest out of work group for over 27 weeks.

Job Creators
The statistic you hear about jobs is absolutely true. Seventy percent of new jobs come from small business. Small businesses usually operate as a Sub-Chapter S corporation or LLC. That means that the business pays no income tax. The owner does. If the owner's clothes and food prices are rising, demand for his products and services are declining and the tax bill is going up there is NO opportunity for growth and job creation. These are the very people we rely on to create jobs! They will be stifled even further by these conditions. Please follow this link to read the article after you finish reading this post.

http://online.wsj.com/article/SB10001424052748704648604575621061892216250.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsThird

Presidential Asian Trip
The last straw, I fear, is getting the least meaningful analysis. Our President has been on an extended international tour whose express intent was to strengthen the U.S. economy by, and I'm summarizing here, getting strong consensus against Chinese currency manipulation, lay a foundation for new open trade agreements in India and, the marquis item, seal the trade agreement with South Korea. 0-3. This is a HUGE deal for very practical reasons. Unfortunately, the "analysis" we are fed is focusing on politics and his competence as a world-stage player. Well, talk about that all you want but the analysis that matters is that the agreement with Seoul would have been an almost immediate benefit to our economy as we could have started setting up trade right away. I know the President says he is still confident we'll get something done. When? We don't have time to wait and now European countries with similar ink-ready deals will beat us to the South Korean market. That's a big problem.

The "Hows", the "Whys" the "Do You Mind If I Don'ts"
I am very aware of the socialist theories regarding Mr. Obama's desire to tank these deals, weaken our currency, set a new "normal" for unemployment, etc. all on purpose in an effort to further weaken America and bring her down a notch. I am equally aware of the theory that he is just incompetent and in way over his head. This would be a good time to review the post regarding blame and inheritance (http://blueworldassetblog.blogspot.com/2010_08_01_archive.html). None of the reasons "why" really matter. The relevant point here is that we really don't care if he is doing this on purpose or he is just incompetent. The net result of either is the same. The net result of either is bad.

For the reasons stated above we feel the table is now set for the double dip recession everyone had begun to become less concerned with. Businesses are sitting on cash with no incentive to do otherwise. Banks can't lend in spite of all the "stimulus" because their asset reserve ratios will not support lending. Massive commercial defaults are waiting in the wings. The financial reform bill has passed but many of the new rules are as yet unwritten. Businesses are proceeding as if the Healthcare law will stand but no one is sure if it will. If it does no one is sure what it will mean. A major tax policy is mere weeks away from hitting with no clear indication of what will happen. Uncertainty is an enormous impediment to growth. The stock market, which was the only place anyone was making any money, seems to have taken notice of all of the above in the past week. Profits were good. That dominated the headlines but corporate guidance was very weak. Why? Because all those CEO's and CFO's have already analyzed the same information you are right now.

With regard to your personal financial, business and investment decisions and strategies we feel it is still a time to be prepared for the worst while hoping for the best. As a nation we didn't get where we are by being lucky. We are smart, motivated, resilient and eternally optimistic. We'll be back on top. It's just that right now it couldn't seem soon enough.

Our continued gratitude for reading. We always hope we add value to your wealth building and asset protection outlooks. Stay tuned...

Jobs and Fed

Usually I write my own but this says it pretty darn well...
http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2010/11/05/thoughts-on-liquidity-traps.aspx

Matigian Manor Graveyard Halloween Display

Employment Situation Analysis 10-08-10

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site: www.bls.gov
Market Sensitivity: VERY HIGH
Management Value: VERY HIGH

Friday, October 07, 2010

While the unemployment rate has not changed the situation has deteriorated.
The net job loss was -95,000 with the private sector adding 64,000 jobs while the government shed 159,000 as more temporary census jobs are ending. Construction and manufacturing both posted losses. The 25yoa+ bachelor’s degree and higher crowd is still unemployed at staggering rates (4.4% for September). Average weekly hours worked in manufacturing and construction fell and the number of voluntary job leavers fell substantially (Table A-11. Unemployed persons by reason for unemployment)

The attention getter in this report lives in Table U-6 (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force). These are the under employed plus the gave-ups. The rate trend for this group from June through September is 16.5, 16.5, 16.7 and now 17.1%.

It appears that there were additional layoffs in the second half of September that would not be reflected in this release but caught by the recent Gallup survey http://www.gallup.com/tag/Unemployment.aspx. That suggests we need to hold on tight next month. We’ll see.

The recession continues by all valid and objective data. We do not see any evidence of a change in policy that would improve the trend. We believe hiring will remain stagnant with accelerating job losses for October 2010. The uncertainty of the mid-term elections is, undoubtedly, a contributor to the business community’s reluctance to reach into the coffers and hire for expansion because rising unemployment means declining demand in spite of “stimulus”. Perhaps some clarity of direction will be a stabilizing influence after the elections.

Thank you for reading and stay tuned.

Employment Situation Summary 9-3-10

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site: www.bls.gov
Market Sensitivity: VERY HIGH
Management Value: VERY HIGH

Friday, September 03, 2010

We write these analysis reports to offer real investors and business leaders actionable intelligence well beyond the spin we get from media headlines, economy experts and market gurus. If we are in the business of combating absurdity, business is good!

The employment report, again, requires little analysis as the picture has not improved. That was predictable based on the balance of data and general mood of consumers and employers. The "experts" were surprised, as usual. This time it wasn't as bad as they thought it would be. So, a rise to 9.6% is reason for optimism this month. WOW.

We continue to be amused/baffled by the media reports. When the rate goes up that is, somehow, good news and when the rate goes down it is an ominous sign. Let's get to some actual numbers that mean something.

In a service based economy the percentage of unemployed workers with a minimum four year college degree is a bellwether indicator of the trend, health and sustainability of the economy at large. These are the people most likely to spend on durable goods, homes and big ticket luxury items, so it is one of our go-to stats when evaluating the state of the job market and economy as a whole. This group continues to be out of work at rates never seen since the stat has been tracked and the rate has risen .1% per month since May to the current level of 4.6%. That's bad.

The total for un/under/discouraged/gave up (Table A-15, U-6) is up .2% this month over last to 16.7%.

Total private, non-farm (Table B) added 67,000 paychecks. That is less than a third of what we need to break even on new entrants at this point.

The number of part-timers for economic reasons, i.e. slack work or could only find part time work, is up substantially.

Ultimately, there is no improvement in the job market which is a clear indicator of the direction of the economy and prognosticates poor fortunes for US business.

Use those stops in the market, puts are better if you know how. Make sure your private equity plays are diligenced by a crack team. Build in as many safety nets as you can. Triple verify real estate cash flows if you can't afford to carry a property out-of-pocket. There are plenty of opportunities but the defense has to be ready to play!


Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced. The analysis represents the opinion of Blue World Asset Managers, Ltd. who does not warrant or guarantee predictions based on its analysis.

Blame and Inheritance - Really? C'MON

I'd like to talk to the current administration as well as all executives, consultants, business leaders and responsible adults about blame and inheritance for a few minutes.

A big part of what we do at Blue World includes estate planning so I have a solid grasp on the concept of inheritance.

Another major area is turn-around consulting for troubled businesses so I am painfully familiar with blame.

Blame:
I have been engaged as everything from consultant to CEO in troubled companies. The earliest conversation with remaining management is, unfortunately, what I characterize as a therapy session. It is often helpful to understand the history of decision making (or lack thereof) that led to a company's trouble. Most commonly, however, this "analysis" devolves quickly into blaming a person, people or circumstance(s) for the problems. Once this occurs I stop and say "blame me." "I will accept total blame for all the trouble this firm is in right now." Then I ask the important question. "Now that we have identified a single culprit, consolidated all blame and assigned it to me will someone tell me how that helps?"

Feeling better about making sure blame is assigned to someone else, meaning no one blames you, is not productive. Period. Assign blame to anyone or anything you want to. I have never seen the assignment of blame solve a single problem or turn around a single company. So, please, enough with people of responsibility assigning blame. Let's, instead, have mature adults objectively review history to analyze the viability of altering non-productive policy or process in furtherance of an effort to improve company performance, huh?

Inheritance:
I have had successes and failures just like everyone else. I admit I have learned a great deal more from the failures which, inevitably, led to more successes. But I also admit that the successes are more fun. In either case I reject the notion of "inheritance" as it pertains to professional, executive level turn-around situations. Allow me to explain.

Assume the following: A young man is the son of a business owner. He is 20 years old, in college, care-free and never has really been interested in Dad's business. Dad passes away unexpectedly. The son is now the sole shareholder of the business and learns the business is in big trouble. This is someone who has, legitimately, inherited a problem.

Now assume that I am the CEO of Blue World Asset Managers, Ltd. I am contacted by a company in distress and asked to evaluate it for purposes of turnaround. I go in with my highly skilled and experienced team of professionals. We look at the books, interview the management, the rank and file, customers, vendors, etc. to determine the viability of a turnaround effort. If we feel there is a shot at success we develop a plan to attain that success and then begin to implement and execute the plan. If I am successful I am very happy to take the credit. If I fail I am the first to accept the responsibility. (Note I did not say "take the blame").

Following failures in turn-around it is not uncommon to get a pat on the head and be told "it's not your fault...you didn't create the problems...you inherited an impossible situation... ALL B.S.! Why? Because we CHOOSE the fight. We do not inherit anything! We come in, evaluate a situation, identify a problem, put our hand in the air and say "PICK US, PICK US. WE THINK WE CAN FIX IT." We did not inherit anything!

Perhaps you see where I'm headed. I do not attempt to make political commentary but politics cannot be separated from economics. Political policy driven by philosophy and ideology have a profound impact on the business and economic environment.

Our country, and the free world, is being led by an administration who continues to blame the preceding administration and talk about the mess they've inherited. When you campaign for over two years and spend a hundred million dollars to frame a set of problems, propose solutions and scream "PICK ME PICK ME. I CAN FIX IT." from the highest peaks you MAY NOT claim to have inherited anything. You signed up, made your pitch, won the contract and are expected to deliver, no different than any other new management team or outside consultant.

We can have intellectual, thoughtful discussions and debates regarding policy and economic theory. That can be very productive. But to have adults of responsibility, nay even more, the top executive in the world and his A-team continue to discuss blame for the mess they inherited is unproductive and irrelevant. It terrifies me and it should terrify you, too.

We have over 16 million people unemployed, over a trillion dollars in budget deficit, uncontrolled borders, an unprecedented foreclosure rate, a looming commercial debt catastrophe and a host of additional daunting challenges to our sovereign nation, not just a single company.

So...OK, blame the prior executive and his administration. Assume you get us ALL to agree with you 100%...then tell me how that helps.