Thursday, September 8, 2011

Unemployment Claims

Longtime readers know that we are expert linguists specializing in the field of decoding news releases that trick most market participants.  This skill was developed over many years and requires copious amounts of practice before fluency can be obtained.

Today the Bureau of Labor Statistics released their weekly unemployment claims data at 08:30 EST.  The market seems to pay attention to this number even though we have shown again and again how it is manipulated on a level that would embarrass even Soviets leaders.

First lets have a look at the Reuters headline:
Notice how they place the word "Unexpectedly" in the lead off sentence.  We are curious as to who was expecting claims to decrease?

Last Thursday the BLS released weekly claims of 409,000 and today they announced that number after revision was actually 412,000.  It is more than common for the BLS to wait for the headline number to sink in before adding the 1-3% required to reach their actual count.  This tactic is also commonly used by guilty teenagers who slowly reveal the truth piece by piece in an effort to dilute the parental reaction.

Next, move to the bottom of the release for a puzzle that even has us confused.  The word "Eased" was added for political effect as they want to foster the perception that the long term situation is improving.  Continuing Claims, or people still unemployed, is defined by as:
What confused us about this definition is that the last sentence of the article says that there are 7,170,000 people receiving benefits.  How can there only be 3,720,000 continuing claims when there are double that number receiving checks?  What is even more confusing is that the August BLS data states that there are 14,000,000 unemployed persons.

Another often overlooked tactic employed by the BLS is use of The Birth Death Model.  This economic stroke of brilliance subtracts an arbitrary number of people from the claims data under the assumption that business formation took place outside the scope of survey data.
This assumption could only be made by people who do not spend any time in the real economy.  Take a walk down Main Street and see how much new business formation is going on.  The most popular new occupation we notice is panhandling which requires no licensing, insurance, taxes or liability of any kind.  Every corner seems to be hotly contested as the ranks of the beggars continue to swell.  We often wonder how many of these enterprising beggars are also collecting benefits?

What you may be noticing is that the BLS has created many definitions in order to mask the true number out of work.  Here is a list of defined categories that can be found in any BLS release:

  • Initial Claims
  • Continuing Claims
  • Long-Term Unemployed
  • Part Time Unemployed For Economic Reasons
  • Marginally Attached To The Labor Force
  • Discouraged Workers
The labor force is currently reported at 153,600,000.  This means 49% of the people in America can work.  That leaves 51% that do nothing for various reasons. 

Instead of being tossed around by news driven market gyrations try to develop the ability to think for yourself.  Give up on the dream that government agencies have your best interests at heart.  You will one day learn that their motives are to stay in power or retain their own employment.  Their news releases should be read accordingly.

Tuesday, September 6, 2011

How To Make 10% Overnight.....

Currency markets are complex and should be viewed as a giant chess board where each move opens up several new moves. At its core the market is a simple venue designed to facilitate an easy exchange of currency. Trading 1.40USD for 1.00EUR is a simple transaction. Realizing that 10 years ago 0.80USD was traded for 1.00EUR adds the next layer of complexity. Next, try to understand that massive, heavily-leveraged quantities of currency are chasing each other all around the globe, 24 hours a day, reacting instantly to every governmental action. The leverage in this market is so great that even the smallest move in the right direction offers profits for the cognizant trader. Understanding the inner workings of currency markets is important even if nothing more than the concept is retained; readers must see that while the effort put forth at their job rarely fluctuates, the paper currency in their wallets changes in value every second.

We have entered a period of competitive currency devaluation. The entire world has become complacent and seems satisfied with its system of fiat currency. When the US has trouble achieving growth the real reason is that government has become too large of a force in the economy. This can be attributed to a crippling debt burden, over-regulation and the long-term effects of entitlement-backed vote buying. Slowly weakening the currency is one tool employed in an effort to grow GDP. This can work but readers must understand that at best nominal GDP growth will be achieved. On a real basis this behavior arguably damages an economy. The following chart shows the price action of the US dollar over the past year. Consider that if you had $100,000 in a savings account paying 1% you lost roughly $12,000 in purchasing power over this period:

Weakening the currency of a nation has some perceived immediate benefits. This policy helps businesses when exporting goods. When customers are paying for transactions in foreign currency that has retained par value the goods become more affordable. It is also much easier to pay off the debts of yesterday using the more plentiful dollars of today. Consequently, governments do not like a strong currency and will do nearly anything to prevent it. Consider that statement understanding that they are doing everything possible to devalue the cash that is used to pay your wages each week. Also, this same currency that must be devalued is used by you to purchase energy, food and services at an increasingly higher price based on these actions.

Sensible readers are now considering what actions must be taken to maintain their current level of wealth in the face of this outright theft. One option is to become a savvy currency traders watching each tick of the market in order to shovel your fortune from one currency to another in the hopes of evading this destructive force. A second option is to find a true safe haven currency. Some would argue that the Swiss franc offers refuge from the destructive forces controlling the Japanese, European, British and American central banks. The Swiss don't want anything to do with the effects of a strong franc either and they made that clear last night:

We have suggested for years that readers consider a currency that is not under the control of power-hungry humans. This refuge must have certain properties in order to be an acceptable home for wealth:

  • Safe store of value
  • Universal medium of exchange
  • Impossible to counterfeit
  • Natural control of supply

Well, gold and silver seem to be the only forms of money that meet our definition. So let's examine how much an ounce of gold costs when purchased in Swiss francs. It is important to realize that the above mentioned announcement by the Swiss National Bank was released at 09:00 GMT:

Just to be clear, if you are a Swiss factory worker earning 20 francs per hour nothing has changed. But if you take those earned francs and try to purchase an ounce of gold it will now cost you an extra 10%. Maybe you should approach your boss and ask for a corresponding raise to compensate for central bank theft that is out of your control.

To the contrary, if you owned 100,000 francs worth of gold yesterday congratulations are in order as that same amount of gold is now worth 110,000 francs.

Consider the financial condition of the nation which you have entrusted with your wealth. Avoid fixed rate financial transactions in which you are the party agreeing to that fixed rate, as you will likely be paid back in paper that is worth less and less each day. Finally, consider moving some of your wealth into a currency that is not subject to politically motivated devaluation.