Unemployment and groupthink

Submitted by Alasdair Macleod – FinanceAndEconomics.org

On Friday 6th February the American Bureau of Labor Statistics (BLS) released its employment estimates for January, which being better than the market expected, caused Treasury bond yields to rise and precious metals to be marked sharply lower.

Earlier that week Jim Clifton, Chairman of Gallop wrote “The official unemployment rate as reported by the US Department of Labor is extremely misleading.”

His comments attracted notice, not least because Gallop is an independent company whose business is statistics. Furthermore, it is unusual for a senior business figure to criticise a government department so openly. His basic point is that if you are unemployed and have stopped looking for work in the last four weeks you are no longer classified as unemployed.
Furthermore if you perform a minimum of one hour of work in a week and are paid at least $20, you are deemed to be employed. And so on.

This is hardly news to those of us who have been sceptical about official statistics. The fact is there are even on BLS numbers 102 million adults deemed not in the labour force or officially unemployed. Then there are those who are only partially employed, but counted by the BLS as employed. As Jim Clifton points out if we add these 34.7 million people to the BLS’s 102 million figure, only 44.2% of US adults are actually employed for 30 hours or more per week; in other words fully employed by any common-sense definition. Continue reading

When ‘Deflation’ Reveals ‘Inflation’

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

One of the curiosities of the commodity collapse since the end of last June has been how various financial derivatives have been thrown off. I’m not speaking of credit default swaps of small businesses that provide sand to fracking rigs or “products” like that, but something far more basic. The price of commodities should, you might think, provide a basis to evaluate companies that are equally basic to the actual economy.

Here I am referring to materials businesses, an industry that is broad enough to incorporate chemical synthesis alongside more earthen endeavors like mining. With that kind of business foundation, you would at least expect some decent correlation with commodity prices in general if not specifically to each’s individual references. And where commodity prices are acting in full and complete concert, you might even expect that materials businesses in general would closely follow suit.

In this age of financialism for the sake of financialism, maybe that is not as straightforward as it sounds (setting aside whether it should be). There is, in fact, a yawning rift between the stocks of materials businesses and commodity prices.

ABOOK Feb 2015 Bubbles Commodities Materials

The Guggenheim Materials ETF (RTM) is at an all-time high just recently despite the crash in commodity prices, where that ETF (GSG) plumbs new depths. But this isn’t just a recent development, as there was a clear break between the two sometime around 2012 – either when the global and US economy slowed or at the moment of QE3 instigation. If that divergence sounds especially familiar, that is because it is almost exactly replicated by the broader S&P 500 index itself.

ABOOK Feb 2015 Bubbles Commodities SP500 (1)

It’s actually quite amazing in how the combined stock performance of the materials industry breaks so free of basic commodities yet conforms so well to the rest of the stock “market.” Continue reading

Central Bank Gold Purchases Increased In 2014 Says WGC As Sweden Enters Currency Wars

Submitted by Mark O’Byrne  –  GoldCore


– Official central bank purchases rose 17% in 2014

– Russia and Kazakhstan dominate purchases

– No official figures for China since 2009 – massive volumes pass through Shanghai

– Sweden’s Riksbank announces negative rates and QE

Central bank gold buying surged another 17% last year as countries outside of the Western hemisphere continue to stockpile the only currency with no counterparty risk.

Russia was by far the largest buyer. Its purchases made up a staggering 36% of total central bank buying. In total, central banks bought 477 tonnes of the precious metal last year of which 173 tonnes flowed into Russia, according to a report from the World Gold Council.

Interestingly, Kazakhstan – Russia’s main partner in the Eurasian Economic Area (EAEA) – was the second largest central bank buyer last year, having acquired 48 tonnes.

The Kazakhstan government has imposed a ban on exporting gold and its central bank has been buying up every ounce produced in the country for the past two years.

That Russia should be acquiring gold at such a pace while its economy experiences severe stress due to sanctions and low oil prices demonstrates how Russia views gold as a vital strategic asset. This, coupled with Kazakhstan’s enthusiasm for gold, leads us to wonder if gold might form the foundation of a currency agreement within the EAEA.

Notably absent from the WGC report is the presence of The People’s Bank of China in the gold market. China have not made their official holdings public since 2009. It has been speculated -based on figures out of Hong Kong – that Chinese appetite for gold is being sated.

However, figures from the Shanghai Gold Exchange (SGE) – which is rapidly overtaking Hong Kong as China’s main gold hub and which only deals in physical gold – tell a different story. In recent months enormous volumes have been passing through Shanghai.

Last month alone, 255 tonnes of gold passed through the SGE. It is likely that the PBOC were among its customers.

Continue reading