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How to Get Rich Investing in Stocks by Riding the Electron Wave

1.7 Million Reasons Why the Economic Recovery is a Joke

Economics / Economic Recovery Mar 08, 2010 - 04:03 PM GMT

By: Graham_Summers


Best Financial Markets Analysis ArticleMy apologies for dropping off the map last week. I had quite a bit going with the back-end of my business. On that note, I’m going to making a few major announcements in the next week, so stay tuned.

Now, let’s move onto the economy, then the markets.

The bulls have gotten themselves excited about the market blasting off last week from yet another juiced employment record. The headlines read that we only lost 36,000 jobs in February. Of course, this number stems counts an imagined 97,000 new jobs that the BLS claims were created by new businesses. The BLS has no numbers or statistics to back up this claim. It’s just an assumption they made. Do you know anyone who’s launched a business in the last month and is hiring? Me neither.

Let’s imagine these fictitious entrepreneurs. First off we should consider that roughly 33-39% of all start-ups NEVER turn a profit. On top of this, we should consider just who is capable of starting a business that will make significant money in this economy when year over year revenues are down 15-30% for most existing businesses.

Finally, let’s think about the REAL employment impact of these start-ups (assuming they exist). Given the economic backdrop, the soon to be increased health care costs of hiring, as well as the massive drop off in lending coming from the banking sector… what are the odds these would be entrepreneurs (if they exist) are going to be hiring people and expanding their operations?

Next. To. None.

Void of accounting gimmicks, we lost well over 130,000 jobs last month. Real unemployment, when you include people who have fallen off the list because they haven’t looked for a job in the last four weeks as well as those who want full time employment but can’t find it, is 17%. That’s the actual number, not some assumption or fantasy model based on birth/death ratios, seasonal adjustments, or other accounting gimmicks.

Put another way, roughly one in five employable Americans are either unemployed or underemployed: the latter term means you want a full-time job but can’t find one so you’re settling for part-time or temp work. Hard to get the word “recovery” out of the above numbers. “Economic nightmare” seems closer to home.

From a larger perspective, this is the 25th month we’ve posted job losses out of the last 26. Let’s think about that for a moment. We’ve now been losing jobs for over two years. To combat this problem we’ve thrown trillions of dollars at the economy (well, really the banks, but we’ll claim it was aimed at Main Street). And yet, we’re still losing jobs by the hundreds of thousands every month.

Again, where does the word “recovery” apply to this situation?

Beats me. It also probably confuses the 800,000 people who just lost their “imaginary” jobs from April 2008-2009. That’s right, in February the BLS performed a downward revision for its employment statistics for this time period. How big of a revision? 800,000.

In plain terms, accounting gimmicks allowed the BLS to over-state REAL employment numbers by 800,000 jobs from April 2008-March 2009. These “jobs” all just disappeared with the latest downward revision. By the way, lest you think this practice has changed, consider that the same adjustments have added 990,000 to the employment numbers since then.

So all in all, there are 1.7 MILLION imaginary jobs being added to the employment numbers since April 2008. So not only do we find that the various economic policies being employed have failed to stop the job losses… but we’re now discovering that accounting gimmicks allow the Feds to add well over a million imaginary jobs to the employment numbers. That’s a heck of a lot of lipstick to add to a pig of a jobs market.

I realize that the market doesn’t need to trade in line with the economy. But ultimately, earnings and sales come from consumer spending. And regardless of the accounting nonsense that is employed to claim we’re in a recovery, people are still losing their jobs. Those who aren’t losing their jobs are having their work-weeks shortened (the average work week is now 33.8 hours, not 40), or suffering pay cuts.

So to see stocks erupting higher based on Friday’s employment number is beyond a farce. Instead, it is proof positive that our market is now run by algorithmic trading programs: machines that can’t even perform 2nd grade math (or bother analyzing beyond the headline numbers). These stupid programs should be banned from existing.

How will this end? I’ll explain in tomorrow’s essay: Bailout Ben’s 2007 Time Machine. Until then…

Good Investing!

Graham Summers

PS. I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse again. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only help to protect your portfolio from the coming carnage, they’ll can also show you enormous profits.

Swing by to pick up a FREE copy today!

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

    © 2010 Copyright Graham Summers - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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