Daily Dispatch: Why Have the Jobs Gone Away?

July 06, 2010 | www.CaseyResearch.com Why Have the Jobs Gone Away?

Dear Reader,

Chris here. If you’re from the U.S., I hope you had a wonderful 4th of July weekend. If you’re from a foreign land, I hope your weekend was equally pleasant. For me, I spent my weekend at home cleaning. As a thirty-something bachelor, I sometimes overlook things like vacuuming, mopping, dusting, and doing dishes. But my parents are arriving tomorrow, and I didn’t want them to see their son living like a pig (even though I’m quite certain my father would if my mom weren’t around). Truth be told, thanks to how hot it was this weekend where I live, I didn’t accomplish close to what I set out to do, and I’m nowhere near finished making my home presentable. But hopefully I can knock it out tonight.

Okay, enough chit chat, now down to business.

Why Have the Jobs Gone Away?

It’s no secret that the private sector in the U.S. has been shedding jobs at an alarming rate, while the public sector has grown fat milking the production of the private sector. Just look at the chart below showing the most recent data from the Bureau of Labor Statistics on private employment (from January 2008 through June 2010) compared to the chart on federal government employment for the same period.

Since January of 2008, the private sector has shed 7.9 million jobs, reflecting a decline of 6.8% in total private employment over the past 30 months, while the federal government has added 469,000 jobs, indicating an increase of 17.1% over the same period.
But this stark contrast says nothing about why the jobs have disappeared. On this subject, I just came across a write-up by the blog The Economic Collapse that I largely agree with, so I’ll provide some excerpts below.… Yes, the large global corporations have been sending millions of jobs overseas where labor is far, far cheaper. And yes, the U.S. government has accumulated so much debt that it is absolutely suffocating the U.S. economy.
But there is another very important factor that has been largely overlooked. Traditionally, about 75 percent of all new jobs are created by small businesses. But today, hundreds of thousands of small businesses are being strangled out of existence by all of the oppressive taxes, fees, rules, regulations, paperwork and demands that government keeps imposing on them. In such a repressive environment, it is getting close to impossible for small businesses to thrive, and if our small businesses can’t succeed, then we simply are not going to see a lot of jobs being created.

You see, the truth is that over the past several decades the game has become dramatically stacked in favor of large businesses. Big corporations have the money to lobby Congress and other governmental institutions, they get almost all the tax breaks and they are the only ones who get bailouts. They even “help” write legislation on the federal level.

Many times large corporations will even lobby for more regulations for their own industry because they know that they can handle all of the rules and paperwork far easier than their smaller competitors can. After all, a large corporation with an accounting department can easily handle filling out a few thousand more forms, but for a small business with only a handful of employees that kind of paperwork is a major logistical nightmare.

When it comes to hiring new employees, the federal government has made the process so complicated and so expensive for small businesses that it is hardly worth it anymore. Things have gotten so bad that more small businesses than ever are only hiring part-time workers or independent contractors.
So what we actually have now is a situation where small businesses have lots of incentives not to hire more workers, and if they really do need some extra help the rules make it much more profitable to do whatever you can to keep from bringing people on as full-time employees.
Yes, all big corporations today started out small. But, in general, they got their start in a much friendlier regulatory environment than exists today. And the point is that as long as the deck is stacked so strongly against small businesses competing and expanding, the U.S. economy cannot thrive and jobs won’t be created, they’ll continue to be lost.

Signs of the Times…

Here are some random stories that speak volumes about the times we live in.
The U.S. government is spending 2.6 million tax dollars to study the drinking habits of Chinese prostitutes and another $400,000 to study gay sexual behavior in Argentine bars (yes, bars in Argentina). Link here.
U.S. officials say that more than $3 billion in cash (much of it aid money paid for by U.S. taxpayers) has been stolen by corrupt officials in Afghanistan and flown out of Kabul International Airport in recent years. Link here.
Researchers at the State University of New York at Buffalo received $389,000 from the U.S. government to pay 100 residents of Buffalo $45 each to record how much malt liquor they drink and how much pot they smoke each day. Link here.
It’s reported that a 6-year-old girl from Ohio is on the “no fly” list maintained by U.S. Homeland Security. Link here.
Oh yeah, and the average federal worker now earns about twice as much as the average worker in the private sector.

If stories like these are becoming too commonplace in your view and expatriation is looking like a better and better option each day, you might want to check out this article that deals with the 7 most common excuses against expatriation.
Also, we just released a new special report titled American Expatriation Guide: How to Divorce the U.S. Government. While each individual’s situation is unique and you should always consult a legal professional concerning the specifics of your choice to part ways with the U.S., this report will answer many of your questions on the topic. Download the free report here.

Time to Board the Gold Stocks Train?
By Jeff Clark, Casey’s Gold & Resource Report

One of the big hints that gold stocks will be ready for take-off is when they stop following the broader markets and strictly track gold, particularly if the market falls and gold stocks don’t. We now have data showing this has just occurred.

From April 2009 to April 2010, gold stocks mirrored the S&P. The two markets held hands as often as high school sweethearts; there was very little separation between them. While it wasn’t always a daily connection, any weekly and especially monthly chart showed them moving in tandem.

Until now.

For the quarterly period of April through June, gold stocks advanced 11%, tracking gold’s gain of 10.7%. The S&P, however, lost 14.1%.

We haven’t seen this level of separation between gold stocks and the general stock market since the first quarter of 2010. This demonstrates obvious strength in our sector, and is precisely the kind of action that can signal we’re getting closer to our precious metals investments starting a major leg up.

In the big picture, this data should be considered a short-term indicator. However, it’s a refreshing reminder that at some point, it won’t matter what the broader markets are doing. In the precious metals bull market of the 1970s, the Barron’s Gold Mining Index soared 652%, while the S&P gained only 22% for the entire decade. This means that if you’re bearish on the economy, you don’t have to be bearish on gold stocks.

Whether this is the beginning of permanent separation or not, the following chart tells us the stock market, in relation to gold, is going one direction.

At gold’s bottom in April 2001, the Dow/Gold ratio (DJIA divided by gold price) was 41.2. It now stands at 7.9 (as of July 2).

When gold peaked in January 1980, the Dow/Gold ratio reached “one,” meaning they were both selling for about the same price. To hit that same ratio today, gold will have to go higher and the Dow simultaneously lower. The fundamental reasons gold will rise are far from over, and a second leg down in the broader markets seems almost locked in at this point.

In this context, Doug Casey’s call for a $5,000 gold price doesn’t seem so farfetched. It also coincides with his call for a Greater Depression, an environment not exactly suited for higher stock prices. $5,000 gold = 5,000 Dow.

Where do you think they’ll meet three? Eight?

This has obvious implications for your investments. If you’re investing for the big picture, you first want to think twice about any conventional stock investment. You might even consider a short position on one of the indices, something without a time limit, such as an inverse ETF.

Second, you should plan on higher gold prices. While pullbacks are inevitable, it does mean that even if you don’t own gold yet, it’s not too late. In fact, any excuse you have now for not buying gold will seem shallow and meaningless when the dollar begins cratering and so does your standard of living.

Third, don’t shy away from gold stocks. Yes, they’re still stocks and thus vulnerable, and we’re not sure the separation is here to stay, but selling your core holdings would be, in my opinion, a mistake. One of these days gold stocks won’t wait around for you to jump back in. And you could find yourself chasing them, a tactical error for the investor looking to maximize profit from what we believe will be a once-in-a-generation bull market.

In fact, if you had followed only this strategy since the precious metals bull market began in April 2001, you’d be up 375% in your gold holdings and up 707% in your gold stocks. An investment in the S&P, meanwhile, would’ve returned you exactly zero.

It’s our opinion this trend will continue. Gold stocks could very well get cheaper in the short term, handing us an excellent buying opportunity. But in the big picture, they’re destined for much higher levels.

My advice is to make sure you’re on the right side of this trend.

What’s a good price on gold, silver, and precious metals stocks? We’ve charted every summer pullback in prices since the bull market began in 2001, giving us target zones for every asset in our portfolio. Our Summer Buying Guide is an invaluable resource for identifying a good bargain in our industry. And you can access it right now, for $39 per year, with a risk-free 3-month trial. Click here for more.

Why Green?
By Vedran Vuk

What do the War on Terror, green energy, and the high-speed rail project have in common? They all lack clear objectives and success measurements. These three initiatives are perfect for politicians. When there is a clear benchmark, government gets into trouble. For this reason, politicians more and more avoid quantifiable projects such as unemployment, poverty, income, etc. Or they set arbitrary benchmarks. For example, universal healthcare aims to insure the entire population. I have no doubt that the government can insure everyone. However, I have very strong reservations about long-term affordability and quality. Of course, the Democrats realize this too. That’s why they focused on the number of uninsured rather than price and quality. They know that they will fail on price and quality.

The wars in the Middle East are also unquantifiable goals. Are we winning or losing in Iraq and Afghanistan? It’s impossible to say. At best, one can have an educated opinion, but an objective statement eludes both sides of the issue. Occasionally, the government attempts to quantify success by demonstrating lower casualty rates. But even these statistics are worthless and deceptive. Victory more often than not comes with higher casualties not fewer. Further, it’s impossible to say with certainty whether there would be more or less terrorist attacks without the wars.

Sooner or later, we’ll have to exit the Middle East. However, the unquantifiable century-long goal will be green energy and the green movement. Will green energy ever be more profitable than oil, coal, and gas? Let me put it this way: Green energy is little more than modern-day alchemy. Today, oil is the gold, and the wind farm is the lead. There are plenty of good uses for lead, but ultimately it will never become gold.

Because environmental goals cannot be quantified, the government will keep pushing them for eternity. There’s no way to account for cleaner air in a cost/benefit analysis that’s why the government loves green. Just ask yourself, what should society pay for 10% cleaner air? You could pick any number. No matter the outcome, the government can always claim success. Those pesky cost/benefit approaches won’t bother them here.
Emissions are already following this model. Goals are set to reduce emissions by arbitrary percentages, but the quantifiable benefits are never revealed. Further, the percentages themselves appear to be arbitrarily picked out of thin air. Though the benefits are unaccountable, the government can keep claiming that it’s “saving the planet.” What does it actually mean to cut emissions by, say, 30%? Where’s the benefit outside the catch phrases of a “cleaner and greener world”? The benefits are always left vague, generalized, and idealized with a touch of apocalyptic overtone.

The new high-speed rail project campaigns focus on the environmental benefits and the improved livability of communities. $8 billion is being spent on these projects around the country, with $2.25 billion for California alone. How does one calculate success in creating a “livable community”? Ultimately, “livable” is a subjective term. And that’s exactly why the government has adopted this as a goal. Even if the project is a complete money pit, they can always claim to have created more “livable” neighborhoods.

Then there’s the green angle that promises to reduce pollution. Sure, maybe the air will be a bit cleaner. But is this worth $8 billion? Once again, it’s impossible to say and that’s the whole point.

If society actually valued high-speed rail, a system would have been constructed long ago. When consumers demand a product, entrepreneurs will be more than happy to provide it. If the costs are greater than the consumers’ willingness to pay, then the project will fail or will never even start. The very fact that a private high-speed rail does not exist says everything that you need to know about the cost/benefit analysis here. Only unquantifiable goals can justify the project. Hence, these are the goals centerstage.
But don’t worry. The high-speed rail will be a success just like the Iraq war, just like green energy, and just like universal healthcare. When there are no quantifiable goals and only arbitrary benchmarks, every government project is a winner.

And That’s It for Today

Chris again. Before signing off, I would like to point to a recent article in The New York Times that lays out Robert Prechter’s (founder and president of Elliott Wave International) market forecast. Prechter is convinced that we have entered a market decline of staggering proportions. He says the Dow is likely to fall well below 1,000 (no typo, that’s one thousand) over perhaps five or six years as a grand market cycle comes to an end. Link here.

Although I’m skeptical about many technical approaches to market analysis, Prechter’s version of the Elliott Wave theory has brought him and his company much success over the years, so it might not be wise to discount his approach completely off hand. Still, as bad as I think things are going to be over the next few years, I have a really hard time believing the Dow could fall below 1,000 simply because of all the money that has been and will continue to be pumped into the system. Furthermore, once the inflation expectation catches hold, the velocity of money will ramp up as people eagerly trade their dollars for something more tangible. Insofar as pieces of blue chip companies that actually produce things and are capable of creating wealth represent something “more tangible” than fiat currencies, the rush could actually push the Dow up in nominal terms.

Even so, in real terms, the money pumping we’re seeing today and will continue to see will (due to the malinvestment it has caused and will cause) destroy much wealth in the years to come, and people’s average standard of living will decline significantly.
And that, dear reader, is that for today. As always, thank you for reading and for subscribing to a Casey Research service.

Chris Wood
Casey Research, LLC