I never lied to you, I've always been cool,
I wanna be elected,
I gotta get the vote, and I told you 'bout school,
I wanna be elected, elected, elected,
Hallelujah, I wanna be selected,
Everyone in the United States of America.
I wanna be elected,
I gotta get the vote, and I told you 'bout school,
I wanna be elected, elected, elected,
Hallelujah, I wanna be selected,
Everyone in the United States of America.
This time of year always drives me crazy, the amount of outright lies being told by both parties running in a continuous loop on my TV and radio just makes me want to scream. Luckily the screaming fits in nicely with Halloween. It seems that they'll say anything to be elected ... truth be damned. One of my goals with "Rockhaven Views" is to hopefully shed some light on issues that will make us all better investors and citizens. Unfortunately, investing, economics, and politics are more intertwined today than ever before. It is not good enough to simply identify well managed companies, invest in them, and forget them. Today so much of our potential returns are being driven by what Washington does and doesn't do. It is imperative for us to sift through the lies and focus on the facts.
First - Unemployment - It's much worse than either party would have you believe.
The good folks at Shadow Government Statistics (www.shadowstats.com) take the unemployment numbers and calculate true unemployment the same way it was calculated in the 1930's. That is, they make the adjustments necessary so we can compare apples to apples. The unemployment rate reported by the Bureau of Labor Statistics and parroted by the mainstream media is currently 9.6%. 9.6% as long as you stop counting people who have given up looking for jobs and "left the workforce", discouraged workers, and marginally attached part-time workers. Using the method of measuring unemployment used during the Great Depression the real unemployment rate is a depression like 22.5%. The peak unemployment rate in the Great Depression was 25%.
If it's really this bad why don't we see massive bread lines wrapped around the corner? Welcome to the electronic depression ... iDepression 2.0. 60Minutes did a great segment last week on the 99ers Unemployment Benefits: The 99ers . We don't see bread lines today because we have 99 weeks of unemployment and food stamps that are direct deposited into your bank account. People go on living in their McMansions even if they haven't made a mortgage payment in 14 months. There were no credit cards in 1933. In the '30's if you didn't have a job you didn't have a house, and you had to move to where the jobs were. Hence the mass migration to California - "The Grapes Of Wrath". Today, a neighbor living in a similar house as yours, with a perfectly manicured lawn, could be unemployed for nearly three years and no one would ever know. They could sustain themselves on unemployment, food stamps, credit cards, and depleted 401-K savings.
The social safety net has worked. But the net is designed to alleviate the pain, not end it. Only a robust and growing economy can end the pain. The sad fact for many is that we are getting pretty much near the end of this three year safety net, and there are still no real jobs.
Second - Politicians Don't Create Jobs.
Nearly every politician in the U.S. is running for election on a platform of "creating" jobs. Only one problem. Politicians don't create jobs. Businesses create jobs. When politicians and the Federal Reserve get involved in the job market bad things happen. When the Federal Reserve decided to lower interest rates after the tech bubble burst, they created a housing bubble that "created" 1 million new construction jobs between 2002 and 2006. Of course when that bubble burst, it led to the loss of 2 million construction jobs since 2007. The government can create artificial environments, with artificial jobs, that have no chance of being sustained. Hiring Census workers is an example of short-term artificial jobs. The Obama stimulus package has also created an environment of artificial jobs that can't be sustained.
The reality is that Greenspan, Bernanke, and the rest of the Federal Reserve Governors “created” millions of jobs that were not sustainable. Their policies distorted an already tenuous economic model, dependent upon consumer spending, no savings, and delusions of home wealth. The table below paints the picture of sorrow. The key points are:
The reality is that Greenspan, Bernanke, and the rest of the Federal Reserve Governors “created” millions of jobs that were not sustainable. Their policies distorted an already tenuous economic model, dependent upon consumer spending, no savings, and delusions of home wealth. The table below paints the picture of sorrow. The key points are:
- The number of employed Americans has declined by 7.4 million since 2007.
- Goods producing jobs have declined by 19% since 2007, while service jobs have only declined by 2.8%.
- Luckily (or unfortunately), Government jobs have actually increased since 2007.
- The population of the US has increased by 10.8 million since 2007.
- The working age population has increased by 6.5 million since 2007, while the work force has only increased by 1 million.
- Only 58.5% of the working age population in the U.S. is currently employed versus 64.4% in 2000, a lower level than in 1978.
| Type of Jobs | 2007 | Today | Change | % Change |
| Manufacturing | 13,879 | 11,670 | -2,209 | -15.9% |
| Construction | 7,630 | 5,604 | -2,026 | -26.6% |
| Mining & Logging | 724 | 745 | 21 | 2.9% |
| TOTAL GOODS PRODUCING | 22,233 | 18,019 | -4,214 | -19.0% |
| Trade & Transportation | 26,630 | 24,785 | -1,845 | -6.9% |
| Education & Health Services | 18,322 | 19,611 | 1,289 | 7.0% |
| Professional & Business Services | 17,942 | 16,734 | -1,208 | -6.7% |
| Government | 22,218 | 22,231 | 13 | 0.1% |
| Financial Services | 8,301 | 7,577 | -724 | -8.7% |
| Leisure & Hospitality | 13,427 | 13,169 | -258 | -1.9% |
| Information Services | 3,032 | 2,711 | -321 | -10.6% |
| Other Services | 5,494 | 5,364 | -130 | -2.4% |
| TOTAL SERVICES | 115,366 | 112,182 | -3,184 | -2.8% |
| ALL JOBS | 137,599 | 130,201 | -7,398 | -5.4% |
| U.S. Population | 299,398 | 310,233 | 10,835 | 3.6% |
| % of Population Employed | 46.0% | 42.0% |
When I hear Obama and his minions blather on about the jobs we have added in the last six months, I want to break something. The truth is that the country should still have 64.4% of the working age population employed today as we did 10 years ago. That means we should have 153.5 million employed Americans today. Instead, we have 130.2 million employed Americans. That is a 23.3 million job deficit and the Obama administration crows when we add 50,000 new jobs in a month. Welcome to iDepression 2.0.
Again, jobs, "real jobs," can only be created by businesses. Businesses run based on sound economic principals of supply and demand. Don't get me wrong, the government can do something to help create jobs, they can create an environment that encourages businesses to grow. Namely they can get out of the way! Massive cuts and simplification in regulations, and taxes. And certainty. Today, with two months left in the year, we don't know what are tax rates will be next year. We have no idea what our health care costs will be. We are perceived and treated by the administration as pariahs. Also, failure needs to be allowed. If I manage my company better than my competitor than I should get his customers, he should not be supported by taxpayer dollars. Just think how well Ford would be doing if GM and Chrysler were allowed to fail. That is as it should be.
Third - Dollar Debasement
No matter what the Treasury tells you, we do not have a "strong dollar policy." As I mentioned last week there is ample evidence to the contrary, namely the 40% decline in the value of the dollar relative to a trade weighted basket of major currencies.
As for Mr. Geithner's G-20 announcement of a global currency agreement, well that lasted all of four days! Under the "agreement" the keepers of the dollar, euro and yen agreed to "be vigilant against excess volatility and disorderly movement in exchange rates" and China agreed to "move towards more market-determined exchange-rate systems that reflect underlying fundamentals."
Now with the Fed ready to embark on a trillion dollar Quantitative Easing (QE2), it's amazing that Timmy Geithner didn't get laughed out of the room. Not to worry, just four days after the G-20 meeting the finance chiefs from South Korea and South Africa said they will act to slow gains in their currencies relative to a declining US dollar.
There are two solutions to this constant devaluing currency mess, unfortunately neither will be done until after the crisis is much deeper. One is to stop the US governments spending increase, raise interest rates, reduce and simplify taxes and regulations, and watch revenues increase as businesses prosper. The other would be to go on a type of international gold standard that would stabilize currency markets, lessen inflation, and lessen the debasement of all currencies.
Fourth - Education
I am by no means an expert of any kind on education. I am simply a product/survivor of our education system, and I have two daughters deeply involved in the process. What I do know is that our current system is broken. We have had constant/continuous increases in the cost of education and very little in the way of improved academics. On average college tuition has increased at 8% a year, meaning that the cost of college doubles every nine years. It's hard to get good numbers on the increased taxes going to support our public education machinery, but I know they have increased far faster than the rate of inflation.
Anyway, I think we all need to rethink how education works. Our current model of teaching kids has changed very little since the Industrial Revolution...maybe its time for a change. I highly recommend the following video from education expert Sir Ken Robinson, it is tremendous food for thought!
Finally - It Is Time
It is time for the people, the real people of this country who have worked and saved and done the right things, only to have been beaten down. It is time for these people to stand up to those in power and take this country back. It is time for moral backbone. It is time to vote.
As Ma Joad said at the end of "The Grapes Of Wrath":
"I ain’t never gonna be scared no more. I was, though. For a while it looked as though we was beat. Good and beat. Looked like we didn’t have nobody in the whole wide world but enemies. Like nobody was friendly no more. Made me feel kinda bad and scared too, like we was lost and nobody cared…. Rich fellas come up and they die, and their kids ain’t no good and they die out, but we keep on coming. We’re the people that live. They can’t wipe us out, they can’t lick us. We’ll go on forever, Pa, cos we’re the people."
Be careful out there, and keep the light's on,
Chris Wiles, CFA
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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
