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The price of corruption.

In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.

Economists had expected the unemployment rate to rise to 12.4%. After three years of underestimating the political, fiscal, and economic fiasco in Brazil, they’re still underestimating it.

For example, by the end of 2015, the consensus forecast for unemployment by the end of 2016 was 9.1%, according to Focus Economics. On average, economists essentially expected the unemployment rate to remain flat for the year. A huge miss, when in fact the unemployment rate soared by 3.1 percentage points in the four quarters through January.

At the time, they figured that the unemployment rate would drop to 8.8% by the end of 2017. It is now clear that it would take a miracle to accomplish that.

The report also pointed out:

The number of unemployed soared by 34.3% year-over-year to 12.9 million persons (Brazil has a total population of 210 million).
The number of employed dropped by 1.9% year-over-year, or by 1.7 million to 89.9 million people.

This chart shows the unemployment rates of the three-month rolling periods. Note the brutal jump in January (via Trading Economics, red marks added):

Here are the sectors that shed the most workers compared to the same quarter last year:

General industry: -7.4% (-897,000 workers)
Construction: -9.6% (-755,000 workers)
Agriculture, livestock, forestry, fishing and aquiculture: -4.6% (-434,000 workers)
Domestic services: -3.5% (223,000 workers)

Employment rose only in lodging and food services: +8.7% (+393,000 workers). The remaining sectors maintained stable employment.

…click on the above link to read the rest of the article…

John Mauldin: The Fed Is Leading Us to Economic Hell

October 1, 2016

John Mauldin: The Fed Is Leading Us to Economic Hell

The Fed argues that low rates have worked. The economy emerged from recession. Unemployment drifted back down. “Yay for us,” said the Fed.

Don’t buy that statistical economic garbage. The economy recovered in spite of Fed policy, not because of it. The economy recovered because business owners, entrepreneurs, and workers rolled up their sleeves and made things happen.

It involved a lot of pain: layoffs, asset sales, lost customers, and more. But the hard-working citizens of this country slowly and painfully pulled themselves out of the nosedive.

Those are the people who deserve the credit, not the Fed. Keeping rates at artificially low levels did nothing other than push our economy into the mother of all corners.

Look where we are now.

The next recession means rates will go below zero

The US economy is going to suffer another recession in the not-too-distant future. So, for lack of anything else to do, the Fed is preparing to send rates below zero when the economy next needs goosing. That was clearly the message from Jackson Hole.

What then? Here is the most likely scenario I think we are facing—and you are not going to like it.

We are going to go into the next recession with interest rates still stuck in the sub-1% range. This doesn’t give the Fed much ammunition.

Economists (who could certainly qualify as High Priests) have done studies on recent Fed policies. These show that quantitative easing didn’t really do anything, other than maybe goose the stock market.

There is also no data that shows any positive benefit from the so-called wealth effect, which was all the academic rage at the beginning of this process. Forget the wealth effect. The fact is that when the stock market goes up, it does not trickle down to the average guy on Main Street.

…click on the above link to read the rest of the article…

Canadian Economic Charts: Money Supply, Bank Balance Sheets, Interest Rate, Private Debt to GDP, Unemployment

September 17, 2016

If Everything’s Doing So Great, How Come I’m Not?÷

September 10, 2016

If Everything’s Doing So Great, How Come I’m Not?

Are you better off than you were 10 years ago?

We’re ceaselessly told/sold that the U.S. economy is doing phenomenally well in our current slow-growth world — generating record corporate profits, record highs in the S&P 500 stock index, and historically low unemployment (4.9% in July 2016).

While GDP growth is somewhat lackluster by historical standards—less than 2% in 2016—it’s growth nonetheless. And the rate of consumer-price inflation is hovering around 1%; negligible by historical standards.

But this uniformly positive statistical view of the U.S. economy raises a question among those not in the top 0.1%: If everything’s going so great, how come I’m not?

Whether it’s struggling to keep up with the rising cost of living, a 0% return on savings, working longer hours while real wages stagnate, scrimping to pay back education loans, despairing at the abuses of power in our banking and political systems, or lamenting the loss of nourishing social interaction in our increasingly isolated and digital lifestyle — most “regular” people find their own personal experiences to be at odds with the rosy “Everything is awesome!” narrative trumpeted by our media.

The Scorecard

To get a more concrete understanding of this gap, let’s establish a scorecard we can individually fill in to make an assessment of just how well we’re doing.

The key point about such a scorecard is this: We can only optimize what we measure. If we don’t measure (for example) leisure time and well-being in our assessment of Are we doing better than we were 10 years ago? then those issues simply aren’t considered.

And this is the flaw in using broad, easily-fudged statistics such as the unemployment rate as the primary measures of how great we’re doing (or not). What actually matters in life—our experiences, our stress level, our leisure time, our well-being and our sense of security, to name a few—is completely ignored by statistics such as GDP and unemployment.

…click on the above link to read the rest of the article…

The Wave of Deflation & Rising Unemployment

May 19, 2016

The Wave of Deflation & Rising Unemployment

QUESTION: Marty, years ago you did a chart showing the projection for unemployment. I believe I understand what you were projection for the company I work for has been replacing people with technology on a large scale. So we can have rising corporate profits with rising unemployment as technology changes everything. Is there a point when rising unemployment brings down corporate profits for it reduces consumer spending?

Thank you for your consideration

ANSWER: Absolutely. The peak in unemployment during the Great Depression was during the technology shift that was a result of the introduction of the combustion engine. Tractors began to replace farm workers, as agriculture had been 70% of GDP in the mid-19th century, 40% by 1900, and later dropped to 3% by 1980. This technology shift, combined with the Dust Bowl, changed the face of labor dramatically.

Politicians are brain-dead. Hillary claims she will champion equal pay for women and raise the minimum wage to $15. I do not know what planet she is on but such a combination will clearly create a major depression, given we already have this technology shift underway with so many jobs being automated. You park your car, push a button for the ticket, and pay by sticking your card in a machine without ever seeing a person. McDonalds announced its answer to $15 an hour minimum wage – touch-screen cashiers.

robot-8

The combination of a $15 minimum wage and Obamacare is a lethal injection for the economy. But hey, we elect corrupt lawyers to public office who say what the people want to hear and have no concept of the result if such ideas are implemented.

Tell your children to study computer programming. What will the world be like in 25 years? Will any menial jobs remain?

We are approaching the reality of the movie series “Terminator.” Government is striving to develop robot warriors whose loyalty will never be questioned.

…click on the above link to read the rest of the article…

Automating Ourselves To Unemployment

April 28, 2016

Tatiana Shepeleva/Shutterstock

Automating Ourselves To Unemployment

How shortsighted policies are creating a long-term crisis

Students of Austrian business cycle theory are familiar with the term malinvestment. A malinvestment is any poor use of resources or capital, commonly made in response to bad policy (usually artificially low interest rates and/or unsustainable increases in the monetary supply). The dot-com bubble that popped in 2001? The housing bubble that similarly burst in 2008? Those were classic examples of malinvestment.

With this article, I’d like to introduce a related term: malincentive. While not part of the official economic lexicon, I consider a ‘malincentive’ a useful word to describe any promise of short-term gain whose long-term costs outweigh any immediate benefits enjoyed. The temptation to urinate in one’s pants on a cold winter day to get warm is a (perhaps unnecessarily) graphic example of malincentive. Yes, a momentary relief from the cold can be achieved; but moments later, you’ll have a much larger problem than you did at the outset.

Malincetives and malinvestment go hand-in-hand. In my opinion, the former causes the latter. As humans, we respond remarkably well to incentives. And dumb incentives encourage us to make dumb investments.

In this current era of central planning, malincentives abound. We raced to frack as fast as we could for the quick money, while leaving behind a wake of environmental destruction and creating a supply glut that has killed the economics of shale oil. Our stock exchanges sell unfairly-fast price feeds for great sums to elite Wall Street high-frequency-trading firms, and as a result have destroyed investor trust in our financial markets. The Federal Reserve keeps interest rates historically low to encourage banks to lend money out, yet instead the banks simply lever up to buy Treasurys thereby pocketing vast amounts of riskless free profit. The list goes on and on.

…click on the above link to read the rest of the article…

The Boomer Retirement Meme Is A Big Lie

April 4, 2016

THE BOOMER RETIREMENT MEME IS A BIG LIE

As the labor participation rate and employment to population ratio linger near three decade lows, the mouthpieces for the establishment continue to perpetuate the Big Lie this is solely due to the retirement of Boomers. It’s their storyline and they’ll stick to it, no matter what the facts show to be the truth. Even CNBC lackeys, government apparatchiks, and Ivy League educated Keynesian economists should be able to admit that people between the ages of 25 and 54 should be working, unless they are home raising children.

In the year 2000, at the height of the first Federal Reserve induced bubble, there were 120 million Americans between the ages of 25 and 54, with 78 million of them employed full-time. That equated to a 65% full-time employment rate. By the height of the second Federal Reserve induced bubble, there were 80 million full-time employed 25 to 54 year olds out of 126 million, a 63.5% employment rate. The full-time employment rate bottomed at 57% in 2010, and still lingers below 62% as we are at the height of a third Federal Reserve induced bubble.

Over the last 16 years the percentage of 25 to 54 full-time employed Americans has fallen from 65% to 62%. I guess people are retiring much younger, if you believe the MSM storyline. Over this same time period the total full-time employment to population ratio has fallen from 53% to 48.8%. The overall labor participation rate peaked in 2000 at 67.1% and stayed steady between 66% and 67% for the next eight years. But this disguised the ongoing decline in the participation rate of men.

In 1970, the labor participation rate of all men was 80%, while the participation rate of women was just below 43%.

…click on the above link to read the rest of the article…

Keynes in 1939: The Coming War Will Solve our Unemployment Problem

April 2, 2016

Keynes in 1939: The Coming War Will Solve our Unemployment Problem

On the eve of World War II, Keynes delivered the following chilling address on the BBC, talking about the “great experiment” of curing unemployment through war expenditure:

J. M. Keynes, When the Day of Peace Comes

Two years later to the day, in a lecture delivered shortly after his arrival in the U.S., Mises described how the great experiment really looked like:

We are witnesses to the most frightful and phenomenal occurrence in human history: the decay of Western civilization. London, one of the centers of this civilization… is almost completely destroyed. The buildings of the Parliament of Westminster are in ruins; the House of Commons holds its assemblies in the catacombs. […] The theater of war is spreading, and the day seems not distant when peace will have lost its last refuge. It is a moral and material collapse without precedent.

Olympics In Doubt As Brazil Sports Minister Quits, Rio Governor Says “This Is The Worst Situation I’ve Ever Seen”

March 31, 2016

Olympics In Doubt As Brazil Sports Minister Quits, Rio Governor Says “This Is The Worst Situation I’ve Ever Seen”

In less than five months, Brazil is expected to host the Summer Olympics.

If you follow LatAm politics, you know that that is an absolute joke. Last summer, the country descended into political turmoil and the economy sank into what might as well be a depression. Nine months later, inflation is running in the double digits, output is in freefall, and unemployment is soaring. On Wednesday, the government reported its widest primary budget deficit in history and less than 24 hours later, the central bank delivered a dire outlook for growth and inflation.

Meanwhile, VP Michel Temer’s PMDB has split with Dilma Rousseff’s governing coalition, paving the way for her impeachment and casting considerable doubt on the future of the President’s cabinet.

On Thursday, we learn that sports minister George Hilton has become the latest casualty of the political upheaval that will likely drive Rousseff from office in less than two months. “Brazil’s sports minister is resigning four months before the country hosts the Olympics, amid continuing uncertainty over the fate of six other cabinet ministers,” The Guardian wrote this afternoon, before noting that earlier this month, “Hilton left his party in an apparent bid to hold onto his job.”

Hilton had been sports minister for just over a year and although we’re sure any and all Brazilian cabinet positions come with lucrative graft opportunities, we imagine Hilton won’t end up regretting his decision to distance himself from the government and from this year’s Summer Olympics.

After all, there are quite a few very serious questions swirling around the Rio games. For instance: Will the water be clean enough for athletes to compete in? Will there be enough auxiliary power to keep the lights on? And, most importantly, will the games take place at all?

…click on the above link to read the rest of the article…

Dozens Arrested, Tear Gas Deployed As French Labor Reform Protests Turn Violent

March 31, 2016

Dozens Arrested, Tear Gas Deployed As French Labor Reform Protests Turn Violent

In a stark reminder of the entrenched problems facing the French economy, today police used tear gas to disperse thousands of angry activists across the nation, who are protesting new labor reforms. French rail and air traffic suffered serious disruption on Thursday after transport staff stopped work and took to the streets along with high-school students to challenge plans for a pro-business loosening of the country’s protective labor laws.

In Paris the protest started in Place de la Nation, the same place where previous anti-labor rallies took place. The demonstrators threw bottles with flammable liquid and stones at police officers. Video footage relayed on social media showed some hooded youths jumping on cars and taunting police. CGT chief Martinez played down reports of a dozen arrests, saying there was often a bit of trouble caused by “some people who have nothing to do with the issue”.

“Everyone hates the police,” the protesters were
shouting. At least two protesters have been beaten by police officers in
the city of Lille, according to photo reporter Julien Pitinome, who tweeted a picture of the incident.

In the city of Nantes demonstrators tried to storm the town hall and smash windows.

…click on the above link to read the rest of the article…

Brazil Posts Largest Budget Deficit Ever As Rousseff Cries “Coup,” Olympic Ad Sales Top $1 Billion

March 30, 2016

Brazil Posts Largest Budget Deficit Ever As Rousseff Cries “Coup,” Olympic Ad Sales Top $1 Billion

On Tuesday, embattled Brazilian President Dilma Rousseff was dealt a bitter blow when PMDB – the party of VP Michel Temer and House Speaker Eduardo Cunha – officially left the coalition government.

“Dialogue, I regret to say, has been exhausted,” Tourism Minister Henrique Eduardo Alves, a PMDB leader and former speaker of the lower house of Congress, said on Monday as he resigned from Rousseff’s cabinet.

To let the market tell it, a complete political meltdown is great news. As we showed yesterday and as we’ve discussed on a number of occasions this month, the more precarious things get politically in Brazil, the harder the BRL and Brazilian risk assets rally. Why? Because the assumption is that when it comes to the country’s floundering economy, anything is preferable to the current arrangement. With output in free fall, inflation running in the double digits, and unemployment marking an inexorable rise, it’s difficult to imagine how things could possible get any worse.

Indeed, the prospect that Rousseff and Lula will be sent packing has created so much upward pressure on the BRL that the central bank has begun selling reverse swaps to keep a lid on the currency lest its rapid appreciation should end up short circuiting a much needed economic adjustment.

Meanwhile, Brazilian stocks have soared this year amid the turmoil. Of course this state of affairs simply isn’t sustainable. As Craig Botham, an emerging markets economist at Schroder Investment Management put it, “you don’t invest in a place where you don’t know who’s in charge.“

Right. And you also don’t invest in a place where the economic fundamentals get worse by the day.

…click on the above link to read the rest of the article…

China Warns Officials: Allow Social Unrest, Lose Your Job

March 27, 2016

China Warns Officials: Allow Social Unrest, Lose Your Job

To be sure, there are always going to be financial and geopolitical landmines and every once in awhile we – and by “we” we’re referring to the market, or the country, or humanity, or whatever collective you want to choose – are going to step on one on the way to ushering in a black swan event.

But when we look out across markets and across the political landscape it’s difficult to escape the feeling that there are more black swans waiting in the wings – so to speak – than usual. There’s the threat of a dirty bomb being detonated in a crowded Western European urban center for instance. Or the chance that Turkey ends up “accidentally” killing a Russian or Iranian soldier while shelling the Azaz corridor. And how about the possibility that China tries to save its economy by chancing a 30% devaluation of the yuan and inadvertently plunges the world into a crisis far worse than 2008?

The interesting thing to note about the third crisis event listed above is that an economic implosion in China may spawn a black swan far larger than that which would emanate from a crisis in the country’s banking sector and/or a deeper devaluation of the RMB.

As we’ve discussed on multiple occasions of late, China desperately needs to purge its economy of excess capacity. The industrial sector is weighed down by too much debt and too little demand, but an acute overcapacity problem prevents the market from getting anywhere close to clearing. Either Beijing moves quickly to ameliorate this, or else a wave of defaults will ripple through the industrial complex on the way to crippling the country’s banking sector, where NPLs are probably at least five times greater than the official numbers suggest.

…click on the above link to read the rest of the article…

Economics Is Like A Religion – Just Faith In Theory

March 15, 2016

Economics Is Like A Religion – Just Faith In Theory

Everyone is missing the serious problem that ultra-low interest rates have created for retirees.

Pension funds are still assuming that future returns will be in the 7½–8% range. And as people get older and have no practical way to go back to work, pension funds that are forced to reduce payments in 10 or 15 years (and some even sooner) will destroy the lifestyles of many.

So what made Europe and Japan agree that negative rates-with all their known and unknown consequences—are a solution to our current economic malaise?

I have been trying to explain this by comparing economic theories to a religion.

Everyone understands that there is an element of faith in their own religious views, and I am going to suggest that a similar act of faith is required if one believes in academic economics.

Economics and religion are actually quite similar. They are belief systems that try to optimize outcomes. For the religious, that outcome is getting to heaven, and for economists, it is achieving robust economic growth-heaven on earth.

I fully recognize that I’m treading on delicate ground here, with the potential to offend pretty much everyone. My intention is to not to belittle either religion or economics, but to help you understand why central bankers take the actions they do.

The No. 1 Commandment of a Central Bank

Central bankers are always-and everywhere-opposed to inflation. It’s as if they are taken into a back room and given gene therapy. Actually, this visceral aversion is also imparted during academic training in the elite schools from which central bankers are chosen.

This is our heritage; it’s learning derived not only from the Great Depression but also from all of the other deflationary crashes in our history (not just in the US but globally).

…click on the above link to read the rest of the article…

Caught On Tape: “Enormous Crowds” Of Unemployed Chinese Miners Take To The Streets, Clash With Riot Police

March 14, 2016

Caught On Tape: “Enormous Crowds” Of Unemployed Chinese Miners Take To The Streets, Clash With Riot Police

In early November, we said that far from the traditional risk factors affecting China’s economy, including the slowing economy, the stock market (and now housing 2.0) bubble, the soaring NPLs, and record debt, the most under-reported risk facing China is the “breakdown in recent “agreeable” labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.”

Some recent articles probing the severity of China’s collapsing labor market were the following:

A clear indication of this was the exponential rise in labor strikes on the mainland as tracked by the China Labor Bulletin:

While so far most Chinese worker strikes had been largely peaceful, two weeks ago we said it was only a matter of time before these turned violent after Reuters reported that “China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution.”

All this changed overnight when as AFP reports, thousands of miners in China’s coal-rich (or poor depending on one’s perspective) north have gone on strike over months of unpaid wages and fears that government calls to restructure their state-owned employer will lead to mass layoffs.

Citing the video shown below, AFP reported that thousands of protesters were marching through the streets of Shuangyashan city in Heilongjiang province, venting their frustration at Longmay Mining Holding Group, the biggest coal firm in northeast China. Pictures showed enormous crowds filling the streets.

…click on the above link to read the rest of the article…

Deutsche Bank: Negative Rates Confirm The Failure Of Globalization

March 13, 2016

Deutsche Bank: Negative Rates Confirm The Failure Of Globalization

Negative interest rates may or may not be a thing of the past (many thought that the ECB had learned its lesson, and then Vitor Constancio wrote a blog post showing that the ECB hasn’t learned a damn thing), but the confusion about their significance remains. Here is Deutsche Bank’s Dominic Konstam explaining how, among many other things including why Europe will need to “tax” cash before this final Keynesian experiment is finally over, negative rates are merely the logical failure of globalization.

Misconceptions about negative rates

Understanding how negative rates may or may not help economic growth is much more complex than most central bankers and investors probably appreciate. Ultimately the confusion resides around differences in view on the theory of money. In a classical world, money supply multiplied by a constant velocity of circulation equates to nominal growth. In a Keynesian world, velocity is not necessarily constant – specifically for Keynes, there is a money demand function (liquidity preference) and therefore a theory of interest that allows for a liquidity trap whereby increasing money supply does not lead to higher nominal growth as the increase in money is hoarded. The interest rate (or inverse of the price of bonds) becomes sticky because at low rates, for infinitesimal expectations of any further rise in bond prices and a further fall in interest rates, demand for money tends to infinity. In Gesell’s world money supply itself becomes inversely correlated with velocity of circulation due to money characteristics being superior to goods (or commodities). There are costs to storage that money does not have and so interest on money capital sets a bar to interest on real capital that produces goods. This is similar to Keynes’ concept of the marginal efficiency of capital schedule being separate from the interest rate.

…click on the above link to read the rest of the article…

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