Potpourri of Observations on Economy, Markets and Politics

by Victor Sperandeo with the Curmudgeon and Fiendbear

Introduction:

I have several short points of order about the economy, U.S. dollar, politics, and general “facts of truth” for the survival of nations. They are expressed in this two-part blog post along with my opinions. Readers are invited to read either or both parts, depending on their interests.

Thanks to Fiendbear and the Curmudgeon for their edits, reformatting, and added information/references/hyperlinks, etc.

Part I. U.S. Economy and the Dollar

Weak Payroll Gains Even Weaker When Examined Closely:

The BLS Employment report showed an increase of 160,000 non-farm payroll jobs (“establishment” or “payroll survey”). The consensus estimates were for an increase of 200,000 jobs. The “household survey” revealed a 5% unemployment rate. For more on these two surveys see this BLS summary.
Also from the BLS report: “The change in total non-farm payroll employment for February 2016 was revised from +245,000 to +233,000, and the change for March 2016 was revised from +215,000 to +208,000. With these revisions, employment gains in February and March combined were 19,000 less than previously reported.” That 19,000 job downgrade for the last two months was not considered significant by many analysts.
Mark Zandi, chief economist at Moody's Analytics, believes that the April jobs increase was satisfactory. That's “because it is more than the US. population growth” (which is currently 0.7%). Note that a 0.7% population increase would equate to 201,250 jobs a month, which is reasonably close to the last three months’ average job gains of 200,000 per month.
However, Zandi does not consider the “Birth Death Model” (BDM) adjustment, which postulates that 70,000 jobs a month were made up. The true increase in real “counted jobs” was 90,000…far below the headline 160,000. Bottom line is that it is A DECEPTION used by the government to make things look better than the really are. Mark Zandi likely plays into this deception because he is a supporter of the current administration.
In his latest report to subscribers, ShadowStats John Williams corroborates my point about the BDM:

“BLS use of the BDM artificially inflates headline month-to-month payroll gains with add factors that currently are well in excess of 200,000 jobs per month.Due to extraordinary seasonal-factor shifts with today's (May 6th) headline Payroll Survey reporting, the market-disappointing April payroll gain was 160,000 jobs, instead of what should have been an even-weaker 100,000 to 120,000 jobs. On the Household-Survey side and with related unemployment measurement, data-quality was horrendous, as usual.”

Dollar Plunge Saved by Old-fashioned Jawboning:

The US dollar index (DXM) dropped six days in a row from a trading high of 95.18. On May 3rd, it traded below 93.47 (its low since August 2015) with the next major support all the way down at 80.
As the decline began to accelerate on the broken support, two FOMC members saved the day by talking (or jawboning) up the dollar. Fed members John Williams (San Francisco Fed) and Dennis Lockhart (Atlanta Fed) said “the markets are underestimating rate hike odds” and “investors dwell on downside risks.” Those remarks evidently prevented a further dollar decline as the greenback reversed and rallied back to 93.83 by Friday (May 6th) after trading as low as 91.82 during the week.
It should be noted that the two “jaw-boners” are NOT VOTING FOMC MEMBERS in 2016. Therefore, it appears that two irrelevant individuals were able to turn the dollar market around on a worthless unofficial opinion. THIS IS GROSS MANIPULATION.

Error in US. Government Debt Calculation:

James Grant, a man I very much respect, is an expert on bonds, interest rates, and gold among other things. In a Time magazine cover story titled, The United States of Insolvency, Grant asks if the nation could afford a US. government debt of $13,903,107,629.266?
Excerpts from that Time magazine cover article:

“It is better not to incur debt. Once it is incurred, it is better to pay it off. America, we have a problem.”

“The public debt will fall due someday. (Some of it falls due just about every day.) It will have to be repaid or refinanced. If repaid, where would the money come from? It would come from you, naturally. The debt is ultimately a deferred tax. You can calculate your pro rata obligation on your smartphone. Just visit the Treasury website, which posts the debt to the penny, then the Census Bureau’s website, which reports the up-to-the-minute size of the population. Divide the latter by the former and you have the scary truth: $42,998.12 for every man, woman and child, as I write this.”

When you consider the debts the US government owes itself, the government debt total tops out at about $19.3 trillion instead of the near $14 trillion indicated by Grant!
How does this bookkeeping actually work? The Social Security Administration takes in (temporarily) more than it pays out. With the surplus it BUYS US Treasury bonds. The bond purchases enlarge the debt, but it’s not important that the government pay itself back on time. What is important is that the government pay its public creditors on time, which is where the $14 trillion figure comes from. However, the government does not actually BUY any bonds. Instead it spends all the cash from the so-called purchase and places it in an untradeable IOU.
Here's what the Social Security ad man calls the IOU's:

“By law, income to the Social Security trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are -"special issues" -of the United States Treasury. Such securities are available only to the trust funds."

Reference: “Social Security Trust Fund Cash Flows and Reserves”

Upshot: The US debt is 38% higher than what Grant says is "unmanageable!"
The critical aspect of this topic is that if Jim Grant can make such a big mistake on the total debt, just think what government bureaucrats who run our economic policy can do?

………………………………………………………………………………………………..

Part II. Politics, Survival of Nations, and the New World Order

Trump is the Presumptive Republican Party Nominee for President:

Donald Trump effectively won the GOP nomination for President. He still has to complete the voting process as he needs a total of 1237 delegates. After an incredible winning streak of New York and five other eastern states, his victory in Indiana caused both Ted Cruz and John Kasich (the only other Republican candidates still running) to suspend their election campaigns.

This is truly an incredible feat for this very controversial man. What is really important is what caused him to win, which was the great anger of the voters who felt betrayed by the GOP establishment. Its leaders essentially sold themselves and their votes to Corporate America.
The GOP establishment is the reason for the rise of Donald Trump who was in the right place at the right time. Yet the GOP still doesn't get it?
House Speaker Paul Ryan said on Friday he wasn't ready to support Trump. His opponent Paul Nehlen, running for the Speaker's seat, confirms what seems obvious: that Paul Ryan “sold his vote” to support so called TRADE DEALS, which Nehlen said are damaging to America.
Nehlen added that 83% of Paul Ryan’s political fund raising comes from outside his Wisconsin district. “The vast majority comes in the form of large campaign donations from inside the D.C. Beltway... He sold his vote. The same people that are donating to his campaign want these open border initiatives. This isn’t a Free Trade deal.”
The problem here is CORRUPTION! It plagues our political system, and makes organized crime look like “The Little Sisters of the Poor.”

President Obama Attempts to Rewrite History:

Obama is trying to convince "we the people" that good is bad based on DECEPTION. In a lengthy interview with Andrew Sorken of the NY Times, he said:

“If we can’t puncture some of the mythology around austerity, politics or TAX CUTS or the mythology that’s been built up around the Reagan revolution, where somehow people genuinely think that he slashed government and slashed the deficit and that the recovery was because of all these massive tax cuts, as opposed to a shift in interest-rate policy - if we can’t describe that effectively, then we’re doomed to keep on making more and more mistakes.”

So the Reagan growth years were not due to policies of large tax cuts, but lower "INTEREST RATES?”
Let's look at Obama's propaganda: From taking office in January 1981-1988 gross GDP grew at a nominal compounded rate of 7.88%, and the real GDP (in 2009 dollars) grew at 3.47%. [These are official US government numbers.] In his 7.25 years in office, President Obama's nominal GDP growth rate is 3.11%, while real GDP was 1.70%!! Real growth was 51% and nominal growth 60% less under Obama, while interest rates were 825 bps higher under Reagan.
Based on the above, do readers think Obama's comments about “the myth of the Reagan revolution” are on the mark? Especially considering the US economy's terrible performance under his tenure as President?

Obama: Forget The Difference Between Capitalism and Communism, "Just Decide What Works"

On a visit to Argentina this March, President Obama said: "So often in the past there has been a division between left and right, between capitalists and communists or socialists, and especially in the Americas, that’s been a big debate... Oh, you know, you're a capitalist Yankee dog, and oh, you know, you're some crazy communist that's going to take away everybody's property."
"Those are interesting intellectual arguments, but I think for your generation, you should be practical and just choose from what works. You don’t have to worry about whether it really fits into socialist theory or capitalist theory. You should just decide what works." He added: "And I said this to President Castro in Cuba."
After drinking two martinis: So Capitalism, Socialism, and Communism are the same? How incredible is that statement?

Characteristics of Successful Nations Vs the New World Order:

No country in history ever prospered by creating debt, borrowing, spending and committing tyranny over its people (e.g. Cuba). On the contrary, all nations that are successful are free, have small debts, and whose people save, and invest (e.g. Switzerland). Such countries have small limited government, with low taxes, and few regulations. They are not controlled such that they are the only successful nations over the long run.

This should not be a "big debate"!!! It is empirically a straight forward fact. So why does Obama (and others) attempt to say “BAD IS GOOD?”

It must be due to "The New World Order." As H.G. Wells wrote in his 1940 book with the same title:

"It is the system of Nationalist individualism that has to go... In the great struggle to evoke a Westernized World Socialism, contemporary governments may vanish... Countless people will hate the new world order...and will die protesting against it." (Put me in that group).

Closing Quote:

As Ludwig Von Mises wrote in Planning for Freedom (1952):

"Tyranny is the political corollary of socialism, as representative government is the political corollary of the market economy."

Good luck and till next time...

The Curmudgeon
ajwdct@sbumail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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