After three months of consistently disappointing jobs numbers, the markets were as keyed up for a good jobs report as a long suffering sailor awaiting shore leave in a tropical port. The just released April jobs report, which claimed that 288,000 jobs were created in the U.S. during the month, provided the apparent good news. But you don’t have to go too far beneath the surface to find some troubling trends within the data. Even this minor excavation was too much for the media cheerleaders and Wall Street pitchmen to handle. 

The dominant narrative held that the prior reports had been so weak because the unusually cold weather (the 10^th snowiest in the past 50 years) had prevented consumers from venturing outside to make purchases or employers from hiring workers. Time and again the winter was blamed for the disappointing jobs reports that came in over the 1^st quarter. As a result, the consensus of economists predicted a rebound in April with 215,000 net new non-farm jobs. The 288,000 figure that greeted the markets last week – which helped bring down the unemployment rate to a post-crash low of just 6.3% – confirmed the weather hypothesis.

In reality, the desperation in which these tenuous data straws were grasped is a testament to our chronic economic weakness. Far more significant than the number of jobs that were created in April were the far greater number of jobs that were lost (806,000) because chronically unemployed Americans gave up on their fruitless quests to find work. This trend has been ongoing for years. The latest exodus of workers pushed the labor force participation rate down from 63.2% to 62.8%, an unusually sharp monthly drop. Apart from October and December 2013, also at 62.8%, the rate now is at the lowest level since March 1978. Each individual who drops out of the job market creates another lost taxpayer and another individual who is more likely to receive government support. But the media coverage of the jobs data treated this stunning development as a mere afterthought.

What should have been of particular concern, but was not even mentioned, was that more than 80% of the 288,000 jobs came from birth/death assumptions the government makes about the net number of new companies that formed during the month and the number of people those companies would have been expected to hire. For some reason the statisticians always assign a disproportionally high number of these assumed jobs to April and May. The rationale for this is likely buried deep within bureaucratic small print, so we have to take that number with a grain of salt. But what if only 100,000 new jobs were added as a result of birth/death assumptions, as was averaged in February and March? The Labor Department may have been just as convinced as everyone else that the cold weather had restrained hiring during the winter. As a result they may have been inspired to make this year’s April assumption the biggest in the last six years.

The story even gets worse when you consider the types of jobs that are being added. As has been the case for years, the new hires are heavily weighted to the lower end of the spectrum, particularly in low-paying service sector and retail jobs. The drop in the labor participation rate would not be so alarming if those who remained working were finding jobs that could support families. But that is not what is happening. We are replacing good jobs with bad jobs and getting poorer with each passing month.

This trend was confirmed on May 1 when the Bureau of Economic Analysis released its March Personal Income and Outlays report. As is typical, the pundits reacted positively to the .9% increase in consumer spending. But they couldn’t be bothered to look at the other side of the coin to determine how that increase was achieved. With personal income up only .5% for the same period, Americans financed their extra spending with a drop in savings, which dropped to 3.8%, the lowest level since just before the 2008 crisis (with the exception of January 2013 at 3.6%). Contrary to the rhetoric coming from spending-obsessed economists and politicians, savings constitute the foundation upon which economic health rests. 

More bad news arrived recently with the release of first quarter GDP numbers, which showed the economy “growing” at a glacial .1% annualized over the first quarter. The results stand in stark contrast to the optimistic forecasts that continue to hold sway on Wall Street. According to Bloomberg’s April Survey, a consensus of economists expect the US GDP to expand 2.7% in 2014. But so far the horse has stumbled badly from the gate. Just to reach the consensus estimate for the year, the economy would have to average 3.5% annualized growth over the remaining three quarters of the year. The odds of that are slim to none, and Slim has just dropped out of the workforce.

However, as we have seen in recent years, GDP estimates are more likely to be revised downward than upward in subsequent data releases. So there is a very good chance that the first quarter estimates will be revised into negative territory. This means that we may be already half way to a recession (which is defined as two consecutive quarters of negative growth).

As they have done with the recent jobs reports, most economists pin the bad GDP number on the hard winter. This is a dangerous game to play. If GDP now fails to respond strongly to the return of warmer weather, the truth of a fundamentally weakening economy will become that much easier for everyone to see. But with asset bubbles forming across many sectors of the economy, the truth can be a serious hazard. Nothing pricks a bubble quicker than a loss of confidence.

After last year’s stunning 29% rally in U.S. stocks, Wall Street virtually assured investors at the end of last year that the good times would continue. Instead, stocks are virtually flat for the year. If not for the super-charged mergers and acquisitions market, which according to the Wall Street Journal accounted for $638 billion of transactions thus far in 2014 (the highest level of activity in almost 20 years), and the rock bottom long term interest rates provided by the Federal Reserve, markets could be tanking. What’s worse is the fact that the first five months of the calendar are usually the best for market performance (hence the Wall Street adage “sell in May and go away.”) If this is how we have fared in the Spring, beware the Summer doldrums and the time this Autumn when the Fed is scheduled to end its QE program.

While the darkening skies may not be visible to Americans, the foreign exchange markets have taken notice. Today the U.S. dollar hit a five-year low against the British pound, a nearly three-year low against the Swiss franc (notwithstanding three days in March that traded slightly lower). The weakness in the dollar portends a weaker U.S. economy and a strong likelihood for more Quantitative Easing from the Federal Reserve. It also confirms that Europe’s strategy of limited “austerity” did not deliver the catastrophe that many on the left, including Paul Krugman, had predicted.

And so while there are plenty of reasons to be cautious about America’s economic future (the growing geo-political tensions in Ukraine for instance – explored in detail in my latest newsletter), Wall Street has found ways to ignore all of them. My advice to investors is to ignore the swelling crescendo coming from the paid musicians. Take a look at the sheet music instead. They may play it like a fanfare but it is written like a dirge.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show. 

Catch Peter’s latest thoughts on the U.S. and International markets in the Euro Pacific Capital Spring 2014 Global Investor Newsletter!

Euro Pacific Capital, Inc.
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Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation’s leading newspapers, includingThe Wall Street Journal, Barron’s, Investor’s Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register. 

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation’s financial newsletters and advisory services. 

Previous Articles by Peter Schiff, CEO of Euro Pacific Capital

It’s getting increasingly difficult to survive out there these days for everybody except the top .01% and few of their buddies, which is not what Ayn Rand had in mind when writing on the benefits and attributes of individualism, to both the individual, and society as a whole. Of course Ayn was no stranger to the vulgarities associated with cronyism and oligarchs with her Russian origins, however she would likely be dismayed at what has happened to America today, a place she loved for what it stood for, not what it has become. What’s worse, it appears the John Galt’s of the world are becoming fewer and far between as process continues to unfold, but it could be argued she saw this coming, being the forward thinker she was, a realization perhaps best captured in her magnum opus, Atlas Shrugged, a must read for all concerned with these ideas – a fruitful life, liberty, and freedom.

As with all extremist / fascist episodes through history however, all good things must come to an end when people can no longer live with compounding inequalities, especially when they begin to tread on the most basic of human rights and privileges. The oligarch’s and their dogs (think Animal Farm) found out about this in Nevada a few weeks back when a prominent pigwas thwarted in attempting to effectively confiscate Cliven Bundy’s cattle and ranch, which still might be a problem, but at least the revolution has begun. It’s time for greedy and corrupt politicians to be put in their place. So let’s hope Alex Jones is right (this time), and this proves to be a watershed event, where formerly complicit bureaucrats begin to recognize the errors of their ways, and begin working for the people once again increasingly, not crooked oligarchs and their dogs.

A more profound (but abstract) example of this is Russia’s defiance regarding Western claims to the Ukraine (under the guise of diplomacy), where the previously vanquished evil doers (think the fall of the Berlin Wall) have also turned the tide in terms of the level of abuse and fraud present evil doers have been getting away with (think artificially low pricing of oil and gas sold to the West), as explained in detail several weeks back in my article entitled “Take That Ivan”. To summarize, the idea here, from a completely impartial perspective, is Russia woke up to the fact Western commodity markets are rigged to suppress prices so that consumers would have more disposable income in their budgets to pay bankers ever-increasing amounts of interest payments, which angered them. So, Ivan, being on the receiving end of Western oppression for some time, waited patiently until it was the right time to fight back, allowing the West to weaken itself into the debt laden stupor that now exists.

So essentially, the world has become Atlas bearing all this debt, and recent developments concerning Russia (viewed by most as a weak periphery adversary to be exploited [for its natural resources] prior to more recent events), like that recommended by d’Anconia – the shrug. And Russia, nor its allies, will cease the decentralization process now because it’s in their best interest(s) to do so, forging new alliances that will eventually bring Western living standards in line with true economy (proper market commodity prices), led by the US, which has the biggest fall coming. Here, the loss of the petrodollar, and reserve currency status for the dollar($), will cause significant price inflation in America (the world) the likes of which not witnessed in the global core economy since Rome. A weakened Anglo-American banking structure will ensure such outcome, as money printing will need to continue accelerating, which will be the catalyst for a decentralization / regionalization process (look at this item just in) that will become the new macro defining global geopolitics moving forward. 

No more will it be a one super-power world populated by a bunch of idiots running around the globe like they own it. A country, and its currency, will actually need tangible wealth to back it, recognized by trading partners as ‘hard money’, not the ‘fluffy fiat’ stuffed down throats now at gunpoint. The Chinese are definitely ‘on board’ with this thinking in accelerating the rate at which they are converting American paper to all things tangible, not to mention beefing up their military. And of course US authorities know of their weakened economic position, which will allow process to continue along these lines until the world geopolitical / economic landscape is a very different place five-years from now, whether we arrive there amenably, or not. First the economics of war heats up as budgets and the populous become strained. Then, larger scale conventional wars appear unavoidable in order to keep the mob(s) distracted. If recent events surrounding the Ukraine are any indication – stay tuned in this regard – things are getting tense. 

That being said, the question does arise, if this is all true, that East is at war with the West over economy, is there a manner to measure this in the financial markets to see who is winning? As a matter of fact, there are many different ways in which to measure this in the financial markets, and past body counts, with a plethora of ratios at our disposal. So please, let me tell you a story using a subset of these ratios, and then you can make up your own mind ‘who is winning present battles’; and, ‘who will likely win the war’.

The first ratio I would like to start with is the Dow / Gold Ratio (DGR) because it’s disposition creates controversy – that the West may still be in control. How could this be if the West is weak, as espoused above? Answer? Faulty and fraudulent markets; and, desperation. Long time readers of these pages will know my thoughts on Western pricing mechanisms (markets) from my sentiment based studies, that they based on sentiment and speculator betting practices in the derivatives markets, and not supply and demand. Therein, and as it pertains to gold (and especially silver – see below), Western bankers pay special attention to the monetary metals because of the message(s) they throw off to the public, the barometer of economic conditions, with rising prices indicating stress, and falling prices signaling ‘everything is just fine – so keep buying our financial assets – especially our bank stocks’. (See Figure 1)

What’s more, the DGR is the most commonly followed definer of Wall Street’s health, so not only is the structure of the pricing mechanism flawed via computerized sentiment based biases; but also, various strata of ‘prop desks’ exist to apply ‘grease to the wheels’ (liquidity) when needed, led by the New York Fed’s operations. This means everything within the West’s vast bureaucratic powers is done to prop up financial assets (and suppress gold) because of perceived positive multipliers that keep the party going in good times, which is all the time now apparently. (i.e. because of fiat currency economy related diminishing returns, Western authorities have attempted to eliminate the business cycle.) And conversely, everything within their powers is also done to suppress gold of course, the barometer of barometers, because when it’s going up a signal regarding future and currency debasement rates is being thrown off, which is counter to ‘Western interests’. This is why the West would like to see the DGR go to new highs again, because in terms of heating up wars, it would be saying ‘take that again Ivan’; and, China, ‘you better think twice before you stop buying our paper’. (See Figure 2)

Along this line of thinking, you may remember me talking about the importance of the S&P500 (SPX) / iShares Silver Trust (SLV) Ratio because Western bankers use silver to help suppress gold; and, they use silver because it’s market is smaller and more regionalized, so it’s easier to manipulate. This is why, unlike the DGR, the SPX / SLV Ratio will probably push to new highs soon before seasonal weakness in stocks kicks in. Such an outcome could involve a move to 106 as mentioned previously, a Fibonacci resonance target (not shown) that would see silver get hit to the downside one more time. And sure enough, based on the price action over the past few days, this appears to be the prescription. Based on post expiry open interest put / call ratio distributions, which you can review here, stocks should see modest gains in the next little while, leaving a declining silver price to do most of the work in pushing the SPX / SLV Ratio up to our 106 target. Thus, our assertion last week the best stocks should do into this period of seasonal strength is see a double top at 1900 on the SPX appears to be a reasonable assumption; and, in following up on our assertion above this will also be marked by a reversal of capital flows from financial assets to commodities, from West to East in measurable dimension if you will, expect to see the head and shoulders pattern on the Dow / CCI Ratio pictured below to be triggered soon as well. (See Figure 3)

And it appears Western bureaucrats are in fact ‘hell bent’ on provoking the East into something more here, perhaps thinking things will be ‘OK’ if we only strategically attack high level bad guys, where the charts, and more specifically, the above, is telling us such thinking is misplaced. Because if the head and shoulders pattern in the Dow / CCI Ratio traces out, the result will take its toll on their precious stock market. As discussed previously, Russia has been waiting patiently to make this move against the West in order to get control of (up until now) improperly derived commodity pricing via faulty and fraudulent North American pricing mechanisms. Because doing so will get them ‘back in the black’, and out from behind the Western eight-ball of ever increasing debt that keeps the surfs slaves to bankers indefinitely. 

It’s war you know.

Making the job easier for the East, and Russia in particular, is the fact the West is in such bad shape in every respect you would like to discuss – fiscally, economically, and morally – making breaking the spirit of the average (spoiled rotten) individual in the West more likely when pressure is applied. It’s either that or the citizenry snaps, and starts beating corrupt bureaucrats to death. If Atlas has shrugged in this respect in the West, again, perhaps marked by the Bundy incident (bigot that he is), which appears to be catching on, then we could have a rodeo on our hands moving forward.

The above was commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, April 22^nd, 2014.

For the rest of the story, please visit our site and subscribe.

Coming off successes in Iraq and Afghanistan, it makes sense that the US should send troops to Ukraine, no? 

When we first read this in the Washington Post, we thought it might be a late April Fools’ Day joke. Then we discovered the writer was sincere about it; apparently, James Jeffrey is a fool all year round: 

The best way to send Putin a tough message and possibly deflect a Russian campaign against more vulnerable NATO states is to back up our commitment to the sanctity of NATO territory with ground troops, the only military deployment that can make such commitments unequivocal. 

To its credit, the administration has dispatched fighter aircraft to Poland and the Baltic states to reinforce NATO fighter patrols and exercises. But these deployments, like ships temporarily in the Black Sea, have inherent weaknesses as political signals. They cannot hold terrain – the ultimate arbiter of any military calculus – and can be easily withdrawn if trouble brews. 

Troops, even limited in number, send a much more powerful message. More difficult to rapidly withdraw once deployed, they can make the point that the United States is serious about defending NATO‘s eastern borders.

And why not? 

The US has a global empire, supported by an unprecedented mountain of debt. All bubbles need to find their pins. And all empires need to blow themselves up. What Jeffrey is proposing is to speed up the process with more reckless troop deployments.

We’re with him all the way… 

Push ol’ Humpty Dumpty off the wall and get it over with… so the US can go back to being a decent, normal country without phony “red alerts”… “see something, say something” snitches… and a trillion-dollar “security” budget that reduces our safety. 

But we doubt it will be that easy. Empires do not go gently into that good night. Instead, they rail… rant… and rave against the dying of the light. 

They also make one awful mess of things. Empires depend on military force for their survival. And to meet their budget goals. 

Typically, they steal things. In the Punic Wars, for example, the Romans filled an alarming budget gap by conquering the city of Tarentum. They then stole all that was portable… and sold its citizens into slavery. 

Problem solved… for a while. 

The US is unique in the annals of imperial history. It always imagines it will reap a rich reward – at least in status, if not in money – from its conquests. It never does. 

President Wilson believed he would be hailed as a great international statesman. Instead, Europeans laughed at him and his 14 Points. (“Even God himself only needed 10,” quipped French prime minister Georges Clemenceau.) 

President Johnson imagined a big “thank you” from the Vietnamese. Instead, he got a “no thanks” from Americans. 

And President George W. Bush imagined the oil riches of Iraq flowing back to the homeland… only to end up with the most costly and unrewarding war in US history. 

It is only because the US is so rich that it has been able to afford this kind of malarkey. But that is coming to an end. For much of the last 30 years, the imperial war machine has been financed mainly on credit – aided and abetted by a credit-crazed central bank. 

How long this can go on is anyone’s guess. Probably no longer than the Fed’s credit bubble can continue to inflate. 

In the meantime, the defense contractors, the military lobbyists, and the other zombies in the security industry will continue to push for more meddling – in Syria… Ukraine… heck, wherever… 

The bubble must find its pin somewhere! 

Regards, 

Bill

Editor’s Note: To learn how to protect your savings before bubble finally meets pin, claim your FREE copy of Bill’s book The New Empire of Debt, which he co-wrote with Agora Financial’s Addison Wiggin. As the Times of London put it, Bill and Addison’s book “tells the stories of how empires are eventually undone by the same ‘vain overreaching.'” It also details what steps you should take before the US Empire of Debt collapses. Claim your copy here.

What’s next? Veteren Fund Manager Jeremy Grantham gives his reasoning behind his belief that he believes the market bubble will burst around or after the 2016 presidential election. He also makes another prediction and you can see his reasoning HERE – Money Talks Editor