This morning we had what at first glance looked like an amazing monthly Jobs report from the government as 288,000 jobs were created and the unemployment rate dropped to 6.3%. So from such an amazing report you would imagine that the Dow Jones would be up +300 points and everyone would be singing “Hail to the Fed for saving us”. Unfortunately the markets are basically flat because the books were actually cooked again. There are not enough chef hats in supply right now to pass out to all the people involved in cooking the books these days from Analysts, to corporate management and worst of all the government (God Forbid!)
Basically the 288,000 jobs that were created were low paying jobs as wage growth did not rise. Also if you work just 1 hour a month you are counted as employed by the government bean counters. So if you work four jobs and work 1 hour in each, you are counted four times. Because of Obamacare, Supermarkets for example only now have 1 full time employee (Store Manager) and 40 part time employees, otherwise each Supermarket would need to pay Obamacare for them. Thus each worker has to get a second job. So each of these employees is being counted twice.
The reason the Unemployment rate fell to 6.3% is because 806,000 workers just left the work force by retiring or have given up trying to find a job. This is called the Labor Participation Rate and it came in at 62.8%, down from 63.2%. That again unfortunately is a 35 year low and if you actually do the numbers and say there are 317 million Americans, then 199 million are working and 118 million are not working as 42 million are over 65 and retired and another 14 million are on disability. Of the 42 million retirees 35% or 14.7 million rely solely on their Social Security check to live on thus when you add in the disabled 14 million we have about 10% of the US population living 100% off the Federal Government. Of the 806,000 workers who just left the workforce only 180,000 actually retired. So that leaves 626,000 who just gave up looking for a job. This hardly inspires confidence.
Earlier in the week the Government released it GDP numbers and Economists were expecting the number to come in at 1.1% growth, but it actually came in at 0.1%. Now if you do the math, that comes out to exactly a -90.9% miss on those estimates. Therefore I was correct when I previously forecasted that the winter weather would damage the economy and was correct that Emerging Market and China economic slowdowns were weak. Even worse the Baltic Dry Index, which I showed everyone last month is now down -58.9% this year. The Baltic Dry Index measures what it costs to ship things by Cargo Ship.
The actual number today is 993 and is -28.71% below the index’s 200 day moving average and from its high in 2008 is now down -91.2%. So basically since 2008 we have actually just lived through the worst depression in global history, but because Central Bankers stepped in and flooded the world with new money all the mistakes have been cleansed. From 2008-2011 the Federal Reserve just here in the USA printed $16 trillion to bail out corporations and since the global stock markets of the world are only about $50 trillion in size, the Federal Reserve in just those three years printed enough money to replace 32% of the world’s stock market losses. When you add in China, European and the other world’s central bankers getting in the game, basically all losses in the markets were replaced. So basically Central Bankers allowed bank manipulation and thievery to be rewarded. The reason they did so was because government waste is so excessive in the form of Debt that if the markets went down like they should have 90% global governments would have needed to file for bankruptcy as well. Instead everything was blanked over and all is great. Governments continue to take on immense debt as nothing has changed except for the fact that the US dollar that was $1 in 1913 is now worth 3 cents.
The reason I hate banks so much as investments is because they originally borrowed $trillions of dollars from the Central Banks and then through thievery and poor decisions lost it all, but then Helicopter Ben came in and gave it all back to them and now they are more wealthy than they were and thus were rewarded for their bad behavior. “Steal a little and they put you in jail, Steal a lot and they make you King!”
If that is not bad enough the Federal Reserve loaned banks the money and 0% and then allows them to redeposit the money back in the Federal Reserve and allows them to earn 0.25% interest. So if you borrow $1 billion the Reserve pays you $2.5 million to borrow it and store it in their vaults. This money is then used to buy back the banks’ bad mortgage debt and fund the Federal Reserve’s quantitative easing of $45 billion a month. So the Federal Reserve prints the money, lets the banks circulate it by putting it back in the Federal Reserve as deposits and then the Federal Reserve pays them interest and then uses that money to buy up all US government debt and bad mortgage debt and keeps it on their books. Thus the Federal Reserve ends up being the ultimate facilitator of thievery and you can now see why Ron Paul wanted to shut them down. Ron Paul left because if he were successful then the largest Ponzi scheme in history that makes Madoff thievery pennies on a $million in comparison and the Human Race would have gone back into the Stone Age.
Well that is my rant about the financial history of the last 6 years. But what am I concentrating on now?
The simple answer is Ukraine which is getting very little press at all in the US as the press refuses to say anything bad that may affect the current administration’s foreign policy. Basically the Civil War in Ukraine started today as a battle actually occurred where two Ukrainian Helicopters were shot out of the sky by Pro-Russian Ukrainian forces. These forces obviously do not just have clubs and rocks but have missile launchers that can take out Helicopters. Thus without a doubt they are armed by the Russians who have at least 40,000 soldiers waiting across the border waiting to attack, with serious weaponry from tanks to Mig fighter jets.
http://www.nytimes.com/2014/05/03/world/europe/ukraine.html?hp&hp&_r=0
Why on earth do markets continue to go up if events like Ukraine are ready to implode into chaos?
Basically despite the recent recovery in the stock markets from 2008-2014 pension funds lost so much money in 2008 that Pension Funds like the Teamsters for example, despite the recovery, only have .60 cents on hand for every $1 in obligations. Therefore they have to take on excessive risk and invest in such things as high risk Hedge Funds who leverage 20 to 1. This unfortunately is the only way they can possibly hope to make the -59% losses that they had in 2008-2009 back. This is what is called quiet desperation. So with Pension funds with $100 of billions in underfunded pensions they are just plowing everything in the S&P 500 Index and are praying every Sunday in Church that the markets will keep going up.
Besides Pensions you even have companies with underfunded pension in the $100’s of billions. For example one of the most powerful companies on Earth, IBM has $93 billion in Pension Assets but has Obligations of $105 billion. That comes up $12 billion short in my book. Lockheed Martin the world’s largest and most powerful defense contractor has $34 billion in pension assets but has $45 billion in pension obligations. So there again two of the most powerful companies on earth have a $23 billion dollar shortfall in what they need to meet future pension obligations.
When you add in all the private and public firms and state pensions we are talking $trillions in underfunded pensions. For the teamsters to still be 40% underfunded tells me that there was a lot of thievery going on. So everyone does not sell because they can’t no matter how bad the news is. HFT Traders have discovered this and are churning and burning the markets every day and rigging every trade. And by manipulating these big investor’s trades they are like ticks feeding off of elephants. They take their .001 penny per trade profit and make sure to keep putting in 10 phony trades for every real one to make sure the markets keep going up and thus keep everyone involved happy. This all sounds well and good for everyone involved but it just takes one single “Black Swan” event to unravel all this in a flash trading millisecond. A Black Swan event is:
Black swan events are typically random and unexpected. For example, the previously successful hedge fund Long Term Capital Management (LTCM) was driven into the ground as a result of the ripple effect caused by the Russian government's debt default. The Russian government's default represents a black swan event because none of LTCM's computer models could have predicted this event and its subsequent effects.
Another example of a Black Swan event could also be the collapse of Lehman Brothers in 2008 that unraveled the entire thievery associated with Subprime lending. It was not the event that caused the markets to crash -59% but it was the unfolding of all the schemes that thieves at AIG, Countrywide and basically every large bank in the world were doing.
A Civil War in Ukraine or even worse a Ukrainian-Russian War would be such a Black Swan event and since everyone is fully invested in Index funds, as soon as one big fish decides to exit then everyone will exit all at once, but this time around the Central Bankers are out of bullets, so there is no one to save us. I have not yet seen a scenario being floated around where a war in the Ukraine can be avoided and that is why I have everyone on 19% invested. With markets way overvalued just a little spark from this Black Swan can send the whole house of cards crashing down and we would be one of the few standing. Again Pension fund have no choice as they only earned on average 1.5% annualized on their investments over the last 14 years and thus are 40% underfunded and are basically like a 500 pound person trying to walk a high wire act. One slip, and boom that’s all she wrote.
As a fiduciary my primary job is to avoid losing money and only invest when it is safe to do so. As you can see from what I have outlined above that it is far from safe to do so right now. On May 25th Ukraine will have national elections but on May 11th there will be a referendum in the East to secede from the Ukraine and join Russia. Thus in just a few weeks it will all come to Jesus time and we will have a result. If peace is made then I will ramp up and start buying more stocks but if war is declared you will all be very happy with me for being so conservative and cautious.
So have a good weekend and sleep well at night because I have done the work to protect you as best I can from a potential Black Swan. The US and Europe have imposed Sanctions on Putin on a few $billion in Assets, but if one Russian Tank division crosses into Ukraine and a war breaks out then Putin will cause $10 trillion in damage in the worlds $150 trillion dollar stock and bond markets in a millisecond. So as you can see John Kerry may be beating his chest as to how he is punishing Putin with sanctions but Putin can crucify him in comparison with just one attack order, so John Kerry and President Obama better shape up or ship out as they are saber rattling with a straw pea shooter compared to what Putin can do to world markets. Obama should get on a plane and go to Russia and lock Putin in a room and then send in US, NATO and Russian forces in and restore order. That’s how you do it. You talk softly and carry a big stick. Obama instead is going to visit Poland in June and assure then Poles that he and NATO have everything under control. By that time Mr. President the party is over and the opportunity to do something will be lost as it was in Syria with his red line.
Rant over have a great weekend.
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