China Surpasses India As Biggest Buyer Of Gold Following Record 2013 Imports, Consumption

Two weeks ago we learned what many had already known just by extrapolating simple trends: in 2013 Chinese net imports of gold from Hong Kong alone rose to over 1000 tons of gold, or 1158 to be precise – 100 tons more than China’s official gold holdings of 1054 tons which have not “budged” in the past four years – following another significant net monthly import of 94.8 tons of the precious metal in December (and 126.6 gross). This means total gold imports in 2013 was more than double the 557 tons imported in 2012, and as a result China has now officially surpassed India as the world’s biggest buyer of gold (although the title may swing back to India once gold price controls are relaxed, or if the government were to count all the gold smuggled into the country via illegal channels).

As the chart below shows, no matter what the price of paper gold does, the Chinese bid remains unwavering.

Reuters summarizes China’s insatiable apetite for the yellow metal:

China’s gold consumption jumped 41 percent in 2013 to exceed 1,000 tonnes for the first time, an industry body said on Monday, as a sharp slide in prices attracted buyers for jewellery and bullion.


The demand surge has helped China become the No. 1 gold consumer and should support prices, which took a hit last year from expectations of a tapering of commodities-friendly economic stimulus by the U.S. Federal Reserve and a drop in demand in the other major buyer India.


Gold consumption in China grew to 1,176.40 tonnes last year, with jewellery demand climbing 43 percent to 716.50 tonnes and bullion demand soaring 57 percent to 375.73 tonnes, the China Gold Association said on its website.


Chinese demand hit a record as gold prices fell for the first time in 13 years amid an improving global economy and a rally in equities. Prices tumbled 28 percent in 2013.


“The sharply lower prices attracted a lot of Chinese consumers looking for bargains,” said Chen Min, an analyst at Jinrui Futures in Shenzhen.


“Gold will continue to be an attractive investment in China in the near term as prices look steady near $1,200 an ounce,” Chen said.

As a reminder, official gold holdings are not included in these numbers:

China’s gold consumption figures do not include demand from the central bank, whose gold reserves stand at 33.89 million ounces (1,054 tonnes), unchanged since April 2009, according to the latest figures on the central bank’s website.

Regarding said PBOC gold holdings, Reuters confirms what our readers have known since September 2011:

China last announced a rise in its gold reserves in April 2009 and has not revised the figure since, though there had been recent market speculation that the bank had been accumulating gold reserves and would announce a new figure.

Of course, we doubt anyone would be surprised by the unveiling of any updated PBOC holdings especially after one considers just how ravenous China’s gross imports since our September 2011 article have been, summarized best by the following chart.

As we have said before: keep an eye on the “gold holdings” of the GLD and other US paper gold ETFs, whose drop in holdings for now has offset Chinese accumulation on the margin. Once GLD gold holdings solidly resume their climb higher, that will be the key upward gold price inflection point.


via Zero Hedge Tyler Durden

Unfortunately, Swiss Voters Have Backed Immigration Restrictions

Yesterday, 50.3 percent of Swiss voters
backed a limit on immigration in a referendum. The
vote nullifies the free movement of people between the European
and Switzerland. According to the
Associated Press
, “The decision follows a successful
last-minute campaign by nationalist groups that stoked fears of
overpopulation and rising numbers of Muslims in the Alpine

The euroskeptic nationalist Swiss People’s Party (SVP), the
party with the most number of seats in the Federal Assembly,
campaigned in favor of the immigration restriction.

Although not part of the E.U., Switzerland has adopted many of
the the bloc’s policies such as the free movement of people.
Understandably, the result of the referendum have not been welcomed
by Brussels, and the president of the European Parliament has said
that Switzerland should
expect treaties with the E.U.
to be reviewed.

The Swiss vote is undoubtedly bad news for fans of the E.U., an
organization that is rightly criticized for its undemocratic
structure, subsidies, absurd bureaucracy, and fondness for
regulation. However, euroskeptics of the classical liberal variety
should not applaud Swiss immigration controls.

As City A.M.’s
Allister Heath
rightly points out, there are some aspects of
the E.U. that are supported by classical liberal euroskeptics, such
as “the free movement of goods, services, capital and people.”
Unfortunately, the Swiss voted against one of the few policies the
E.U. should be praised for, the free movement of people.

The illiberal nature of the recently-approved Swiss immigration
restrictions can be highlighted by those praising the vote.

Geert Wilders, the leader of the euroskeptic Dutch Party for
Freedom who recently formed
an informal alliance
with Marine Le Pen of the French National
Front, tweeted
the following in response to news of the recent Swiss vote,“What
the Swiss can do, we can do too: cut immigration and leave the EU.

Marine Le Pen also tweeted
her approved of the referendum result.

The National Front and the Party for Freedom are not sympathetic
to classical liberalism, and are based on the worrying combination
of xenophobia and nationalism.

Responding to news of the Swiss vote
Nigel Farage
, the leader of the euroskeptic United Kingdom
Independence Party (UKIP), said that “This is wonderful news for
national sovereignty and freedom lovers throughout Europe.” Of
course, it’s not “wonderful news” for “freedom lovers” if you
believe that people should be free to move where they want in order
to improve their lives.

As the European Elections approach it should not be surprising
if the Swiss People’s Party, UKIP, the Party for Freedom, and the
National Front use more of the sort of freedom rhetoric
demonstrated by Farage. It’s worth remembering that supporters of
euroskeptic parties are very particular about the freedoms they
approve of.

The Swiss vote may well be a blow to the to the E.U., but it was
also a blow to those who support the free movement of people, one
of the E.U.’s only good policies.

from Hit & Run

Weekly Sentiment Report: Crisis Averted?



The markets were down and then up. By the end of the week, investors seemed to breath a sigh of relief as the dip was bought and the markets ended on a positive note. Crisis was averted. Or was it just put off for another day?

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Last week, the price cycle had rolled over as the “dumb money” indicator (see figure 2) had gone from extremely bullish sentiment to neutral sentiment. My instructions to you were: “you need to be selling strength or the “dead cat” bounce that is likely to happen as prices are short term oversold.” The bounce did come, and we anticipated it well. (See the $VIX Report and this technical tidbit on “why” the market bounced.) With the end of the week prices on the SP500 closing above their open, this has produced a SELL signal in our equity model.

While the majority of investors are breathing that collective sigh of relief after last week’s roller coaster, I don’t see it that way. As the price cycle has peaked and rolled over, the next buying opportunity should come when investors turn extremely bearish in their outlook. By convention, the price cycle “dictates” that every sell signal should be followed by a buy signal and so forth. (There are variants, but we will discuss those at another time.) The best way to get these investors to turn bearish on equities is to have lower prices. So to get to the next buy signal, we need to have lower prices.

Now I want to clarify an important point. Our equity trading model is on a sell signal, yet the technicals are constructive as prices on the SP500 remain above important support levels (i.e., the 40 week moving average). This is what I would call a NEUTRAL market environment. Backtesting of such scenarios –i.e., equity trading model on a sell signal with prices on the SP500 above their 40 week moving average — produced some winners and some losers. If you were so smart over the past 23 years to only invest in the markets when such conditions existed, you would have not made any money, but you would have had a nice roller coaster ride. In essence, these trades would have produced an equity curve that moved like a sin wave across a graph. There is just no edge under these market conditions. However and it should be noted, that the last 2 years generally has produced some winning trades under such NEUTRAL market conditions. With QE and the excessive Federal Reserve jawboning to support the markets on even the slightest dip, the markets have been unable to really sell off and the price cycle has in-frequently reset after a sell signal. For example, the equity trading model generates 2.5 buy signals per year; 2013 only saw 1 such signal. This is another way of saying that it has been better to be a buy and hold investor over the past year as opposed to a trader. Or why sell when the Federal Reserve has your back?

The NEUTRAL market environment really serves two purposes. One, it defines a market environment where the SP500 has underperformed over the entirety of the data, and there is no predictable edge to the price action. Two, it gives investors an opportunity to reduce – -as opposed to being all in or all out like a light switch — their allocation to equities. With little predictive edge, why be in the markets full throttle? Look at investing this way. You are a card counting black jack player. You cannot predict the next winning hand or cards that come out of the shoe, but you can determine (and this is the sole purpose of card counting) when is the best time to bet heavy. A neutral market environment may or may not produce a winning trade, but it is not a time to be betting heavy. Got it?

The market narrative, whatever it may be, is likely reflective of the current neutral market environment. There will be both bullish and bearish talk. The investing mindset remains such that investors belief in the Federal Reserve or other central banks has yet to be shattered. I think that moment is a long ways off, and will coincide with a technical failure in the markets. So what do I mean by this? The markets will sell off at some point in the future and investor sentiment will turn bearish. We will become buyers when everyone else is bearish. The markets will lift like they do 80% of the time under such dynamics, and there might even be an announcement by the Fed that supports the markets and investors beliefs that the Fed has their back. But for whatever reason, the bounce will fail and the markets will move (crash?) lower not only violating those important technical levels that brought in the buyers in the first place but also destroy the notion that the Fed has control. That’s how I see a top in the markets. For now, I view the current top as an intermediate term top. It is too early to determine if this is going to be “the top”.

In our 4 Asset Model Portfolio, we closed our equity positions on Friday. We recognize the current neutral market environment may yield higher prices, but we believe the edge is not there. We turned bullish 22 weeks ago when investors were extremely bearish on the stock market. This marked the bottom of the current price cycle and the lows of the current market move. We sold our position this week on strength as we believe the price cycle has peaked. It is our expectation that lower prices will be required to turn investors bearish. This will provide us with another buying opportunity which will most likely reset the price cycle once again. Wash, rinse, repeat. There you have it.

Lastly, several comments regarding all of our sentiment indicators. In aggregate, they are neutral, and this seems to reflect the current neutral market environment. The “dumb money” indicator (figure 2) is neutral but heading towards a bull signal. The “smart money” (figure 3) is modestly bullish but not in an extreme way. The Rydex asset data (not shown) continues to rollover and shows that money is leaving the markets. It should be noted that these investors have had a good track record over the past 4 years. The $VIX is rolling over suggesting lower prices. There is no consensus amongst the indicators.

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The Sentimeter

Figure 1 is our composite sentiment indicator. This is the data behind the “Sentimeter”. This is our most comprehensive equity market sentiment indicator, and it is constructed from 10 different variables that assess investor sentiment and behavior. It utilizes opinion data (i.e., Investors Intelligence) as well as asset data and money flows (i.e., Rydex and insider buying). The indicator goes back to 2004. (Editor’s note: Subscribers to the TacticalBeta Gold Service have this data available for download.) This composite sentiment indicator moved to its most extreme position 10 weeks ago, and prior extremes since the 2009 are noted with the pink vertical bars. The March, 2010, February, 2011, and February, 2012 signals were spot on — warning of a market top. The November, 2010 and December, 2012 signals were failures in the sense that prices continued significantly higher. The current reading is neutral.

Figure 1. The Sentimeter



Dumb Money/ Smart Money

 The “Dumb Money” indicator (see figure 2) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. The indicator shows that investors are NEUTRAL.

Figure 2. The “Dumb Money”


Figure 3 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Market-wide sentiment is showing diverging trends along market cap lines. Sentiment within the S&P 500 is trending negative as selling volume picks up following earnings announcements. Conversely, an Industry Buy Inflection, our strongest macro quantitative signal, has generated within the Russell 2000. This latter development comes as volume lifts off a seasonal low point and is the result of contributions from the Consumer Discretionary and Industrial Goods sectors, where Industry Buy Inflections also generated, and the Banking industry, which has seen the most buyers of any group. The last Industry Buy Inflection in the Russell 2000 came in November 2012 on the same day that the index hit what is now a 19-month low.”

Figure 3. InsiderScore “Entire Market” value/ weekly



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via Zero Hedge thetechnicaltake

Soros Best In 2013, Tops Dalio With Massive $40 Billion Lifetime Gain

Size matters, it would seem, in the world of elite hedge fund managers. George Soros' Quantum Fund had its 2nd-best year on record, adding $5.5bn (22%) to the pound-breaking billionaire's horde and has now shifted above Ray Dalio's Bridgewater fund as the most successful hedge fund of all time. As The FT reports, since inception in 1973, Quantum has generated almost $40bn. Four other funds including Tepper's Appaloosa, Mandel's Lone Pine, and Klarman's Baupost also made more than $4 bn for their investors. Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds.


Via Bloomberg and The FT,

Soros Best of all-time…

George Soros’s Quantum Endowment fund had its second-best year ever in dollar terms in 2013, adding $5.5bn to the billionaire’s fortune and putting Quantum back in top place among the most successful hedge funds of all time.


The gains mark a return to stability for Quantum, which Mr Soros closed to non-family members at the end of 2011 to avoid regulatory scrutiny under the Dodd-Frank financial reforms.



Last year’s return means Mr Soros has displaced Ray Dalio’s Bridgewater Pure Alpha as the fund that has made the most money for investors. It has generated almost $40bn since it was founded in 1973, according to Rick Sopher, chairman of LCH Investments, who compiled the rankings.



But size matters…

Four other funds made $4bn or more last year, all correctly calling the strong run in equities, which resulted in the US stock market returning 32 per cent. They were Lone Pine and Viking, the most successful “Tiger cub” protégés of Tiger Management’s Julian Robertson; David Tepper’s Appaloosa; and Baupost, founded by the Boston-based deep-value investor Seth Klarman.



The firms benefited from winning bets on companies such as Inc., Goodyear Tire & Rubber Co. and Delta Air Lines Inc. that outperformed U.S. stock market indexes, regulatory filings show.


Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds.

And some are on the comeback…

John Paulson returned to form in 2013 by netting clients $2.6 billion, according to LCH’s report. Paulson, who became a billionaire in 2007 betting against the U.S. housing market, posted gains in 2013 ranging from 18 percent to 63 percent at several of his strategies, a person with knowledge of the matter told Bloomberg News last month.


Paulson, whose New York-based firm manages $20 billion, made $200 million for his clients in 2012 after losing almost $10 billion for them in 2011 when he had his worst investing year, according to LCH.

Perhaps best summing up the current euphoria, one hedge fund analyst noted (somewhat ironically given the name "hedge fund"):

“Too many managers now focus on risk control at the expense of returns.”

But there was a warning:

“The challenge will be to trade tactically,” he said. “The discounting of financial repression over the past few years has merely brought forward future returns and left a rather less enticing landscape to long-only managers.”


via Zero Hedge Tyler Durden

China Gold Buying Surges 41% To 1,176 Tonnes In 2013

Today’s AM fix was USD 1,273.50, EUR 933.86 and GBP 776.95 per ounce.
Friday’s AM fix was USD 1,260.00, EUR 928.72 and GBP 771.16 per ounce.           

Gold climbed $9.70 or 0.77% Friday to $1,267.10/oz. Silver rose $0.09 or 0.45% to $20.03/oz. Gold and silver were both up for the week at 1.78% and 4.54% respectively.

Gold is higher again today in all currencies and building on last weeks higher weekly close of 1.9% in dollars. Gold advanced 3.2% in January, the first monthly gain since August, as the benchmark MSCI World Index of equities slumped 4.1%.

Gold in U.S. Dollars, 1 Year – (Bloomberg)

Gold is now 5.7% higher so far in 2014 and it’s importance as a diversification is being seen again.

Gold’s gains come before new Fed Chair Yellen’s testimony tomorrow. Market participants await her assessment of the poor payrolls data and for guidance regarding whether uber dovish monetary policy will continue.

Spot gold in Shanghai climbed to its highest level since December 26 as China returned from the Lunar New Year holidays. Gold of 99.99 percent purity on the SGE gained 0.8% to 250.25 yuan/gram.

China’s gold buying lept 41% to 1,176.4 tonnes in 2013. Gold bullion demand surged 57% and gold jewellery demand surged 43% according to the China Gold Association.

The demand surge has helped China become the world’s largest gold buyer.

Falling gold prices attracted store of wealth buyers for jewellery and bullion in China. This did not support prices in 2013, but could be the catalyst for higher prices in 2014. While gold ownership has surged in China in recent years, per capita ownership of gold in China remains well below levels in India.

Therefore, many analysts believe that the surge in demand is sustainable and will likely continue, underlining the shift in global demand from west to east.

As Gold Flows From West To East Singapore Emerges As Global Storage Hub

Find out why Singapore is now one of the safest places in the world to store gold in our latest gold guide – The Essential Guide To Storing Gold In Singapore 


via Zero Hedge GoldCore

When NSA Error Leads to Innocent People's Deaths

Glenn Greenwald, Jeremy Scahill, and Laura Poitras’ new site
The Intercept went live today. In one
of the outlet’s
first stories
, Greenwald and Scahill look at one link between
NSA surveillance and the government’s drone assassination

Garbage in, garbage out.The National Security Agency is using complex
analysis of electronic surveillance, rather than human
intelligence, as the primary method to locate targets for lethal
drone strikes—an unreliable tactic that results in the deaths of
innocent or unidentified people.

According to a former drone operator for the military’s Joint
Special Operations Command (JSOC) who also worked with the NSA, the
agency often identifies targets based on controversial metadata
analysis and cell-phone tracking technologies. Rather than
confirming a target’s identity with operatives or informants on the
ground, the CIA or the U.S. military then orders a strike based on
the activity and location of the mobile phone a person is believed
to be using….

One problem, he explains, is that targets are increasingly aware of
the NSA’s reliance on geolocating, and have moved to thwart the
tactic. Some have as many as 16 different SIM cards associated with
their identity within the High Value Target system. Others, unaware
that their mobile phone is being targeted, lend their phone, with
the SIM card in it, to friends, children, spouses and family

“Based on his experience,” Greenwald and Scahill write, “he has
come to believe that the drone program amounts to little more than
death by unreliable metadata.” Read the rest

from Hit & Run

When NSA Error Leads to Innocent People’s Deaths

Glenn Greenwald, Jeremy Scahill, and Laura Poitras’ new site
The Intercept went live today. In one
of the outlet’s
first stories
, Greenwald and Scahill look at one link between
NSA surveillance and the government’s drone assassination

Garbage in, garbage out.The National Security Agency is using complex
analysis of electronic surveillance, rather than human
intelligence, as the primary method to locate targets for lethal
drone strikes—an unreliable tactic that results in the deaths of
innocent or unidentified people.

According to a former drone operator for the military’s Joint
Special Operations Command (JSOC) who also worked with the NSA, the
agency often identifies targets based on controversial metadata
analysis and cell-phone tracking technologies. Rather than
confirming a target’s identity with operatives or informants on the
ground, the CIA or the U.S. military then orders a strike based on
the activity and location of the mobile phone a person is believed
to be using….

One problem, he explains, is that targets are increasingly aware of
the NSA’s reliance on geolocating, and have moved to thwart the
tactic. Some have as many as 16 different SIM cards associated with
their identity within the High Value Target system. Others, unaware
that their mobile phone is being targeted, lend their phone, with
the SIM card in it, to friends, children, spouses and family

“Based on his experience,” Greenwald and Scahill write, “he has
come to believe that the drone program amounts to little more than
death by unreliable metadata.” Read the rest

from Hit & Run

Icahn Folds On Apple Buyback

Around six months after first tweeting his admiration for Apple’s cash stockpile and a “large position” in the largest company in the world, it would appear every business media’s favorite activist is throwing in his chips.


Having been there to lift the stock above $500, with it back around $500, and following his recent “add”, he now agrees with ISS that there are “other options on the spectrum of allocating capital.” Perhaps he read our post on domestic cash over the weekend?



As Icahn notes,

Dear Fellow Apple Shareholders,

While we are disappointed that last night ISS recommended against our proposal, we do not altogether disagree with their assessment and recommendation in light of recent actions taken by the company to aggressively repurchase shares in the market.


In their recommendation, ISS points out, and we agree, that “on the spectrum of options for allocating capital, the board appears to have been sluggish only in returning excess cash to shareholders,” and even though the company has in place “one of the largest buybacks in history” we agree with ISS that this effort seems “like bailing with a leaky bucket” when “given the scale of the company’s cash reserves.”


That being said, we also agree with ISS’s observation, taking into account that the company recently repurchased in “two weeks alone” $14 billion worth in shares, that “for fiscal 2014, it appears on track to repurchase at least $32 billion in shares.” Our proposal, as ISS points out, “thus effectively only asks the board to spend another $18 billion on repurchases in the current year.”


As Tim Cook describes them, these recent actions taken by the company to repurchase shares have been both “opportunistic” and “aggressive” and we are supportive. In light of these actions, and ISS’s recommendation, we see no reason to persist with our non-binding proposal, especially when the company is already so close to fulfilling our requested repurchase target.


Furthermore, in light of Tim Cook’s confirmed plan to launch new products in new categories this year (in addition to an exciting product roadmap with respect to new products in existing categories), we are extremely excited about Apple’s future. Additionally, we are pleased that Tim and the board have exhibited the “opportunistic” and “aggressive” approach to share repurchases that we hoped to instill with our proposal. It is our expectation that Tim and the board continue to exhibit this behavior as fiduciaries to the shareholders since they clearly seem to agree that our company continues to be extremely undervalued, and we all share a common optimism with respect to the company’s bright long term future.


Sincerely yours,


Carl C. Icahn

Curiously, Icahn pulls out just two days after we reminder everyone that AAPL’s buyback capacity is now virtually empty absent more bond issuance or taxable repatriation:

Today, one of the more prominent news releases was that as the WSJ reported overnight, AAPL had repurchased on an accelerated basis some $14 billion of its shares in the past two weeks, following the constant Tweeted proddings of Carl Icahn, and the market responded by rewarding the stock and pushing it 1.4% higher. There is, however, a flip side to this artificial boost in the company’s EPS calculation: a plunge in the company’s domestic cash.

As everyone knows, AAPL is still a cash cow, and in the last quarter following the release of its latest iPhone and iPad, it generated a bumper $12 billion in cash. The only problem is that this is global cash, and as the company’s 10-Q indicates, $13.1 billion of this cash was generated and held offshore, which means that AAPL’s domestic cash declined by $1.1 billion. In fact, as the chart below shows, this was the 4th consecutive quarter in which AAPL’s domestic cash has declined offset by a massive cash build offshore. And a reminder, “Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.” This also means that unless AAPL repatriates some of its offshore cash, and unless it issues even more debt, its stock buybacks and dividends are limited to the declining cash amounts held in the US.

So if one were to extrapolate AAPL’s Q1 domestic cash simply by subtracting the reported $14 billion used in the stock buyback from its December 31 US cash holdings, as of today, all else equal, AAPL now has “only” $20.4 billion in cash held domestically – an amount that matches its domestic cash holdings last seen in September 2010.

Which suggests that after having yielded to Icahn and successfully defended the $500 level by aggressively buying back its own stock in the last two weeks, AAPL’s dry powder for future buybacks is now running dangerously low.

The implication is two-fold: going forward, AAPL’s discretionary stock buybacks will be far, far less active as the company will seek to preserve a cash buffer, especially if it wishes to engage in domestic M&A and to preserve liquidity for future dividends. Alternatively, it is becoming increasingly likely that just like in 2013, AAPL will once again be forced to access the debt markets in order to raise its domestic cash level to a point where it will once again have a comfortable cash balance with which to repurchase its stock.

So if indeed Icahn has gotten deep under the skin of Tim Cook, look for AAPL announcing a bond issue in the not to distant future, as it continues to lever itself up merely to placate some of its more vocal activist shareholders (or, improbably enough, repatriating some of its offshore cash at a huge tax hit to the company – something it did not do last time it issued debt, and something it almost certainly won’t do this time around).

Alternatively, if there is no debt issue, expect that any aggressive future stock buybacks by Cook’s management team will trickle to next to nothing, at which point it will be just the market’s buyers negotiating with the market’s sellers, without the benefit of tens of billions in additional stock purchases by the company itself.

Whether this means that the stock, which got its euphoric boost today on the buyback news, will now drift lower as the price is set purely by the market will likely be seen in the coming week, although should the Fed also fold and once again taper the taper, thus lifting all boats in confirmation that even the most modest pullback in the S&P is enough to get it back into activist mode, then all bets are off.


via Zero Hedge Tyler Durden

America's Make-Work Sectors (Healthcare & Higher Education) Have Run Out of Oxygen

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

We can no longer afford the expansion of healthcare/education or their out-of-control costs.

If we strip away obscuring narratives, we can clearly see that the two employment sectors that have expanded rain or shine for decades have functioned as gigantic make-work projects. I refer of course to healthcare and education, specifically higher education.

We can see the outsized gains in these sectors by comparing total population growth to the number of full-time jobs and the number of jobs in education/healthcare since 1990. Here is total population: a 27% increase since 1990:

To separate out the wheat (jobs that support households) from the chaff (part-time work that cannot support a household–even a job with one hour a week is counted as a P-T job), let's use full-time employment as a baseline. Full-time employment rose about 20% since 1990, less than population.

Education/healthcare employment rose by 81% since 1990–three times the population growth rate and four times the percentage increase in full-time employment.

For more on these sectors' growth, please read Mish's recent entry, Ominous Looking Picture in Healthcare and Education Jobs.

If education and healthcare had expanded to meet the needs of a larger population, employment in the sectors would have increased about 30% since 1990, not 81%. So 50% of the sectors' expansion is above and beyond population growth.

Have education and medical services improved by 50% since 1990? In many cases, it can be argued the yield on our investments in these sectors has declined even as employment in the sectors has soared. Consider the study Academically Adrift: Limited Learning on College Campuses which concluded that "American higher education is characterized by limited or no learning for a large proportion of students."

While student loans have soared to over $1 trillion, with direct Federal loans ballooning from $115 billion to over $700 billion in a few short years, only 37% of freshmen at four-year colleges graduate in four years (58% finally graduate in six years), and 53% of recent college graduates under the age of 25 are unemployed or doing work they could have done without going to college.

Why has employment soared in higher education? Look no further than bloated administration and non-teaching staff: New Analysis Shows Problematic Boom In Higher Ed Administrators:

In all, from 1987 until 2011-12–the most recent academic year for which comparable figures are available—universities and colleges collectively added 517,636 administrators and professional employees, according to the analysis by the New England Center for Investigative Reporting.“There’s just a mind-boggling amount of money per student that’s being spent on administration,” said Andrew Gillen, a senior researcher at the institutes. “It raises a question of priorities.”

The ratio of nonacademic employees to faculty has also doubled. There are now two nonacademic employees at public and two and a half at private universities and colleges for every one full-time, tenure-track member of the faculty.

The number of employees in central system offices has increased six-fold since 1987, and the number of administrators in them by a factor of more than 34.

As for healthcare in the U.S.: despite soaring employment and expenditures, life expectancy in the U.S. since 1990 has fallen well below that of the United Kingdom (U.K.), a nation whose healthcare system is widely criticized in the U.S. (World Bank, Life Expectancy at Birth)

Yes, there are many metrics of overall health, but the U.S. has not experienced a 50% increase since 1990 in any of them. If anything, the overall health of the populace has arguably declined, even as the nation pours almost 20% of its gross domestic product (GDP) into healthcare.

This is not a slam on those earning a living in these sectors; it is simply a description of sectors that have functioned as "make-work" sources of jobs.Consider the appallingly perverse dynamic of student loans: now that tens of millions of students need student loans to pay sky-high tuition and fees, colleges need huge administrative staffs to manage the student loan process.

The yield (in earnings) on the increasingly unaffordable college degree is declining sharply:

The enormous sums of money needed to pay for these make-work sectors is coming out of household incomes that are stagnating for 90% of all households.

If we subtract healthcare and debt service from household earnings, we find that wages/salaries are in recession territory:

In other words, the nation can no longer support these enormous make-work sectors, where employment and expenditures rise while the yield on those gargantuan investments actually de
clines–a classic case of diminishing returns.

Consider the percentage of healthcare employment that is paper-shuffling resulting from America's dysfunctional pastiche of private cartels and Federal programs; I have seen estimates of 30%, but this doesn't include the staggering sums lost to fraud, embezzlement, over-charging, useless or even harmful procedures, duplicate or needless tests, and so on.

As I have often noted, if we compare our per-person expenses for healthcare with other advanced democracies such as Australia and Japan, we find those nations spend roughly 50% of what the U.S. spends per-person, with better and more evenly distributed results. This strongly suggests that healthcare should cost half of what it currently costs, if the U.S. sickcare system wasn't so wasteful, ineffective and dysfunctional.

As for tuition costs: I have demonstrated in my book The Nearly Free University and The Emerging Economy: The Revolution in Higher Education that the tuition for a four-year bachelor's degree could (and should) cost $5,000, not $100,000 or $200,000. The technology and tools already exist to accredit the student, not the institution and provide distributed courses, adaptive learning and real-world, workplace-based workshops for a tiny fraction of the ineffective, unaffordable system of higher education we are currently burdened with.

Once costs decline 95%, there is no need for student loans or the bloated bureaucracies needed to manage the parasitic student-loan system.

Why is employment in these sectors finally slowing? For the simple reason that they've run out of oxygen: we can no longer afford their expansion or their out-of-control costs. Much cheaper and more effective systems are within reach, if only we look past failed models and politically powerful cartels and fiefdoms.


via Zero Hedge Tyler Durden