Tag: finance

The Fed spent over $1 trillion in 2013 (to push the stock market to all time highs) and all we got was… less jobs created than in 2012?

Establishment survey 2012 vs 2013 job change:

And Household survey 2012 vs 2013 job change:

Source: BLS

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As was reported to mass jubilation on Wednesday, the ADP private payrolls number soared to the highest monthly change since November 2012, a 238,000 increase driven by what the report said was a 48,000 increase in construction jobs.  ADP’s Mark Zandi went on the record to say that “The job market ended 2013 on a high note. Job gains are broad-based across industries, most notably in construction and manufacturing. It appears that businesses are growing more confident and increasing their hiring.” It appears not. According to today’s BLS report in December, on a seasonally adjusted basis, the construction industry lost 16K jobs. And where it gets really funny is when one looks at construction on a non-seasonally adjusted basis, construction jobs plummeted by a whopping 216,000! However you cut it someone is obviously lying. If we cared we would ask who. However, since both data series are completely fabricated, who even cares?

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As was reported to mass jubilation on Wednesday, the ADP private payrolls number soared to the highest monthly change since November 2012, a 238,000 increase driven by what the report said was a 48,000 increase in construction jobs.  ADP’s Mark Zandi went on the record to say that “The job market ended 2013 on a high note. Job gains are broad-based across industries, most notably in construction and manufacturing. It appears that businesses are growing more confident and increasing their hiring.” It appears not. According to today’s BLS report in December, on a seasonally adjusted basis, the construction industry lost 16K jobs. And where it gets really funny is when one looks at construction on a non-seasonally adjusted basis, construction jobs plummeted by a whopping 216,000! However you cut it someone is obviously lying. If we cared we would ask who. However, since both data series are completely fabricated, who even cares?

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When this indicator of global trade rises, everything is rosy and reams of asset-gatherers and talking-heads wil quote it as indicative of how great the world is. When it drops – silence. There’s always an excuse – over- or under-capacity, too many ships, too few ships, etc. However, the last 2 weeks have seen a 35% collapse in the cost to ship bulk. There is a relative seasonal pattern over the holiday period – with shipping costs rising into the holiday and falling after but… this is the biggest drop from a Christmas Eve since at least 1984, 30 years! Seems like the inventory stacking of Q4 had absolutely no follow-through whatsoever…

 

All thepost-Thanksgiving exuberance has been eviscerated from the Baltic Dry Index…

 

and some context – this is the worst post-holiday start to the year since at least 1984!!

 

Cramer?

Charts: Bloomberg

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Markets, it would seem, are choosing to ignore Mark Zandi’s sage advice this morning – when faced with yet another example of his ineptly over-optimistic extrapolation “ignore this number – it’s going to go away.” Stocks had slowly melted up overnight with S&P futures almost back to unchanged on the year and that gain was instantly vaporized on the NFP print – but shortly after bagen to recover losses. Treasury yields have collapsed with 10Y at 2.88%. Gold and silver – which were twitchy going into the number  – have surged higher with gold at $1240. The USD is being sold with JPY and EUR strength. It seems the recognition that bad news is bad news in the new “Yellen collar” world is growing on investors. Of course this can change any second…

Initial kneejerk

 

then bounce to VWAP…

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Markets, it would seem, are choosing to ignore Mark Zandi’s sage advice this morning – when faced with yet another example of his ineptly over-optimistic extrapolation “ignore this number – it’s going to go away.” Stocks had slowly melted up overnight with S&P futures almost back to unchanged on the year and that gain was instantly vaporized on the NFP print – but shortly after bagen to recover losses. Treasury yields have collapsed with 10Y at 2.88%. Gold and silver – which were twitchy going into the number  – have surged higher with gold at $1240. The USD is being sold with JPY and EUR strength. It seems the recognition that bad news is bad news in the new “Yellen collar” world is growing on investors. Of course this can change any second…

Initial kneejerk

 

then bounce to VWAP…

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Curious why despite the huge miss in payrolls the unemployment rate tumbled from 7.0% to 6.7%? The reason is because in December the civilian labor force did what it usually does in the New Normal: it dropped from 155.3 million to 154.9 million, which means the labor participation rate just dropped to a fresh 35 year low, hitting levels not seen since 1978, at 62.8% down from 63.0%.

And the piece de resistance: Americans not in the labor force exploded higher by 535,000 to a new all time high 91.8 million.

The jobless, laborless recovery continues to steam on.

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Today’s AM fix was USD 1,232.25, EUR 906.53 and GBP 750.78 per ounce.
Yesterday’s AM fix was USD 1,226.00, EUR 900.61 and GBP 744.97 per ounce.

Gold climbed $3.50 or 0.29% yesterday, closing at $1,228.40/oz. Silver rose $0.01 or 0.05% closing at $19.57/oz. Platinum inched down $0.25 to $1,413.75/oz and palladium fell $0.25 to $733.25/oz.

Gold is slightly higher today in all major currencies and up nearly 1% in sterling after the UK’s industrial and manufacturing production number was much worse than expected.

There was more unusual trading at 10.00 GMT when in a matter of seconds, gold sold off by $5 from $1,233/oz to $1,227.75/oz which is fraction below the opening price today. Then almost instantaneously, gold spiked to $1,237.77/oz and then fell back to the $1,233/oz level once again.

Gold in U.S. Dollars, 5 Day – (Bloomberg)

This type of shenanigans will again make  momentum followers and the technical traders nervous and curtail ‘animal spirits’ and positive sentiment towards gold.

A positive U.S. jobs number today should see gold come under pressure, while a negative one should see gold bid and lead to a higher weekly close. A second higher weekly close today, above $1,237/oz, would be bullish for next week. Support is at $1,220/oz, $1,200/oz and of course what appears to be a double bottom at $1,180/oz.

Sentiment towards gold remains poor despite robust physical gold demand as seen in the data from government mints and Chinese demand.

“Price Of Gold Crashes” – Diversify And Buy Gold For Long Term
This negative sentiment towards gold has been seen in a large number of articles in recent days. Many have focused on gold’s poor price performance in 2013. Some have been balanced, others less so.

Gold in U.S. Dollars, 5 Years – (Bloomberg)

What is interesting is that the articles have focussed almost exclusively on price and the price in the short term – the year 2013 and the price fall since the nominal record high of $1,900/oz in August 2011. The real record high, adjusted for inflation, remains $2,400/oz – nearly 50% above today’s price.

It is also interesting that the articles have been full of subjective opinion – often by so called ‘experts’ such as those in the financial services industry.

The empirical evidence regarding gold being a long term hedging instrument and safe haven asset is ignored.

Most importantly, some of the media completely ignore the most important tenet of investment practice – diversification. Our clients and those who have taken our advice and allocated 5%-10% to gold bullion fared well again in 2013.

Gold acted perfectly as a hedge again in 2013 – while gold was down by 28%, stocks were up 20%-30%.

Investing, rather than speculation, is about the long term. Some of the media are focussing solely on the short term. This is a form of data mining looking solely at the performance of gold since August 2011 and last year, rather than over long term – 5, 10, 20, 40 years.

The long term outlook for gold remains positive due to a combination of macroeconomic, systemic, geo-political and monetary risks.

Banks and the banking system pose risks to investors and savers today and there is real risks with regard to bail-ins and deposit confiscation.

In the coming years, gold will protect investors from the possibility of further falls in stock and property markets and property and stock market crashes. Indeed, it will protect investors from falls in bond prices many of which are at all-time record highs. Finally, it will protect savers and those with cash deposits from the risk of bail-ins and deposit confiscation.

Gold has been subject to rigorous analysis by leading financial academics in recent years. In science, empirical evidence is required for a hypothesis to gain acceptance in the scientific community. Normally, acceptance and validation is achieved by the scientific method of hypothesis commitment, experimental design, peer review, adversarial review, reproduction of results, conference presentation and publication in a journal.

Unfortunately, in the investment community little empirical evidence is required for the hypothesis – gold is a speculation or a risky investment that has crashed – to gain acceptance. All it takes is a few vested interests and their subjective opinion and a lack of understanding and willingness to look at the facts, data and academic research.

As ever, we thought it best to consult an academic who has conducted much research on gold as an asset to get his opinions regarding gold’s recent price falls.

Dr Constantin Gurdgiev is the adjunct lecturer in finance in Trinity College, Dublin (TCD) and was previously a member of the Investment Committee of GoldCore. Dr Gurdgiev has engaged in much evidence based academic research on gold. He found that gold is a “hedging instrument and a safe haven” and presented his findings to the World Bank, ECB and BIS nearly three years ago.

Dr Gurdgiev On Gold As Important Long Term Diversification
“No investor should be advised to take a speculative position in gold, stocks or bonds unless they are made aware of and are willing to face the short-term price volatility that comes along with these assets.

Gold is a long-term risk management asset, not a speculative one. As such it should be analysed and treated predominantly in the context of its role as a part of a properly structured, risk-balanced and diversified portfolio spanning the full life-cycle of the investment and pension horizon for individual investors and those with pensions – whether they be SIPPs in the UK or IRAs in the USA.

Sadly, much of the media coverage concerning gold commonly fails to distinguish the risk management properties of this asset class. Instead, media commentary often focuses on single point-in-time price changes, usually based on timings selected with the hindsight ‘knowledge’.

Such analysis is fallacious, misinformed, if not outright financially misleading.
Furthermore, as exemplified by recent media coverage, majority of financial journalists fail to recognise the fact that unlike many other asset classes, such as stocks and bonds, gold does not suffer from survivorship risk.

As such, gold acts not only as a traditional hedge and safe haven with respect to ‘normal’ or ‘continuous’ risks present in the global financial markets, but also a hedge against large scale tail events.

There is virtually no other asset class, excluding sub-class of AAA-rated sovereign bonds (with some major caveats), that offers such hedging opportunities.

Tail risk events often witness significant destruction of commonly traded equities and fixed income instruments. The best exemplifications of this fallacy are wholly erroneous comparatives between gold price changes and individual stocks price movements involving stocks with high recent exposure to survivorship risk, such as banks equities.

Quoting individual stocks without adjusting for survivorship risk presents a misleading picture of risk-returns relationship that does serious disservice to the public. Quoting such differences immediately after a major tail risk event, such as the global financial crisis, is outright wrong, full stop.

Even more erroneous are comparatives between the short-term gold price movements effects on individual investors and the property price changes.

The two asset classes are vastly different in terms of (1) risks involved in investing in the underlying instruments, (2) availability of different instruments in different markets, (3) leveraging involved in purchasing of these assets, (4) pricing of these assets (commodity vs idiosyncratic non-homogenous assets), (5) liquidity risks, (6) transactions costs, (7) other risk hedging properties.

Such comparatives, as the result, offer a grossly oversimplified view of investment markets.
Well known and empirically confirmed idiosyncratic properties of gold, in my opinion, warrant careful consideration of this asset as a part of a well-diversified and structured long-term investment portfolia.

Speculative appraisals based on highly selective ex-post market timings and prices comparatives, or absurd comparatives across vastly different asset classes, whilst ignoring major risks underlying returns to specific asset classes and even individual equities, is over-simplifying and misleading at best.”
End

 

Gold in British Pounds, 5 Year – (Bloomberg)

It is very important to look at the facts, the figures and the academic research on gold. Dr Brian Lucey, also of Trinity College Dublin (TCD) has also frequently researched the gold market. Dr Lucey and Dr Gurdgiev had an excellent research paper on gold published in August 2013 which has been ignored by the financial services industry and much of the media.

They researched the gold market and their paper ‘Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates’ concluded that gold is a hedge against U.S. dollar and British pound risk due to “its monetary asset role.”

Dr Lucey has consistently pointed out how physical gold is financial insurance or a hedge against political uncertainty. Both have advocated an allocation to physical gold in an investment and pension portfolio.

History
Besides academic research there is also the historical fact and real people and families and their experience of owning gold – both in recent years and in history.

Some of the many times when gold protected people’s wealth are – Germany in the 1920’s, much of the world in the 1930’s, China in 1949, the western world in the 1970’s, the USSR in 1990, Argentina in 1989 and 2001, Zimbabwe in 2008 and indeed much of the western world since 2007 and the financial crisis.

Last year, gold protected people in Cyprus from the deposit confiscation.

History clearly shows that individuals, families and companies that own gold have fared much better than those who do not.

Gold in Euros, 5 Year – (Bloomberg)

CONCLUSION
Simplistic, subjective and unbalanced anti-gold opinions tend to get media coverage. However, it is important to always focus on the empirical evidence as seen in the academic research, price performance over the long term and the historical record.

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So much for the recovery. Moments ago December nonfarms were revealed at just 74,000 a huge miss to expectations of 197,000 – the biggest miss Since December 2009. The drop from last month’s revised 226K was the largest since December 2010. Other notables: the change in private payrolls was a tiny 87K vs expectations of 200K. Mfg payrolls added just 9K vs 15K expected and down from 31K. Average hourly earnings for all employees rose 0.1% vs. Expected 0.2%. The good news: the unemployment rate plunged to 6.7% from 7.0%… For all the wrong reasons – the number of people not in the labor force rose to a record 91,808,000. As a reason for the plunge the BLS says there was a major weather effect seen on the forced part-time series, and notes the decline in healthcare which is rare and part of the sector slowing. Thank you Obamacare. And now bring on the Untaper.

Some of the highlights from the report:

The number of unemployed persons declined by 490,000 to 10.4 million  in December, and the unemployment rate declined by 0.3 percentage point  to 6.7 percent. Over the year, the number of unemployed persons and the  unemployment rate were down by 1.9 million and 1.2 percentage points,  respectively. (See table A-1.)

 

Among the major worker groups, the unemployment rates for adult men (6.3 percent) and whites (5.9 percent) declined in December. The rates for adult  women (6.0 percent), teenagers (20.2 percent), blacks (11.9 percent), and  Hispanics (8.3 percent) showed little change. The jobless rate for Asians  was 4.1 percent (not seasonally adjusted), down by 2.5 percentage points  over the year. (See tables A-1, A-2, and A-3.)

 

Among the unemployed, the number of job losers and persons who completed temporary jobs decreased by 365,000 in December to 5.4 million. The number of long-term unemployed (those jobless for 27 weeks or more), at 3.9 million, showed little change; these individuals accounted for 37.7 percent of the unemployed. The number of long-term unemployed has declined by 894,000 over the year. (See tables A-11 and A-12.)

 

The civilian labor force participation rate declined by 0.2 percentage point to 62.8 percent in December, offsetting a change of the same magnitude in November. In December, the employment-population ratio was unchanged at 58.6 percent. The labor force participation rate declined by 0.8 percentage point over the year, while the employment-population ratio was unchanged. (See table A-1.)

 

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 7.8 million in December. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. (See table A-8.)

 

In December, 2.4 million persons were marginally attached to the labor force, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

 

Among the marginally attached, there were 917,000 discouraged workers in December, down by 151,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in December had not searched for work for reasons such as school attendance or family responsibilities. (See table A-16.)

And the funniest part when one considers the surge in construction workers in the ADP report:

Construction employment edged down in December (-16,000).  However, in 2013, the industry added an average of 10,000 jobs per month. Employment in nonresidential specialty trade contractors declined by 13,000 in December, possibly reflecting unusually cold weather in parts of the country.

So construction workers both surged and plunged due to the weather.

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