The Largest Possible Stimulus, An Answer of All Answers

As we continue into the bleakness of economic outlooks, us bloggers, more than anyone else have been bullishly describing our predicaments and the short comings of private sector and especially government. Before I get shredded, let's look at the possibilities of a stimulus of all stimulus, this would be the stimulus that keeps on giving. As we did in the past during World War I and especially during II, starting from scratch and overnight growing and re-establishing our manufacturing a new US Manufacturing powerhouse. Furthermore, this is the gift that keeps on giving because jobs would be created immediately in all sectors. As a continuation of my comment on Paco Ahlgren's, "The Destruction of the Dollar: It's Nearly Inevitable" on Seeking Alpha, I will start with the comment below:

Here's the link if you like:
http://seekingalpha.com/article/176855-the-destruction-of-the-dollar-it-s-nearly-inevitable?source=commenter

COMMENT:
Anything can be done. Instead of bringing back manufacturing, we need to rebuild manufacturing, like Japan's rebuild after the war. I have no doubt in my mind that we can again be and are innovative and that this innovation can be applied to a new manufacturing sector far more advanced than anywhere else in the world. The rebuild would require more education and lots of money. When setting the budget to rebuild manufacturing, we need to set the budget by high balling rebuild costs and low balling expected initial revenues. Especially since government involvement would be apparent, who we all know are horrible at forecasting and setting budgets, which in turn causes bickering between parties about costs and more costs because of one party wanting to stop and the other wanting to go, you know the usual. Just set costs high and do it right. In addition, in the planning phase, a large percentage of the budget needs to be allocated to R&D and re-investment into capital improvements to keep us ahead. However, things of concern are how many jobs would this create? With the newest innovative ways comes a whole lot of automation, man vs machine for jobs and to make us more competitive on cheap labor pricing. However, this would still bring a lot of jobs in logistics, sales, engineering.... Would our current services workforce be able to handle this shift or would we simply be bringing more people from abroad to fill these positions? Of course with any single thing we add, a hundred more questions come up. Lol, I could probably think and write about this for a while, but I hope we can get this subject rolling, so I will help facilitate. Well, I hope.

Please comment back to add, re-think or debunk any ideas. Another factor I left out in the comment was, location or the possible optimal places in the United States for the rebuild. Could we do it in Detroit and the other rust belt cities? Detroit has good train transport intersections... It would probably be cheaper to rebuild from scratch, but let's keep in mind re-vitalization. Also, take into consideration funding, both private and public. Let's answer the who, what, where and whens. Maybe afterwards, I can compile the great ideas into one single page. I am simply seeking our creativity from the SA community, which drives innovative thoughts. I think the possibilities of solutions with a great community with diverse backgrounds are endless.

New Economic Perfect Storm, Ongoing Deleverage Effect

The intertwinings of commercial RE, unemployment, contnued deleveraging, consumer debt and ongoing housing risks continues.

Deleveraging will continue with a negative unemployment surprise coming with companies rethinking the organizational charts while they can. Easier to reorganize, while lean and mean, which companies have more opportunity now to do than ever before. These are the companies that will churn out incredible numbers from this point forward. Unfortunately, with a predominant services industry the downsizing will continue and productivity will be the new game. Employers will become more and more productive with what they have. Believe me, companies are re-thinking organizational structures and procedures to create the new norm for how their companies are run, managed and products are delivered. Productivity gains will continue as long as people feel they must do whatever they need to do to keep their current jobs, which is a factor that is really keeping the consumer confidence levels below the 50 mark.

The current NFP unemployment numbers at 10% still poses an incredible consumer debt exposer of banks and the fragility of commerce as eventually continued high unemployment's effects start to uncover many more fragilities in the system regarding defaults in respect to consumer and bank exposure, compounded by a still apparent credit crunch caused by governmental requirements on bank cash reserves. Add to the above our projected GDP growth to optimally correct unemployment, we would need about 12% next year. Don't hold your breath.

As companies continue to deleverage companies will require less commercial space and as companies become more lean and unemployment slightly increases or more likely stays at these levels for a lengthy period of time, the less need for office space expansions as long as the economy doesn't go down further. As commercial re companies scramble to fill empty space, deflated prices will start to really snowball and a true showing of supply and demand will be revealed. Many will be forced to default on current loans, as consumers in the residential markets are "in over their head", the commercial re sector is headed directly into this same predicament. Furthermore, as the credit crunch continues, the scramble will continue for commercial re, as in residential for refinancing, while banks continue to shun anything real estate as both an over reaction of really getting burned once already and fulfilling the governments requirement of larger cash reserves.

Housing exposure of banks due to unemployment are too large a factor to not worry about. This single handedly has everyone worried, especially the Feds and the Whitehouse. Housing and employment are the largest components of consumer confidence and as housing continues to drag the economy, so will consumer moods and spending. The full exposure of banks to housing has not been fully realized from a combination of consumer credit, unemployment and continued private sector deleveraging. What we have seen is the subprime loans and some prime loans falling into default. The full brunt has not been felt on the prime loan side and, 2nd mortgages and heloc's. This is just developing. Fallout of the large unemployment pool will increasingly uncover prime borrowers that are unemployed, living off quickly evaporating severance packages. Additionally, as improvements only show up regionally and as these borrowers' severances dry up, expect more people walking away from their homes if they have a little equity after housing price depreciation. Those borrowers with equity built in and with severances drying up will sell their houses for far below market to move to areas where they believe their employment chances will increase further fueling housing price index declines . Either way, these are not good signs for housing.

The above predictions depend mainly on all things being the same. If the economy gets better, the better the outcome. The worsening, which is accepted consensus wide, or the worse is ahead view and the worse things may come.

US Protectionism through Weak Dollar

The US government is pretty slick by protecting US manufacturers with a weak dollar. The weak dollar guarantees that our manufacturers and international conglomerates have an upper hand in the international business and trade arena. Sure, China has and is keeping the Yuan/Renminbi weak, but we don't control China. In addition, we have always run a trade deficit, but the weak dollar is leveling the current playing field for us, but hurting everyone else. Furthermore, the weak dollar protectionism is a new form. Think about it, the weak dollar is of course not a tariff or a restrictive quota, but the US Fed has been systematically decreasing the dollar, which is impeding global free trade; thus, protectionism. This is why foreign reserve banks are following the dollar and there is so much concern over replacing the US Dollar as reserve currency and commodity pegs. The US must be very careful with the weak dollar and I am surprised Bernanke of all people is not showing more signs of fear. Bernanke, of all people, is a student of the Great Depression and it was protectionism that exacerbated and kept the World Economies depressed for so long.

New Alarm: Rising Temp Labor Force, another step in becoming the next Japan

According to the employment numbers released yesterday, temporary labor jobs were the bulk of jobs created. We are paralleling the formation of Japan's stagflation economy. Read the following link written last month regarding our current deflationary pressured economy.

http://tekatlonworldbusiness.blogspot.com/2009/09/united-states-next-japan-taste-of.html

Hello, can we sound the alarms! Since the 80's Japanese bubble, Japan has been stuck with an economy of older workers and the young workers are stuck with temporary work. Sound like our Greying of America? Then, when Japan's bubble burst, deflation continued and businesses no matter what were unable to make a profit because of the deflation. Furthermore, after 20 years, Japan is still at a 0%interest rate. Sound like the United States? We too are at 0% interest, in a deflationary period, have a greying work force again since their retirement is blown and now the job increases are from temp labor? Scary? and remember that the labor report is for the past month, if it was for this month, it maybe less scary, since we might be able to justify for seasonal jobs, but it is too early to count these into the figures. In addition, Japan and the US are favorable carry trades. Trade the Australian Dollar and the US Dollar and you can reap an additional 4% on your gains. The only thing I do not see happening is US housewifes start currency trading, like the Japanese housewives the past 2 decades. The only way the US dollar will increase in value is by increasing interest rates, but the economy is to frail for rate increases. That is why Obama this week asked China to increase the value of the Yuan/Renminbi. Don't hold your breath on China doing this yet.

The fragility of the United States Economy is very apparent. As Warren Buffet and Lloyd Blankfein have agreed to do an Andrew Carnegie, JP Morgan or any of the Titans of Industry from the Great Depression type of charity work. Aditionally, their are meetings with the government committees and CEO's and Economists on preventing the economy from dropping. CEO's including Rupert Murdoch, Wilbur Ross... some very powerful people. The United States government is and should be very worried right now, especially with upcoming elections and public polls.

Commercial RE and Credit, Look for Commodity Country Buyers

Credit is still crunched and commercial real estate will take a large hit with new builds and development teams. Building a new building takes a lot of credit, far more than turning over an existing building. However, transition teams will win out, expect office buildings to change original zonings and plans to accomodate different types of businesses. During 2001 to 2003, during a less severe credit crunch caused by 9/11 and still influenced by the dotcom boom and bust, I assisted in opening a couple of hotels that used to be office buildings in New York. Credit was hard to obtain and the win win for both the lessee and the lessor was to transition buildings that were corporate headquarter buildings for many years into hotels or other not planned or zoned for businesses. Unfortunately, the lag behind plans to actuality in real estate take many months.
Aditionally, look for buyers from Asia, Australia and strong commodity currency countries such as Canada, Russia and New Zealand to start looking for cheap buys in the United States, just based on the exchange rates. Commodities are pegged directly to the dollar, so is you trade gold, XAU/USD, or any other commodity, for now, you are also trading the dollar. As the United States keeps interests rates low, at zero, continue to watch these commodities soar, easy long-term plays, but take profit or lock in profit whenever you can dont get greedy. Expect these commodity countries to start looking around the US after 1st quarter next year, before any threat of an interest rate increase, which is the only way the Dollar will appreciate, in this current economic state. Although in this current economic environment foreign currency traders may look at tax cuts as a positive sign for the dollar, since US unemployment numbers are heavily followed, since there is no expected interest rate increases. Tax cuts will give employers an incentive to hire.

4th Quarter Fundamentals will point down, Margins vs Volume

I just listened to a guy on CNBC, like many others, stating that based on fundamentals he sees the V shaped recovery. Sure, it would be safe to say that now; companies are going to show great productivity numbers, running lean as ever, but there is very little topline growth. In addition, companies are having to rely on volume at the cost of margin. I'd rather take margin anyday over profit. Furthermore, 4th quarter fundamentals are always based on Holiday Retail Sales. Hence, Q4 Earnings. I hope the chart from shadowstats.com appears below. This is a chart of the unemployment rates.

This, unemployment number, is the big kicker that will affect 4th quarter retail sales. and hence another dip. The rate is currently at 9.8, not including of course non farm, agriculture and those who have stopped looking for work, represented by the BLS and SGS Alternative numbers, according to the chart, brings the actual numbers between 17 and 22 percent. Although, agriculture jobs only represent 2-3 percent of the population or 6-10 million of the labor force, but that is still a large number and still doesn't include fishing industry jobs. Although, in geography class, North America is labeled a continent, in the whole scheme of things, it is pretty much a huge island represented by a good portion by the United States with the 5th largest fishing industry, which as well isn't in the count. Sure these are very regional, but regions end up dragging the rest of the local economies.

Retailers are going to react very interestingly this holiday season. I am expecting that they will go in with low prices from the beginning of the shopping season, only to find that this was the wrong call(go back to the blog SOS Recession). Consumers, "sitting on sideline" again, will wait till the last minute to shop, knowing that prices will drop to attract them. Again, decreasing expected margins of retailers and will be a drag on their earnings. Applying this to everything else, people know that at times of economic distress, the government gets bigger and has to provide more stimuli, to get industries going, trying to get our old consumer spending ways going again. Now, will the decisions of the retailers add to the deflationary pressures? Lowering of prices in everything, except commodities or hard assets these days, such as durable goods, real estate, food and maybe now consumer goods? Add to this the need to increase the money supply multiplying the effect on the weak strength of the dollar and the need to decrease interest rates again? Sound like Japan 2 decades ago? These are interesting times and as a macro and micro economics hobbyist great cases for study. As in Japan, will prices drop as demand drops and form a supply glut causing, in their case, a deflationary spiral, where business were unable to make enough profit, no matter how low they set their prices. Let's hope not, they just "celebrated" their 20th anniversary of economic stagnation. As Nouriel Roubini stated this week, their is a carry trade bubble forming, the Japanese Yen was and still is a carry trade preferred. Now, investors have another option, the US Dollar.

DOW showing signs of overbought

The DOW chart looks to be hitting near the end of the 5th Elliott Wave, could be possible to hit close to 10,800, the next resistance line and looks possibly by Turkey time or a couple weeks before Christmas, so I am expecting retail numbers or something will drive this down or up. Down or up? I am betting bearish signal. Hello! Look at the unemployment numbers. Enjoy the bull momentum now caused by earnings, of course earnings are going to look great, every company is running a skeleton crew, but there is not enough topline growth to sustain the bull run. Also, if it even gets to around 10,800, I will be greatly surprised...it is already starting to bounce below this resistance line, but analysts and CNBC are pumping the market before a good dump.

Too Late for a Green Jobs Stimulus

There was a lot of hoopla of the green movement during elections, but what happened? Sidetracked? You bet with healthcare, also oil prices dropped again, global demand dropped, supply increased and then I could go on about the dollar, just visit my last posts. Furthermore, don't get me started with Van Jones, the former Green Tsar/Csar. Well, too late for an economic stimulus from green jobs for this round that was supposed to be 5 million jobs, but another opportunity is coming. First of all, retraining, if we stimulated a green job market, it would require so much retraining that the economy would not reap the benefits for atleast a year. Second, you always have to bring in the cost to any equation, which is estimated 100K per person or $500 billion. Although I am for clean energy and would be interested in learning more about how solar panels work, right now the timing would not be optimal for the training to change to clean energy, but read on. It is an unfortunate fact that with new technology, especially in energy, which hasn't had a large innovation since nuclear that is in wide use, the efficiency of the new technology is simply that more efficient, which would take away more jobs than there are from the more inefficient older technologies such as hydroelectric and coal, as the Spanish are finding out after 5 years. However, before the economy eventually comes back, probably later next year, this would be the time to introduce that green jobs re-training. The test would be the administrations ability to multi-task, but this would lead to more chaos than anything else.

The New War: Currencies, Shift from Dollar to a Currency Basket

There was a section in an article of UK's Independent pertaining to Arab States using Spot Gold for the interim till a basket of currencies system is formed for oil contracts. They will be changing from the US Dollar to Spot Gold and eventually a basket of currencies, not good for the Dollar. Now the list goes as Brazil, Russia, India(maybe, too many close ties with US), China, Iran, the Arab States and the UN on shifting away from the US Dollar from currency reserves to now oil. Since a couple of days ago, this list has grown. More importantly, the previous listed examples are all emerging or commodity countries. The shift to gold for the interim should drive gold currencies, Australia and New Zealand up. It only takes an example of a system that is better, for everyone else to start switching over; furthermore, you can bet that there are countries playing around or calculating a "basket" of currencies. The reason a basket of currencies would be the best solution for the volatile dollar is kind of like how a diversified portfolio works for stocks and a well balanced mutual fund, the volatility is absorbed in the basket. With a collection of currencies, they will be less volatile, mathematically, since a country could possibly trade via an average value of the total basket of currency reserves and not one single currency that is subject to much volatility. How do I know in the workings of a basket of currencies? Because I practice a basket system and trade it and it is that good in smoothing the jagged edges of the currency market. It will be interesting to see if the Fed's and Geitner try to intervene in the currency markets or what economic policy will come to prevent any more exploration into shifting away from the dollar. This has to be a disturbingly growing subject being discussed in Washington. With the deflating dollar to continue(read my previous post), many shifts of power will come in near future.

This is the Most Horrible Thing in the World!

You all have got to read this article!

http://money.cnn.com/2009/10/01/news/economy/_morgue/index.htm

Are you kidding me? It is so bad that people are walking away from passed away family members like the real estate? I can't believe that the Michigan Governor, the Detroit Mayor or local churches aren't doing anything about this! WTF! It is going on in Florida too? The counties budget for burying the unclaimed dead ran out in June, so they are just letting them pile up in a morgue freezer? That is the worst thing I have ever heard and I must say that this is one of the worst things...I just can't stop repeating this, sorry. I am speechless!

The US and China Pulling The Big Rubberband Issue...Protectionism?

I had a discussion the other day over dinner regarding the US placing tariffs on Chinese tires last week. Well guys, this is protectionism. Danger! This is history repeating itself and probably the second largest factor tied with other bad economic policies that made the Great Depression, well ummm..., "Great". We are treading on thin ice right now. The Obama administration needs to remove this tariff before it starts a chain reaction throughout the world. Protectionism is the straw that broke the camels back and allowed Hitler in power. Let's hope that it is removed this week before the Chinese start placing tariffs on our goods and then other countries start taking sides by placing tariffs on all goods, screaching global trade to a halt, like 66% back in the old days. It would start like kids in the school yard talking about what his dad and that kids dad can do and everyone would come out bruised. I hope you get the picture why the Tire Tariff is not a small issue, and an especially bad idea.

Furthermore, back then we placed tariffs on european goods as a major creditor, unlike now we are going into this as a the major debtor. Who would be going into this as the major creditor this time? You guessed it, China. Back then, the banks in the United States started to fail and started to ask for their money back. Yikes! Let's hope no one does that this time!

Shift of Wealth Eastward, South America the next Asia?

The G7 Summit this weekend is further backing a hunch I have had for a while noticing that the Asian Economies and the BRIC's are now much larger an influence on the global economy. They will help prevent the industrialized, western economies from completely falling apart with strong continued growth and with good economic policing from everyone. This is noticeable from the shift from less future G7 meetings to only G20 Summit meetings. In the 80's and 90's, it was the Emerging Tiger countries, South Korea, Singapore, Hong Kong and Taiwan. Now, these countries are pretty much fully developed economies with a well educated workforce, strong GDP, and the shift of manufacturing away from their countries elseware. The BRIC's are currently the Emerging Tigers, but now and a whole lot larger. Furthermore, these BRIC's are natural resource rich. You would think that China has zero natural resources, but this is not true, they are just growing that fast, although artificially bolstered growth pushed by the big pocket book of their government. Expect, eventually, what happened then to happen similarly to the BRIC's, Brazil, Russia, India and China. Also, expect more woo-ing of the "Emerged" Tigers and the BRIC's by the Industrialized west from this point onward, as this transition of wealth and power continues to shift and the importance of each other is even more apparent, preventing anyone from "flexing their muscle". Being a neighbor to these countries is an advantage for all nations, but especially the countries closest in proximity.

Therefore, it would be safe to say that Russia is following the industrialized nations since it is surrounded by pretty much nothing but the industrialized nations, and will help bolster the EC and England and vice versa. Expect continued phenomenal growth in Asia since China, now the 2nd largest economy, is surrounded by anything but still growing "like wildfire" nations and will bolster Japan and vice versa. So, this brings me to believe that South America will be the next region, where a cool name like Emerging Tigers or acronym like BRIC will be coined. As the world continues to get smaller and smaller, and as Asia keeps growing and buying everything for growth, helping a lot of economies from worsening, especially those closeset to Asia such as Australia and the Kiwi nation. Eventually, it will be the neighboring countries that will "prop up" those that need it and vice versa in this smaller world.

Hehe, let's have a little fun here, Argentina, Chile, Venezuela, Peru, Columbia, Bolivia, Paraguay, Ecuador, Guyana, French Guiana, Uruguya, Trinidad and Tobago(sorry if I missed one or two, not here to anger anyone). Let's come up with a cool acronym, but I tried and it looks like an eye chart. So, good luck and maybe it may become your claim to fame. For now, let's just call them the South American Emergers. You can probably say the same thing for the South American Emergers as people did in the 60's and 70's about the countries in Asia(probably will be another blog).

Africa is a toss up for me. Africa is resource rich, in need of better education, the leaders allow their countries to be carved up by other nations for their natural resources and the corruption often comes from the highest down, causing too much instability. I wish I could be more positive and I hope I am completely wrong, but there is still much needed work there. Until the corruption subsides and the governments get stronger, will Africa become a country most favorable for investments. Although I am a firm believer that the world cannot become better with any country or continent left behind, let's just hope that they get that uplift from their neighbors in this shrinking world.

About My Blogs

The way to use this blog is very simple. However, before I start, these are simply my opinions, projections and ramblings and I am not a licensed broker or analyst, so like all those disclaimers say, please use your own judgement in doing anything. However, in the past my opinions have come into fruition. Now, this blog can be used to position yourself financially. Remember, that for every winner their are losers. Actually, there are normally many more losers than winners. With that said, no matter what state of the economy that I project in the near future, while reading the blogs, keep asking yourself, "who are those that will win out of these situations" as in picking stocks, currencies, bonds and other investment vehicles. I think you will happily be rewarded. Sure, I watch a lot of Bloomberg, CNBC and read the Wall Street Journal, but after all these years I know all the biases, especially CNBC, who tends to sway towards GE, since GE is their parent company. Therefore, they will, of course, push GE and their subsidiaries, Mastercard more vs Visa... Next time GE goes up a whole dollar, watch CNBC, they will talk about it every hour. In addition, normally when you hear about a company's stock going up or down through CNBC, you are getting in too late. Furthermore, their hosts are giving too much false optimism, which misleads, because they are more entertainers and I do enjoy watching and listening to them. The Kudlow's, Bartiromo's, Gasparino's, Faber, Cramer and the rest of the crew, yes, I am a fan. So, I try to cut out all that stuff as a non entertainer and just give you what's really going and hint what to look out for. Hope you enjoy and I look forward to your comments, opinions and questions.  That was written pre-2010.

Now 2020, I am attempting to use this old blog as a possible addition to a trade journal, sharing charts that I share on StockTwits, which is a mess in keeping up with.  I may be adding more to the mess, but I will look back at all this and figure out a system...hopefully.  This will mostly be technical equity(small, mid and large), currency, fixed income vehicles, basically anything that can be charted.  Promising looking charts that I like, using a combination of Elliot's Wave, Wyckoff Method, Patterns and other tricks I have learned along the way with no indicators and charted in a style how I first started charting on the back of the WSJ index charts.  Wow...over 30 years ago.

Unemployment Numbers and the Upcoming Effects

A few hours from now, the US unemployment numbers will be posted and I am betting that it will not be pretty. In addition, what most people don't know about the unemployment numbers is that the numbers do not include those that cannot claim unemployment, the self employed, 1099 employees, those that went back to school and those that have burned through the allowed maximum time to claim unemployment. Now, that's a lot more people than than those figures show. Although anyone who reads this blog is like, "man you are depressing me". I am a realist that follows and knows numbers and trends, geared with those bullets, here is this blog.

Thus, with these "skewed" unemployment numbers at hand, expect another wave of residential foreclosures and even more in the commercial real estate market. Although there are loan modification programs out there for those in the residential market, more loan mods are being turned away than being modified. In addition, although the credit crunch has improved greatly, it is still here as banks need to bolster their cash reserves and improve their balance sheets. Going back to unemployment numbers, as they increase, expect increases in foreclosures, since they have a direct correlation. Furthermore, the past foreclosures are a direct result of subprime borrowers, or those with less than perfect credit, no-doc loans, adjustable rate and interest only mortgages given out at a time when interest rates were at an all time low, where the timing of getting the loan would catastrophically lead to higher rates when the loans reset and as a result of lax credit lending standards that allowed lenders to grant loans at high debt to income levels. Now, the next wave of residential foreclosures will come from the prime borrowers, or those that have decent credit.

Unfortunately, with the increase in unemployment numbers, some of these will be from failed businesses and companies; hence, with failed businesses, that means less tenants in office buildings, strip malls and other commercial real estate buildings. This then translates into less revenue for the owners of all this commercial real estate, which will unfortunately turn many belly up. Like many people and many homeowners, many of the commercial real estate owners have borrowed and built too much for the supply and demand in the past "glory years" of real estate. This will put further strains on many banks, even the ones that are "too large to fail".

For the upcoming holiday season, the direction of retail sales numbers are going to be very interesting as well as the number of seasonal jobs created during normal holiday seasons compared to this year as a result of less consumer spending created from high unemployment. I hope that we start seeing the light at the end of the tunnel by this time and expect more blogs to come.

Stimulus', Unemployment Numbers and Proposal to Alleviate

There is an interesting article released today by the Associated Press regarding what other countries are doing regarding their high unemployment numbers, whether it is propping them up or other creative measures, and the countries current numbers. You can actually check the article through this link, below is the summary and my proposal follows:

http://finance.yahoo.com/news/World-unemployment-rising-apf-23674893.html?x=0&sec=topStories&pos=4&asset=&ccode=

GERMANY -- Unemployment 7.7 percent in July from an annual rate of 7.3 percent in 2008, but down from 8.4 percent in 2007. Employment has been kept in check so far by government financial support for workers put on shorter hours in order to avoid mass layoffs.
FRANCE -- Short-work arrangements and government incentives such as exempting payroll taxes for some workers. The unemployment rate rose to 9.2 percent in July from 7.8 in 2008. It is expected to hit 10 percent by the end of the year.
BRITAIN -- Hit a nearly 13-year high of 7.9 percent in July. The number of people out of work looks on course to pass the three million mark next year. However, the number losing their jobs has fallen from spring highs.
SPAIN -- Spain has gone from being a European model for growth, creating more than a third of all new euro-zone jobs over the past decade, to having the region's highest unemployment rate. This stems mainly from the collapse of a construction boom and a credit-fueled consumer spending spree over the past two years.
IRELAND -- The story is similar in Ireland, where unemployment has surged from 4.6 percent in 2007 to 6 percent in 2008 and 13.3 percent in July.
KOSOVO -- The Balkan nation is one of the poorest in Europe, and not a member of the OECD club. With stagnant growth, its unemployment rate was 46.3 percent in 2007, according to the International Labor Organization. That may include the so-called "gray economy," in which people are paid under the table.
JAPAN -- Japan's unemployment rate actually dipped to 5.5 percent in August after reaching 5.7 percent in July, the highest level in Japan's post-World War II era, amid mounting job and wage cuts. Still, the total number of jobless in August rose 32.7 percent from a year earlier to 3.61 million. The number of temporary workers has surged in recent years, reaching around a third of the work force in the world's No. 2 economy. The plight of these workers, who with little job security have born the brunt of the recession, has stirred emotions in Japan.
CHINA -- The official urban unemployment rate was 4.3 percent for the three months ended June 30 but the actual level could be more than double that because the government system ignores millions of migrant workers and employees who are furloughed by state companies but not recorded as laid off. As of June 30, there were 9 million registered unemployed people in an urban work force of 210 million, according to a spokesman for the Ministry of Human Resources and Social Security, Yin Chengji.
As many as 30 million migrants are believed to have lost jobs in export-oriented factories in late 2008, government officials said. Some are believed to have found work on construction projects financed by Beijing's stimulus but no figures have been reported.
INDIA -- The picture is even less clear in India where the government does an official employment survey only about once every five years. Ninety percent of the work force is in the so-called informal sector.
MEXICO -- Mexico's unemployment rate rose to 6.28 percent in August, the highest rate in more than 13 years, according to The National Statistics Institute. The jobless rate among the country's roughly 45 million workers was up from 4.2 percent in August 2008. President Felipe Calderon has announced reforms to ease red tape and lower costs for investors in public works projects to foster job growth. The government also started paying one-third of the salaries of automotive workers to curb layoffs at the plants.
BRAZIL -- Unemployment in Brazil reached 8.1 percent in August, remaining stable over the last two months. The figure shows a drop in the jobless rate from its peak of 9 percent in March. Brazil emerged from recession in the second quarter of this year and analysts are now predicting the economy will expand slightly in 2009.
SOUTH AFRICA -- The unemployment rate in South Africa hovered at 23.6 percent in this year's second quarter, according to the country's statistics office. That was up slightly from 23.1 percent in the April-June quarter of 2008, as South Africa is mired in its first recession since 1992.
The African continent as a whole was initially unscathed by the financial turmoil that roiled Europe and the United States. But the collapse of Western consumer demand has meant Africans are selling less of the commodities on which many of their economies depend.

In the past couple months, a few programs were introduced to stimulate the economy. Everyone's heard about the Cash for Clunkers program; however, this program is not as hard hitting as programs like the first time home buyer program. Here is why. Although the Cash for Clunkers did show an increase of automotive sales, falsely inflating economic numbers for a couple of months, it is a program that will mainly benefit automotive manufacturing regions such as the midwest. But did it really help stimulate those areas? Not really, since all it really did was decrease high inventories of the automotive industry, which will not require permanent re-hires neither in manufacturing jobs, nor at the dealerships. In addition, the automotive industry does little or not as much in stimulating, I am sure there is an economics word for this, the automotive industries auxiliary markets. In other words, when someone buys a car, they purchase the new car and nothing more is needed, unlike the housing market. Although new home purchase incentives will also decrease numbers in home inventories, as a consumer buys a home, the new homeowner may need new appliances, furniture, maybe modifications to the house, lawn care, linens... which spurs more jobs and lasting jobs. In addition, real estate must be bandaged to help consumer confidence. Furthermore, the home inventories must be decreased and removed off bank balance sheets. However, no stimulus will be effective, unless there are new jobs created. Therefore, it was interesting to read in the above AP release that the German government subsidized lowered worker hours to reduce massive layoffs to France's short work arrangements and no payroll taxes for some workers. Anyone that has worked for a large corporation knows that when business gets tough, they "trim the fat". They eliminate those positions that are less needed and have those that are still working wearing multiple hats to keep the balance sheet and income statements in the black. Therefore, government stimulus' need to be geared toward corporations and especially small businesses in spear-heading unemployment or during these deflationary times, taking advantage of being able to pay less for government sponsored work projects. Why not? Corporations do it. For example, this is an employer's market, so employers are able to re-hire employees in vacant positions for about 3/4 the cost that was paid the last guy. In addtion, cost of goods to maybe, as another example, repair infrastructure like bridges, roads and other public works will cost much less in these times. Now, that would be a stimulus. Should take advantage of being able to do things while it's cheap, although this would add to deflationary pressures. However, I would take the lesser of two evils during these interesting times.

United States, the next Japan? The Taste of Deflation

Is Japan's current economy a sign of things to come for the United States? In the 80's, Japan's financial markets and real estate market created a bubble much like our bursted bubble today. Although we are not having to issue 100 year bonds and US citizens are not acquiring foreign skyscrapers and other forms of real estate around the world, at our real estate apex much like Japan's, real estate values were over-valued creating their bubble, where trillions were wiped out. Sound familiar? Although we have not lost trillions(yet), we have not fully felt the repercussions of the easy credit which we are feeling in our residential real estate, but not quite yet in our commercial sectors, which means our bubble is still half full. Whenever there is easy credit, there is increased risk taking and an increase in the likelihood for default. Furthermore, with increasing bank regulations, loan officers and the investment community are having a hard time finding profitable investments and consumers are starting to increase their savings at a time when the economy really needs their old spending habits. As these savings rates increase and people fear the safety of their banks, who already give little incentive to save with the bank with low interest rates, compared to burying a can in the backyard or under the mattress, the government started to subsidize those failing banks and businesses. Sound like AIG, Citi, BOA, Merrill or familiar? Yes, well this was Japan back then. Alarming? It should be because they called this period of time "the lost decade". The Nikkei bottomed out around 7600, we hit a bottom of 7000. Furthermore, we are stuck at the moment when Japan started their unsuccessful quantitative easing policy creating their "lost decade", where they tried to artificially create inflation. In addition, this is what the news is talking about when they are talking about the United States being the next carry trade. Furthermore, Japan is still stuck in deflation or stagflationary economy, where the Nikkei 225 is stuck at half its peak value. The main reasons for this deflated "lost decade" are bubbles in equities and real estate.

During the "lost decade", the banks continued to lend to companies and individuals that continued to invest in real estate, when the values dropped, these loans went unpaid and banks delayed the decision to collect on the collateral in hopes that asset prices would improve, escalating deflation. In addition, these banks were unable to lend more money until their cash reserves were built up to cover potential bad loans. This is where TARP was helpful for us to some degree. TARP was designed to reduce the quantity of these bad loans and to increase the funds available for economic growth, kind of like grease for the economy. In fear of insolvent banks, Japanese citizens were afraid of bank failures increasing their holdings in gold and real estate. Interestingly, sounds all too familiar and Japan's economy is still in a rut.

Now, Japan has a dilemma with it's demographic shift, much like our "Greying of America" compounded with a decreasing birth rate and decreasing wages, exacerbating deflation. Decreasing wages caused by retiring, top pay scale, baby boomers being replaced with lower pay, contract hire, and part time employees decreasing salaries close to 10 percent in the last decade.

TBC

"Sitting on the Sidelines": the in thing during this Recession

Last week, Ben "the Great Timing" Bernanke, said we are out of recession. This is the same guy, when all this started, kept raising interest rates. Ouch! Although Bernanke has many more years in academia and age on me, come on. I call this recession the "Sitting on the Sidelines" Recession, or "SOS" Recession, simply because everyone has been and still is Sitting on the Sidelines.

Remember last year during the holiday season, when everyone was SOS to do their holiday shopping? We had horrible retail sales numbers until the final week before Christmas because everyone was SOS, kind of like the opposite of ebay, waiting for the price to come down as the auction gets closer to ending. Ouch, since we are a consumer driven economy. This is also apparent in the Real Estate market. Remember during the interest rate decreases? Everyone was SOS for their refinance for their 2 year ARM, 3 year ARM or interest only loans. Ouch! again, since Real Estate has helped us get out of all our previous recessions. Now, everyone(well, except in Texas) in the United States is waiting for Real Estate prices to hit bottom before they start jumping back in for their new home, SOS. Furthermore, possible employers are SOS awaiting better sales and top line growth numbers to start a massive re-hiring process and thaw out their hiring freezes. And again, Ouch!, since obviously people can't do any of the above without jobs.

Interesting enough, with all those ouches above, we cannot be out of recession yet. As a matter of fact, we still have much further on the downside to go. Funny, all this talk about a V-shaped economic recovery. More like this, VVVVVV. At this rate some of those V's will be lower than the others. Yes, I am saying it, the stock market has created another mini-bubble. We are headed lower, the DOW will probably hit 9000 to 8800 again and if it breaks 8800 we will revisit near 8500 again. We are bouncing on the ceiling as I type, right at 9900. Why? First of all, we are all SOS! Second, we have a new wave of foreclosures coming because of that cycle above or the lack thereof. There are a lot of people without jobs or scared that they will lose their jobs, without jobs and those confidence levels, they cannot or will not buy homes and consumer goods setting up for some dismal consumer confidence numbers going into the holiday season which is a lot of that topline growth that companies are looking for.

Weak Dollar for interesting times and $4 gas

Remember a year ago when oil hit $170 a barrel and gas was over $4 per gallon at the pump? This is a large effect the weak dollar has on consumers. Currently, the dollar index is headed lower and by end of the first quarter 2010, headed to its near all time low or most likely even lower. Although our economy and the world economies are in far worse condition than they were a year ago during the record high gas pump prices(which requires a lot of explanation in itself), which would normally lower world demand and drive prices lower, we have emerging economies that are chugging away all those surpluses. If you think this is depressing, read no further.

These emerging economies, called BRIC's, an acronym for Brazil, Russia, India and China require a lot of fuel, or petroleum, to sustain this growth. However, Brazil and Russia are self sufficient countries in regards to Energy. So, China and India require much of these petroleum reserves to keep growing. Brazil, Russia and China are also threatening to remove the United States Dollar as their reserve currency. Although replacing the dollar as their reserve currency cannot be done overnight and would especially be unadvantageous to start replacing when the dollar is weak, the thought that they even thought about doing this is very scary. Why would anyone think about this, if they possibly didn't have the intention? Any other old newshound will remember that the Old Soviet President, Vladimir Putin first brought up replacing the dollar as their reserve currency a couple years back. Now we have Russia, Brazil, China and even the UN? ...and to a lesser degree but still can be significant, Chavez and Ahmadinejad.

The replacement of the dollar as reserve currency would cause for interesting times in the United States. The main reason the dollar is able to hold this amazing and ballooning budget deficit is because the US Dollar is the number one reserve currency on earth. If this were to change, what would keep all our debt holders from asking for their borrowed money back?