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Check your Premises!
No BS Weekly Update - November 07, 2011
In This Issue
Performance
Headlines
Health Tip
Green Fact

I hate to state the obvious but here it is!


If there is one factor with the greatest potential to mend our economy, it is a steadily improving employment picture. How so? When you look at the U.S. economy as a whole, it is primarily supported by consumer spending.  As you all know approximately 70% of our economy is based on consumer spending. In order for consumers to spend, they must have a measure of disposable income. In order to have disposable income, Americans must have jobs! 

 

To look at it another way: As the employment situation improves, consumer spending typically increases, thus creating additional demand for goods and services. As demand for goods and services grows, more production is needed, thus creating more jobs, and so on. At risk of oversimplifying, this combination of factors explains the cycle of a healthy economy.  And thus when we see the unemployment numbers improving the Rational Expectation of the average person is that "Oh, things must be getting better". 

 

So are we seeing improvement in the nation's jobs picture?
  

Unemployment
Yes. One year ago, the unemployment rate was 9.7%. As of October's report, it dropped to 9%. On average 152,000 jobs have been added each month during the same time period, for a total of 1.8 million jobs. In addition, the workweek has lengthened and wages are up 1.8%.  All of this shows that the employment picture is gradually improving.  

 

But is it?


If that is the case then why do we continue to see stories about a possible double dip recession or even a whole new recession that as Jim Rogers says: Jim Rogers: Next Downturn Will Be Worse Than 2008?  Why do we see stories like this one?  Most of the Unemployed No Longer Receive Benefits  Seems like a bit of a contradiction doesn't it?  Well consider this. 

 

"Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong." 

Ayn Rand


Check your premises! 

 

Question the things that you know that you know.  Why are we not really seeing much improvement when the numbers clearly say that things are getting better?   

 

As an example, do the numbers accurately reflect the picture that we think they do?  Does the unemployment rate going from 9.7% a year ago to 9% today really reflect an improving employment situation, or is there something else at play?  Don't the 152,000 jobs a month really show growth?  Let's take a look. 

 

There are approximately 25 million people either unemployed or underemployed (meaning they would prefer to have full time jobs if they could find them) in this country.  We also have approximately 1.8 million (150,000 per month) workers entering the workforce each year (high school and college graduates entering the workforce).  Remember these people are not counted as unemployed because they haven't had jobs yet. 

 

So if we look at the 152,000 jobs per month that were created we can see that it is a break even with those entering the workforce so the jobs situation hasn't really improved as much as first thought, has it?   

 

How did the unemployment rate go down?  It went down because more and more people have given up looking for a job.  See there are basically two ways for this number to go down.  You have fewer people listed as unemployed because they are getting jobs and are no longer unemployed.   

 

Or you have fewer people listed as seeking employment because they have given up looking for a job and are no longer unemployed!  That makes sense doesn't it? 

 

As you read the news and it seems to contradict what you are observing with your own eyes in your day to day life,  ask yourself "What am I missing?"  Check your premises! 

 

Waiting for the other boot to drop!

 

Italy Quote
 
I started warning about this issue in August.  It's part of the Grand Illusion.  While all eyes have been on Greece, this is the one we should really be concerned about.  Why?  Because Greece is a $312 Billion a year economy and Italy is a $2 Trillion a year economy.  That's right, the 8th largest economy in the world is teetering on the brink!   

 

What does it mean for your money?  Stay tuned! 

 

ECONOMIC CALENDAR:
Monday - Consumer Credit
Tuesday - Redbook
Wednesday - Wholesale Trade, Ben Bernanke Speaks at 9:30AM Eastern
Thursday - International Trade, Jobless Claims, Import and Export Prices, Treasury Budget
Friday - Consumer Sentiment


 
Performance


11_07_2011_Chart

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

Headlines


U.S. stocks stayed under pressure with all major U.S. indexes falling about 2% for the week. Investors remained wary over whether Greece could default on its debt and what that might mean for the global financial system.[4]

European leaders are hoping China will be a major contributor to a $1.4-trillion bailout fund, but many in the Asian nation are uncomfortable with that prospect. They don't think China should shift its foreign trove of U.S. Treasury bonds and debts of other nations to fund the financial recovery of Greece and some of its troubled Eurozone neighbors, analysts say. One reason: Europeans are still better off than Chinese.[5]

A new national poll shows neither Wall Street nor Occupy Wall Street conjuring up strong favorable impressions among the American public. Among 1,005 adults surveyed, 35% had a favorable impression of the protest movement that began in New York City and gained support worldwide. Only 16% could say the same for Wall Street and large corporations. 29% had a favorable impression of the tea party movement and 21% for government in Washington.[6]



Quote of the Week
"Happiness depends more on how life strikes you than on what happens."
- Andy Rooney
Healthy Lifestyle

Lean Back

 

Parking your torso at a 90-degree angle strains your spine, say medical researchers. Instead, give your chair the La-Z-Boy treatment and recline the seat back slightly. The ideal angle is 45 degrees off vertical.

 

Green Living

Try Recycling

You've heard this a million times before, but it's still important. The habit to develop is to have separate containers for each type of recyclable good, and simply separate them at the point of disposal instead of tossing them in the trash. It's really not that hard once you get used to it.
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[1]  http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm 
[2]  http://www.bls.gov/news.release/empsit.nr0.htm 
[3]  http://www.reuters.com/article/2011/11/03/us-usa-retail-idUSTRE7A22SH20111103?feedType=RSS&feedName=businessNews 
[4]  http://money.cnn.com/2011/11/04/markets/markets_newyork/index.htm?iid=HP_River 
[5]  http://www.latimes.com/business/la-fi-china-europe-20111107,0,6859361.story 
[6]  http://www.google.com/hostednews/ap/article/ALeqM5hgjRY9MbAiLjPJMVMIw-3WhrAmqQ?docId=c93c6b28fc0d4770b15b6540410f43f4  

Phil Reames
Reames Financial
1856 Skyler Dr.
Kalamazoo, MI 49008
269-349-3966