Saturday, 4 June 2016

Weekend Update 04/06/2016 – USA Stalled Or Worse?

Brexit Countdown Clock.

Brexit Quote of the Day.

“No, no ,no, Dave. No, no, no!”

With apologies to Margaret Thatcher.

We open with yesterday’s big miss in the USA economy. Has the USA stalled or actually tipped back into recession? Time will tell, but this wasn’t on the Fed’s radar, only “the Donald” saw this coming. Count me in with the Donald. If America has stalled, Brexit is largely irrelevant, bad times lie ahead for the rest of 2016, in or out. If America has slid back into recession, bye bye EUSSR. Europe’s banks will detonate and take down the whole wealth and jobs destroying, shabby Bilderberger project with them. Over to “Mish,” one of America’s best financial writers to cover the beat.

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

John Kenneth Galbraith

Fed Hiking Not: Payroll Jobs +38K, Employed +26K, Labor Force -458K, Revisions -59K

June 3, 2016 9:19:25
Today’s employment report shows an increase of 38,000 jobs, well under the Bloomberg Econoday consensus estimate of 158,000 jobs and below the entire consensus range of 110,000 to 219,000.

The change in total nonfarm payroll employment for March was revised from +208,000 to +186,000, and the change for April was revised from +160,000 to +123,000. With these revisions, employment gains in March and April combined were 59,000 less than previously reported. Over the past 3 months, job gains have averaged 116,000 per month.

The household survey was worse. Employment rose a mere 26,000. That is on top of a decline last month of 316,000.

Adding insult to injury, part-time employment for economic reasons soared by 468,000.

The unemployment rate declined to 4.7% because a whopping 458,000 people dropped out of the labor force.

Let’s dive into the details in the BLS Employment Situation Summary, unofficially called the Jobs Report.
BLS Jobs Statistics at a Glance
  • Nonfarm Payroll: +36,000 – Establishment Survey
  • Employment: +26,000 – Household Survey
  • Unemployment: -484,000 – Household Survey
  • Involuntary Part-Time Work: +468,000 – Household Survey
  • Voluntary Part-Time Work: +137,000 – Household Survey
  • Baseline Unemployment Rate: -0.3 to 4.7% – Household Survey
  • U-6 unemployment: +0.0 to 9.7% – Household Survey
  • Civilian Non-institutional Population: +205,000
  • Civilian Labor Force: -458,000 – Household Survey
  • Not in Labor Force: +664,000 – Household Survey
  • Participation Rate: -0.2 at 62.6 – Household Survey
---- The official unemployment rate is 4.7%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 9.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Strength is Relative

It’s important to put the jobs numbers into proper perspective.
  1. In the household survey, if you work as little as 1 hour a week, even selling trinkets on EBay, you are considered employed.
  2. In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.
  3. In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Europe Stocks Fall as Dismal Payroll Data Stoke U.S. Growth Fear

June 3, 2016 — 8:22 AM BST Updated on June 3, 2016 — 4:54 PM BST
European shares tumbled as investors considered the implications of disappointing U.S. jobs data that cast doubt on the strength of the world’s biggest economy.

The Stoxx Europe 600 Index slid 0.9 percent to 341.29 at the close of trading, posting a weekly drop of 2.4 percent, its first in four. Shares erased earlier gains after the payroll data missed forecasts. Peripheral markets in Italy, Spain and Portugal fell the most. After slipping as much as 5.4 percent from an April 20 high, European shares had recovered momentum at the end of May as better-than-forecast U.S. data fueled optimism that the economy could cope with higher interest rates. But, progress stalled this week amid resurgent worries about global growth.

“That was very disappointing and adds a lot of uncertainty to a market that was gearing up for a summer rate hike from the Fed,” Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen, said, referring to the jobs report. “It makes people question the real strength of the labor market. Really terrible timing, as confidence was just tentatively returning to the market.”

U.S. employers added 38,000 workers in May -- the fewest in almost six years -- reflecting broad cutbacks that may raise concern about growth and prompt Federal Reserve policy makers to reconsider the trajectory of borrowing costs. Officials at the central bank will announce their next rate decision on June 15. Traders are now pricing in a 4 percent chance of an increase this month -- down from 22 percent before the jobs data -- and a 29 percent probability in July. The dollar slid the most since December.

Automakers posted the biggest decline of the 19 industry groups on the Stoxx 600 amid concern that the euro’s gain against the greenback will hurt exporters. Banks were also among the worst performers, led by lenders from peripheral nations.

Next, is the 21st century about to become the silver century? Probably is the answer in 2016. Solar power’s advance across the 21st century is going to transform many industries and alter silver metal demand for decades to come.

Silver’s cleantech appeal burnished by solar power boom

If you think about silver these days, you have to build into that thinking the metal’s growing role as a cleantech metal – and that’s mainly due to the solar industry, which stands out in a slackening global economy as one of the more exciting metal growth stories.

A few months ago the gold:silver price ratio was at 1:85, historically on the high side (it was once 1:16). Now it is 1:76. So gold is 76 times more valuable per ounce than silver yet there are only nine ounces of silver mined for every one ounce of gold pulled out of the ground. And with silver’s growing industrial uses, that production equation must at some stage begin to affect the price ratio – although few would go so far as to predict $140/oz by 2019 (compared to $16 as I write this), as one Canadian mining CEO did last week.

Keith Neumeyer of First Majestic Silver Corp, in making that prediction, did present an interesting argument: the planet is being electrified (electric cars, solar panels) and silver is the most electrically conductive material on the planet other than gold – and gold is too expensive to use in circuit boards and car batteries.

But is it solar panels that have got some investors excited about silver. Silver is a precious metal, and an industrial metal, a technology metal – and, now, a cleantech metal.

As the Washington-based Silver Institute explains, “silver is a primary ingredient in the photovoltaic cells that catch the sun’s rays and transform them into energy. Ninety per cent of crystalline silicon photovoltaic cells (the most common cell) use silver paste and close to 70 million ounces of silver are projected for use by solar energy by 2016”.

In fact, demand for silver in the solar industry reached 78 million ounces in 2015, up an astounding 23% over 2014. The solar sector off-take now represents 17% of the silver used in industrial applications, up from 2% two years ago. China installed an additional 7.1 gigawatts in solar capacity in the first quarter of 2016.

Simona Gambarini of London-based Capital Economist reckons that the strong growth in the number of solar installations in China and the U.S. should see silver demand from the sector up another 20% in 2016. This will more than compensate for the overall fall of silver use in other industrial applications that has occurred over the past three years.

The International Energy Agency estimates that global solar capacity increased by about 40 gigawatts in 2014. Over the past 10 years, global PV capacity has increased at an average annual growth rate of 51%, rising from 4.2GW in 2005 to 226GW in 2015.

China’s National Energy Administration has said that country plans to add up to 20GW of capacity a year, for five years. As Gambarini notes, the U.S. solar industry will continue to benefit from the Investment Tax Credit, a 30% tax credit for solar systems on residential and commercial installations, which has been extended to 2022. There is also the potential implementation of the Clean Power Plan.

Next more news from continuing to deflate China. China, another unintended consequence of the Great Nixonian Error of fiat money, communist money. Eventually the new “Carbon Age” of graphene and cheap efficient solar power will lead the global economy out of our current decline, but getting from here to the promised land won’t be easy, and it took Moses some 40 years in the original version, and he had God’s help, and I don’t mean Ebenezer Squid.

China’s huge cement industry latest to face massive cuts

China’s cement industry, the largest on earth, needs to rapidly dismantle large numbers of factories as part of a newly urgent effort to cut overcapacity, the country’s top administrative authority says.

China should slash 500 million tonnes of cement-making capacity in three years, an amount equivalent to more than four times total U.S. production, the State Council said in a policy document on boosting efficiency in the building materials sector.

Cement production is the third major industry to face the threat of major change in China, which began high-profile efforts earlier this year to cut back overcapacity in coal and steel. Dislocations in those industries threaten to displace millions of workers, and are among the most visible of the wrenching problems facing China as it struggles to move beyond the industrial-heavy growth that it relied upon for decades.

By the standards of any other country, 500 million tonnes of cement capacity is a staggering amount – in 2012, Canadian companies made 13 million tonnes.

But China’s cement industry boasts 3.2 billion tonnes of capacity, and a utilization rate of 67 per cent. That leaves 850 million tonnes of slack already in the system.

It’s a gap that’s been growing. Last year, production fell 5.7 per cent in the fourth quarter alone, while the construction of 31 new cement plants meant capacity actually rose slightly, according to the National Bureau of Statistics of China and the China Cement Association.

Cement makers have continued to build in hopes China’s slowing economy will resume the double-digit pace of growth that once made them rich. Hopes grew particularly strong in the first four months of this year, when debt-fuelled investment sparked a sudden property and construction rally, lifting cement output by 13 per cent, research by FitchRatings has found.

China has discussed the need to cut cement capacity since 2003.

But it hasn’t happened, in part because the country has found old patterns used to stimulate growth hard to abandon. Fixed-asset infrastructure investments climbed 21 per cent in April on a month-over-month basis, and loans to industries running at overcapacity actually rose in the first quarter, although by just 0.1 per cent, China’s Xinhua news agency reported on Monday.

China’s total debt now stands at 237 per cent of gross domestic product, and the International Monetary Fund has warned that banks hold $1.3-trillion (U.S.) in risky loans, with potential losses equivalent to 7 per cent of GDP.

We close for the weekend with commentary on Brexit from an American perspective. No it’s not President Obama (Remainiac) again ordering Brit voters to vote Remain for the good of “God’s workers” on Wall Street, nor the Donald (Leave, get out while you can,) nor Hillary (Remain, $250,000 a speech at Goldman, the envelope please,) today we open with the view of a well informed young reader from Lake Tahoe California. Jason will be contributing and commenting from time to time on a whole range of subjects on the global economy.

Relative Complacency Persists in U.K and U.S Market Despite Legitimate Chance of Brexit
N. Jason Jencka June 3, 2016 2:35 a.m. ET

On May, 31st The Guardian published results of a poll conducted jointly with ICM that showed respondents to be in favour of the U.K. exiting the E.U. by a margin of four percent, 52-48. This margin was quite consistent among those polled by telephone and online at 45%-42% and 47-44% respectively in favor of Leave. Given that these results were published near the close of the first day of trading following a bank holiday and under the assumption that Brexit is dangerous to UK markets a sharp move to the downside would have been expected in response. In actuality, the FTSE 100 opened essentially flat June 1st and closed down less than one percent. This muted reaction indicates that traders are discounting the risk of Brexit and are either unmoved by stark warnings or in denial about the current state of British public opinion. Considering that online odds-maker portal Oddschecker shows Remain with a net 15 point lead as of this writing, the “denial” theory seems particularly plausible.

Across the Atlantic, American traders showed no tangible signs of concern as the S&P 500 benchmark is up roughly two percent since news of results of the Guardian Brexit poll hit the airwaves. Remarkably, the CBOE Volatility Index has fallen roughly three percent in the days following news of the Guardian poll. The VIX presently hovers less than 25% from its all time low in 2006 and is 35% lower thus far in 2016. It appears that the steady steam of anti-Brexit rumblings emanating from such notables as U.S. president Barack Obama and Democratic Party frontrunner Hilary Clinton in recent weeks and months may have fallen on cynical ears among U.K. and U.S. investors. While the outcome of the June 23rd referendum has the makings of a real-world mystery novel, investors on both sides of the Atlantic remain content to view it as little more than a piece of realistic fiction.

Yahoo Finance & Marketwatch Historical Charts and Quotes

N. Jason Jencka is presently studying Finance and Economics at Sierra Nevada College, located near the shores of Lake Tahoe on the border of California and Nevada.His interests include the interplay between world markets and the global political sphere, with a focus on developments of both sides of the Atlantic in North America and Europe.In his leisure time he enjoys connecting with those people that have an interesting story to tell and a genuine desire to make an impact in the world.

Brexit Thought of the Week.

'You just never know. That unpredictability is the great thing about life. You change. The world changes. You live in a country where we are still blessed with enormous opportunity. Leave yourself open to the world of possibility. You have the ambition, you have the smarts and you have the toughness. So, turn the page on your biography - you have just started a new chapter in your lives.'

Lloyd Blankfein, CEO of Goldman unintentionally backs Brexit in a US speech to recent graduates.

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