• 2012/4/27

We Need J-O-B’s, Not Big-Breasted Baboons

26th April 2012

Macro Overview

You Gotta Have A J-O-B

Bill-collectors at my door, what can you do for me?

  • That’s the opening line of Gwen Guthrie’s 80’s classic. I wonder what would happen if this single was released today?
  • The reality is; no matter which economy you look at, no matter which government you follow, jobs rule the day. Here’s the problem; when the largest consumers on the planet are experiencing a huge consumption recession there’s simply too much capacity – not enough “stuff” being made to feed all those jobs needed for full employment. Monetary policy is rather limited in this respect.
  • China has enjoyed the unique position as Europe’s assembly plant with a massive labour arbitrage gap which does not show signs of closing soon (for those who think that the urbanization rate in China will fall off any time soon, think again – there are still many poor people in China willing to work for as little as a couple of dollars a day). But, that said, China faces many other problems, including social unrest, inflation (the worrying kind – with a positive wage-inflation feedback loop), poor capital allocation (e.g. looming mountain of NPLs) and, ironically, technology.
  • The Economist writes a good article, The End of Cheap China, on how the Chinese workers of the arbitrage gap could be re-arbitraged themselves by things like “3D Printing” and Western technological advancement:

This issue takes a look at how manufacturing is evolving. For the past few decades politicians in the rich world have lamented the decline of manufacturing. But additive manufacturing, sometimes known as 3D printing, looks set to bring manufacturing back to the rich world (albeit without the jobs that were once associated with the sector). Meanwhile, wage rises may threaten the status of China as the pre-eminent manufacturing power, unless its factories can move into higher-margin businesses.

A Big-Breasted Baboon?

  • Back in The West, the jobs outlook is no clearer. In fact it looks down-right depressing. The US actually has one of the more dynamic and healthy jobs markets of the main Western economies but even this looks disheveled these days. Today we saw that weekly jobless claims missed the mark for 10 weeks in a row, this being the third week the number has been above 380k.
  • Even Jim O’Neill is getting a little worried, and when he’s worrying about US prospects we all should be! As I wrote in an article a week ago:

It’s Life Jim – But Not As We Know It

  • Yikes! If the raving bull and Euro-nonchalant Jim O’Neill is getting the jitters then may be we all should! Remember this is the guy who told us he couldn’t understand what all the fuss was about with Greece. Who cares? He said, and I quoted in a comment 3 months ago, dismissing talk ofGreece’s importance, afterall:

China creates the equivalent of another new Greek economy every 4 months, so you could write off Greece completely and within 4 months China has created another one…”

  • Anyway, this is what he said recently about Europe, according to Business Insider:

I find myself wavering a little about the US recovery story. While for now, I’m happy to stick with our above consensus 2.5 pct real GDP forecast for 2012, and I buy into the housing sector recovery and shale gas themes, as I have frequently argued, weekly job claims are not to be ignored. While hoping last week’s would decline again, thereby rendering the March payroll disappointment as “susceptible,” in fact, it rose to 380,000, providing support to those who argue the apparent economic strength of the Winter was artificially helped by the weather.”

  • Mauldin’s piece at the beginning of the month sheds some cold analytical shadows over the jobs numbers. Which just serves to the depressing little thought in the back of all our minds that 2012’s buoyant jobs data may not be due to anything more than: the weather, statistical seasonal adjustments and a falling participation rate (i.e. the fact that people have simply given up looking for jobs). If that is the case, these so-called fantastic jobs numbers are just the metaphorical lipstick on the metaphorical pig or perhaps something even more ridiculous: breast-implants on a baboon?
  • Here’s some choice quotes from Mauldin’s piece, It’s all about jobs:

There is reason to believe that today’s lower number was partially due to the weather being so good in the earlier part of the year, so that what is usually seasonal employment started earlier than is typical; so it might be better to average the last two months, which is still disappointing in that it barely stays ahead of population growth. At this rate it will be another three years before we get back to new employment highs, and that does not factor in any population growth. And it also assumes there is no recession in the meantime. Given that the US must start at some point to get its budget balanced, there is little hope that more government spending (aka stimulus) is on the way.

First, the unemployment rate fell by 0.1%, to 8.2%. But we see that the number of people who are actually employed dropped by 31,000, so how can the unemployment rate fall? Because the number of people looking for a job dropped by 164,000. If you aren’t looking for a job, you are not considered unemployed. Thus the participation rate, or the number of adults either working or looking for work, dropped by 0.1% to 63.8%.

Gallup makes the following comments at the end of its release this week

“If Bernanke is right, then the rapid decline in the unemployment rate might be approaching its end as individual businesses achieve a right-sizing of their workforces. Further, traditional economics also suggest that many people who have been sitting on the sidelines waiting for the economy to improve might decide that now is the time to seek a job, increasing the baseline figure used to calculate unemployment. In turn, this could keep the unemployment rate from decreasing or even send it higher, negatively affecting economic confidence and the overall economy – not good news for political incumbents, including the president.”

Market Overview

Portuguese Quietly Improving

  • It’s easy to get caught up in negative or bearish commentary writing a blog like this so I try to focus on a couple of positive things every day to keep balance with the markets. Not everything is getting worse.
  • Take Portugal, for example. Not long ago it was supposed to be heading the same way as Greece. But the Portuguese knuckled down to some measures of austerity and the market seems to appreciate it. Only a few days ago the NY Times wrote an article: Portugal’s Finance Minister: We Tried Stimulus and It Didn’t Work.
  • Portugal’s economy is far from healed but the market sees an improvement somewhere – just check out my Chart of the Day: Portugal5 year CDS.

2012 Q1 GDP

  • It’s out tomorrow. Expectations are at 2.5% but I think the market is a little nervous over this recent jobs data. +0.2% over target and the market will not rally by as much as it’ll fall if we miss by 0.2%.

Chart of the Day


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