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When is bad news finally going to be bad news?

 -- Published: Wednesday, 8 April 2015 | Print  | Disqus 


Not yet apparently. The US jobs report release on April 3, 2015 was certainly bad news…the Establishment Survey reported 126,000 net new jobs created in March compared to a consensus expectation of 244,000. The stock market was closed that day, but on Monday, US stocks were higher across the board. Once again, the likelihood that the poor job numbers would slow down the Fed’s announced plan to raise interest rates was considered more important than evidence of a slowing economy.

The news carried over to the gold market, which had a Sunday night surge on the jobs report, but as equities went green on Monday morning, gold faltered, losing half of its gains.

Two things were therefore made clear (again). Gold needs a more serious downturn in financial assets to make any real progress. And the financial markets are not yet connecting the dots. Poor economic performance, to us, clearly means that Fed easing including QE did not help the real economy, US economic growth is slowing down (not accelerating), the Fed cannot normalize interest rate policy and therefore, the Emperor has no clothes, ie the Fed has no credibility. That change in market psychology remains the key to a much higher gold price.

So, when does bad news become bad news? We think we’re almost there. The poor March jobs report was blamed on the weather. March weather was better than January and February but the jobs numbers for these months were fine. This unbelievably lame excuse tells you that the well is running dry. A couple more monthly numbers like the last one is all it will take to connect the dots, in our view. And the likelihood of more bad numbers is high. How do we know?

The jobs report is a lagging indicator. It takes several months for a company to decide to hire, set the criteria, advertise, interview, hire and start work. March numbers reflect the slowing economic data, including the much weaker GDP, reported in the fourth quarter of last year. Since then, the economic data has weakened further. There is no reason to think that the jobs data will suddenly revert to January levels because the January report was generated by the stronger economic data in last year’s third quarter and that data is no longer influencing hiring.

The weakness in the US labor market is wonderfully illustrated by Jeffrey Snider’s graph above (April 6,

The red line along the bottom is the number of full time jobs. The government data shows there are 851,000 fewer of them in March, 2015 than in November, 2007, the peak before the last recession. There is clearly no labor market recovery as the Fed claims.

The blue line reflects the official size of the labor force, which has barely risen since 2007 while the green line is the civilian population of working age, which is growing rapidly, much faster than the labor force. The disparity is shocking, pointing to a loss of 17 million workers worth of labor potential.  As Snider points out, “this is the crux of the ‘participation problem’ which has very little to do with an aging population as is so often asserted (older workers are clearly remaining workers in historical proportions rather than retiring).”

In short, we think that the nasty March jobs report is likely to be repeated. And markets will finally start to connect the dots.


Jim Anthony

Jim Anthony is a private investor who trades for his own accounts. He co-founded Seabridge Gold and has helped to finance and advise a number of junior gold producers and exploration companies over the past 30 years. His gold market commentaries have been published by Seabridge since 2000. Originally a student of economics, Mr. Anthony has become a disciple of markets: "The tape can tell you much more than any economic model." He is not a registered investment advisor and his opinions expressed above are not intended as investment advice.

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 -- Published: Wednesday, 8 April 2015 | E-Mail  | Print  | Source:

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