Chubble (the Chinese Bubble), Unemployed/Deleveraging Shopaholics Pushing Retail Stocks, etc.

By: Reggie Middleton | Thu, Apr 15, 2010
Print Email

Here is another smattering of news from the weekend past, as well as our take on it and a decent dose of realistic analysis to cast a light on the real issues at hand...

Beijing Reports a Trade Deficit: BusinessWeek

And speaking of Beijing,,, China's Economic Growth Accelerates to 11.9%, May Prompt End of Yuan Peg - The Overheating has arrived???

Double, Bubble, Toil and Troube! You guys know my opinion on this - Bubblicious, all the way! See:

  1. Can China Control the "Side-Effects" of its Stimulus-Led Growth? Let's Look at the Facts
  2. What Are the Odds That China Will Follow 1920's US and 1980's Japan?
  3. Some Light Shown on My Developing China Thesis
  4. It Doesn't Take a Genius to Figure Out How This Will End
  5. Signs of a China Credit and Real Asset Bubble Are Now Unmistakable!
  6. China's Most Expensive Export: Price Inflation
  7. He Who Bloweth the Bubble With Wet Lips Should Stand Back Lest Spittle and Saliva Spray Upon Ye Face

This Chanos interview helps bring my perspective into focus: http://www.charlierose.com/view/interview/10960#

Trichet Interviews with Italian Press II Sole 24: ECB

Oil oversupply & under demand: Wall Street Journal

Consumers Deleverage: Reuters

...The Bureau of Labor Statistics reported the total number of unemployed at 15.6 million and the unemployment rate at 10% in Dec 2010. With serious doubts being raised about the reported figures of the insured unemployed that forms a substantial portion of total unemployed (nearly 69% in Dec 2010, based on reported figures), the total unemployment figures reported by the government is most likely severely understated.

Total Insured Unemployed, Total Unemployment Insurance Benefits Paid

The grave unemployment situation not only undermines the economic health and recovery hopes, but is also acting as a major source of financial strain on the Fed's books. The Fed has been spending huge amounts of money in the form of UI (unemployment insurance) benefits. In 2009, the government paid about $139 billion in UI benefits. Based on the figures for total unemployed by Bureau of Labor statistics and total insured unemployed by DOL, the total insured unemployed which are being supported by the government under the various state and federal programs have risen to 69.0% of the total unemployed as of Dec 2009 from just 29.0% in Sep 2007. Further it is observed that the Fed has been taking in huge deficits on its books because of UI programs. The total UI withdrawals on Fed books in 2009 were $139 billion against deposits of just $31 billion received from states for unemployment. While the withdrawals in 2009 have increased by 320% when compared with withdrawals in 2007, the deposits have declined by 6.6%. The deficit has increased to nearly $107 billion from nearly no deficit, two years ago.

Total Insured Unemployed as a Percent of Total Unemployed

TTM Unemployment Insurance Withdrawals, TTM Deposits from States for UI

The increased pressure on the Fed books can be largely explained when we look into UI programs that are currently being administered by the government. There are two major UI programs - Regular state programs and Emergency Unemployment Compensation (EUC). While the former has to be funded through tax collection by the state (with any deficit financed by the Fed through loans), the latter is 100% funded by the Fed. EUC is a Federal, temporary extension of unemployment compensation for unemployed individuals who have already collected all regular state benefits for which they were eligible. The program was started in June 2008 and was due to expire in December, 2009. The claims under the program have risen at a phenomenal rate and now accounts for nearly 50% of the total insured unemployed claims. Thus, the Fed has been financing the extension of UI benefits of those which are no longer covered under the regular state programs. As per the last reported figures as of Dec 19, 2009, while the claims under the regular state programs have come down due to the expiration of claims, the same was more than offset by the massive jump in insured unemployed under the federal EUC program. The claims under the regular state programs were down 4.3% (y-o-y) while the claims under EUC were up nearly 200% which led to a nearly 51% increase in total insured unemployed. Insured unemployed are not able to get jobs and with claims expiring under the regular state programs, they are increasingly applying to the Federal's EUC program for extended benefits.

Total Insured Unemployed

Looking at the initial job claims under the regular state programs, while the markets rejoiced the decline in seasonally adjusted figure, the non-seasonally adjusted figures (which are the actual claims) continue to inch up. For the week ended Jan 02, 2010, the initial jobless claims (NSA) increased 88,000 (w-o-w) to reach 645,571. Looking at the two year trend of the seasonal adjustment does call into question the validity and accuracy of the adjustments, no?

Initial Jobless Claims

With the total number of insured unemployed (under the state and federal programs combined) continuing to increase as well as no respite coming from the initial jobless claims (looking at the real figures which are not seasonally adjusted), the unemployment situation is far from improving. Further, with serious questions being raised about the validity of the reported number of insured unemployed, the gravity of the situation is definitely underrated. The Fed is pumping in enormous sums of money to underpin the problem - an amount that may rival the TARP. However, with claims expiring under the regular UI state programs and the temporary aid provided by EUC expected to taper in the coming months, unemployment is going to increasingly weigh on aggregate demand and further delay the economic recovery.

 


 

Reggie Middleton

Author: Reggie Middleton

Reggie Middleton
Veritaseum

Reggie Middleton

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

Copyright © 2007-2016 Reggie Middleton

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com