Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
February 5, 2012
Issue 185  -  SNAFU
I have a lot of stories that highlight just how screwed up things are in spite of the rosy proclamation of the adminstration and talking heads on CNN.  The biggest "positive" recently, is the unemployment rate, but just how good was that "drop" in the unemployment rate: (GATA)
The Government's Bureau of Labor Statistics (BLS - take the "L" out of "BLS" and you get "BS") released its version of this country's employment situation last Friday for the month of January. The reported number was a massive and unexpected increase in employment, with the BLS making the claim that 243,000 thousand people found jobs in January and the unemployment rate dropped to 8.3%.

However - there's that "notwithstanding" conditional term again, as in "these numbers notwithstanding the truth" - a close look beneath the reported and appallingly cheered headlines reveals a very ugly truth about the quality and reliability - or lack thereof - of Government statistical reporting - especially in a Presidential election year. My friend "Jesse" provides an excellent description of data manipulation that occurred in order to produce this latest "jobs" report:

Back in Stalinist Russia, they had whole departments of people that were responsible for rewriting history and documents in order to support the latest Party lines. When a particular person fell out of favor, for example, they not only altered the documents, but even went so far as to air brush them out of important historical photographs. Today the US reported a remarkably high Non-Farm Payrolls number, well in excess of even the most optimistic estimates. 243,000 jobs added, and unemployment has dropped to only 8.3 percent. Isn't that good news indeed. If one tracks the data closely, and keeps their own copies of the records, what we see instead are revisions, sometimes going back as far as ten years, that most greatly affect the 'seasonally adjusted' numbers, but also affect the raw numbers as well. The Obama Administration, as well as the previous Administration, have been going back and tinkering with history, rewriting the numbers here and there, in most cases 'rolling jobs forward' to the current months to make the current headlines look better. LINK

The real laugh comes when you look at the full BLS report and see that two sets of data: the seasonally adjusted report that gets reported by the media and promoted by Wall Street and the not seasonally adjusted actual amount of jobs outstanding. The Soviet-style manipulated seasonally adjusted number to which everyone is doing the Soul Train boogie shows 243,00 new jobs in January and 446,000 jobs over the last two months. Compare this to the actual number of jobs, not seasonally adjusted, which shows a massive reduction of 2.9 million jobs over the last two months - 200k in December and 2.7 million in January.

Now consider that there isn't anyone outside of the BLS statisticians that knows how the seasonal adjustments are calculated. I guarantee that the massive historical revisions discussed by "Jesse" in the link above were part of the formula. One reality check against the jobs report is to look at actual income tax collections for January 2012 were $308 million lower than for January 2011. That certainly is not consistent with the idea that the economy added 243,000 wage paying, tax producing jobs

Yes, you read that right, without any adjustments, there was a loss of 2.9 million jobs over the last two months!  Now some of these adjustments make sense, but their real purpose is to confuse and hide the truth.  How in the world can an adjustment make what appears to be an absolutely horrible report turn out great?  How many jobs were REALLY lost?  As the article says, there are adjustments made to these numbers which sometimes go back 10 years!  That's quite interesting no?  I can say whatever I want today and just clean it up in 5 years.  Nice work if you can get it.   Found this funny take on the old "Who's on First," routine:

Abbott and Costello
or is it Reid and Pelosi?

COSTELLO: I want to talk about the unemployment rate in America.
ABBOTT: Good Subject. Terrible times. It's 9%.

COSTELLO: That many people are out of work?
ABBOTT: No, that's 16%.

COSTELLO: You just said 9%.
ABBOTT: 9% Unemployed.

COSTELLO: Right 9% out of work.
ABBOTT: No, that's 16%.

COSTELLO: Okay, so it's 16% unemployed.
ABBOTT: No, that's 9%...

COSTELLO: Wait a minute. Is it 9% or 16%?
ABBOTT: 9% are unemployed. 16% are out of work.

COSTELLO: IF you are out of work you are unemployed.
ABBOTT: No, you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.

ABBOTT: No, you miss my point.

COSTELLO: What point?
ABBOTT: Someone who doesn't look for work, can't be counted with those who look for work. It wouldn't be fair.

COSTELLO: To whom?
ABBOTT: The unemployed.

COSTELLO: But they are ALL out of work.
ABBOTT: No, the unemployed are actively looking for work. Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.

COSTELLO: So if you're off the unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down. Absolutely!

COSTELLO: The unemployment just goes down because you don't look for work?
ABBOTT: Absolutely it goes down. That's how you get to 9%. Otherwise it would be 16%. You don't want to read about 16% unemployment do ya?

COSTELLO: That would be frightening.
ABBOTT: Absolutely.

COSTELLO: Wait, I got a question for you. That means they're two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.

COSTELLO: Unemployment can go down if someone gets a job?
ABBOTT: Correct.

COSTELLO: And unemployment can also go down if you stop looking for a job?
ABBOTT: Bingo.

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.
ABBOTT: Now you're thinking like an economist.

COSTELLO: I don't even know what the hell I just said!!

And now you know why Obama's unemployment figures are improving! -END-

That pretty much sums up why the government numbers are not to be trusted.  Once "adjustments" make their way into the mix, there is too much temptation to make things look better.  It's like having a big plate of brownies in front of you while on a diet, sooner or later you will succumb to your survival instincts.  Once started, these adjustments take on a life of their own.  That's where we stand today with no direct correlation to reality. 
Speaking of unreal, how about negative interest rates on Treasuries:
Rates now negative on inflation-protected and regular Treasuries

Submitted by cpowell on 08:24PM ET Thursday, January 19, 2012. Section:

Daily Dispatches

Investors Seek Safety of U.S. Treasuries

By Michael Mackenzie
Financial Times, London
Thursday, January 19, 2012

Investors bought inflation-protected Treasury securities at a negative interest rate for the first time on Thursday, demonstrating the depth of concerns that Federal Reserve efforts to stimulate the economy could lead to higher inflation in the future.

The $15 billion in Treasury inflation protected securities, or Tips, were sold at a negative yield of about 0.046 per cent. Investors could still make money on their holdings because the principal of such securities increases if inflation rises…

This is part of the plan to make saving money a thing of the past.  Make it SO unattractive that the money must be placed into other asset classes like stocks.  This helps keep the plates spinning a littel longer...
This is not just some short term oddity, this is soon to be POLICY, and could be the norm soon:

Issuance of Negative Yield (Treasury) Bills

Bill...I have attached an article you may find of interest. The Treasury Borrowing Advisory Committee "

broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function. The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical."

The committe based its opinion on allowing the market to function "properly". I find this argument to be somewhat troubling as the Federal Reserve has seen to it that the Treasury market not function properly at every point along the yield curve. By monetising(buying) intermediate to long term Treasuries the Fed has pushed rates down, making intermediate/long term Treasuries unattractive and forced money into the short term Treasury bill market. I find the committee's advise to be disingenuous which suggests an agenda more in line with its members self interest. JP Morgan and Goldman Sachs can not make money if everyone's money is parked in Treasury bills.

Obviously negative yield Treasuries would be an attempt to force people out of short term Treasuries into higher spread, higher risk longer term debt or equity instruments and/or to spend dollars that would stimulate the economy in support of the current administration in an election year. As the market grasps the prospect of negative yield auctions money is likely to migrate into equities and other alternative investments ahead of the actual event. The corporate world has trillions in short term Treasuries for working capital and liquidity purposes in addition to trillions stashed away in money market funds by the public and foreign central banks. With the roadmap of paper money becoming a liability rather than a store of value, the only real money(that can't be printed and has been an effective store of value for more than five thousand years) is likely to become a primary beneficiary. Market psychology can turn on a dime. So don't be surprised if we find ourselves engulfed in a panic move into gold sometime this year as word of this story filters into mainstream media.

Again, the powers that be must keep the populace spending and "investing" in riskier assets.  This helps the economy (in the short term) and Wall Street (there is no commissions in Treasuries).  In a logical world, interest rates would be rising to attract investors to these lousy investments.  However, the Fed is buying over 90% of the Treasuries and this is keeping the rates low.  Of course the real economic reality is slightly different, how about negative SHIPPING rates....

Shipping Rates Go... Negative

Following the endless collapse in the Baltic Dry, it was only a matter of time before the shipping industry one-upped the Chairsatan, and was the first to introduce, dum dum dum, negative rates. That's right: you are now paid to hire a ship. Via Bloomberg:


Why is this happening? Perhaps because ships have to be kept seaworthy and in motion or else they become scrappage in as little time as 3 months. Think sharks. Needless to say, this will play havoc with shipping company (and affiliated entities') liquidity, as the biggest default wave in the history of the industry is about to be unleashed and tens if not hundreds of billions of European secured loans are about to be "impaired."

Ships not moving can become troublesome, so this makes a little sense.  But, what does this say about the big recovery that is taking shape?  There is virtually no recovery, that's what it says.  There is no recovery because people are broke and relying more and more on the government to supplement their incomes.  This leads to the inevitable increases in spending and ........debt....
Congressional Budget Office reports another $1 trillion deficit

The government faces a fourth year of trillion-plus deficits in 2012, according to new projections released Tuesday—numbers which also show little relief in the future unless Washington comes to grips with needed changes in its tax and spending policies.

Like Aunt Cassandra coming down from the attic, the

Congressional Budget Office steps square into the 2012 campaign season with the 147-page report which might have been subtitled "It’s not just the economy stupid, it’s also the debt."

The $1.079 trillion deficit now projected for this fiscal year ending Sept. 30 is actually worse than what CBO had

predicted in August. And to punch home its message, the non-partisan agency outlines an especially grim scenario in which Congress not only extends all the current tax cuts but pulls the plug on the $1.2 trillion in sequester set in motion by the Budget Control Act last summer.

Under this scenario—which can’t be ruled out politically—deficits would stubbornly hover just under $1 trillion through 2017 adding another $4.7 trillion altogether to the mounting federal debt.

Under the more prudent—and many would say unrealistic scenario of ending tax breaks and implementing cuts—the cumulative deficits would be $1.72 trillion or $3 trillion less from 2013-2017. But even this path comes with a warning from CBO: that debt service costs are already on the rise and will command a ever greater share of the annual budget.

"The federal budget remains out of balance throughout the decade," the report reads. "The resulting accumulation of debt, along with rising interest rates, drives up the cost of financing that debt; in CBO’s projections, net interest costs grow significantly from 1.4 percent of GDP this year to 2.5 percent in 2022."

A trillion here, a trillion there, pretty soon you're talking about real money.  Trillion is now a word which is glossed over in the media.  Trillion is now passe, and not  to be concerned about.  There is no need to worry about this gigantic debt.  Everything is going to be ok, just believe the leaders.  Hmmmm.....what????...
California May Run Out of Cash in March, Sacramento Bee Says

2012-01-31 19:41:27.144 GMT

Jan. 31 (Bloomberg) -- California may run out of cash in March if the state doesn’t find $3.3 billion through borrowing or payment delays, the Sacramento Bee reported, citing a letter sent to lawmakers today by Controller John Chiang.

Lawmakers anticipated the state having enough cash to last through June, the newspaper said. Chiang said state spending exceeded Governor Jerry Brown’s budget estimates by $2.6 billion and tax revenues are $2.6 billion less than anticipated, the newspaper said, citing the letter.

Yes, that's the fly in the ointment, isn't it.  States don't/can't print money so they will hit the tough times harder.  Who cares, it's only the states....oh, that's right, we ALL live in states so this could get messy.  Some states are doing fine, especially those with a balanced budget law.  But rest assured, when everything hits the fan there will be no state spared the effects.  As we lurch toward the inevitable, it seems that our government is taking steps to prevent anyone from finding out the truth:

FBI warns of threat from anti-government extremists

Mon, Feb 6 2012

By Patrick Temple-West

WASHINGTON (Reuters) - Anti-government extremists opposed to taxes and regulations pose a growing threat to local law enforcement officers in the United States, the FBI warned on Monday.

These extremists, sometimes known as "sovereign citizens," believe they can live outside any type of government authority, FBI agents said at a news conference.

The extremists may refuse to pay taxes, defy government environmental regulations and believe the United States went bankrupt by going off the gold standard.

Routine encounters with police can turn violent "at the drop of a hat," said Stuart McArthur, deputy assistant director in the FBI's counterterrorism division.

"We thought it was important to increase the visibility of the threat with state and local law enforcement," he said.

In May 2010, two West Memphis, Arkansas, police officers were shot and killed in an argument that developed after they pulled over a "sovereign citizen" in traffic.

Last year, an extremist in Texas opened fire on a police officer during a traffic stop. The officer was not hit.

Legal convictions of such extremists, mostly for white-collar crimes such as fraud, have increased from 10 in 2009 to 18 each in 2010 and 2011, FBI agents said.

"We are being inundated right now with requests for training from state and local law enforcement on sovereign-related matters," said Casey Carty, an FBI supervisory special agent.

FBI agents said they do not have a tally of people who consider themselves "sovereign citizens."

J.J. MacNab, a former tax and insurance expert who is an analyst covering the sovereign movement, has estimated that it has about 100,000 members.

Sovereign members often express particular outrage at tax collection, putting Internal Revenue Service employees at risk.

Now in reality, these aren't anti government individuals at all.  They are anti intrusive government.  They are anti governments that would tell you how to build your deck and which trees you could chop down, but they all know there needs to be government.  The problem for those in power is that these "nutjobs" have the constitution on their side.
The framing of these people as nuts is a diversion.  It's meant to distract you from their arguments.  Even the quotes around sovereign citizens, is a way to distract.  A sovereign citizen is in reality what the constitution set up for all of us.  We have moved so far away from that model that it can safely be labeled "kooky," by the same people who are violating the spirit of the very same constituion.  Very Orwellian and creepy on their part if you ask me.  Being a sovereign citizen is the norm!  It's what everyone should strive to be, not something that has quotes around it.  Next week I'll be writing more about this topic.
GORO (closed $26.20, up $1.81, recommended at $6)
Mexus Gold (closed $.07, flat, recommended at $.15)
AXU (closed $7.72, up $1.06, recommended at $7.90)
MBI (closed $12.18, down $.28, recommended at $10.58)
Stock Market (still out)I'll close with a video of the ultimate mismatch.  Pretty entertaining, have a great week!