Why You Can't Trust U.S. Weekly Jobless Claims

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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The market was ecstatic with the November 25th U.S. weekly jobless claims figures. According to the report the number of Americans filing for unemployment fell 35,000 from the week before, dropping to 466,000. Bullish headlines such as "Jobless Claims Plummet to 14-Month Lows" were all over the web. Commentators immediately started gushing about unemployment turning around and job gains being just around the corner. Stock futures perked up, the U.S. dollar continued a sell off already well underway, and gold which had been rallying strongly turned down on the news.

As for myself, I stopped paying attention about 15 years ago to the weekly jobs claim number the week of the release. Why? At that time, there was also an unexpected major drop in the claims figures. The markets went crazy on the news. One week later, the number was revised sharply upward with a statement from the BLS (Bureau of Labor Statistics) that one state had not gotten their figures to the department a week earlier so they hadn't been included in the totals. While the BLS knew this at the time, it did not inform the public of this important inaccuracy. The error was quite substantial as well, since the state that didn't report was obviously California. It should also be noted that the November 25th report was released on a Wednesday, one day earlier than usual, because of the Thanksgiving holiday on Thursday. It is quite possible not all the state data came in early enough to be included.

At the same time the weekly jobless claims were released, the monthly Durable Goods and Personal Spending reports also came out. Durable goods declined 0.6% for October indicating a weakening economy. A drop in defense spending was blamed (just another form of government spending propping up the U.S. economy). However, orders for cars, machinery (needed for factories), computers and communication equipment (both needed for offices) also fell. Personal spending was up 0.7% in October. This is hard to believe considering U.S. consumer credit has had a major drop in the last year and the over 10% unemployment rate has negatively impacted consumer income. Where is the money coming from for the increases in spending?

The most significant market action on the release of all this data was the falling U.S. dollar. The trade-weighted dollar cut through the recently established 75.00 support level and traded as low as 74.40 in early morning New York trading. There is a strong band of support between 72.00 and 74.00. Expect a bounce off the top of that band initially, with an eventual test of the 2008 low around 71.50. While the dollar hit another yearly low, spot gold hit another new all-time high, trading up to $1183.80. Expect to see more of the same in the future.

Disclosure: Long gold, no dollar positions. Long time critic of the BLS.

NEXT: Desert Bubble Bursts, Blows Sand in Market's Face

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Commodities, the Dollar and More Government Fantasy

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The Natural Gas storage report was released yesterday morning and storage was up 54 BCFs versus expectations of a rise of 51 BCFs. Within a few minutes the near term futures contract dropped at least to $2.705 (it may have gone lower). The about to expire contract closed at $2.843 down 6.7 cents from the previous day. The oil storage report was mixed on Wednesday and Nymex oil dropped below $70 a barrel subsequently, but has poked above $73 this morning. The oil/natural gas price ratio has gotten as high as 26 (if they were completely interchangeable, the ratio would be 6, it has averaged 8+ over the long term), well above the last peak of 22 in 1990. Oil is about to enter its seasonally weak period and natural gas its seasonally strong period. Regression to the mean should start taking place this fall.

The calendar should be creating a bullish environment for gold and silver as well. They tend to be strong between August and February. Gold was trading around $960 this morning on Comex and silver around $14.75. Gold has been hoovering just under the key breakout level of $1000 for some time now. Watch it closely. Once this breakout takes place, the short term target price is somewhere between $1200 and $1300.

Gold historically trades counter to the U.S. dollar, but they can become decoupled. In a global inflationary environment, decoupling will eventually occur. For the moment, the U.S. dollar is weak . For the last 6 days, the dollar has traded at least part of the day below its key breakdown level of 78.33. This is the second time so far that the dollar has stayed below this level for several days. When the stock market rallies, the dollar has been selling off and this has been going on since last March (it's not a normal pattern). If stocks rally further, it should kill the dollar. The dollar may tank regardless since the technical picture is weak. The powers that be will want to save it however. So we will have to wait to see what happens.

The stock rally has been explained as taking place because the U.S. economy is recovering. At least in some cases, valuations are as ridiculous as they were at the top of the tech bubble in 2000. Take a look at the Dow's PE for instance. This morning, the government released more 'good news' that seems to fall into the 'that can't possibly happen' category. Personal spending was up 0.2% last month, but incomes were unchanged. Even though incomes were unchanged, total wage income went up (during a time of increasing unemployment). Spending has supposedly been rising for the last three months, well ahead of income, even though the savings rate is 4.2%. Separate reports indicate that available consumer credit has been cut drastically. So even though U.S. consumers don't have the income and don't have access to credit, they are somehow spending more. I really think the U.S. government should release its statistical reports on stationary that has pictures of pigs flying in the background. That way the public would know how much credibility the numbers have.

NEXT: A Break in the Bull and China Stops Shopping

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.