Unemployment Numbers Are Badder Than Bad

I took a look at the Unemployment Numbers released today and they are staggering!

http://www.bls.gov/news.release/pdf/metro.pdf

California
The unemployment rate is now 11.5% - That is not a misprint
That is measuring just the ones who are still bothering to look for work. There are a lot of others who aren’t working and have thrown in the towel on the whole job search thing (shadowstats.com estimates that the Government data is 5 to 7% below reality, thus making a real unemployment rate for California of 16% – 18%).

Here are some of the numbers released today for county and city unemployment rates –

Los Angeles – Glendale – Long Beach 11.3%
Oakland – Fremont – Hayward 10.2%
Bakersfield 15.9%
Fresno 17%
Merced 20.4%
Stockton 16.4%

Other notables –

Yuma, AZ 15.3%
Indiana 10.6%
Kentucky 10.3%
Michigan 13.4%
Detroit, MI 14.9%
Flint, MI 15.3%
Nevada 10.5%
Ocean City, NJ 15.0%
North Carolina 10.9%
Charlotte, NC 11.4%
Ohio 10.1%
Oregon 12.9%
Bend, OR 17%
Providence, RI 11.4%
South Carolina 11.2%
Longview, WA 14.8%
Puerto Rico 14.7%

Holy cow! That’s like Depression Era data…

There are clearly some major tectonic shifts coming for our economy. . We have off-shored manufacturing, engineering and resource production. Companies, executives and banks have gotten rich, but there is effectively no middle class left. We are not using the natural resources we have as a country to employee people. We’d rather be green and on entitlements than slightly dusty and gainfully employed…

Obama was elected by a generation of young adults who see their future as working at Wal-Mart and sleeping on their parents’ couch. We are now also faced with a growing number of retirees who are faced with the prospects of gutted pensions, 401k accounts that have been cut in half and massive tax increases on both incomes and sales. Their kids should start making up the couches for Mom and Dad to crash on…

But hey, the stock market is up for 6 weeks and all it cost us was $3 trillion in new government guarantees to the crooks who gutted the country and got 10% of its citizens idled. I consider unemployed people to be excess labor capacity.

Take a look at the Capacity Utilization Rate at Factories. It is at an all time low –

The Fed’s answer to solve the imploding economy is to try and put Humpty Dumpty back together again and rev up the Securitization market - via massive, government-sponsored leverage. How’d that work after the 2003-2007 securitization bubble popped? Great for a few years, but the underlying problems were only masked and not fixed. We are now in a whole lot worse shape than if we had fixed things in 2001.

Excess cash reserves held at banks have gone vertical. This is supposed to put the banks in a position to lend more money –

But banks are not lending money, so all these excess reserves do is sit on the books of the Fed and earn the banks a 0.25% interest rate. This is how the Fed is trying to “recapitalize” the banking system.

The real driver for the economy is when people borrow these excess reserves and then buy stuff. A dollar is borrowed and buys a good. The vendor then takes that dollar and buys new inventory. The next guy also uses the dollar and so on… The number of times that dollar is used becomes what is call the “Velocity of Money” – the more active in the economy, the higher the Velocity of Money.

The Velocity is falling as people have maxed out their credit, run out of home equity and lost their jobs. So the actions of the Fed to pump several trillion in new money into the system has failed in that sense.
But maybe the actions of the Fed were never designed to increase economic activity over the short run. Maybe they were simply designed to make money cheap (thus driving inflation) and buy stuff off the books of the banks, real estate firms and insurance companies.

Judging from the fact that so many companies (and executives) are selling shares into this rally, it is clear that Financial and Materials companies are simply building up cash reserves to buy themselves time – the time it takes for the economy to truly heal and finally recover.

I’m always trying to figure out how to make money on this information and the Capacity Utilization chart reminds me of the vicious trading range in stocks from 1966 -1982. When I compared the Capacity utilization chart with the S&P 500, I see these crashes in utilization are followed by strong stock market rallies. Actually, the market tends to bottom before Capacity Utilization picks up again.

The big picture is that the economy will have to go through a multi-year period of consumption adjustment. That will lead to a diminished need for production. Plants will close and over time, the economy will set a new equilibrium for consumption financed by savings and not credit.

It will take time – a lot more time if so many are unemployed. Assets within the economy will have to be reallocated. That is why I am so incensed with all the money going to bail out the banks. America has a finite amount of investment capital and a finite capacity to borrow. Under Paulson and Geithner, we have squandered trillions of that capital and will not only have less to finance the new round of investments, but will also be burdened with all the interest payments on that new debt.

Obama hallucinates that building a “green power grid” is the answer. It is an expensive answer we may not be able to finance. The real answer will lay in the natural resources currently possessed by America – coal, wind, water, timber. I hope these clowns don’t bankrupt us before they figure it out.

With 10% of America unemployed and $100 billion in new debt generated each month, they will soon run out of time.