Another Record High: How Job Numbers are Derived

A look at how Job Numbers are Derived, the race to debase, America’s QE weapon, Canadian inflationary pressures, gold outlook, and Obama’s reelection.

Dear Readers,

I was watching the US presidential debate this week and there’s no doubt that Romney won this round. Regardless, it was obvious the main topic of discussion was unemployment.

Coincidently, one hour before market open, and on the day of the debate, the Employment Situation Summary was released.

The bureau’s survey of businesses showed a mediocre rise of 114,000 in nonfarm employment, yet the unemployment rate had somehow dropped from 8.1% to 7.8 percent, based on the household survery which concluded 873,000 found work. This not only matches the rate when Obama took office, but it far exceeded expectations. It also marks the first time since January 2009 that the rate has been below 8 percent.

If the numbers are correct, this would be great news for the US economy…and great news for Obama supporters.

But are the numbers real?

Furthermore, where did they come from?

How Job Numbers are Derived

The Employment Situation Summary actually comes from two very different surveys.

One is a survey that asks 60,000 households about their employment status. It’s called the Current Population Survey (CPS), or “Household Survey.” Using those numbers, the bureau concluded that an additional 873,000 people had found work in September. This is the number that was used to bring the unemployment rate from 8.1 percent to 7.8 percent.

The US labour force is well over 150 million. How does a survey of 60,000 households make sense?

The other survey is called the Current Employment Statistics survey (CES), or “Payroll Survey”, and it’s based on a sample of 160,000 businesses and government agencies, as opposed to households, that represent 400,000 individual employers. This survey measures only non-agricultural and nonsupervisory employment; thus, it does not technically calculate an unemployment rate. That’s where the 114,000 additional jobs come from.

One survey says 114,000, while the other says 873,000.

Go figure.

Not only were the job numbers coincidently positive, the bureau revised figures for July and August, and said that more jobs had been created than it originally estimated. Even people with only high school degrees were finding jobs and the number of people who had been out of work for six months or more was at its lowest point in three years.

So if all of these people are back to work, then everything is getting back to normal, right? Maybe all of this printing is actually helping people get back to work. Or is it?

Another Record High

Late after the market close on the day of the debate, the department of agriculture released a stunning report.

Food stamp usage for both persons and households, has now hit an all new record high. A record 46.68 million Americans received food stamps in July. They blamed this dramatic rise on local weather disasters in Ohio, Maryland and West Virginia; yet this number has been rising nonstop month after month.

The cost of the food stamp program has more than doubled in the last four years to a record $75.7 billion in the 12 months ended Sept. 30, 2011; it is the department’s biggest annual expense.

Whether you believe the jobs numbers or not, it really doesn’t matter. What matters is where the stock market is headed.

Luckily, I think Obama will do everything in his power to keep the markets going until he gets re-elected. And if he does, we may have further room to climb (as I said last week, Wall Street does best when we have a Democratic president with a counterbalance of a GOP-led Congress.)

While both Romney and Obama diligently debated how they will solve the unemployment issue, neither of them directly addressed the deficit or the growing debt.

Why? Because neither candidates have an answer. Wait, yes they do: Print.

If you think the US is going to stop printing anytime soon, you’re absolutely wrong. It doesn’t matter who is placed on the throne, printing is the only survival method left.

I am not saying it’s the right thing to do, but those who say there are alternatives are wrong – unless you count absolute economic collapse or a complete restructuring of the monetary system (i.e. gold-backed dollar), alternatives.

Race to Debase

For the last 30 years, the two superpowers of the world (China and the US) have endlessly debased their currencies. I have explained this numerous times in past letters. As a result, the rest of the world has joined in order to avoid disaster on their home turfs. It’s no longer a two-way street. Debasing is now a globalized phenomenon.

The word globalization has now turned into a battle of currency debasement and inflation exportation. I call it a currency war. Politicians call it globalization.

But what happens when the world has printed so much debt that countries can no longer export inflation to competitors? The end result of this path is simple: Uncontrollable inflation.

This won’t happen overnight. And as I said many times before, inflation shouldn’t keep you up at night when you’re investing in stocks, as a company’s earnings and revenue will generally grow to reflect that. Just look at the last few years – we’re back to the highs before the 2008 crash. The S&P is back to 1461; just 39 points shy of my 1500 call earlier this year.

(It’s funny how those who laughed at me for calling such a number, are now telling me they knew this would happen. Hindsight is a beautiful thing.)

A few years from now when a combo meal at McDonald’s costs more than $10 dollars, you’re going to understand why it’s there.

Food for Thought

The dollar fell once again, despite strong jobs numbers.

The American QE weapon is working.

Russia, the only major emerging market to raise interest rates this year, is once again hurt by inflation as a result of the American printing press. Inflation rose the fastest in 10 months, soaring passed the target range. Central bank First Deputy Chairman Alexei Ulyukayev said ladt week that inflation risks remain greater than the threat of an economic slowdown.

Brazil, who had no issues calling out the Americans’ currency tactics, is also getting killed by the American printing press. Brazil’s annual inflation accelerated in September for the third straight month. For a country that has already experienced hyperinflation in the past, this is a major concern for the Brazilian economy.

As for Canadians, inflationary pressures remain weak according to data. But don’t be fooled. Just because gas prices have dropped slightly, doesn’t mean we’re doing better. We know everything is overly expensive. Want proof? I pay more than CDN$1.50/litre for gas – that’s roughly $5.70/gallon. The US average is US$3.80. So if Americans are complaining about high gas prices, imagine how Canadians feel – especially since Canada is one of the largest oil producers in the world.

If inflationary pressures are weak now, I would hate to see what happens if they show up. Housing prices in Canada are already far too high and if the benchmark interest rates rise as a result of inflationary pressures, watch home prices tumble further.

What About Gold?

What about it? It’s an absolute must in my portfolio. That won’t change. Gold prices haven’t been growing lately, but their demand fundamentals have.

(FYI, trading of commodities on the NYSE Liffe exchanges in London and Paris was halted on two separate occasions this Friday due to a “technical issue” – that’s the second time this week.)

Last month, investors bought 85.4 metric tons – that’s the most metal ever held through gold-backed ETF’s since July 2011. The U.S. Commodity Futures Trading Commission shows that Hedge fund bets on a gold rally are the biggest in seven months.

Keep in mind that October is generally a down month for gold. If it dips, it’s a buying opportunity in my eyes. I expect gold to climb very soon. It may be sparked by the announcement of China’s mass accumalation. It may be sparked by inflationary pressures. Either way, the spark will come.

Portfolio Watch

Companies in our portfolio continue to succeed.

Balmoral Resources (TSX.V: BAR) (OTCQX: BALMF)

In the last week alone, Balmoral Resources (TSX.V: BAR)(OTCQX: BALMF) has closed $8 million in financing, resumed drilling at their flagship Martiniere property, and announced they continue to hit high grades practically everywhere they drill.

One of the recent holes from last week’s announcement intercepted 195.50 g/t gold over 0.97 metres, in the hanging wall above the Bug Lake Zone at less than 30 metres vertical depth. This structure may be similar to the recently announced bonanza grade Footwall discovery which returned 273 g/t gold over 3.88 metres.

For those who don’t remember, the Footwall discovery in August is the discovery that sent Balmoral share prices flying. More drill results from this area are coming. Anyone short on this stock may get bitten hard if Balmoral keeps this up. I am excited.


MAG Silver (TSX: MAG) (NYSE.A: MVG) just announced an initial mineral resource estimate at Cinco de Mayo, with inferred mineral resources estimated to be 12.45 million tonnes at 132 grams per tonne (“g/t”) (3.9 ounces per ton) silver, 0.24 g/t gold, 2.86% lead, and 6.47% zinc (9.33% lead plus zinc). Those are fantastic numbers.

This resource comes from the Bridge Zone/Jose Manto at Cinco de Mayo and doesn’t even include MAG’s latest discovery at the new Pegaso Zone. You should go back and read my report, to get a better scope of how big this really is.

I can’t wait to see the follow up results from their New Pegaso discovery. Given what I have already seen, I am expecting more barn burning results. If they follow their exploration model and link the Bridge Zone/Jose Manto to the new Pegaso Zone discovery at depth, we may soon see MAG’s 100% owned Cinco de Mayo project become what I said it would: An Absolute Monster.

More to Come

I am off next week to visit a gold project with the potential for near-term production. If all checks out, I’ll hopefully be presenting yet another winner to our readers.

Happy Thanksgiving to all Canadians.

Until next week,

Ivan Lo

Equedia Weekly

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