Mc Rescue as Ronald McDonald Throws the Middle Class a Lifeline (Michael Pento)

The middle class has been thrown a lifeline

from Ronald McDonald

Wednesday, May 4, 2011
Euro Pacific Capital
By: Michael Pento


The non-manufacturing portion of the U.S. economy dropped precipitously in the month of April. According to the ISM Index, the service sector of the economy—which unfortunately accounts for 90% of GDP—plunged to 52.8 last month from 57.3 in March. The measurement of new orders dropped by the most since records began in 1997. New orders at service providers decreased to 52.7, which was the lowest reading since December 2009, from 64.1 in the prior month. Meanwhile, the employment index dropped to 51.9, from 53.7 a month earlier.

More data confirming the slowing economy came from the release this morning of the ADP employment report. The private payroll survey indicated that 179,000 jobs were created in April, down from the revised 207,000 reported in March. The BLS reported that 216,000 net jobs were added in March.

The rapidly rising cost of food and energy is starting to vastly curtail consumer spending on non-discretionary purchases. Therefore, inflation is well on the way to eroding employment and GDP growth just as it always has throughout economic history.

But not to worry all of you who are out of work or significantly under-employed. The middle class has been thrown a lifeline from Ronald McDonald. The restaurant chain announced on April 19th that it is looking to add 50,000 U.S. workers. Thus is the sad future for U.S. employment.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.


Read about McDonald's Hiring

GDP Estimates Coming Down (Michael Pento)

Goldman Sachs Cuts Q1 GDP Estimates

Tuesday, April 5, 2011
Euro Pacific Capital
By: Michael Pento

The Pollyannas that were busy doing their linear projections for U.S. GDP back in 2010, were telling investors that the first quarter of 2011 would produce 4%+ growth in real GDP. Their logic was based on an ersatz recovery based upon government printing and spending. But now the evidence of their folly is smacking them straight in the face.

It’s nice to react to new information, but it is always better to get well in front of it. Investors could have been surprised by the news today of a decrease in the Institute for Supply Management’s index of non- manufacturing to 57.3 from 59.7 in February. Or they could have anticipated that drop and positioned their portfolios accordingly.

EuroPac investors were not so easily misled. But if you were a client of Goldman Sachs you may find it a bit disturbing that GDP growth estimates for the first three months of this year were taken down a full percentage point today to 2.5%. The IMF is joining the GDP slashing parade and cut Q1 growth down to 2.8% from 3%.

The big houses are now forced to chase their tails and lower GDP forecasts because they haven’t yet realized the dangers associated with equating growth to inflation. China is quickly waking up to that realization and has now raised interest rates for the fourth time since October 2010. Note to Bernanke; the PBOC did so ahead of the March CPI data due out next week. Now that’s what I call being proactive.

The Fed’s counterpart in Europe Jean Claude Trichet has also scheduled in a rate hike this Thursday in an attempt to offer citizens in the old country a real return on their savings. In sharp contrast, Mr. Bernanke is assuring us that this current bout of inflation is just a passing fancy.” In a speech last night in Stone Mountain Georgia, Bernanke said, ““I think my take on inflation right now is that we are indeed seeing some increases, obviously.” He continued, “I think the increase in inflation will be transitory.”

The Fed Chairman gave us a peek into the keen insight behind his sanguine stance. The reason behind his comfort with the direction of inflation is—and remember this guy has a doctorate in economics—the recent increase in U.S. inflation is driven primarily by rising commodity prices globally, and is unlikely to persist. That’s it! No mention of his monetary policy being the cause of inflation in the first place.

Bernanke’s refusal to admit his own role in global inflation assures us that he will be as wrong in his inflation projections as he was about the sub-prime real estate crisis being contained.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

ADP May Stand For A Dubious Prediction (Michael Pento)

Thursday, January 6, 2011
By: Michael Pento

This morning’s ADP report showed that employers increased payrolls by 297,000, which was the biggest gain in the history of the report. Although this is a very strong number it is important to point out that of the total 297k jobs created 270,000 were in the service sector. This means that over 90% of all jobs created were of the borrowing to consume variety, while less than 10% were of the saving and producing genre. The obvious conclusion from this data is that the trade deficit will surge in coming months.

Contradicting the ADP report was data released from the ISM non-manufacturing report. The employment component during December shrank to a 3 month low and registered 50.5, down from 52.7 in the prior month.

How can we reconcile the fact that the employment component ticked down to a 3 month low, yet at the same time, ADP says 270k service sector jobs were created? We’ll hopefully get some clarity on this when the BLS released the employment report for December on Friday. My guess is that if you accrue over a trillion dollars of debt per year, you will eventually hire some people to help consumers spend their borrowed money. But the bill is quickly coming due and there will be no bailout forthcoming. One can only bask in the eye of a hurricane for so long.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

ISM Has Some Warts (Michael Pento)

Monday, January 3, 2011
By: Michael Pento

Some seemingly better economic news was released today from the Institute of Supply Management’s Manufacturing report. The ISM index climbed to 57 last month from 56.6 in November. However, the employment index slowed from 57.5 to 55.7, while the inflation index increased yet again. The prices paid component rose to 72.5 from 69.5 and was the 18th month in row of gains.

For me, this will be THE story of 2011. Rising prices and increasing borrowing costs will place a white hot spotlight on Ben Bernanke. It looks like a replay of 2007 is in order. Oil and food costs soar while the Fed claims there is no inflation. Then, perhaps in the 3rd or 4th quarter, Bernanke merely begins to hint about removing some of the liquidity. Maybe, by the start of 2012, he begins to hike rates in ¼ point increments but commodities still move inexorably higher just as they did throughout Ben’s baby steps from 2004 thru 2006.

That’s because bank lending isn’t curtailed very much by a Fed Funds that rises by just a few hundred basis points. What popped the housing bubble wasn’t so much that borrowing costs became too high but rather that home prices became unaffordable at any interest rate and the pool of available buyers finally dried up.

Investors would do well to remember that given the Fed Chairman’s obsession with the Great Depression, he will be anything but aggressive when it comes to removing monetary stimulus.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Little Ho Ho Ho in the Data (Michael Pento) but the market doesn't care.....yet

The Dow is roughly 21% from its all time,

ever high, set in October 2007

Unemployment rate in October 2007...4.7%

(less than 1/2 of the current, fictitious rate)

Wednesday, December 1, 2010
By: Michael Pento

American consumers are trampling each other to capture the holiday spirit—which sadly has now become Black Friday and Cyber Monday. However, the economic data is flashing a warning sign that may, hopefully, deter shoppers from their recidivistic habits.

The number of mortgage applications in the U.S. fell last week by the most this year as lending rates inched higher. The average rate on a 30-year fixed mortgage increased to 4.56% from 4.50% the prior week. Borrowing costs have been rising since reaching 4.21% during the week ended Oct. 8th, which was the lowest in records going back to 1990.The Mortgage Bankers Association’s index dropped 16.5% in the week ended Nov. 26. The gauge of refinancing fell 21.6%, which was the biggest drop in all of 2010.

Meanwhile, the Challenger, Grey and Christmas report released today showed the pace of downsizing surged to the highest level in 8 months. Planned layoffs jumped 28% from their 37,986 level posted in October, to reach 48, 711 in November.

The ISM Manufacturing Report fell slightly in November to 56.6 from 56.9 in October. The ISM’s U.S. new orders index fell to 56.6 from 58.9, while the production index dropped to 55, the lowest level since June 2009, from 62.7. The employment gauge was little changed at 57.5 from 57.7, and the index of export orders dropped to 57 from 60.5.

Finally, the ADP report for November showed that of the 93,000 private sector jobs created this month, only 14k was in the goods producing sector of the economy. The direction of the ADP number is good but still very much shy of the number of new jobs needed to bring down the unemployment rate.

The economy is barely subsisting despite of, or perhaps more correctly, because of government intervention. When will we learn?

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

No Income, No Problem...Just Go Shopping (Michael Pento)

Not to worry. QEII will fix everything

Monday, November 1, 2010
By: Michael Pento

Personal Income fell in September as spending increased nevertheless. Purchases increased .2%, while incomes fell 0.1%, the first drop since July 2009. Real Disposable income—which removes inflation and includes changes in taxes—dropped .3%. And of course, forget about all that talk about consumers finally learning how to save. The savings rate decreased to 5.3 percent from 5.6 percent.

The most egregious data point released from the BEA today was on inflation. Somehow, they managed to claim that The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged from the prior month and was up just 1.2% from a year earlier, the smallest gain since September 2001. That should come as a shock to anyone who has witnessed soaring prices from nearly every commodity produced on the planet.

But the Fed and Administration will not worry as much about falling incomes as they will about less spending and low inflation. Their answer to every problem is print more money.

We also had the release of the October ISM-Manufacturing Survey today. The index came in at 56.9 up from 54.4 in September. The most interesting part of the survey came from what respondents are saying:

• "The dollar is weakening again, which is resulting in higher costs for our materials we purchase overseas. It is hurting our profit margins." (Transportation Equipment)
• "Business slowing down but still double digit over last year." (Chemical Products)
• "Currency continues to wreak havoc with commodity pricing." (Food, Beverage & Tobacco Products)
• "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." (Machinery)

Not to worry. QEII will fix everything.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Inflation Everywhere but in the Mind of the Fed (Michael Pento)

Friday, October 1, 2010
By: Michael Pento

The BEA released some amazing data on Personal Income and Outlays this morning. No, it wasn’t the fact that Personal Spending was up .4% and Income was up .5% for the month of August. It was the data on inflation that caught my eye and, more importantly, the Fed’s reaction to it.

Core PCE increased 1.4% YOY, while the overall inflation rate jumped 1.5% from August 2009. That’s correct--all you deflation propaganda pundits out there listen up--price levels are rising even when using the Fed’s own preferred inflation metric.

But our central bank’s reaction to this data is shocking. Fed policy makers on Sept. 21 moved closer to another round of unconventional monetary easing and said for the first time that inflation is too low. According to the Federal Open Market Committee statement, “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”

This morning Fed Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that the central bank has options to add stimulus without any serious repercussions. “We have tools that can provide additional stimulus at costs that do not appear to be prohibitive,” Dudley, who serves as vice chairman of the Fed’s policy setting Open Market Committee, also said in a speech to business journalists in New York today, “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.” Dudley even went as far as talking about the effects of another $500 billion increase in the Fed’s balance sheet.

So inflation that has risen 1.5% YOY as measured by the Bureau of Economic Analysis isn’t enough for our Federal Reserve. Our dollar, which is plummeting on the FX exchange, apparently isn’t falling fast enough for Mr. Dudley. Oil, gold and most other commodities are soaring this AM, but that doesn’t allay the Fed’s deflation fears.

The Institute of Supply Management Survey of Manufacturing for the month of September fell to 54.4 from 56.3 and the prices paid component soared from 61.5 to 70.5. Evidence of escalating inflation can be found everywhere except in the minds of those who are charged with the protection of our currency’s purchasing power.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Ever Increasing Inconsistencies In Reported Economic Data (Zero Hedge)

Thanks to Zero Hedge and David Rosenberg for a most informative post. Grandpa wonders if the inconsistent (a.k.a. manipulative) data is mid-term election related and we will witness mondo post November revisions?

Zero Hedge

Ever get the feeling that the Bureau of Truth is not being completely truthful? Feel like the ADP is to the NFP like the ISM to the regional Fed Surveys, and as the surging Mfg ISM employment diffusion index is to the plunging Service ISM employment diffusion index (i.e., both can not possibly be correct)? You are not alone.

David Rosenberg summarizes which recent data releases are so blatantly incomprehensible, one wonder when the government will announce an AXA Rosenberg-like computer glitch and say all its data for the past 12 months has been compromised. Either that, or we await the introduction of the Birth/Death adjustment to every single data series released in America imminently.

Here is David with much more on the topic (from Gluskin Sheff):

The latest batch of data has been highly confusing, to say the least. The chain store sales data were skewed by one-offs, such as retroactive jobless benefit checks that were mailed out in early August and the growing number (17 this year) of States offering sales tax holidays. We estimate that absent these influences, year-on-year sales growth would have been closer to 1% than 3%.

The spending data also belied the information contained in the Conference Board’s consumer confidence survey, as the facts-on-the ground ‘present situation’ index sagged to 24.9 in August from 26.4 in July — only 5% of the time in the past has it been so low. The ISM manufacturing index, which really got the ball rolling on this ‘take out the double-dip’ trade, managed to spike even though the three leading sub-indices — new orders, backlogs and vendor performance — all declined in what was a 1-in-100 event.

Not only that, but the employment component of the ISM surged to its highest level since December 1983, and yet the manufacturing employment segment of the payroll survey fell 27,000 — the first decline this year and the sharpest falloff since last October. Furthermore, the manufacturing diffusion index slumped to a seven-month low of 47 from 53 — in other words, fewer than half of the industrial sector was adding to staff requirements last month. It begs the question as to what exactly the ISM is measuring.

The list of inconsistencies in the data didn’t stop there. The entire increase in private sector employment in August was in the service sector — mostly health and education, which says little about the cyclical state of the economy. Yet 90 minutes after the jobs number was released, we got the ISM non-manufacturing survey and it flashed a contraction in services employment to a seven-month low of 48.2 from 50.9 in July.

Just a tad confusing, but the newly found bullish view of the economy is sort of corroborating evidence.

The employment report did not detract from the view that the economy is losing steam. The fourth quarter of a recovery typically sees real GDP growth of over 6% at an annual rate, but in this post-bubble credit collapse, what we got this time was 1.6% at an annual rate in Q2.

Moreover, there is nothing in the data to suggest anything but a further slowing in Q3, and the only reason why there is no contraction this quarter is because it looks as though we are getting another lift from inventories — though now the buildup looks involuntary, which will cast a cloud on fourth-quarter GDP barring a sudden reversal in the declining trend in real final sales.

Private payrolls were +247,000 when the equity market peaked in April, it slowed to +107,000 by July and was +67,000 last month. What does that suggest about the trend? Ditto for goods-producing employment, which was +67,000 in April, subsequently softened to +37,000 by July, and in August was the grand total of zero.

One can easily draw the conclusion from the data that we have dodged a bullet. But that does not mean we are out of the woods. Employment is a coincident indicator. Leading indicators, such as the ECRI, continue to deteriorate and to levels still consistent with nontrivial double-dip risks. Keep this in mind — private payrolls came in at +97,000 in November 2007 and the “Great Recession” began the next month. In other words, the +67,000 tally we saw today basically tells you nothing about how the pace of economic activity is going to unfold as we move into the fall.

ISM Index beats estimates, market launches and celebrates an ISM level lowest of 2010 and below December 2009 level

The July ISM Index beats consensus estimate of 54.2 as it clocked in at 55.5. The equity market launches as it celebrates the fact that the ISM Index was lower than June and is the lowest reading of 2010. The S and P 500 rockets up 20+ points while the DOW living up to "no stock left behind" launches up 177+ points. The ISM Index is now officially below the reading for October 2009! Yes America a weakening economy is reason to celebrate.

ISM Index Recap
55.5 July 2010
56.2 June 2010
59.7 May 2010
60.4 April 2010
59.6 March 2010
56.5 February 2010
58.4 January 2010
55.9 December 2009
53.6 November 2009
55.7 October 2009

Yes, there is a disconnect...