Nailed It – No Recession

During the stock-market histrionics over the last three months, I never joined the recession camp. In fact, I poured a bit of derision upon the doomsayers in “Companies Add Jobs for 18th Straight Month – Investors Jump Out Windows“. That was on September 2, 2011, where I wrote things like:

“Is it possible for a recession to begin with rates at 0%? I suppose so, but it’s not something that has happened in the last 60 years.”

And today, third-quarter GDP came in at 2.5% – which is not only not a contraction, but is almost double the 1.3% growth of the second quarter.

The moral of the story is that I, like, totally nailed it.

Note to perma-bears: Hang your heads in shame! Especially you “Tyler Durden”!

Apple Fractal Dimension Index End-of-Trend Signal

Take a look at the red line on this Apple monthly chart from my Fractal Stock Grapher app (click to enlarge):

Apple’s monthly Fractal Dimension Index indicator has been on an end-of-trend signal all year. What this tells us is that Apple’s three-year-long moonshot is overdue for at least some consolidation. The last time the FDI was this low was back in 2007, and Apple did indeed go into a trading range that lasted two years.

Of course, the economy exploded during that time, but don’t forget that the iPhone was released at the end of June 2007 when AAPL was at $122. By May of 2009, almost two years later, AAPL was only at $126. You would think that with such a phenomenal product that the stock could have done a bit better.

The economy isn’t lighting the world on fire at the moment, but it hasn’t rolled over into recession yet either. If you like Apple and want to buy it, you can probably get in at a lower price if you are patient. If you are a degenerate gambler and want to short AAPL, you might be able to survive if you put your trades on up at the top of the trading range.

Will large holders lighten-up on their AAPL holdings now that the company has lost its visionary leader? I think it would be surprising if they did not, but the company itself remains a juggernaut until proven otherwise. The power of the iPhone/iPad platform is breathtaking. Look at this French guy who has made over $200,000 with his educational apps.

Here Come the Shanty Towns

Last week, I wrote a note to myself: “The Republicans will have to take down building codes.” Here is a photo of the yellow sticky:

Seems like an obscure and crazy thing to predict, right? But five days later, Herman Cain, the leading Republican presidential candidate, came out against building codes. From Fox News:

“All building codes, regulations, restrictions, and requirements should be reviewed from the standpoint of whether they impede economic growth.”

How’s that for an amazing prediction?

How did I do that? Easy. The thesis that I put forth in “There’s a Sweatshop in Your Future” is dead on.

Think about it: Suppose you repeal the minimum wage and force people into your sweatshops at the prevailing global-market rate of $2 per hour. Where would your workers live? Nobody can pay the rent in the USA on $2 per hour. Obviously, third-world style shanty towns are required – just like the ones that sprang up around American factories when they relocated to Mexico after NAFTA went into effect in 1994.

But we have building codes in this country that prevent the construction of shanty towns. And so it became necessary to recast those laws that keep buildings from collapsing on us during natural disasters into evil, job-killing GOVERNMENT REGULATIONS that are holding back the sainted “jobs creators” from saving America.

So, it was just a logical extension of the changes needed in the Republican platform. Of course, if the Republicans didn’t do it, the Democrats would have. After all, you will soon be purchasing products made in communist North Korean sweatshops thanks to President Obama’s trade deal with South Korea, which sub-contracts work to the north.

The sweatshop/shanty-town system is coming. Both Republicans and Democrats agree. The unions will put up token resistance, but they will be paid off.

$1.75 Trillion Siphoned from Middle Class

How did the rich REALLY get richer? They ate the lunch of the American Middle Class via a process called “global labor arbitrage”. Exactly how much money does Jeff Immelt make when he ships your job to Mexico? Well, why don’t we just run through the numbers?

In the October 9, 2011 episode of 60 Minutes, Lesley Stahl reported:

“Over the last decade, big American firms have cut around 3 million jobs in the U.S. while adding almost as many overseas.”

And President Obama’s “Jobs Czar” Jeff Immelt, whom the show was about, didn’t contest the point. So, let’s start with 3 million jobs exported. Now let’s make some assumptions: $30 per-hour American workers were replaced by $2 per-hour Mexican, Chinese, and Indian workers. How much does that come to over a 10-year period? Take a look at this spreadsheet:

Using my assumptions, we get $1.75 trillion transferred from former middle-class workers to corporate coffers. Not to mention $349 billion denied to the Federal treasury that those workers would have paid in income taxes. Theoretically, corporations would have paid more income taxes, but as we have learned, they are quite a bit more, shall we say, “deft” at avoiding taxes than the average Joe.

And you don’t have to take my word for it. You can download my spreadsheet and punch in your own numbers. But let’s go back and look at those assumptions.

10 Years?
Factories started moving south in January of 1994, when NAFTA went into effect. So, we are in our 18th year of free-trade, “libertarian nirvana.” Are we having fun yet?

$2 per Hour?
In the good old days of Global Labor Arbitrage, foreign workers were paid much less. I have seen stories of workers being paid as little as 15¢ per hour. Wages are higher now, probably mostly due to inflation, but $2 is likely still a generous scale. A factory recently moved from the mid-west down to Mexico was reported to be paying its workers $70 per week.

3 Million Workers?
Perhaps that is an “official” headcount at multinationals. But what happens when a refrigerator plant in a small town moves? A lot of suppliers to that factory go out of business too, right? And the businesses formerly patronized by those workers also go under: restaurants, barbers, karate schools, movie theaters, dog groomers, etc. How many jobs have really been lost during this period? Ten million?

Pay and Taxes
Is it possible to calculate average pay, and average tax rates? I don’t know, but the evisceration of the Middle Class began with the liquidation of highly-paid union factory workers and information-technology workers in corporate data centers. And when you consider fringe benefits, the $30 per-hour number I have used may be low.

Stats in General
Since corporate money funds most think-tanks, news organizations, and politicians, there simply isn’t much hard data available on this subject. As you can imagine, guys like Jeff Immelt don’t want you to know where their astronomical salaries come from. But this is how it’s done. Maybe one day in the far future, historians will be able to calculate the exact toll taken, but today, we can only speculate.

Global Labor Arbitrage is not a thing of the past. It is still going on. And it will continue until your packages are delivered via UPS robots operated by remote control by Indian sweatshop workers making $2 per hour, and your gallbladder is removed by a surgeon in China operating a surgical robot at your local hospital. As we have seen, offshoring jobs is incredibly lucrative. It won’t stop until there is no more Middle Class and the rich are a great deal richer than they are now.

Of course, the growth of multinationals has created new home-office jobs here in the USA. However, recent studies have shown that the number claimed by corporate propagandists was greatly exaggerated. And while increased profits do get paid to American shareholders, economists say that the rich just don’t spend as much as regular people, and having the rich get richer reduces total economic demand.

So, what then, is the grand total considering all of the above? This is, obviously, a very difficult number to calculate – maybe an impossible number. But when all is said and done, I wouldn’t be surprised if $5 trillion has been extracted from the Middle Class, and $1 trillion denied to the US Treasury.

Boehner: Trade Policy is Beyond the Scope of Congress

When commenting on the Senate bill to retaliate against China’s currency manipulation, Speaker of the House John Boehner said:

“I think it’s pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency. This is well beyond, I think, what the Congress ought to be doing.”

That’s an amazing statement, and I’ll bet Boehner would not repeat it if he could take it back. Currency exchange rates are an integral part of trade policy. As a matter of fact, we had the same problem with Japan in the 1980s as we do now with China. Back then, during the RONALD REAGAN administration, we put the smack down on the Japanese and forced the value of the yen up dramatically with the Plaza Accord.

We should have done the same thing with the Chinese long ago. But things are different this time around. Back in the 1980s, American manufactures campaigned for the Plaza Accord. They fought hard to level the playing field with the Japanese. Not so today. Rather, it’s just the opposite. American-based multinationals send out flunkies like John Boehner to fight on behalf of Beijing because their factories are in China now.

And so what Boehner said is exactly right. The reason why I don’t think that he would repeat the statement is because it is a blatant admission that the USA is no longer a sovereign nation.

And I am not exaggerating.

A central tenet of the global sweatshop empire is that the local yokels don’t have any say in trade or immigration policy. Borders shall be wide open to the convenience of multinationals. Whether they are exporting factories or importing cheap labor, plebs who imagine that they are still citizens of sovereign nations need to divert their attention to non-economic issues such as abortion, marijuana legalization, etc.

Note to “Americans” from John “Beijing” Boenher: mind your beeswax!

Here’s Me in IBD

On the morning of October 5th, Challenger, Gray & Christmas released their monthly job-layoffs report with a headline screaming: “Layoffs Surge to Highest Total Since April 2009”.

Later that night, I was quoted in Investor’s Business Daily commenting on withholding-tax collections:

“the data show no evidence of serious job losses”

And I was vindicated on the following Friday, when the big “Employment Situation” report almost doubled analyst expectations showing 103,000 jobs added in September. Not to mention hefty upward adjustments for both July and August.

Maybe Challenger’s layoffs have yet to bite since they report layoff announcements rather than actual layoffs. But then again, maybe they won’t. See the explanation that Business Insider published here.

In any case, the hardest of hard data on jobs (federal withholding-tax collections) will continue to give my subscribers at The Daily Jobs Update the straight story. Which, as the jobs report showed last week, is that the economy is not in recession like everybody thinks.

Occupy What Now?

People have rushed into the streets. They are protesting like crazy. They are mad as hell. But if you ask them why, they say: “We’ll get back to you.”

I’m calling BS on this phony revolution.

Yes, millions of jobs have been sent to Mexico, China, and India here in our fabulous new age of globalization. But there is a very simple reason why there have been no genuine protests: American workers have been paid off.

Severance packages, buy-out deals, extended unemployment compensation, food stamps, refundable tax credits, and scores of other such payments have softened the curb to which American workers have been kicked.

Now, if you want to see real protests, start taking away those things.

Speaking of which, the Republicans are trying to do just that. They have already succeeded in cutting off retraining funds for workers whose jobs have been off-shored. The hard truth is that the dramatic expansion of the welfare state cannot be reversed until our ridiculous trade and immigration policies are reversed.

Perry Plonked

After I wrote The Perry Panic, the Dow plunged another 500 points. The panic raged until the following Tuesday when Ben Bernanke told Congress:

“We would make sure we would stand ready to provide as much liquidity against collateral as needed as lender-of-last-resort for our banking system.”

The Dow immediately ceased plunging, and staged a dramatic 400-point intra-day reversal.

The market rallied because Bernanke turned away from the dark side. So, my initial analysis of blaming the plunge on Perry was proven correct. Perry’s campaign to bring back 1930s-style bank-runs has been defeated.

This is an excellent example of why we must have an independent Fed. Rick Perry has just shown us that if a politician could gain political advantage from zeroing out your bank account, he would do so. Pressuring the Fed to give up its role as “lender of last resort” during a financial panic seems impossible and insane. But that is just what we saw Rick Perry do.

The people of Texas should be grateful that the legal-tender laws force them to use US dollars. With a bomb-thrower like Rick Perry in charge of their banking system, there would be anarchy in Texas.

The Perry Panic

During an intensifying global financial crisis, it is jarring to see Rick Perry threatening Ben Bernanke, warning him to let it burn. Fortunately, the Fed has been ignoring Perry’s “sage” advice.

Nevertheless, Bernanke has been tacking in Perry’s direction, commenting on the limitations of monetary policy, how there is only so much the Fed can do, that Congress and the President need to step up, etc. So, the markets see the Perry “let it burn” policy gaining traction, and they don’t like it one bit.

Is Perry trying to crash the stock market and throw the economy into recession so that Obama will take the blame in next year’s election? Probably. Or maybe he is just trying to horn-in on Ron Paul’s increasingly popular “Fed stalker” shtick.

But did the Fed offshore 50,000 factories and millions of jobs? Did the Fed import millions of immigrants?

No, it did not.

Both Ron Paul and Rick “Free College Education for Illegal Immigrants” Perry are shilling for the globalist agenda of “wide open borders leads to prosperity”, when in reality it has created poverty of historic proportions for the USA. Attacking the Fed is a diversionary tactic to keep the real issues out of the presidential race.

It is understandable that Bernanke wants to keep his job, and needs to placate Perry. But the markets don’t want to hear that. The markets want to hear that Bernanke is doing everything in his power to prevent the chaos in Europe from spreading here. Bernanke’s attitude must be: “We prevented your bank account from being zero-ed out in 2008, and we are doing so again now.” There just isn’t any room for even small chinks in that attitude.

The markets hang on the Fed Chairman’s every word, and they are worried that he is considering joining “Team Let it Burn”.

Short of nuclear war, I can’t think of a better method of engineering a market crash.