A Different Point of View on Unemployment

Another 216,000 jobs lost, but the employment picture is brighter? Only Joe Biden thinks the recession is over with 15 million people out of work!

In the United States, current unemployment, as reported by the Department of Labor, stands at 9.7% (ending August, 2009), the highest unemployment rate in 26 years, and expected to rise to 10%.

Approximately 15,000,000 people are out of work, yet we hear from many politicians that the economy is picking up, or that the employment situation is settling down.

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I have a different point of view. What the unemployment numbers tell us is companies continue to shed jobs, maybe at a slower rate, but they not hiring folks in any great numbers. Factory inventories are about empty and order rates for goods and services are seriously down, thus no demand for increased production. Further, the likelihood of a major market correction becomes more likely as unemployment continues to rise.

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The American consumer is aware of the untenable amount of leverage they have taken on, and are adjusting to lifestyle of diminished spending. Further, great concerns about a dramatic increase in taxes, both from Cap and Trade, as well as the end of the "Bush Tax Cuts", and the potential destructive force of Obamacare are crushing consumer optimism and a willingness to invest in capital goods.

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What this means, is that until a period of reasonable certainty and stability returns, we are in for a very long ride. While credit markets may be easing, US home prices are still far below their highs, which is actually a good thing. Additionally, with decreased overall demand for goods and services, companies are in no hurry to hire. Without a marked increase in employment, don't count on the American consumer to go back to its spending habits.

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The only bright spot in this dismal period of unemployment is the potential for entrepreneurial growth. Usually, periods of high unemployment lead to smart, out of work people getting together to come up with goods and services adjusted for the new economic reality. While I hope this is the case, I think the fear around major tax increases are somewhat depressing interest in "going it alone." The lesson to take from all of this is the lesson of history. Left wing parties, regardless of country, always bring in high taxes and anti-business agendas. Productive capacity is taken from the private sector and put in the hands of inefficient governments. Forget power to the people, it becomes domination by the state.

The Changing Game of Oil

Up until 2009, the oil blame game began just before Memorial Day in the US. Politicians would line up to paint oil companies as greedy price fixers, jacking up the price of gasoline before the summer driving season. What a difference a year makes.

Politicians being what they were (and still are), chose not to acknowledge that increased demand for a scarce resource leads to increased price. Most of us older than 4 understand patterns. Summer is when Americans drive the most. Thus the increased demand for gasoline and the increased price.

However, in the 2009 global recession, the price of oil is less than half of its 2008 record ($145 bbl). Why has the price fallen so much? Because oil is a leading economic indicator, meaning that its market price is a prediction of demand one month in the future. The market correctly believed(s) that the global economy would tank.

Oil prices have fallen since last year, down as low as $34, then settling in to the $70s, as of 08 July 2009, it is down in the lower $60s. Obviously, the case for price fixing is quite flimsy, or so it would seem. How’s your credit score? 0-600 Poor, 601-680 Fair, 700-774 Good, 775+ Excellent. Find out your Score now FREE!

While we aren't hearing the usual cast of characters demanding ExxonMobil and Chevron's chairmen explain why gas is more expensive, we are hearing cries of "Speculation!"

In the 08 July 2009 edition of the Wall Street Journal, the article starts:

"Policy makers on both sides of the Atlantic launched an effort to crack down on what they called speculation in oil markets, underscoring concerns that a sharp rise in oil prices could worsen the global economic downturn."

Perhaps Gordon Brown and Nicolas Sarkozy should take a deep breath and just try to control their instinct to regulate. Not to be outdone, Sen. Byron Dorgan (D-ND) declares the need to control "...oil speculators looking for a quick buck at the expense of the American consumer."

As I have written previously, traders in oil futures are airlines, utilities, and others who consume a regular supply of oil over a year and are trying to smooth out price variability. Sounds pretty reasonable to me. Additionally, since oil is a global commodity, denominated in US dollars, its price fluctuates with the value of the dollar. Inflation in the US spells higher oil prices, and conversely, recession or deflation spur lower oil prices. Of course, the 800lb gorillas in the room are China and India, as their consumption grows annually. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Does the trade of a global commodity need to be regulated? Only if it means the enforcement of contracts! Since oil hasn't followed its usual trends, government officials are struggling as how to propose more regulation. While oil is a critical component in the global economy, demands to regulate its future sale will only wreak havoc. Oil is generally an efficient market, though it is subject to swings. By allowing the swings and the pain it causes, the market will right itself, and hopefully teach important lessons. When government interferes and distorts the market, the swings are wilder and damage greater. Just look at housing bubble. Need I say more?