In June 125, 000 jobs were lost in the US (as the termination of 225,000 ‘temps’ hired for the Census more than offset the 83,000 increase in private sector jobs). But the unemployment rate declined to 9.5% due to more people having quit looking for jobs. But in Canada, whose economy is one-tenth its size, 93,000 jobs were created (most of them in the private sector, & full-time, not part-time), & its unemployment rate  declined below 8%. While US job losses since the onset of the recession in late  2008 are still in the 8+MM range, Canada has recovered most jobs lost. But historically its unemployment rate has typically been higher than in the US; thus in the recessions of the early 80's & 90's it peaked at, or near 12%, vs. US highs of 10% & 7½% respectively.  

Since 1999 the Central Bank Gold Agreement has controlled gold sales by 15 European central banks. For the period 2004-2009 it capped sales at 500 tonnes annually but last year cut that to 400 tonnes for the five years to 2014. But according to the World Gold Council sales tailed off in 2007 to 484 tonnes, 232 tonnes in 2008 & just 41 tonnes in 2009 (in which year the global central bank complex as a whole became a net buyer to the tune of 200 tonnes, due to purchases by other central banks). Also, while in the year to April 1^st, 2010 gold stocks had moved in tandem with the S&P, in the Second Quarter they gained 10.7% while the S&P declined 14.1%. None of this reflects well on public confidence in the current fiat monetary system. 

Paul Volcker is the eminence grise in the central banking fraternity. In the early 80's, as Fed Chairman, he ‘wrestled US inflation to the ground’. An early supporter of Obama, he was named Chairman of his Economic Recovery Advisory Board.  But he made himself unpopular with the big banks for advocating they shouldn’t engage in proprietary trading & should be broken up to ensure that never ever again would a US bank be “too big to fail.” It is a blemish on Obama’s escutcheon that he has sidelined Volcker in favour of Treasury Secretary Timothy Geithner & White House Economic Adviser Larry Summers, both of whom were still wearing short pants when Volcker was already involved in national level financial policy making & who, more to the point, were major proponents of the deregulation craze that saw the US banking system almost go ‘off the cliff’ a couple of years ago. Volcker may have grown tired of being sidelined; for in a recent New York Times interview, he gave the financial reform package now winding its way through Congress a poor mark for failing to adequately restrict potentially risky behaviour by the big banks. His view that “People are nervous about the long-term outlook, and they should be” is shared by people like George Soros (who in the 60's created the hedge fund template & made billions while at it) & John Bogle (who in the mid-70's founded the Vanguard Group of mutual funds & grew it into the second-largest such organization in the US). In finance, each generation seems to have to learn the same lesson all over again and Obama would likely benefit from paying more attention to what these ‘greybeards’ have to say, who have seen financial crises come & go, & less to the younger crowd with less of a historical perspective. Stalin once asked derisively “How many divisions does the Pope have?”. There may be a lesson therein for Obama : High Street has all the dollars but Main Street all the votes; but to access them, he must reach over the heads of the vested interests, as he did during both the Primaries & his Presidential election campaign.         

In a report entitled Environmental Health Perspectives four public health agencies named 20 potential causes of cancer deserving of further investigation. Nineteen were chemicals & metals, incl. indium phosphide, a new c ompound used in making flat screen TVs. But the twentieth was ...........shift work. The latter was referenced in Gleanings half a dozen years ago already as a potential breast cancer risk due the fact that the female body produces a breast cancer preventative hormone only in the pitch dark while many women doing shift work by necessity often sleep in semi-dark environments at best (as do many women in urban environments due to light pollution)  unless their bedrooms are equipped with WW II-style blackout curtains).          

-o-o-o-o-o-o-o-o-o- 

GLEANINGS VERSION II

No. 369 - July 15^th, 2010 

‘GREEN SHOOTS’ OF ECONOMIC RECOVERY WERE ACTUALLY WEEDS (FP, J. Ratner) 

· In the latest issue of Toronto-based Sprott Asset Management’s Markets at a Glance, Eric Sprott says that with a slowing down in the US, Europe & Japan, & even China, “just about every aspect of the economy that can be measured, is showing decided weakness.” And he told clients the US economy has entered an economic contraction phase, & that with two-thirds of the First Quarter GDP growth having been due to inventory accumulation, he wonders about GDP growth going forward; for “With the re-stocking complete, there aren’t enough new orders to clear the fresh inventory.” 

Sprott for some time has been bearish, resulting in performance that has cost him clients. 

BERNANKE CONTINUES PUSH FOR BANKS TO BOOST LENDING (AP) 

· Since February he has been urging banks to lend more to, & lawmakers complaining about the lack of credit for, small business (while the banks claim loan demand is “weak”). Small business is critical to economic growth & the recovery (for it is a far more important new job creator than big business that is sitting on piles of cash).  

If loan demand is “weak”, it is a bank-induced : big business they want to lend to don’t need their money & small business that could use it faces high creditworthiness thresholds. It is a ‘Catch 22' situation : banks won’t lend to small business until they are convinced it is back on ‘firm footing’ & small business cannot do so without more normal access to bank credit. 

SMALL BANKS STRUGGLE DESPITE BAILOUTS (AP) 

· A report by the Congressional Oversight Panel headed by Harvard’s Elizabeth Warren says the TARP bailout program was designed with the mega banks in mind & actually hurts the small banks that fund the small businesses critical  to an economic recovery. She says as a result the big banks will get still bigger, increasing the “too big to fail” risk. 

The big banks have the big bucks with which to get key lawmakers’  attention.

  

SMALL BUSINESS GROWS MORE PESSIMISTIC (Reuters) 

· In its monthly survey of its members the National Federation of Independent Businesses (NFIB) found that, after several months of gains, small business optimism dipped in June, by 3.2% to 89. Only 10% of those interviewed, 4% less than in May, planned  new hiring while 8%, one percent more than in May, expected to cut staff, & only 19% were planning capital investments, 1% less than in May, & just 3% above the 35-year record.   

This is in sharp contrast to Canada where the Bank of Canada noted that “Businesses are generally positive about their near-term sales prospects, although they are concerned about recent global economic and financial uncertainties and possible spill over effects.”  

SMALL BUSINESS LOANS ARE PLENTIFUL IF BACKED BY PLASTIC

(Fortune, Paul Smalera) 
 

· In the First Quarter small business loans were US$40BN below their two year-ago level. In 2009 only one in three small businesses was able to get a loan or secure a line of credit. And lending by the Small Business Administration has dried up. But small business credit card debt is rising, often involving the same banks that had denied borrowers regular loans because plunging real estate values had eroded borrowers’ collateral, a renewed sense of risk aversion & the banks’ increased capital reserve requirements. But credit card debt is problematic for small business since it is expensive & of a demand nature (whereas SBA loans typically have seven year terms). 

Since the behemoth banks control the credit cards, this too raises the too big to fail’ risk.   

RETAIL SALES SLIP FOR 2^nd STRAIGHT MONTH (CNNMoney.com) 

· After seven consecutive months of growth, retail sales declined by 1.1% in May & again in June, by 0.5% to US$360BN, more than twice the 0.2% decline expected. 

The big story was the 2.3% MoM decline in sales of motor vehicles & parts. 

U.S. SERVICE SECTOR FALLS SHORT (EJ, Business Browser) 

· In June the ISM’s Index of Non-Manufacturing Businesses fell to 53.8, from 55.4 in May. 

This index covers 90% of the US economy. While anything over 50 is still reflective of growth, this suggests a possible cooling of the GDP growth rate going into the Second Half.  

HOME-BUYING APPLICATIONS AT 13-YEAR LOW (CCNMoney.com) 

· In the week ended July 9^th applications for mortgages were down 3.1% WoW, & 43% YoY, to their lowest level since December 1996. 

Not good news for a key employment-creating industry already facing high inventories of unsold new homes & a huge ‘overhang’ of foreclosed existing ones. 

NEW JOBLESS CLAIMS FALL TO A NEAR TWO-YEAR LOW (AP, Christopher Rugaber) 

· They were down for the third time in four months, by 29,000 to 429,000 after falling the week before by 17,000, due to fewer seasonal layoffs than usual, in part because GM didn’t shut down for its usual two week summer retooling. Elsewhere wholesale prices were down for the 3^rd month in a row due to lower energy costs & the biggest food price drop in eight years. 

GM’s action seems odd given the relatively weak auto sales. 

U.S. OPTIMISM UP (EJ, Business Browser)

· A survey by the Washington-based Certified Financial Planner Board of Standards Inc.,  released on July 13^th found that 44% of those polled expected the economy to get better over the next six months (vs. 28% who didn’t), leading it to conclude that “we are out of the recession and a double dip is unlikely.” But it also found that 65% have financial concerns “much” or “somewhat” greater than at the beginning of the recession. 

The real issue is not so much if there will be a double dip but if the recovery will be robust enough to make a significant dint in unemployment.

 

U.S. TRADE DEFICIT WIDENED UNEXPECTEDLY IN MAY (Reuters) 

· It was up 4.8% to US$42.3BN, the most since November 2008, the onset of the recession, despite oil imports being down 9.1% to US$27.6BN (due to both lower prices & lower volumes). The US$475BN annualized rate YTD is 26.6% higher than last year’s US$375BN (the post-2001 recession year low). 

The biggest import gains were in cars, computers, oil drilling equipment  & industrial machinery, only the first of which is purely of a consumer-oriented, rather than efficiency-enhancing, nature. 

U.S SLUMP PROMPTS NEW LOOK AT STIMULUS (G&M, Jeremy Torobin) 

· The minutes of last month’s FOMC meeting concluded “financial conditions have become less supportive of economic growth ... largely reflecting developments abroad” & postulated a possible, but not yet urgent, need for more  stimulus. Europe’s debt crisis, low consumer spending & inventory growth, & its belief unemployment will stay high for years have caused the Fed to cut its GDP growth forecast for 2010 to 3.5% from 3.7%.

· A recent  Bloomberg poll showed that 70+% of those polled think the economy isn’t growing, despite the recession officially having ended last summer, & that while 50+% think the priority is to get people back to work, they are concerned the deficit is “dangerously out of control” & hence are wary of more stimulus (so any stimulus should come from the Fed, not the Treasury). According to Mark Zandi, Chief Economist at New York-based Moody’s Analytics “The economy’s growing, but it isn’t making a meaningful difference in the financial lives of the vast majority of Americans ... While the economy is continuing to recover, it could easily be derailed. People are right to be nervous.”  

Another round of stimulus had better be more result-targeted than Obama’s initial one which despite its size, proved remarkably ineffective in pump-priming terms.     

CONSUMER REPORTS GIVES THUMBS DOWN TO ipHONE4 (AF-P) 

· After testing the iPhone4, the influential consumer magazine said on July 12^th it couldn’t recommend it since “When your finger or hand touches a spot on the phone’s lower left side, ... the signal can significantly degrade enough to cause you to lose your connection altogether if you’re in an area with a weak signal.” But said the magazine, “an affordable solution for iPhone4 users ... (is to) cover the antenna gap with a piece of duct tape.” 

Delicious irony : leading edge technology that depends on duct tape to make it work properly!  

GAZA-BOUND SHIP DIVERTS TO EGYPT (CBCNews) 

· The cargo ship Amathea, carrying 2,000 tonnes of food & medical supplies destined for Gaza & provided by the Gadaffi International Charity and Development Foundation, was originally headed for Gaza, but has since changed course for an Egyptian port while Israel wanted it to head for an Israeli port, promising that, after its cargo has been inspected for weapons, its cargo would be moved overland to its destination.  

Having it go to an Egyptian port would be a defeat for the Israelis. For it would be hard for Egypt not to let its cargo be moved across Egyptian soil to Gaza, thus for all intents & purposes breaking the Israeli stranglehold on the movement of goods into Gaza. The Foundation is headed by Saif al-Islam al-Gaddafi, the second oldest of Gadaffi’s seven sons. He is about 40, has an  MBA from a Vienna University & a Ph.D. from LSE, and is a practicing architect who in 2008 announced he was withdrawing from politics to devote himself full-time to his international work. Known to favour a one state solution to the Israeli-Palestinian conflict but romantically linked to an Israeli actress, the NYT‘s Landon Thomas called him a “Western-friendly face.”     

ISRAEL CRITICIZED FOR FLOTILLA PLANS (CBCNews) 

· An Israeli military commission that investigated the ‘peace flotilla’ incident concluded the military hadn’t planned well, had acted on flawed intelligence, hadn’t anticipated resistance & didn’t have proper rules of engagement but found the killing of nine Turks was “justified”.    

Meanwhile the work of the civilian commission of inquiry is stalemated by its Chairman’s insistence that unless given a broader mandate than it has now, he will resign. 

ISRAELI SOLDIER CHARGED IN GAZA DEATHS (EJ, World Digest) 

· On July 6^th the IDF said it had charged a soldier with killing civilians during the Gaza War. 

It involves a sniper who allegedly shot dead two Palestinian women waving white flags. 

CHINA’S HOT ECONOMY SLOWS (EJ, Business Browser) 

· Second Quarter GDP was up 10.3% YoY, down from 11.9% in the First Quarter, and June industrial production growth was the slowest in two years, prompting RBC’s  Hongkong-based Brian Jackson to comment that “There is a risk that China will pull back on restructuring the economy (from producing for export- to domestic markets) if policy makers are concerned that headline growth will fall too far.”  

Balderdash; Beijing wanted growth to slow, if only to head off inflationary pressures. Its trigger point is 8% & everyone is better off if it were to grow at a steady, sustainable 10% clip.  

CHINA IN RECORD JAPAN SOVEREIGN DEBT BUY (FT, Michiyo Nakamoto) 

· In May it bought more Japanese government bonds (JGB) - 735BN yen - than the 541BN yen it had bought in the previous four months. But while the JGBs bought YTD account for just 0.06% of its FX reserves & one analyst said that “the increase ... is significant because it proves that China is diversifying its reserves”, others warn that this didn’t necessarily reflect a growing confidence in the Japanese economy.   

735BN Yen-worth of JGBs in a month is a pittance in a market with an average daily turnover of 19TR Yen. The losses incurred by the ruling party in the recent Upper House elections endanger the government’s plans for fiscal reform, thus making a full-fledged fiscal crisis in Japan in the foreseeable future that more likely (although in that case Beijing will be in a much better position to extract preferential treatment for its investments from Tokyo than it would be from either Washington or Brussels).   

UK UNEMPLOYMENT DECLINES TO 2.47MM (BBCNews) 

· In May it declined 34,000 & the jobless rate to 7.8%, a 12 months’ low. And the number of employed has risen by 160,000 in three months, the most in almost four years.  

But all but 12,000 of the 160,000 were part-time jobs & the number of people out of work for a year or more rose to 787,000, a level not seen since 1997.  

FRANCE VOTES TO BAN FACE-COVERING VEILS (Postmedia News, Peter O’Neil) 

· The National Assembly on July 13^th voted 335-1 (with the left wing parties abstaining) to deny people the right to cover their faces in public places, not just office buildings but also public transportation, stores & markets, and streets (& the Senate is expected to vote on it in the early fall). It calls for $200 fines for women violating the law, but of up to $40,000 (& up to a year in jail) for men who make their wives or daughters cover their faces. While all over Europe there is massive support for this (82% in France, and 71%, 62% & 59% in Germany, Britain & Spain respectively), only 28% of Americans do so. 

It’s all relative : while in Europe as much as 10% of the population is Muslim, some of them aggressively so, in the US it is < 2%, many of them relatively inconspicuously so.     

GREECE ADOPTS PENSION REFORM (Reuters, Renee Maltezou & Harry Papachristou) 

· The socialist government handily passed a bill curbing early retirement, cutting benefits, raising women’s retirement age & aligning public- with private sector pension rules, while private sector workers agreed to a three-year wage deal that froze wages this year & provided for increases in line with the Eurozone inflation rate for 2011 & 2012. And a union-sponsored protest rally outside parliament drew only a few hundred participants. 

This isn’t the beginning of the end, only the end of the beginning : to meet the government’s fiscal targets much more pain must be inflicted on the hoi polloi that they may not accept so equanimously.  

NIGERIAN OIL COMPANY ‘INSOLVENT’ (AP, Bashir Adigun) 

· Finance Minister Remi Babalola said on July 13^th that the state-owned Nigerian National Petroleum Corp. is “insolvent as current liabilities exceeded assets” & needs US$6.6BN to cover its debts & fund its share of joint oil exploration activities with foreign oil companies.  

Not good news for a government that relies on oil for 80% of its revenues. Meanwhile, in Venezuela state-owned PDVSA blames the growing number of oil leaks from its facilities in Lake Maracaibo, one of the oldest Latin American oil hubs, on sabotage. But both are more likely due to the tendency for governments to syphon off so much of the state-owned oil companies’ cash flow for budgetary purposes as to starve them of funds for development & infrastructure maintenance. 

STRAWS IN THE WIND 

· Las Vegas is said to be full of tourists who can only afford to come there because they live in houses they no longer bother to make payments on. 

This makes all consumer demand growth data suspect. 

· Statistics from the US credit agency FICO show that 25% of American consumers now have a credit score below 600, i.e. are deemed to be high-risk borrowers.  

Similarly in Canada the number of people with credit scores > 720 has decreased, &  with < 660 increased. But Canadians on average have 67% equity in their homes, vs. Americans’ < 40%.