Jan

9

Half a Million Lost Jobs, Civil Unrest, the Obama Rally and More!

Another half a million jobs lost… unemployment reaches new historic highs
So how long until people take to the streets? Army already plans to "quell civil unrest"
Consumers, businesses borrow less… Bill Bonner on why government spending can't cure private withdrawal
Hoping for an Obama rally? A graphic look at market performance during post-election years
Another unfortunate byproduct of the recession: smaller wallets, bigger waistbands

Over 11 million Americans are out of work.

With December's decline, reported by the BLS this morning, jobs were officially shed every single month in 2008. The U.S. hasn't suffered 12 straight months of job losses since 2001, during the "recession" that followed the tech bust.

Not only did he U.S. economy lose another 524,000 jobs in December, but the BLS revised October and November numbers up by about 150,000.

Thus, the unemployment rate has "officially" climbed to 7.2% — the highest rate sine 1993, and notably worse than the 7% consensus forecast.

With 11 million people on the street, The U.S. Army War College is testing scenarios for "use of American troops to quell civil unrest brought about by a worsening economic crisis." The Army believes "economic collapse, terrorism and loss of legal order," says the Phoenix Business Journal, citing the USAWC, "are among possible domestic shocks that might require military action within the U.S."

"'Bring the troops home' may start to have a new meaning," comments the steward of the Richebacher Letter, Rob Parenteau. "The backlash against Wall Street, with Madoff and all, is likely to build as the unemployment rate pushes closer to 9% this year. Gun sales and ammo have been through the roof since Obama's election, partly on fear he will restrict the right to bear arms, but it is more than that. One must wonder how he will respond if the inner cities start to burn again. With state and local municipalities strapped, police could find themselves overwhelmed.

"Can't happen here… all that you fear, they're tellin' you… can't happen here."

"The macro deterioration in the wake of the disruption of the old credit bubble-based order is, as Dr. Richebacher warned, likely to become severe enough that social unrest will not be an issue just in China or Greece. I hate to say it, but erosion of the rule of law would be another plus for gold, along with increased central bank monetization of the financial system. Let's hope it doesn't come to this, but interesting that someone in D.C. is already preparing for worst-case outcomes."

The market collapse, credit crisis and soaring unemployment have finally caused consumers to stop borrowing … at least for now. Consumer borrowing fell by $8 billion in November, the Federal Reserve reported yesterday. That's an annual rate of 3.7%, the biggest since 1998, three times larger than October's contraction and far from the unchanged levels the Street anticipated. In dollar terms, November's $8 billion decline is the largest since the Fed started keeping track in 1943.

Still, total U.S. consumer debt outstanding still dwarfs that of any society in human history. U.S. consumers collectively owe over $2.5 trillion, not including mortgages. That's 18% of the annual GDP of the nation.

Similarly, small business loans plummeted 57% in the fourth quarter, the Small Business Administration reported yesterday. Loan activity was slashed by more than half when compared with the same quarter in 2007. The total dollar value of those loans fell too, down 40%, to $3.2 billion.

The U.S. government "wants people to spend like there was no tomorrow," writes Bill Bonner, looking at the numbers. "But people are acting like every day is tomorrow. Instead of spending, they are beginning to save.

"Still since so many Americans live without substantial reserves — savings — the pressure on Messrs Obama and Bernanke to 'do something' will increase. What can they do? Spend money…

"Replacing private spending with public spending, alone, is a task that would have staggered Hercules. In the past, the U.S. consumer could be counted on as the planet's chump of last resort. He didn't have any money. Still, when an economy slumped, he nevertheless kept spending — buying on credit. Gradually, the whole world economy came to rely on him. But now he's stopped borrowing; in the last 12 months, net consumer lending has collapsed. With neither more income nor more credit, he has had to stop buying. And without buying from the U.S. consumer, the world economy is dying in a ditch.

"Of course, U.S. rescue teams are on the scene. But if the U.S. government is going to save American households, it practically has to save every gadget maker in China… every call center in India… every rubber plantation in Malaysia… all the winemakers in Bordeaux — all the industries and jobs that relied on U.S. consumers. Otherwise, prices fall."

Of course, to keep up his own spending Uncle Sam needs an ever-increasing source of income too.

Citing pressure from U.S. federal authorities, Swiss mega-bank UBS said yesterday it will close 19,000 accounts that the IRS believes to be tax havens for American investors. The bank will write checks for the balances in house, or transfer them to other accounts… either way creating a paper trail for IRS hounds to follow.

"You can either take that check," an anonymous UBS client told The N.Y. Times, "and throw it in the woods, or deposit it somewhere and get busted. There's nowhere to hide."

According to the IRS, UBS is helping American investors evade around $300 million in taxes each year. You can bet your last dollar, if you've got any left, UBS won't be last target of IRS probes.

The stock market endured a choppy session yesterday as traders writhed in anticipation of today's jobs number. In the end, major indexes were little changed. The S&P 500 gained 0.3%, and the Nasdaq climbed over 1%.

The Dow, however, fell 0.3%, thanks mostly to Wal-Mart. An unsightly crack split open in the mighty retailer's armor… Wal-Mart's fourth-quarter same-store sales came in well below the Street's expectations, and the mega-retailer slashed its fourth-quarter earnings forecast by 10%.

Until yesterday, Wal-Mart had been seemingly recession proof — the consumer destination of last resort. Now even Wal-Mart looks weary.

Curiously, while the rest of the world stumbles, Monsanto, the planet's biggest seed company, doubled annual profits in the fourth quarter. The company credited strong herbicide and soybean seed sales for its profits. Spokespeople didn't give any indication as to whether its balance sheet was genetically altered or not. Caveat emptor.

If you're planning on a renewed "Obama Rally" in the market, you should check out this chart. Whether he brings us "change" or not, odds are against him.

The first year of any president's first term — Democrat or Republican –has typically been worse than others, as far as the Dow is concerned.

The dollar actually greeted the jobs numbers this morning with a smile on its face. Sure, 524,000 jobs lost is bad… but it's not the 600,000-700,000 thousand most expected. The dollar index popped almost a full point on the news, up to a score of 82.3 as we write.

Thus, gold is getting punished. Traders pushed the spot price up yesterday, as high as $860, in anticipation of a dreadful jobs report. But the lack of bedlam has pulled gold back down, to $850 as we write.

Oil is still in a state of decline. The front-month contract boomed to $50 last week, only to bust back down to $40 today. Despite some "Hey, it's not so bad" attitude in the stock market, crude oil will end this week down.

"Obesity is a toxic result of a failing economic environment," warns Adam Drewnowski in our last 5 nugget today. Drewnowski is the director of the Nutrition Sciences Program at the University of Washington. "People are going to economize, and as they save money on food, they will be eating more empty calories or foods high in sugar, saturated fats and refined grains, which are cheaper."

Drewnowski's research shows that when times get tough, Americans quickly abandon expensive diet programs and limit purchases of "healthy" foods like fresh fish, produce and whole grains.

"I have a suggestion to make to President-elect Barack Obama," writes a reader. "Instead of giving taxpayers $500 refunds on their taxes as part of a stimulus package, make it effective only on condition that such amount be used in buying American-made products. This would create demand for such goods, from cars and trucks to diapers, and put Americans back to work. This is called killing two birds with one stone — it bails out the Big Three and all U.S. manufacturers in general and saves workers' jobs.

"In addition to this, to help a wobbly Wall Street, he could waive long-term capital gains taxes for 2009/2010, to help shore up retirees' 401(k)s and children's 529 college tuition plans, all of which took quite a walloping in 2008."

"It has occurred to me," writes another, "that Mr. Obama is not being accorded sufficient respect. His stimulus and spending plans may seem all but guaranteed to continue the mugging of the dollar, prolong the recovery and guarantee high inflation, but maybe we need to assume he understands this. The man does not seem mentally challenged, like the current occupant, and it strikes me as dangerous to assume he does not understand what he plans to do.

"Perhaps he understands exactly, but is viewing it in the context of his desire to bring about the 'transformation' of American society. If economic catastrophe is, indeed, on the horizon and he sees a way this will facilitate his plans, then why should he not assist that to occur, with the unwitting connivance of the gaggle of dunces holding congressional office and in the mainstream media who do not share his comprehension of the likely result, nor, perhaps, his goal of transformation?

"Frankly, who knows the truth, but it may be unwise in the extreme to assume he is not proceeding according to his inner plan."

The 5: Heh. Now we know who's been buying Treasuries at 0%.

"We may well all be freaking doomed, but it appears Larry Flynt will die happy!" exclaims the last. "Is it possible there was also a BUBBLE in porn? I mean, you almost can't search any subject on the Internet without some sort of porn site popping up on the go-to list. With so many sites to pick from, it must have made for extreme competition. And now with fewer discretionary dollars (or what ever currency) to spend, consumers are backing (I did type 'backing') off on porn purchases, which just seems to follow suit. What's a porn star to do when they can't make money THAT way? What's this world coming to?"

Enjoy your weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. The latest installment of our Emergency Retirement Recovery Series is alive and kicking. You may have received an e-mail from Joe about it already. In this episode, your wild west trading adviser John Wayne Burritt will show you how to earn income on your existing portfolio… even if you're sitting on losses from 2008. The session is free, so have a look. Click here to access Income on Demand.

P.P.S. If you tuned into VH1 last night to catch the Critics' Choice Awards, you know Man on Wire beat out I.O.U.S.A. for the Best Documentary Feature. We forecast Man on Wire, a story about some French dude who tightroped his way between the World Trade Towers back in 1974, will be nominated for and win the Oscar this year. Not our choice, of course, but we do try to be as truthful as possible here in The 5.

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