Highlight of the week of June 30, 2014

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Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of June 30, 2014.

  • The Truth about the USA Job report of June 2014.
  • Palladium at all time high.

THE TRUTH ABOUT THE USA JUNE JOBS REPORT:
On Thursday, July 3rd, the USA Labor Department reported that the country’s economy added 288,000 jobs in June and that  the unemployment rate has dropped to 6.1 percent.

Analysts had expected a job growth of about 215,000.

Investors pushed USA shares higher after a better-than-expected jobs report.

The DOW-Jones Industrial, which is made up of some of the biggest global firms, rose 92.02 points or 0.54 percent to finish at 17,068.26 its highest level ever.

Major headlines in the media are positive because US labour markets moved from good to better as June’s figures delivered broad job creation levels.

Despite those positive headlines, we have the following questions:

Looking deeper into the numbers, there are several signs which show that the labour market is not exactly recovering.

  • Full Time Jobs, in June, tumbled with 523K to 118.2 million, which is the biggest decline since September of 2013.
  • Part-Time Jobs have been growing significantly since the financial crisis and surged with 799K in June, which leaves part-time jobs at 28 million.
    • Below chart shows the decline in full time jobs versus the increase in part time jobs in June.
      Full Part Time June_0
  • Labor participation rate is declining and is the lowest since 1977 as can be seen in below chart.
    us-labor-force-participation-rate-us-labor-force-participation-rate_chartbuilder-2
  • The wage growth dropped from US$10.33 in February to US$10.28 in June as can be seen from below chart.
    Real earnings LT
  • More than 70% of the jobs that were created since the financial crisis of 2008-2009, are part time jobs and the actual labour force is contracting.

PALLADIUM AT ALL TIME HIGH:
On Friday, July 4th, the palladium price rose with US$ 5.00 an oz, to US$ 862.00 an oz, its highest closing price ever, as can be seen from below chart.

pd1825nyb

PGM CAPITAL COMMENTS:

USA June Jobs report:

Below chart shows the real picture of the USA labor market of June for Americans 16 years and older.

In short, the positive headlines are great to have; however, after looking into the details, one will realize that things are not as good as they seem.

Of course, what newsletter sellers always fail to mention is that nominal wages are meaningless in a world in which food and energy prices are soaring, and where, as even the BLS admitted earlier, food prices have surged the most since 2011.

In other words, what matters are real, not nominal wages.

Below 7-year chart from the Bureau of Labor Statistics of the USA, shows that real average hourly earnings posted their third sequential decline in a row, dropping from 

US$10.33 in February, to US$10.32 in March, to US$10.30 in April, to US$10.28 in May.

Real Hourly Wages May

As for the Fed, Janet Yellen is not focusing on the labour market as much, especially after taking out the unemployment rate target from the forward guidance. This could suggest that the Fed recognizes the lack of improvement.

However, the next few months will provide more answers, and we need the Fed to explain its understanding of the current situation in terms of lower growth, higher inflation and the lack of improvement in the labour market.

Based on the above we believe that it will take a few more months before experts start tossing the word stagflation a little more casually.

DOW at 17000:
Regarding DOW 17000, it is worth mentioning that measured in Gold, the DOW valued only 12.93 ounces of Gold, last Thursday July 3rd,  compared with its peak of  44.70 ounces of Gold of July 1999.

Below 80-year DOW-to-GOLD ratio chart clearly shows that although the DOW – measured in US-Dollar, which can be printed by Central Banks – has risen to an all time high of 17,068 points, but when measured in hard asset, like Gold, the DOW has been declining since its peak of July 1999.

Palladium:
While investors are very familiar with gold, silver, and platinum, palladium is often overlooked when considering it as a precious metal for investment purposes.

Platinum is 15 times more rare than gold. All the platinum man has ever mined, for example, would fit into a 25-cubic-foot room. Palladium is more rare than platinum.

Beside being a precious metal and subsequent a storage of value, Palladium has an industrial usage as can be seen from below chart.

2005-palladium-demand-by-sector

Palladium, also has an ISO currency code XPD, for which its price similar with other precious metals is priced in dollars, which means that it can be used as a hedge against a falling US-Dollar.

Based on the above we have a STRONG BUY on Palladium.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that sharp corrections may happen in the short term.

Yours sincerely,

Suriname Times foto

Eric Panneflek

 

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