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Today I'm going to show you three charts Obama hoped you'd never see.
Brace yourself.
You're about to get a very different view of the "recovery" picture that the administration keeps painting for us.
This one, for starters, is accurate.
It also explains why incoming Fed Chair Janet Yellen can't cut stimulus, which is one of the reasons you have an opportunity to make some money here... especially if you follow my "mid-December plan." More on that in a minute.
Let's start with the charts...
The White House positively hates this first one...
Charted Truth No. 1
U.S. payrolls are 1.5 million jobs short of where they were in 2008, and the "partimeification" of America continues unabated.
[Click to Enlarge]
Yes, the White House hates this chart, because it shows - in excruciating detail - that the recovery they keep trying to convince the rest of us is happening is little more than a complete evisceration of our labor base.
At a time when we should be seeing robust growth, what we're seeing is a huge percentage of productive workers shunted to the sidelines. Actual unemployment is more likely 14% to 17% if you factor in the under-employed and those who have given up looking for work.
Yellen's already tipped her hand in this department, incidentally, noting that "below average" employment is reason enough to prevent her from raising interest rates - and, presumably, from tanking the stock markets.
Given that the Fed's current two-pronged mandate emphasizes employment over inflation, she'll hammer on this notion until the numbers either move the way she wants or somebody can manipulate them to match reality.
Charted Truth No. 2
Employee compensation as a percent of GDP is down to the lowest levels ever recorded.
[Click to Enlarge]
This is another chart that fairy-dusted federal policy makers don't want made widespread knowledge.
The White House is trying desperately to convince the American public that things are improving, as are politicians from both parties who are anxious not to lose their seats at a time when trust in their abilities has dropped to all-time lows.
Despite having spent trillions on liquidity injections, average workers are getting squeezed harder than ever before. So while profitability is now at record levels - with the average S&P 500 company generating 9.9 cents per sales dollar, according to Bloomberg - compensation is headed for the basement.
Decades of shoddy economic policy are coming home to roost, and there's not a damn thing they've done about it except serve up their own self-interested legislation while selling mainstream America down the river.
Not only are huge swaths of workers being "partimeified" in an effort to further boost margins, but wages are falling well behind GDP growth. According to the Bureau of Economic Analysis, as reported by Bloomberg, the ratio of U.S. wages to earnings is a mere 3.2 as of Q2 2013... and falling. By comparison, that same figure averaged 4.7 from 1947 until the beginning of the financial crisis, so we're talking about a 31.9% decrease.
Individual company data is even more graphic - pun absolutely intended.
Disney boosted operating margins from 13% in 2005 to 21% while terminating loads of workers and closing offices. Defense contractor Northrop Grumman has bluntly raised expectations by cutting jobs to boost net income. Its profit margin rose 56%, from 5% in 2009 to 7.8% in 2012, as noted by Bloomberg.
This isn't just a U.S. problem.
In Japan, for example, Toyota, Mazda, and Panasonic have all cut tens of thousands of jobs and closed once thriving production lines while offshoring remaining production.
Even Europe, with its comparatively inflexible labor laws, is feeling the bite despite being the slowest to cut labor and, as a result, boost profits. Italian labor unions, for instance, are trying desperately to hold on to nearly 200,000 jobs split amongst 150 companies looking to cut them. France, Germany, Spain, and England are in the same boat, with companies struggling to make a go of it.
Unfortunately, the issue may be moot.
Big American companies like Ford, Whirlpool, and GE are simply selling off European operations - or closing them entirely - to save their bottom lines from the hassle, not to mention the earnings impact. Asian firms like Sony and Fujitsu are rumored to be interested in dumping European facilities, too, and for the same reasons.
I believe incoming Fed Chair Janet Yellen is keenly aware of the international implications of cheap capital and expanding margins. So she'll do everything she can to boost both, knowing that an estimated 40% to 60% of S&P 500 revenues come from overseas operations.
Charted Truth No. 3
Earnings have doubled since October 2009, while sales growth is slowing.
[Click to Enlarge]
Source: FactSet Earnings Insight, Standard & Poor's Corporation, via Yardini.com
Under normal market conditions, slowing revenue growth and record-high profit margins are not a recipe for continued growth unless earnings can support the equation.
This time around, they are.
That's because companies are willing to invest in potential productivity growth as long as the Fed provides the cheap capital needed to fuel it. By the way, this is what people mean when they talk about what was the "Greenspan put," which became the "Bernanke put," which is now set to become the "Yellen put."
Normally, companies would be bracing for slowing activity. But this time around, they're looking for additional earnings expansion using a trifecta of exceptionally low wage rate pressure, historically low debt service costs, and share buybacks that could boost year-over-year EPS growth by upwards of 1.5% to as much as 2%.
Yellen won't risk upsetting this delicate balance if for no other reason than to serve Washington's interests. I can't imagine the pressure she's under.
You Can Take Advantage of This Situation
The $14 trillion we've seen created out of thin air via a five-year rally that began 165.35% ago in March 2009 is just getting warmed up.
As long as money remains cheap and companies can cut costs further while also overtly resisting new full-time hiring, profit margins will continue to increase.
Bloomberg and S&P data pin bottom-line growth next year at approximately 10%. My own expectations are a little more aggressive.
I believe 11%-12% bottom line growth is more likely, as long as Yellen keeps her foot on the gas. I say that if for no other reason than the markets have perpetually underestimated how adept corporate America is when it comes to squeezing profits out of thin air. So rising equity prices are a means of catching up.
And the key to capturing that?
With very few exceptions, I think that "glocals" are the place to be for the next 12 months. That's what I call companies like ABB, Raytheon, and AFLAC - firms with globally recognized brands, internationally diversified sales, strong balance sheets, and disciplined management. I'm game for small caps, too, but more as "spice" than "sauce," so to speak. (If you follow Sid's Small Cap Rocket Alert recommendations, you know a dash of the right "spice" can go a long, long way.)
Dividends are exceptionally important right now and should be a source of renewed emphasis for every investor, because they offer cold hard cash as compensation for the ownership risk you take when you buy them.
I'm also increasingly a fan of bottom fishing into 2014, because I think very aggressive tax harvesting will put the best companies in several key sectors on sale. If you're not familiar with the term, that's what people call selling big winners to harvest losses that offset the capital gains normally incurred with big winners.
My favorites at the moment include Chinese industrial fabricators, resource plays, and even REITS that have been trashed to the tune of 40%, 50%, or even more.
But act quickly - tax-loss sales have historically peaked in mid-December, which sets up a "recovery rally" of sorts into 2014.
And you just know the White House would love to tout that "it" made that happen come mid-term elections.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.
England is part of the United Kingdom, or UK.
This doesn't have anything to do with the above piece. Having been following the Obama train wreck I have been thinking that investing into a stock having to do with funeral home, caskets, etc. aside from my generation getting older with Obamacare giving worse health care and less doctors, there should be more people dying. What are your thoughts on this and are there any stocks that have to do with funeral home?
Hello Mr. Linback.
That's a very interesting twist and a logical extension of current medical trends. It's also one that's very hard to profit from because the funeral business tends to remain largely private. However, we have followed stocks in the Money Map Report like Becton Dickenson (NYSE: BDX) that are active in the medical field with an emphasis on single use or terminal care. Perhaps that may give you some ideas.
Best regards and thank you for your thinking!
Keith :-)
Fitz-Gerald is absolutely correct. These three charts–and maybe a fourth showing Obama's dramatic increase in food-stamp recipients, and a fifth (I'm thinking pie chart) that shows his beclowning failure to launch a website no matter how much time and money he has to do the job–are Obama's legacy. This is the most succinct, straight-forward, and inarguable characterization of Obama's presidency I've seen.
The Obama presidency's short-term effect will be to have opened the curtains behind which the public- and private-sector bureaucracies that he represents have been hiding. A creative novelist might foresee ensuing "Obama laws," the first of which will mandate a reading, writing, and logic test as a prerequisite to voter registration . . . because Obama's follies can be undone and/or remedied, but what do we do with a population of voters who continue to support him and, given the chance, would vote for him again?
No more Impeachments and High Treason and Murders game no indictment numbers pilling up
Notice that, like clockwork, recessions happen right after an increase in the compensation:GDP ratio. (Or is does the ratio drop right at the beginning of a recession.) Is that from GDP dropping, compensation going up or a combination of the two?
Since 1970, the drop in the ratio has been caused mostly because of a rise in technology. The greater the technology usage, the less need there is for human interaction. So it makes sense that the ratio drops. If it wasn't dropping, there wouldn't be a need for technology.
Nevertheless, as far as the economy, no matter what the governments of the world do, we have not seen the bottom yet. A higher percentage of people are going into retirement in quite some time, hence they will be spending less of their income. The American and world economy will suffer for several years.
Also, each time the government/fed is pumping more money into the economy it has less of an impact on markets and the economy.
Get ready for a rocky ride ahead and keep your powder dry. In a couple of years, there will be some extraordinary deals available.
Editor’s note – a reader calling himself “Kodi” sent in such a bitter response to Keith’s column this morning that we cannot print it here. Still, Keith felt the need to reply because it’s important. – Dave Zeiler
Good Morning Kodi.
I trust your day is off to a great start. Thanks for being a subscriber and for the time you took to send me your thoughts today.
If you want to calm yourself and have a rational discussion about my article, please take a minute to re-read it. Before you do, however, be prepared to conclude that what’s happening today is not the result of President Obama nor President Bush. It’s not a political problem for the Republicans or even the Democrats or Tea Party. It’s not a racial problem nor is it one limited to economic strata on any level. The financial train wreck we’re living through is an American problem affecting everybody who lives here in one way or another.
Simply put, President Obama is the sitting President of the United States and that means what’s happening now – regardless of who caused it or when – is happening on his watch. If Mitt Romney had won the election and the circumstances were the same, I would have substituted his name accordingly. Today’s economic reality is what it is because decades of bad economic decisions spanning multiple administrations on both sides of the aisle are coming home to roost.
If you’re beginning to think that I don’t care about winning your personal approval, you’re right. As for your characterizations of me, I am saddened. To my knowledge, you and I have never met nor have we spent time together which means that your observations are little more than assumptive speculation.
Here’s the thing…whether we agree or not is irrelevant. Your comments speak volumes about what isn’t working any longer in this great country of ours. You call me names and insist that I have opinions that I don’t while also trying to deflect reality. You profess not to be a racist nor even a democrat in the tail end of your email which I find odd unless that is somehow a sore spot for you or a form of reverse discrimination in an attempt to justify your vitriol. But I don’t know because, again, we’ve never met.
This country is struggling because there are a growing number of people who insist that their “take” on something is reason enough to lash out at others who hold different opinions from their own.
The way I see things, if we are to recover economically, politically, and socially from what I submit is the worst economic situation in modern history, the key is not abusive tirades launched behind the anonymity of the Internet. Dialogue is the answer for it establishes common ground rather than reinforcing differences.
In closing, I do hope we have the chance to meet. Varied opinions are what make Money Morning the great place it is, especially when they are voiced by passionate people such as yourself – – never mind the name calling, bitterness and condescension in your email.
Best regards,
Keith
Hillenbrand inc (hi) nyse
Um, your first chart essentially show part time job growth flat and full time job growth vigorously rising since early 2010. I am not sure what your definition of "unabated" is.
Also, I tire of hearing of "actual" unemployment. Actual unemployment is what is reported using the metrics of the BLS report. If your metrics are different, that doesn't make your number any more or less "actual".
really, the govt numbers are "actual". says who, the govt? with all their adjustments they can torture the data any way they want.
The chart shows exactly what Keith stated. Part time jobs are much higher than they were in 2008 and full time jobs are much lower than they were in 2008. Neither is a positive sign. This is all despite the feds unprecedented expansion of the money supply.
I have friends who for too long have been actively looking for full time employment comparable to their work experience. They have not had much success. Try telling them that the economy is prospering and that unemployment is going down. If you trust the BLS report, then good luck in all your endeavors.
Unemployment remains a persistent problem in the US economy, which probably has another rough tumble to take and transition to make before things really look strong again. There are several reasons unemployment remains higher than desired. 1) technology is replacing human labor more and more and at a faster and faster rate, not much to do about this one, just human progress and change that will create a painful transition period. 2) many factory/assembly jobs have been outsourced overseas. corporations can build the product abroad much cheaper and then ship it back here to sell without tariff or quota to consider. good news is we buy stuff for a lot lower price. bad news is many people get pink slips. 3) keeping interest rates this low for this long has, in some sense, and in certain industry, made capital cheaper than labor. 4) volatility. business loves good times and can manage through the bad times ( if run right ), but the amount of uncertainty created by obama-care, us dollar and interest rates outlook ( how long can the Fed keep the genie in the bottle ), makes it tough, especially for the small business owner, to make significant expansion plans ( including hiring ). to much hunkering down and closing the hatch in case of the worst or big time money on the sidelines right now. 5) government assistance. Over half of our population is currently on some form of gov assistance. with the value of, and availability of these programs, many are simply choosing to drop out of the labor force and receive uncle sam check of some kind. 6) there is more disconnect between labor and enterprise now than most realize. skills acquired and those desired sometimes do not match. there is growing outcry over wage stagnation and low starting salaries, business says they cannot give much more. many want full time work, they are hiring part time right now. We are in a painful place right now economically that there is probably no painless road out of.
The problem is that a company exists to make profit for itself and its shareholders! It is not the business of companies to create jobs but rather to cut jobs for the sake of increased profits. Cannot understand why governments do not admit this.
stop spreading your conservative crap, theres plenty of bigger and better sites doing agreeing with certain points, but they look at both sides of the conflict unlike this one
Please read Keith's comments above.
How about it Keith? Add all the other charts suggested above and put them in a future update. Too bad we can't get a chart of the lobbyist money influencing our elected lawbreakers. It is also too bad they do what is good for their personal wealth and not what is good for America. Lobbyist money is a cancer in our political system. Who polices our elected who bow to this and can punish them? Don't answer, voters, because even though as a group they have the lowest approval rating, 91% keep getting re-elected. So even voters are "me first" since they get the local spoils of the pork put into bills. They use the myths of class warfare, to deflect their shortcomings. Social Security is not broke because it is underfunded, it is broke because they plundered the funds and let the next administration deal with it. They tell us we need targeted inflation, a hidden tax on all of us, which would better be described as "targeted currency devaluation". This is being played out right now as there are demonstrations for higher wages so they can feed their families because of, drum roll please, targeted inflation. Guess what higher wages do? If you said more inflation, give yourself and A, because not one in a hundred, (outside of those subscribing here) even have a clue to the hidden tax of targeted inflation. As the cartoon character Pogo observed years ago, "we have met the enemy, it is us". And as Winston Churchill observed, Americans can be counted on the do the right thing, after first trying everything else. Will we ever? We are not becoming a diverse nation of different races, we are becoming a nation of as a whole, "dumbed down" citizens not caring enough to correct it.
KEEP UP THE GOOD WORK KEITH!! TELL AS YOU SEE IT! THATS WHY I READ THIS AND GO TO OXFORD MEETINGS TO SEE AND LISTEN TO YOU. DON'T PANDER TO ME OR OTHERS, GET ENOUGH OF THAT IN THE MEDIA
Thank you for the kind words Mr. Peterson. I am humbled by the trust that hundreds of thousands of investors like yourself place in me and in my thinking. It's something I take very seriously because I want to ensure we all have a better future…together. You made my day (as well as that of every Money Morning team member who works tirelessly behind the scenes to support what I do)!
Best regards,
Keith :-)
I hope I'm wrong but I doubt it. Obama is in office for one main reason. I think you know why – but not what you think its a lot worse than you want to know. Look on the $1.00 bill and look on the back and research what you see and see if that doesn't make sense and why He is doing what He is doing to make this country go down hill. Next year is going to be rough. don't have to believe me go ask someone who is truly connected and knows from the inner man of self. what is really impt. Are you living for right this minute on this side or are you choosing to live for eternity? there are only 2 choices and both are very real – one is pleasant and one is not. which will you choose. I thank you Keith for helping me to know how to invest better and keep up the good work but don't let it dominate your life. It may be a part of your life, but its not the most impt thing in your life. Thank you again.
Good morning Ms. Denison!
I have a feeling you and I would get along fabiulously. And you are correct…while I place tremendous importance on investing, there is so much more to life than money. I find that true wealth is defined by who we are…husbands, wives, fathers, children, friends…and more. I'm certainly not perfect by any stretch of the imagination but the possibility of leaving this planet of ours a better place is worth the pursuit.
Thank you for the encouragement and the kind words,
Keith :-)
Sir:
Succinctly. Having left out the observation of an immense low wage, poorly skilled immigrant labor force that suppresses a natural increase in wages is an upmost concern for our poor economy. As long is competition for low wage jobs prevail, fueled but an abundance of replacement workers, and a service industry based economy, we can only expect a stagnant or sluggish economy at best.
Please understand, this is intended to be nothing more than a business observation.
Thank You