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Kurt Vonnegut once said “Laughter and tears are both responses to frustration and exhaustion.” When it comes to watching the financial media discuss the “rosiness” of the US economy, frustration and exhaustion are two words that definitely come to mind.

Prediction based on fundamentals is a truly basic concept for analysts in the world of finance. Unfortunately this task has become so daunting that it now requires an added level of understanding when assessing world market trends. One must fully understand the egregious nature and often misleading information that continues to be spew by some of our most trusted sources. Take, for example, two of the most important hallmark economic measurement statistics in housing and employment.

Employment Reporting

The more I hear that unemployment is consistently going away the more I seemingly become disenchanted with the franchise of news media and their innate inability to do their job; to be investigative and thorough in the reporting of numbers that impact literally everything we understand about the world’s largest economy.

This is why I like going back to one of my most favourite charts. This chart is often used to look at the true picture of employment in the US. It provides an accurate barometer where it stands right now. Remember the US is currently reporting an unemployment rate of about 7 percent which sounds pretty good having been much higher not too long ago:

Civilian Employment-Population Ratio

If I was to believe that seven percent was the case and the falling unemployment number, then this would be a clear sign the economy was improving. However, this chart proves that concept wrong. The employment-population ratio measures the percentage of the working age population that actually has a job.  As you can see, this number fell intensely during the last recession and since the end of 2009 it has remained abnormally flat.  In fact, it has stayed between 58 and 59 percent for over 50 months now.

However, mainstream financial media have stated clearly that we are in an employment recovery stage and they quote meaningless numbers or run large reports when the timing suits them, such as when seasonal employment is added at Christmas time. This merely distorts the truth. The lack of progressive investigative journalism and the lack of willingness to identify these structural holes in analysis of the markets has led to otherwise “pseudo-positive” news being released. This has served to malevolently obscure the direction the economy is actually heading.

What is actually happening right now is that many millions of workers have left the workforce. They actually run out of social assistance and they have stopped looking for a job. How do we know this? Take a look at this chart showing the labour participation rate in the US currently:

Civilian Labor Force

Take a good luck at this chart because it proves that based on this data it is easy for the FEDS in the US to hide the true rate of unemployment. In other words if the participation rate were the same as it was say just in 2008, unemployment would currently be at a staggering 11-12 percent. 

The numbers do not really take into account those that have simply “fallen off the table” and that is a travesty to me because millions of us in both the US and in Canada are making decision about their financial future without being educated properly. These are reasons why some investors overlook investments such as gold or silver bullion. If the economy is improving many believe the “risk off” investments should not include gold and silver.

Housing Sector Reporting

Another disingenuous or at least ambiguous area of reporting is in the housing sector, arguably the single largest economic gauge that there is. Housing is after all the single largest investment people usually make in their lifetime.

This week many readers might note the abundance of headlines surrounding the housing market, in particular in the US, which is said to have reached “the highest number of housing starts in the month of November in five years.” This is great news if you are an investor because now you can head out and make decision about your financial future and be assured of those decisions because if housing is getting better, then the economy must be improving, right?

The housing market in the United States is not healthy, no matter how the National Association of Homebuilders, Realtors, Mortgage Brokers, Bloomberg, CNBC, New York Times or whoever tries to peddle it otherwise.

According to RealtyTrac, the company which provides information on defaulted and foreclosed homes in the US, 49 percent of all home purchases in the month of September were all cash deals, implying that the traditional homeowner has now become only half of the housing market (and falling) as institutional investors such as Blackstone set all-time records in purchases.  Compare the latest number to only 30 percent of housing transactions that were all cash one year ago and less than 20 percent for most of pre-2008.

Some other statistics from RealtyTrac:

  • Since 2011 over $1 Trillion of real estate has been sold in the United States
  • 54% of those were all cash purchases.
  • In 2013, speculators and institutional investors have already purchased 370,000 properties, more than both 2011 and 2012 combined.

As is implied by the increase in institutional all cash purchases, mortgage purchase applications have fallen off a cliff, now down 20 percent from their May highs and showing no signs of life.  Homes that are sold are continuing to be sold to less and less traditional home owners.

Meanwhile interest rates for mortgages are moving up quickly making affordability, especially for first time home owners, a very difficult proposition. But of course the headlines do not tell you that.

Speculators are fueling the home purchasing and this is a trend which is set to continue as investments such as REITs and private placement real estate ventures grow dramatically. This leaves little doubt in mind as to the one-sidedness of the current home picture in the world’s largest economy. It is not good, it remains abundantly speculative and those in the know are clearly letting this be known in the stock market where housing stocks have been some of the lowest performers of the S&P all throughout 2013. “REAL” demand is drying up folks and the home buyers of yesterday that drove the economy to some of the highest highs in the past number of decades predicated on the notion of a growing middle class are withering away.

Is the risk on? You better believe it. I remain dedicated to showing all the behind the scenes data and will continue with inflation information and more in the next article in the New Year. In the meantime, my plan is to add more “risk on” assets to my portfolio as price permits and take advantage of this deceitful misleading information the best way I know how, by buying gold and silver.

Let me wish you all a warm healthy and prosperous Merry Christmas and Happy New Year, or whatever you might celebrate, and may Santa bring you all a little bullion to stack and put away.

Yours to the penny,

Darren V. Long


Darren V. Long is Senior Analyst with Guildhall Wealth Management Inc. Darren is a speaker, writer and financial commentator on gold, silver and the economy. He can be heard weekly on “The Real Money Show” on 640 and 740 am radio in Toronto discussing all facets of the precious metals markets. Listen to replays of all shows on iTunes. 1.866.274.9570 www.guildhallwealth.com and www.guildhalldepository.com or email at: investing@guildhallwealth.com