ECONOMIC REALITY
AS the graph shows, US unemployment is racing towards 10% without flinching.It is going to be tough to get these people back to work if factories are working at 2/3 of capacity. We have explained repeatedly that this economy which went from a zero savings rate now climbing to a 5-10% rate is on the mend. This will be a long and protracted process and to think that you can pick stock winners in this environment is wishful thinking.
Add to that that hourly wages are flat and there is no impetus to increased discretionary spending if not for governments unwise spending spree. The US (Germany and Italy are in the same boat) like Japan before it has to contend with an aging population. Older people always spend less. No more expense accounts, employer sponsored plans. The gravy train stops. The sooner the government learns its lesson the better for all!
FOR INVESTORS
Asset allocation and currency holdings if anything is much more important and the timing of the conversions is crucial!
We repeat out themes:
1)We have told you that oil prices were untenable. Anything over $70 was caused by banks and speculators using free cash to hoard. That was unwise and it will show up by year end as a loss fro anyone buying over $70.
2)Gold is not a refuge in a deflation era.
3)S&P short is your best asset allocation until employment stabilizes
It is foolish to listen to pundits saying that employment is a lagging indicator. In Deflationary times it is in fact a leading indicator...
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