The unemployment numbers came out on Friday. They were worse than expected. Only 74,000 jobs added – about one-third of the consensus estimate.
Meanwhile, the labor force participation rate – the amount of people either employed or actively seeking work – went from 66% to 62%. That’s a loss of about 5 million from the available workforce… or about 100,000 a month.
In December, more people left the job market than entered it. So, the official “unemployment” rate went down.
The bad news had little effect on stocks.
Investors thought it was good news, but they weren’t quite sure. On the one hand, it seemed to point toward more EZ money from the Fed. On the other, even taking the effects of bad weather into account, it looks as though the economy could be weaker than commonly thought.
In the wake of the report, gold shot up $17 an ounce. Gold may have put in another bottom around the $1,200 level. (More on this from Chris below…)
We’re particularly interested in gold right now – here at the Diary and also at Bonner & Partners Family Office, our family wealth investment advisory – because we see it as an excellent long-term store of wealth. Once its price stabilizes we’ll be keen buyers.
The ‘War’ Goes On
Meanwhile, the 50th anniversary of the feds’ “War on Poverty” came and went last week, without much notice. No flags flying. No speeches. Veterans on both sides took their money and kept quiet.
But that didn’t stop hands from wringing, hearts from bleeding and bellies from aching.
So, the “war” goes on.
But as in many other of the feds’ wars, we don’t know which side we should be on. We’ve got nothing against poverty. Then, again, we’ve got nothing against wealth either. People should be able to decide for themselves what they want out of life.
But during the Johnson administration the rich got the idea that they should exterminate poverty… or at least gain a political advantage by appearing to try to do so.
So it was that on January 8, 1964, LBJ declared war:
This administration today, here and now, declares unconditional war on poverty in America.
That was 50 years and $20 trillion ago.
Jesus Christ warned us that eradicating poverty wouldn’t be easy. “The poor will always be with you,” he said. So far, it looks like he was right.
About 15% of Americans still live in poverty – roughly the same percentage as in the mid-1960s. And that’s despite the government spending about $1 trillion a year on eradicating poverty!
A New Kind of ‘Poor’
But wait. It depends on how you define “poor.”
What we take from the recent article in the Wall Street Journal by senior research fellow at the Heritage Foundation Robert Rector, titled “How the War on Poverty Was Lost,” is that the “poor” are too rich for their own good.
The feds spend $9,000 a year on each of the roughly 100 million recipients of their various means-tested welfare programs. That, and other sources of revenue, give the typical poor person a rather rich life. According to Rector, the typical American living below the poverty level:
…lives in a house or apartment that is in good repair, equipped with air-conditioning and cable TV. His home is larger than the home of the average non-poor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year.
Sound pretty good?
Yes, but there’s more to life than creature comforts. And by attempting to exterminate material poverty, the feds created a new kind of poverty that is far worse.
We have some experience of it: In the 1980s and 1990s we lived in a war zone – a “ghetto” in northwest Baltimore.
There, too, there was plenty of money – at least, there was enough to buy gadgets and drugs. Everybody had a TV. And everybody had alcohol and drugs. There was a whooping party whenever the welfare checks arrived. But it was not a very nice place to live.
When you pay people not to do much, that is what they do. And then, after doing so little for so long, they can do nothing else.
Tales from Druid Hill
The Druid Hill area of Baltimore, where we lived for about 10 years, was the front line in the War on Poverty. Few people had jobs. Instead, they hung around.
Idleness begat disorder. And trouble. In personal lives, family lives and the life of the community. People slept at all hours… and stayed up late at night partying. Children were poorly tended – often out on the street in the middle of the night. The sidewalks were trashy and dangerous. Gunshots were frequent. Violent deaths were not uncommon. The red and blue lights of the gendarmes were never far away.
It had its charms. One of our neighbors had murdered another man in a drug dispute. He seemed like a nice fellow – at least as long as you didn’t get him too mad. He and a few others formed a kind of glee club… singing Motown hits until they passed out drunk.
They could get drunk every night because they didn’t have to get up to go to work in the morning. The work world imposes order. You have to get up in the morning. You have to get along with your coworkers. And you have to get the job done. Mother Necessity is a powerfully civilizing force. Take her out of a community, and the place goes to hell.
Marriage, too, comes with civilizing requirements. You have to get along with your spouse. You have to learn to live together. You have to take responsibility for other people… and cooperate to get the job done.
But there were almost no marriages and no jobs in Druid Hill.
The War on Poverty made them unnecessary. You didn’t need to have a job to support yourself. And you didn’t need to get married to support your children either. The feds would do it for you.
Rector totes up the consequences:
In 1963, 6% of American children were born out of wedlock. Today the number stands at 41%. As benefits swelled, welfare increasingly served as a substitute for a bread-winning husband in the home. […] Children raised by a single parent are three times as likely to end up in jail and 50% more likely to be poor as adults.
The War on Poverty? The poor would be better off without it.
Is Gold Bottoming Out?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Has gold found a bottom at $1,200 an ounce? Looking at the chart below, it certainly looks as though gold is consolidating at this level.
Moving averages show price momentum over time. Gold’s near-term and longer-term price momentum is clearly DOWN. And the current price is below both averages – another bad sign.
Moving averages are lagging indicators. If the trend is already down and the current price is below the recent average, this signals a continuation of a downtrend.
Until the yellow metal can make a sustained break above its 50-day MA, I don’t advise adding gold to your portfolio. Ideally, I’d like to see a sustained break above the 200-day MA – what many investors see as the technical “line in the sand” between a bull and a bear market.
Gold looks to be in the process of bottoming. But the best time to buy will be when it starts to show a clear uptrend once again.
We’ll be keeping a close eye on how this situation develops. Stay tuned for more…