Great Depression Online Archive Issue:

Exceptions to the Rule

Great Depression Online
Long Beach, CA
June 08, 2010

Inside This Issue You Will Discover…

*** Expanding the Government Dole
*** Hungary’s Very Grave Condition?
*** Exceptions to the Rule
*** And More

“It’s what you learn after you know it all that counts.” – John Wooden, RIP

Expanding the Government Dole

The Labor Department announced last Friday the U.S. economy added 431,000 jobs in May.  Shortly after the announcement, President Obama told a bunch of truckers in Hyattsville, MD, this was proof the economy is “getting stronger by the day.”

Was there trucker in attendance who believe him?

At first glance, 431,000 new jobs is quite an achievement.  Unfortunately, when Wall Street scratched a little below the surface they uncovered what must be, without a doubt, nothing more than blatant propaganda.

~~~~~~Special Report~~~~~~

In a severe sell-off, 99 percent of all stocks can fall.  Approximately three out of four stocks go down is a bear market.  In that case, even a basket of “defensive” or “quality” names isn’t likely to help your portfolio.  What good are dividends when you’re losing far, far more through capital depreciation?

Read More

~~~~~~~~~~~~~~~~~~~~~~~~~

The DOW grunted and grimaced…then swooned 323 points before the closing bell rang.  Here’s why…

Of the reported 431,000 new jobs, 411,000 of those jobs were for workers hired by the federal government to help with the Census…most of those jobs will end in a few months.  But that’s not all.  From what we gather, the Census Bureau may be double counting jobs for workers hired, fired, and rehired, while other new hires may work just one hour a month.

Regardless of if the census jobs are phony or not, they won’t do a lick to improve the economy.  For they produce nothing of value…they just expand the number of people on the government dole.  In other words, according to the government numbers, the taxpayer must now make payroll for 411,000 new government workers.

But things could always be worse…

Hungary’s Very Grave Condition?

Europe’s a basket case.  And the euro’s on the verge of going the way all paper currencies eventually go…into the dustbin of history.  Things have gotten so bad Iran’s even dumping the euro in exchange for dollars, if you can believe it.

But it’s not just the European Union nations having problems.  Eastern Europe’s got problems too…

News came Friday from a spokesman for the Hungarian prime minister that – get this – the previous government had fudged their economic numbers.  According to the spokesman this means Hungary is in “a very grave condition.”

Yet, by Saturday, Hungary’s government had changed its tune.  No longer did it face similar problems to Greece and suddenly its public deficit was containable.  We’re confident the true condition of Hungary’s economy will be revealed in good time.  We’ll wait patiently for the answer.

Exceptions to the Rule

Once again, deflation seems to have the upper hand.  Stocks are down, oils down, and yields on Ten Year Treasury Notes have plumbed 3.18 percent.  The only asset going up is gold…but in a deflating world that too could come to an abrupt end.

During a depression, money becomes scarce.  In other words, it becomes more valuable.  Goods and assets – including gold – become cheaper as money becoming more valuable.

But there are always exceptions to the rule…

Over the weekend former president of Shell Oil, John Hofmeister, said gas prices will go to $6 or $8 dollars per gallon if the U.S. stops offshore drilling.

Do these numbers account for deflating asset prices?

Who knows?  The point is, even in the midst of depression, if supply drops faster than demand, prices still go up.  Perhaps, from a purely academic perspective, rising gas prices within the context of a deflating world would be quite interesting.  But, from a practical standpoint, it would be quite a jam.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  On May 20, when the DJIA lost 376 points, 497 out of the S&P 500 stocks ended the day lower.  (In other words, 99 percent of stocks fell.)  Yet a financial television host recommended “defensive” names the day after.  Wouldn’t his viewers be better served if he said, “You may want to step aside for now”?  Apparently, stocks of one kind or another must be recommended -- no matter what the market is doing or is expected to do.

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