05/06/11 Baltimore, Maryland – Today, traders are celebrating that the U.S. economy added the most jobs in nearly a year. Or so they’re led to believe. Let’s examine the payroll data first:
- The economy supposedly added 244,000 jobs in April. The private sector added 268,000 jobs; government cut 24,000
- However, 175,000 of those new jobs can be attributed to the BLS’ “birth/death model” – in which the economists guess at the numbers based on the launch of new businesses and the demise of old ones.
In other words, nearly three-quarters of these new jobs are a statistical invention. And most of the rest are the 62,000 people McDonald’s hired in a one-day job fair publicity stunt.
The separate household survey is nothing to write home about, however:
- U-3 unemployment, the number the media latch onto, rose to from 8.8% to 9.0%
- U-6, the more honest figure that includes people who’ve given up looking for work and part-timers who want to work full-time, rose from 15.7% to 15.9%.
As always in these situations, we turn to the two figures the statisticians can’t game:
The red line is the percentage of the working-age population in the labor force. The black line is the employment rate of the overall population. Both lines are stuck at the same level they were when Hollywood inflicted the first Police Academy movie on an unsuspecting populace and Paul Volcker was getting kudos for “slaying inflation.”
But as long as the narrative is that job growth is on track – whew, what a turnaround in just 24 hours – we will get results like this…
- The major stock indexes have recovered most of yesterday’s losses. The S&P is back above the key level of 1,344
- Gold is within $5 of $1,500 again, and silver pushed past $36
- Copper, which fell below $4 a pound yesterday, is back above it today
- Crude oil is only 30 cents away from $100 again.
After this correction, the gold-silver ratio – very simply, the dollar price of gold divided by the dollar price of silver – is back to 41 this morning. One week ago today, when the metals were at record highs, the ratio was 32.
This number is important in terms of the long-term trend. A few years ago, Tennessee bullion dealer Franklin Sanders assembled this chart going back to the Coinage Act of 1792. We’ve updated it to the present day:
In the century since the creation of the Federal Reserve, the ratio’s been all over the place. The key is that it’s bottomed at or around 16 three times in the last century – 1919, 1968 and 1980.
Sanders is among many who believe long term, it’s headed back toward 16. Canadian fund genius Eric Sprott is another. Sixteen was the ratio for centuries before massive silver discoveries in the Americas in the 1800s.
With gold at $1,500 today, a 16:1 gold-silver ratio implies $94 silver. That’s a compelling case for silver… and with the ratio reverting for the moment above 40, silver’s on sale.
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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Where’s The Mogambo Guru?
as long as a handful of the boys in new york are able to manhandle spot prices in new york, and as long as companies like tulving enforce that new york diktat on the www, then gsr will be whatever tptb want it to be. if gold and silver ever again assume a natural market ratio be assured that the ammo cans in which you are storing them will be worth more than their contents.
As usual accounts, stats are crafted by the finest craftsmen. That’s why brilliant craftsmen are born. Peeping from all angles, it is standard procedure and in accordance with ISO standard.
Brilliant stats, but perhaps the wrong conclusion?
Using that 16 to 1 ratio. Maybe a $36 silver price means gold should be at $456, not $1500 ?
Precious metals are seriously undervalued. Its amazing how few people want to own gold or silver, and those that do don’t want to be hassled with holding physical.
If you are inherently untrusting, then you probably understand why precious metals are a great play. If you are naive then you think gold is in a bubble.
I think this is a complex question.