Labor Pains

– Last Friday, the Labor Department informed the nation that the U.S. economy added 162,000 jobs in March – the biggest gain in three years.

That’s goods news, of course…but not as good as it might appear. For one thing, newly hired Census workers contributed about 30% of the gain. These folks will be unemployed by summer. For another thing, the “underemployment rate” – which includes part-timer workers and people who want work but have given up looking – increased to 16.9 percent from 16.8 percent. Meanwhile, the number of workers who have been unemployed for 27 weeks or more rose to a record 44.1 percent of all jobless.

Despite these blemishes, however, most Wall Street economists hailed the jobs report as a “sign the economy is rebounding.” Your editors here at the Daily Reckoning are not so sure. Then again, they are rarely sure about anything, other than their incertitude.

Obviously, the economy is enjoying some kind of a bounce. But we doubt this bounce will blossom into a robust and enduring recovery. Instead, we suspect this bounce will develop into a slightly larger bounce, which gravity will quickly overcome. After that, we’ll get some kind of muddle-along economy. Nothing horrible; but nothing great either.

Your editors base their forecast on an informal assessment of macro-economic data, anecdotal observations and wild guesses. As such, we bring more firepower to this economic-forecasting exercise than most professional economists. They hardly ever make wild guesses. In fact, they hardly ever make informed guesses. They just connect the two most recent data points and extend the line out three years.

It’s possible the economy is commencing a powerful new upturn, but why should it? One third of the country lives off food stamps, one quarter of the country has negative equity in their homes and one sixth of the country can’t find a job. Each of these statistics is a record – or close to it.

And if we were to extend the list of ignominious economic records, we would add the federal government’s $1.7 trillion annual deficit and $12 trillion of total indebtedness. These great big liabilities might not cripple our economy over the short term, but they certainly won’t nourish our economy over the long-term.

And so your editors remain skeptical of the economy’s strength and dubious that the stock market will continue its advance. But please don’t misunderstand us; skeptical is not cynical and dubious is not dour.

Despite our doubts about “the market,” your editor have continuously highlighted selective opportunities.

The water stocks Chris Mayer recommended in the January 7th edition of the Daily Reckoning (“The Trade of the Century”) are far outpacing the S&P 500 so far this year. One of the stocks Chris mentioned, Southwest Water, has doubled since then, thanks to a takeover offer. Incidentally, the takeout price was $11 a share – exactly what Chris estimated the company’s net asset value to be.

In the February 24th edition of the Daily Reckoning (“Go Nukes”) Byron King issued a very timely buy recommendation on the Market Vectors Nuclear Energy ETF (NYSE: NLR). One week later, Chris Mayer returned (“Invest in Aviation’s Startling Growth”) with a persuasive argument for buying Titanium Metals Corporation (NYSE: TIE). The stock has been gaining altitude ever since – up a dazzling 28% in less than one month.

This sampling of recent Daily Reckoning observations brings us to today’s presenter, Patrick Cox, editor of the Breakthrough Technology Alert. Patrick is, arguably, the most hopeful voice that appears in this column. He possesses an informed and inexhaustible passion for examining the breakthrough technologies of the future. It is no accident, therefore, that we kicked off the New Year with a hopeful (and prescient) message from Patrick Cox. (“The Medical Miracles of 2010”).

And already this year, some of Patrick’s predictions have come to pass…to the benefit of his subscribers. On March 24, the Daily Reckoning published a missive from Patrick (“The Second Huge Stem Cell Breakthrough in a Week”) summarizing breakthrough achievements by two of the companies he had recommended more than one year earlier.

Shortly thereafter, the editorial team here at the Daily Reckoning received the following email:

Dear Daily Reckoning:

The March 24th Daily Reckoning carried the same article that Patrick Cox emailed to all his clients concerning the status of ISCO and BTIM. My question is this: why were the names of these stocks given to the millions of readers the DR has, of whom probably a very large percentage do not pay for his service?  I’ve talked to several Financial Reserve members, such as myself, here in Arizona and we were appalled that these readers were given the names of these two stocks, which according to Mr. Cox himself, are in their early infancy stages with plenty of room for substantial growth.

I would very much like to speak with someone in authority regarding this matter.

Your California Editor replied:

Dear Reserve Member,

Thank you for your response to the Daily Reckoning of March 24th. And, more importantly, thank you for your association with Agora via your Reserve membership.

Since I direct most of the editorial content in the Daily Reckoning, I wanted to respond to you directly, and to explain the rationale for airing Patrick’s remarks about BTIM and ISCO.

This column typified an editorial technique we have used for years at Agora, as a way of introducing our investment services to readers who are not familiar with them.

The technique consists of providing a glimpse into the investment process that one of our editors uses to achieve his/her success. We provide that glimpse by recounting a real-world illustration that sometimes includes revealing the name(s) of a prior recommendation that has already performed well for our subscribers.

In this particular case, Patrick recommended ISCO 13 months ago at 43 cents. On the day prior to the DR story, ISCO was selling for $2.02 – a 370% gain from what subscribers could have achieved.

Patrick recommended BTIM 20 months ago at 75 cents a share. The day prior to the DR story, BTIM was trading for $6.99 a share – an 832% gain from what subscribers could have achieved.

In other words, Patrick’s subscribers have had access to this valuable information for more than one year already and have had ample opportunity to profit from this information.

The Daily Reckoning reader who just encountered a sliver of Patrick’s analysis for the first time on March 24 had nothing close to the same opportunity that a subscriber has had.

On a related note, Patrick’s bullish views about BTIM and ISCO have already appeared online in several financial blogs.

I am genuinely sorry if you feel slighted by the Daily Reckoning of March 24. But I hope my explanation for airing Patrick’s remarks provides some level of comfort that we don’t recklessly reveal information for which subscribers are paying hard-earned dollars.


Eric Fry
for The Daily Reckoning