More than one in every 10 Americans is out of work, the Labor Department reluctantly reported this morning. The official unemployment rate jumped from 9.8% to 10.2% in October. Not only is that the highest in 26 years, but it blew Wall Street clear out of the water — they had priced in a rise to 9.9%.

The Labor Department announced more job losses than expected as well — 190,000 lost jobs, instead of the anticipated 175,000. The number puts to rest a desperate hope from a few months back — that August’s surprisingly small job loss would mark one of the final months of contracting employment.

That brings the total to 15.7 million officially unemployed Americans, a record 35.6% of which have been out of work for more than six months.

The U6 unemployment number — our preferred gauge, which includes a broader section of the jobless and underemployed — soared half a percentage point in just one month, to a record 17.5%.

“Help-wanted advertising is contracting,” reports John Williams of Shadowstats, with one of his preferred employment metrics. “The Conference Board’s newspaper help-wanted advertising index for September (a leading indicator to October’s employment report) fell to a new record low of 9, from the prior low of 10 that had held for the preceding four months. This new 58-year low is a very negative signal for background employment conditions.

“While some of the weakness in this index of recent years has been due to ads shifting from newspapers to the Internet, near-term relative changes remain significant indicators of pending employment activity. The Conference Board’s online help-wanted advertising also has been in monthly decline, with year-to-year change for new ads down 24.6% in October, versus an annual decline of 25.7% in September. The declining online data are leading indicators of activity to both the October and November employment reports.”

But Llest you think we only tell one side of this story, a glimmer of hope from today’s jobs report: Temp agencies added 34,000 jobs in October, the first statistically notable increase since the recession officially kicked off 22 months ago. Temps have been decent leading indicators for the employment scene in the past, so we’ll keep an eye on ’em.

On to the other real barometer of the recession… the housing front ain’t pretty this morning, specially Fannie Mae’s ugly mug. The lender of last resort (not coincidentally now the largest dealer of U.S. home loans) turned in a $19 billion quarterly loss yesterday. Surprise, surprise… its government receivership has made Fannie WORSE, as it is now forced to accept more bad loans and participate in foreclosure prevention programs — the two major sources of its third-quarter loss.

Moments after its earnings announcement, Fannie asked the government for another $15 billion bailout. It’ll get it, which will bring its taxpayer tab up to $60 billion. The company is eligible for up to $200 billion in bailout bucks before further congressional approval is required. We’ll go way out on a limb here and forecast that Fannie will devour every last cent.

How desperate have Fannie and the federales become? Fannie Mae introduced a nationwide “Deed for Lease” program yesterday, where homeowners about to be foreclosed can transfer ownership to Fannie Mae and then rent the property from a third-party management company.

It’s a sweet deal for homeowners on the verge, but the same “extend and pretend” mentality we highlighted yesterday. Fannie gets to keep more cheap foreclosure properties from hitting the market by playing landlord for a year or so… surely, by then it’ll have all blown over, right?

The Two Things That Really Matter originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

It’s a rhetorical question, of course, as it goes on to describe, “The spectacular failure of the so-called fiscal stimulus to stimulate anything other than economic misery.” It’s misery driven by the concern that we’re on “a slow-growth path that will lead to permanently high joblessness, weaker income growth and fewer opportunities.”

Why are we potentially facing a future of permanently fewer jobs? The problem and solution can both be found in American entrepreneurship. Entrepreneurs are critical job creators and right now they have many reasons to be fearful about their ability to find an upside in the current economic climate. The government is meddling deeply in how the private sector functions. This means that the upside of starting a new, successful company is now much less clear that it’s been in the past. Even if an entrepreneur starts a home-run business, he or she still could confront “higher income taxes, a flood of stiff new regulations and the possibility of at least $2 trillion in new taxes related to cap-and-trade and a health care overhaul.”

Government talking heads repeatedly say that stimulus is working, “but no evidence shows that’s true. Stimulus has failed.” Based on the economy, and especially unemployment, “Time has come for a dramatic change of course.” According to this article, in order to save jobs the nation should look at how it can promote “startups and very small businesses … responsible for more than half of all new jobs.”

This Investor’s Business Daily editorial appears at Real Clear Markets in its article on stimulating failure.

Stimulus is Only Stimulating “Economic Misery” originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Just what kind of crisis do these numbers portend? It’s hard to say. Probably a combination of confidence, followed by debt default and inflation.

Would the US actually default? We agree with Paul Samuelson; the answer is ‘maybe.’ Samuelson, writing in The Washington Post:

“The idea that the government of a major advanced country would default on its debt – that is, tell lenders that it won’t repay them all they’re owed – was, until recently, a preposterous proposition. Argentina and Russia have stiffed their creditors, but surely the likes of the United States, Japan or Britain wouldn’t. Well, it’s still a very, very long shot, but it’s no longer entirely unimaginable. Governments of rich countries are borrowing so much that it’s conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse. What happens then?

“…People have predicted such a crisis for decades. It hasn’t happened yet. The currency’s decline has been orderly, because the dollar retains a bedrock confidence based on America’s political stability, openness, wealth and low inflation. But something could shatter that confidence – tomorrow or 10 years from tomorrow.

“Despite huge deficits, interest rates on 10-year Treasury bonds have hovered around 3.5 percent. In time of financial crisis, investors have sought the apparent sanctuary of government bonds. But the correct conclusion to draw is not that major governments (such as Japan and the United States) can easily borrow as much as they want. It is that they can easily borrow as much as they want until confidence that they can do so evaporates – and we don’t know when, how or whether that may happen.”

Why wouldn’t the US just “print its way out of debt?”

Because it’s not that easy. In effect, the feds are trying to print their way out of debt now. They’ve added huge amounts to the monetary base. But that money is not getting into the real economy. Instead, it’s going into vaults and speculations.

“Jittery Companies Stash Cash,” says The Wall Street Journal.

And banks, too, borrow…but they don’t lend. They can borrow at negligible rates of interest…and buy US Treasury bonds on a leveraged basis…producing a 20% yield. That means, the US dollar has replaced the yen as the go-to currency for speculators.

Net effect? Lots of cash in what appears to the Mother of all Carry Trades. The Financial Times:

“The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualized – as the fall in the US dollar leads to massive capital gains on short dollar positions.”

But in the economy itself? As in Japan, very little economic progress comes from this kind of speculation.

Bankruptcies rose 7% last month. Unemployment gets worse.

The financial markets bubble up. The real economy shrivels up. And people with any sense are stocking up.

The Problems With “Printing Your Way out of Debt” originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

This video has come to our attention via The Daily Bail, and the site describes it as the best Ron Paul interview they’ve seen.

Ron Paul Rebukes Michael Moore on Healthcare and Gov’t Spending originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Much of your medical info is already stored electronically, of course, but much more is stuffed into old paper file folders. Nor is there any centralized database that routes your records wherever they are wanted. That is going to change, and change dramatically.

The present system has too many embedded inefficiencies, and the industry wants them gone with yesterday’s used latex gloves. Whether you like it or not, someday soon there will be a collection of bits and bytes that stores all the most intimate details of your health history.

Making that happen is a daunting job, and a touchy one.

On the one hand, think of how much medical data each American accumulates each year. Multiply that by 300 million. The amount of paper currently required to track it all would stretch to the moon. Doctors want to set fire to that stack.

But on the other hand, they don’t want their patients’ records falling into the hands of every Eastern European hacker for whom such data would be a major arm shot to his fake Viagra business. Data security has to be tight.

Thus software solutions must be developed both to serve and to protect. Billions will be spent in the process of digitizing, maintaining, and guarding medical records, and guess whose pocket the money will be extracted from. Did you select mine?

Don’t care for this idea of white jackets anywhere in the world having access to your private info at the click of a mouse? Or don’t like the idea of footing the bill for the conversion? Well, tough. On both counts. You won’t be able to prevent the medical business from setting up the grand database, nor from using your own money to manufacture the electronic you.

In fact, the government has already installed the plumbing that will feed the big money shower. As in, very big.

That happened on February 17, when President Obama signed the Health Information Technology for Economic and Clinical Health Act (HITECH), which its sponsors had tacked onto the comprehensive American Recovery and Reinvestment Act (ARRA).

Everyone loves ARRA, right? Well, maybe. But citizens who cheered it might not have been quite so happy if they were aware of everything they were agreeing to fund with their hard-earned dollars. Buried inside HITECH is an allotment of $19 billion (yep, that’s billion with a B) just for the conversion of paper medical records into electronic.

Tell you who was cheering lustily, for certain: health care software developers. For example, maybe you read about the recent deal whereby Dell acquired Perot Systems, a premium software company, for about $4 billion. What that was largely about was HITECH. Dell didn’t have real access to it. Perot Systems – whose annual revenues derive 25% from government and 48% from health care – did. Sound the wedding bells.

Dell, of course, is by no means the only company eager to step into the generous governmental shower stall. You can bet that IBM, Hewlett-Packard, and the rest of the heavies in the field are all busily preparing proposals, if they haven’t already filed them.

And the big guys won’t have that field all to themselves. There’s a lot of cash to be spread around. Smaller competitors will nab their share.

Regards,

Doug Hornig,
for The Daily Reckoning

The Future of Medical Technology originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

The end result…the too big to fail are now even bigger.

Too Big to Fail at Eating Each Other Up originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

But along came two very important bits of information.

First, we got word that the crisis was officially over. GDP grew last quarter. Thanks to all the Cash for Clunkers, Cash for Bankers, Cash for Houses, Cash for Trash, and cash for every other blessed thing under heaven, the number crunchers were able to report positive economic growth for the third quarter.

Let’s not get too excited. Stocks bounce. Bonds bounce. An economy bounces. Even dead economists bounce. And if we’re following the Japanese experience, with a long, slow on-again/off-again period of depression, we can expect some quarters of growth, followed by quarters of non-growth. It’s going to be a painful adjustment to the ‘new normal,’ whatever that is.

The other important bit of news was that the Fed – faced with undeniable evidence of growth and prosperity – decided to err on the side of caution. It will keep monetary policy loose from here until kingdom come, if necessary, in order to avoid a Japan-style slump.

But so far, a Japan-style slump is just what we seem to have…and our public officials are fighting it, Japan-style.

Unemployment is headed up. The U6 figure – a more accurate picture of how many people are out of work – is up to 17%. There are 1.5 million homeless children in the US now, including 300,000 in the state of California alone. One out of 10 Americans will not bite the hand of government – for it is the hand that gives him his food stamps.

Foreign direct investment has dropped 30%. International trade is down 10%.

Do you call this a recovery? We don’t.

As David Rosenberg puts it, the man on the street is perhaps “less enthused by the fact that a lower rate of inventory de-stocking is arithmetically underpinning GDP growth at this time.”

In other words, it’s ‘growth’ that only an economist could love…and then, only an economist who was an idiot. Rosenberg:

“Put simply, a Wall Street Journal/NBC News poll just found that 58% of the public believe the economic recession still has a ways to go – and that is up from 52% in September and means that the private investor, unlike the hedge fund manager, is not interested in adding risk to the portfolio even after a 60% surge in the equity market.

“Only 29% of those polled believe the economy has hit bottom – imagine having that psychology with nearly zero interest rates, a bloated Fed balance sheet and unprecedented fiscal deficits (poll was taken from October 23-25). Nearly two in three (64%) said the rally in the stock market (still a bear market rally – not the onset of a new bull market) has not swayed their view (or ours for that matter). There is going to be some very tough slogging ahead as far as the economy is concerned.”

Growth is largely illusional. It is the result of delusional policy-making at the Fed.

So, we’ll just keep our Crash Alert flag flying.

Meanwhile, gold hit a new record high yesterday. It’s at $1,089. More on gold, below.

The Dow went up too – 203 points yesterday. It’s over 10,000 again. Not very impressive for a bear market bounce. A 50% retracement would take the Dow to 10,300.

But you have to give the bounce credit. It’s been going on since March. That is impressive.

And now everyone is bullish, except us. We’ll see who’s right… in the fullness of time…

Gold seems to be advancing towards a new milestone – $1,100. Makes us nervous. We always feel more comfortable out in the wide, open spaces…that is to say, in trades we have all to ourselves.

But gold is still a marginal holding by marginal investors – like us. Central banks – especially those in emerging countries – have very little gold. The man on the street doesn’t know anything about gold. He wouldn’t know a gold coin if it hit him on the head.

As gold becomes accepted as a true store of value, we can expect more and more people to want to own it.

Painful Adjustments to the “New Normal” Economy originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Usually when we look at a chart of the S&P 500 it’s priced in dollars. However, this year there’s a problem with that approach. The dollar has lost 15 percent of its value, and although equities are rising in dollar terms, they’re not necessarily rising relative to most other assets.

When you look at charts of the S&P 500 priced in euros, yen, or Swiss francs, a very different story emerges. In these currencies the same index has not been rising, it’s been trading sideways for three months. The index rises a bit and then falls and bounces off of a consistent support level. So, viewed in other currencies, the S&P 500 has not continued moving to the upside, and worse, if it breaks support a big collapse in equities could result.

According to Summers, “these charts are flashing very serious warning signs that the US market has put in a major top. Far more importantly, there is the potential for a very serious collapse in US stocks.”

The entire Seeking Alpha content is worth a thorough read, especially the telling charts that show how the dollar’s decline has contributed to the market’s rise.

Rising Market Illusion Suggests a bet Against the S&P 500 originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Another number that was encouraging for economists was the large jump in non-farm productivity. US worker productivity spiked up an annualized 9.5% in October as employers found ways to squeeze more work out of existing employees instead of hiring new ones. This jump demonstrates one of the positive aspects of a severe economic slowdown. Contrary to what some reader’s of the Pfennig seem to believe, neither Chuck nor I are happy that the US continues to be mired in this economic recession. But business cycles are inevitable, and the more we ‘spend to extend’ the longer it will take for the recovery to take hold. The jump in productivity is one positive that comes out of an economic downturn. In the good times, companies become fat and happy, with many companies becoming very inefficient. The severe slowdown causes companies to rethink all of the processes, and worker productivity increases. This need for higher efficiency also encourages innovations to the manufacturing and service sectors.

Another piece of data due out this morning will illustrate another positive aspect of the economic slowdown. US consumer credit is expected to show another $10 billion drop. The highly leveraged US consumer is continuing to draw in their purse strings, ignoring calls from the administration to resume their old borrow and spend attitudes. While some of this belt tightening has been forced on consumers by the credit crunch, hopefully we will see this adjustment continue. This isn’t good news for retailers as we approach the holiday season, but if the global imbalances are to be corrected, US consumers are going to have to continue to increase their savings rate and decrease debt.

So there are a few silver linings to the economic cloud hanging over the US. The United States will eventually emerge from this economic storm with a leaner and meaner manufacturing sector and a much weaker dollar enabling it to better compete in the global arena.

Both the ECB and BOE kept rates unchanged. Officials at the Bank of England slowed the pace of bond purchases, but still approved the additional purchase of £200 billion. A rebound in factory output, which rose 1.7% (the largest gain in seven years) combined with a 0.2% increase in UK producer prices, caused the change of direction by the BOE.

ECB President Jean-Claude Trichet signaled the beginning of the end of emergency stimulus measures in Europe. Trichet said next month’s offer of 12-month loans would be the last. Data released yesterday was unable to paint a clear picture of the economic recovery in the Euro-area. German factory orders rose for a seventh month in September, as exports helped the recovery. But another report showed European retail sales fell for a 16th month, declining more than economists had predicted.

The euro (EUR) rallied a bit after the ECB decision, but Citigroup is predicting an even larger rally. A report by Citigroup stated that the technical trading patterns predict the euro will climb to $1.5064 short term, and move up to $1.5285 over time. It continues to look like Europe will recover, and the euro will move higher versus the US dollar.

The Norwegian krone (NOK) also moved higher as Norway’s central bank Deputy Governor Jan Qvigstad said it is ‘most probable’ the deposit rate will be moved another quarter-point higher by the beginning of 2010. Officials of the Norges Bank are attempting to hold down some of the appreciation of the krone as Norway continues to increase interest rates to combat rising inflation. Norway’s oil rich economy was one of the first to emerge from recession, so the central bank is also taking the lead on increasing interest rates. Yield differentials, along with a strong economy should keep the NOK among the world’s top performing currencies.

Speaking of the top performers, I was updating the return charts for the currencies yesterday and was amazed at the returns on the Brazilian real (BRL) and Australian dollars (AUD), YTD. Brazil is up 31.42%, and the Australian dollar has increased 28.05% during 2009. The Australian dollar continued to strengthen yesterday as the central bank signaled it would continue to increase interest rates in the coming months. “A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said in Sydney today. A rally in commodity prices, along with increasing interest rates will push the Aussie dollar toward parity with the greenback.

To recap… Silver linings of the current economic storm cloud: increased worker productivity and decreased consumer credit. The ECB and BOE kept rates unchanged. And Aussie dollars continue to move closer to $1.

What’s the REAL Unemployment Rate? originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

We’ve all seen the science fiction movies in which police and other authority figures employ powerful and complex biometric identification methods. Mobile fingerprint detection and iris scans are the first to come to mind. Now these tools are moving from the big screen to reality.

Right now, the FBI is developing its Next Generation Identification System, an expansion of the agency’s Integrated Automated Fingerprint Identification System. The feds are moving beyond traditional fingerprinting databases — opting instead for sophisticated biometric identification techniques.

This new strategy for the FBI comes at a price. Of the nearly $8 billion in the agency’s FY2010 budget request, $97.6 million was reserved for the development of a biometrics technology center. The private biometric industry is growing rapidly, too. In 2009, industry-wide revenue is estimated at $3.4 billion. By 2014, this number is expected to grow considerably, to $9.4 billion, according to the International Biometrics Group.

I just gave information on my favorite biometrics play to Bulletin Board Elite readers. This company is quickly establishing itself as the leader in fingerprint-based biometric identification. And it’s ready to reward early investors who recognize its potential when it comes to lightning-fast next-generation fingerprint technology.

Movie Tech Comes to Life originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.