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After poring over news and charts this weekend, I must say that, even though this is precisely what we’ve been forecasting for many months, I’m still in a state of amazement.
Never before in my lifetime have I seen a greater gap between the U.S. economy, bogged down in massive, chronic unemployment … and major Asian nations, gaining equally massive momentum!
U.S. Jobs Mess
The unemployment report on Friday was an unmitigated disaster. Based on the government’s payroll survey, the economy shed 85,000 jobs in December, many more than analysts had expected.
Worse, based on its separate household survey, the government reported that the job losses in December were 589,000 — over SIX times more.
So which of the two figures better reflects the true number of jobs lost last month — 85,000 or 589,000 jobs? According to John Williams’ Shadow Government Statistics, it’s clearly the latter. Strip out the faulty seasonal adjustments from the government payroll survey, he says, and it would ALSO show job declines of about 500,000 in December!
Result: Williams estimates that official unemployment is actually closer to 10.2 percent (instead of the 10 percent reported).
Moreover …
- The government also publishes a broader measure of unemployment, which has now risen to the Depression-era level of 17.3 percent. This includes discouraged workers who have given up looking for a job for up to a year, plus part-time workers seeking full-time employment.
- If you include ALL workers who have given up looking for a job (as the government used to before the Clinton administration changed the definition), Williams estimates that the TRUE, all-inclusive unemployment rate is now close to 21.9 percent!
- And most shocking of all, we are suffering this chronic high unemployment despite the greatest government stimulus of all time.
Between monetary and fiscal stimulus packages and programs, Jim Grant, editor of Interest Rate Observer, estimates that the U.S. government has already poured in amounts equivalent to at least 30 percent of GDP. That’s over three times more than the stimulus in the first years of the Great Depression … and TEN times more than the average stimulus during eight U.S. recessions following World War II.
The big problem: Instead of going into job creation as intended, most of this Washington funny money is flowing into other assets, including U.S. stocks.
This helps explain why so many stocks can continue rising despite the economic malaise. In fact, writes Mike Larson on his Friday morning blog post, instead of discouraging stock investors, Friday’s bad unemployment number may merely encourage the Fed to keep its money-printing engines running that much longer.
Great Asian Miracle
As Uncommon Wisdom editors Larry Edelson, Tony Sagami, and Sean Brodrick have tirelessly predicted, Asia’s economies have not only enjoyed great momentum, but they have also sustained that momentum through the world’s worst financial crisis since the 1930s.
In a nutshell, Asia passed the stress test with flying colors — and therein lies the great Asian miracle.
The main reasons:
- Rather than drowning in debt, China and other Asian nations are floating on a thick cushion of cash.
- Rather than relying heavily on exports to the U.S., they have greatly diversified their exports to countries that have been far more robust.
- And instead of relying mostly on government stimulus, their economies are driven by burgeoning domestic demand from vast populations leaping from the 19th to the 21st century.
Which major Asian market has had the best performance overall?
In 2009 plus the first trading days of 2010 (through last Friday) …
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The leading ETF linked to China’s blue chips (FXI) has surged an impressive 41 percent, despite political turmoil in China’s Western provinces that chased many global investors away.
The South Korea ETF (EWY) has jumped by 69.1 percent.
And India’s ETF (PIN) has beaten them both, up 76.7 percent.
But if you focus on the period since last June, when Asian economies began to overcome the impact of the global crisis, the picture is somewhat different:
China is up 12.4 percent. India is up 18 percent. And South Korea, which Claus Vogt picked as the number one performer in our Weiss Global Forum last summer, has beat both hands down — up a whopping 37.4 percent.
That’s more than double the performance of the Indian ETF and more than THREE times better than China’s.
The reasons Claus cited then for South Korea’s great outperformance still hold today: It is typically among the first to bounce back sharply from global recessions, giving investors one of the earliest and best plays on a recovery.
Meanwhile, just in the past few days, the rise in Asian currencies — especially the Indian rupee and the South Korean won — has accelerated, promising even greater rises in the weeks ahead.
Our recommendation: Continue to approach the U.S. markets with great caution. And for a portion of your funds, seriously consider a diversified portfolio of emerging market ETFs, with a strong emphasis on the major Asian countries.
No boom is forever, and that’s certainly the case here as well. But at this juncture, there’s no end in sight. Stick with them and you should do very well indeed.
Good luck and God bless!
Martin
About Money and MarketsFor more information and archived issues, visit http://legacy.weissinc.comMoney and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
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