Greek Unemployment & GDP
The officially reported U.S. unemployment rate currently is 9.1%, and is frequently said by pundits to be at about 20% if all those Americans who have ‘given up’ looking for work are counted. Under any assumption the current U.S. unemployment rate is at extremely high levels by any historic standard – and everyone agrees, without really knowing where improvement is going to come from – that the reported U.S. unemployment rate needs to come down, and come down sooner than later.
With that background, an article yesterday titled ‘An Unbelievable Look At Greek Unemployment’ – reading time 2 minutes – sets out Greece’s latest reported unemployment numbers. From my perspective they are ‘off the charts’. Broken out by age categories, and summarized on an annual basis for each of the years ended March, 2006 – 2011, they show that from March, 2008 to March, 2011 the unemployment rate (rounded to the nearest %) for 15-24 year olds increased by 16% to 43%, for 25-34 year olds increased by 11% to 23%, for 35-44 year olds increased by 6% to 13%, with somewhat declining % increases in that 3 year period as age increased – except in the 65-74 year old category where unemployment increased from 0% to 5%. Overall, reported unemployment increased in the three year period ended March, 2011 by 7% to 16%. And those are the reported numbers. Think of what the unreported numbers are if the unreported U.S. numbers have any credibility, and there are parallel unreported numbers in Greece.
Either way, the Greek numbers (if credible) strike me as unsustainable going forward. I think this has to be the case because they show that the age groups with the greatest unemployment rates are the three groups that span the ages of 15-44 – those in any society that ought to be highly productive, if not arguably for non-management positions the most productive.
I have said in a number of e-mails over the past three years that it is youth unemployment that of all the unemployment categories concerns me the most. Typically I have quoted the saying ‘idle hands make the Devil’s work’ in reference to youth unemployment. To the extent Greece has problems with its Sovereign Debt issues, I suspect it may have even greater problems on its horizon if its youth unemployment rates stay where they now are, let alone increase further.
On a second, and I think potentially quite important note, an article this morning titled ‘BOOM: Rally Evaporates, Greece Delivers Ugly GDP, As 2-Year Yields Explode Past 25%’ – reading time 1 minute – says that Greek GDP was just revised sharply lower. The article also says that “Greek austerity reforms have come to a standstill”. I questioned in an e-mail last week whether Greece could be the ‘little boy with his finger in the dyke’ – the Hans Christian Anderson story told to children 50 years ago. Interestingly, the price of physical gold is down slightly to U.S.$1,535 as I write this, and so for the time being at least seems to be taking this Greek GDP news in stride.
Third, and again I think on a potentially important note, an article this morning titled ‘Strikes Hit Greece as Govt Eyes More Austerity’ – reading time 3 minutes – reports that workers at Greek ‘state-owned’ companies walked off the job this morning to protest the Greek Government’s privatization plans. It seems to me expectation of enhanced near-term social disruption in Greece is not unreasonable. Something to look for in the next few days, weeks and months.
I think an article this morning titled ‘3 Conditions That Will Support The Gold Rally’ – reading time 3 minutes – has it generally right. The article is a synopsis of recent American Century Investments comments on gold that apparently said “gold is not in a bubble and remains a rational bull market”. Importantly from my perspective American Century Investments apparently base its views on factors including “increasing central bank demand, declining confidence in governments, and the belief that fiat money is failing”. In the end the reasons cited for continuation of an up trend in the price of physical gold are:
low real (i.e. interest rates net of their inflation component) global interest rates;
developed country Sovereign Debt issues;
ongoing (and I think escalating) social unrest issues in some developed countries with Sovereign Debt problems (which I think can be expanded to include political and social unrest issues in a number of developing countries as well);
commodity intensive demand in developing countries that are still growing apace; and,
increased demand for physical gold as a ‘safe haven’ in turbulent times (my words).
Based on what I read and observe, I make the following observations:
I don’t see the aforementioned Sovereign Debt issues and social unrest issues going away. In fact I think that on the balance of probabilities they are, each in their own ways and times, likely to escalate as we move forward. I think those things speak to a likely continued uptrend in the price of physical gold;
while I see commodity intensive demand in developing countries as something that will help promote an upward trend in the price of physical gold, I don’t see it as a principal driver of the price of physical gold. On the other hand I certainly see that commodity intensive demand as a principle driver of the base metal prices. As I see things, the principal reason that commodity intensive demand in developing countries will slow down in the foreseeable future is if the annual growth in those countries slows. If that happens I see the world economy slowing resulting in even greater macro-economic risks than I think currently exist. I actually think that such an environment would promote higher, not lower, physical gold prices – and will be interested in reader disagreement with this view at email@example.com;
I see the biggest risk to a continued uptrend in the price of physical gold to be escalated real interest rates in a continued fiat currency world where the developed countries, in particular the U.S. raise interest rates (including an inflation component) to contra escalated non-durable and durable goods inflation rates if those things develop. While I don’t see this happening in the near term, I do think that if this does occur it will have a negative impact on the price of physical gold. Again, I will be interested in reader disagreement with this view at firstname.lastname@example.org.
How Screwed Up Is This?
On what I think of as a ‘How Screwed Up Is This?’ note for today, you might consider reading ‘Americans Conflicted on Raising Debt Ceiling’ – reading time 4 minutes.
It isn’t that American’s are conflicted on this issue that I think is the screw-up, its that I don’t know of a go-forward concrete U.S. Federal Government strategy and execution timeline to reduce the current deficits. As I see things, without such a strategy and implementation timeline, raising the current debt ceiling is going to be nothing more or less than a further ‘kick the can down the road exercise’. At some point the ‘piper needs to be paid’. From my point of view ‘better sooner than later’.
U.S. Homeowner Attitudes
An article this morning titled ‘Homeowners Who Will Consider Strategic Default Doubles In One Year – reading time 1 minute – says that Fannie Mae has reported that currently (or so I assume from the article) 27% of U.S. homeowners would consider defaulting on a mortgage they could still afford. This in circumstances where the mortgage(s) on their house exceeded the current market value of their house – a so-called ‘strategic default’. The article reports that an equivalent number of U.S. house owners who were prepared to consider ‘strategically defaulting’ a year ago was 15%. The article further says that Morgan Stanley estimates that 12% of all house mortgage defaults in 2009 were ‘strategic defaults’.
I don’t know if there are U.S. income tax implications for a ‘strategic defaulter’, but given that mortgage interest is deductible on principal residences in the U.S. that is something I certainly would want to look into if I was an American contemplating ‘strategically defaulting’ on a home mortgage. The article also cites an example of a couple with a house in Florida that they bought for U.S.$1.4 million that has a current market value of U.S.$400,000 who are continuing to make their mortgage payments.
As I see things, none of this can be prospectively good for the U.S. housing market. However, it may prove to be good for those who own rental properties.
About Ian R. Campbell
Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at email@example.com