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|Unemployment and Your 401K|
|Sunday, 04 December 2011 16:00|
Unemployment Trend is Here to Stay
For the past few years we have shown our subscribers that the demographics shift in the U.S. will lead to a new normal in the U.S. unemployment rate. The math is simple, as the largest generation in U.S. history finds itself with no kids in the house, their spending will collapse, and as they downsize their lives, they will save more as they enter their retirement years. Will they retire and leave some job openings? Yes and no, most likely a person who is 65 will retire at the top of their pay for their employment category. Years of service will have a lot to do with their pay, so a 25 year old who replaces them will start at a much lower pay. Thus the problem of having a 72% consumer driven economy, 80% if you live in California. As baby boomers retire, the people replacing them won't make as much, bringing tax revenues down and becoming a drag on consumer spending in an economy that is dependent on constant growth.
With the credit bubble bursting, or at least starting to burst as of 2008, spending will continue to disappoint, inevitably leading to a new normal for unemployment, we expect long term unemployment to be a new normal. Currently, the average duration of those unemployed is 40.9 weeks, this number will move closer to 1 year by the end of next year. However, as the baby boomers age, we expect this number to reach 2 to 3 years for the average duration by 2015. The oldest baby boomer is currently 65 years old and the youngest is 47 years old. Now according to Harry Dent's research using census information and the BLS consumer expenditure survey, we know that the average person peaks in their spending habits at age 46, after that spending begins to fall and by their 50's it begins to collapse. So looking at this large generation that drwarfs the generation before it and after it, spending is already collapsing for this group and will accelerate goi ng forward. By 2015, all baby boomers will be over the age of 50. Knowing this trend is crucial in making ones life decisions, especially for those running a business. For example, running a business that caters to the elderly is probably a great idea, however, opening a business that caters to people in their mid 40's, like Harley Davidson as noted in Dents two most recent books, maybe not such a good idea.
Our point in bringing this to our member's attention is that if you can find a job or have a job, do what you can to bring your 'A' game everyday. This decade will not be friendly to those who follow the conventional wisdom plan of get good grades, go to school, and find a company to work for with great benefits and a matching 401k. This decade is going to be about survivors, what businesses are going to survive and even thrive in an environment where spending is collapsing in a consumer driven economy. For the next 10 to 15 years we will be facing a deflationary environment met by the full forces of an inflationary central bank and government. Expect the government to change the rules, taxes, regulations, and 401ks, it's all on the table as our economy shifts from the constant credit bubble to reality.
401ks have been around since the early 1980's, however, the way conventional wisdom speaks to them, you would have thought Adam and Eve were maxing out their 401ks. The 401k is an experiment, one that is a derivative of the fiat currency system itself. Think about it, if people saved their wealth with money, a constant unit of account, they wouldn't have to worry about losing purchasing power. Yes, many would love to invest, but certainly having millions of people blindly send their earnings to a fund manager who only has a 20% chance at beating a Dow Jones Index fund probably wouldn't be something they felt they HAD to do. The income tax system, also a derivative of the fiat currency system, has also forced people into 401ks in order to avoid paying income tax. It's kinda like someone beating you up and then offering you some medical care. First the government creates a fiat currency system which makes it so you have to grow your money by at least 3% in order to just keep pace with inflation, then they tax your income stealing what is rightfully yours. Yet, in order to make it all better, they offer you pre-income tax 401ks in order to escape the very fiat currency and tax system they have created!
***For those who are heavily invested in 401k's and easily get heart burn, it might be a good idea to take some Tums prior to reading any further.
By the way, has anyone ever considered how much the Wall St. traders and their high-frequency algorithmic trading computers appreciate the 401k system? Seriously, think about it, you only buy with 401ks, you buy on the 1st and the 15th or whenever you get paid. Of course to every person buying, someone is selling, and that is the beauty of it for Wall St. Since the early 1980's they are guaranteed to have a constant wave of automatic buyers to sell whatever it is the hell they want to sell. This is one reasonFutureMoneyTrends.com staff is almost exclusively in the micro-cap or small cap market. If a stock is large enough, be on the radar for high-frequency trading, then we want nothing to do with it. We buy stocks for two reasons, we are either partnering with companies to help build them or we are trying to make a fast trade in order to make some quick profits.
However, we have no interest in going up against Wall Street's computers or buying your standard mutual fund that can't even beat the Dow, which in reality isn't even reflecting earnings anymore, it is just reflecting what traders are speculating the FED will do next. So, when it comes to 401ks who typically give employees around 10 fund options, the people making money are selling them or selling stocks to the automatic buyers. Of course people are only buying up until they can cash out at a later date, hopefully at the lowest tax bracket. Which is the plan of course, assuming you did everything right according to conventional wisdom, 'they' expect you to be in the lowest tax bracket. Ever wonder what tax bracket Wall St. traders and corporate executives plan to retire in? It sure isn't the lowest one.
Back to the unemployment numbers, the headline rate dropped from 9% to 8.6%. That is a huge drop, in fact, it had the media in a frenzy over how great the economy was doing. The report was nothing more than an illusion though, in order to see the rate drop, 487,000 people were taken out of the labor force. In fact, in the past year, 1.8 million people have dropped out of the labor force, even though the working age civilian population rose by 1.7 million. The BLS since 2008, has only expanded the labor force by 38,000 people! Yet from 1948 to 2007, the average annual increase in the labor force was 1.6 million. Think about what the REAL unemployment rate should be? Does anyone actually think that the labor force only expanded by 38,000 people in the past 3 years?
Other numbers that didn't make headlines, people looking for a job rose by 192,000, U-6 unemployment was 15.6%, 2.6 million people were unemployed but gave up looking for work, and 8.5 million people want a full time job, but are working only part time. Remember, if you want a full time job, but are working a part time job, you are considered fully employed according to the BLS U-3 data, which is what the media reports to the public.
Central banks are buying gold, a lot of it, apparently even they don't want to hold each others' notes and government bonds. Well, with the exception of the FED who looks like they may come in to help bailout the entitlement society in Europoe. Central banks, the masters of creating our paper currencies, purchased 150 tons of gold in the 3rd quarter of 2011. That is more than DOUBLE of what they purchased in all of 2010. The bank of Korea just last week reported that it increased its gold reserves by 39% in November. As the currency war heats up, we expect this trend to continue.
China's Ghost Cities
By now most of you have probably seen reports about China's ghost cities, these are cities that are being built in anticipation of growth. Some of the cities have only 1 in 5 units being lived in. Now, looking at this it certainly does scream the word 'bubble.' It is something right out of Keynes playbook and is certainly creating a lot of false demand. However, we would like to point something out that no one else has. Even though this is a bubble, no doubt, this could actually work out in China's favor if you look at the 'long game.' China is building these cities with $100 oil, $35 silver, and other commodities that may be priced much higher in the future from scarcity and global inflation. Looking at our peak oil video or silver shortage video, you will see what we are talking about. We can actually use our own lives as an example, staff members at FutureMoneyTrends.com have made it a point to purchase it ems that could become scarce in a depression or inflationary environment, things like food, petroleum based products, and ammunition. We have purchased many of these items way in advance at today's prices, one of our staff members has 2 years worth of supplies in her garage. Now from the suppliers' perspective, this is creating an artificial sales number as there really isn't this much current demand, the demand is simply being borrowed from the future. However, from our staff member's perspective, this is buying stuff she needs in the future at today's prices and today's availability.
For now, China clearly has a property bubble, but in 10 years when silver is north of $1,000, this may very well pay off for them. Just saying...
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