09-May (The Economist) — THE conventional wisdom that emerged immediately after Europe’s weekend elections—that voters may have forced Europe into a new crisis reckoning—seems to have been correct. Greece is struggling to put together a government and whatever government eventually emerges will probably press for a renegotiation of its bail-out deal. Euro-zone officials are saying that this is out of the question. Odds of a Greek departure from the euro zone appear to be rising sharply; Intrade now puts the chance of exit in 2012 at close to 40%, up from 22% a week ago. Markets are shuddering at the possibility; European equities are dropping like stones, yields around the periphery are jumping—Spain’s 10-year yield is back above 6%—and German yields are sinking to record lows. Big trouble is brewing.

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09-May (USAGOLD) — Gold has extended to the downside as the “risk-off” meme that emerged following weekend elections in Europe persists. While the retreat in gold seems to be counter-intuitive, our own Michael J. Kosares offered a compelling explanation of what seems to be an inversely correlated move between the yellow metal and risk in an essay entitled Extraordinary popular delusions and the madness of machines.

Uncertainty surrounding the fate of Europe and the single currency continues to escalate with some troika policymakers threatening to cut off the flow of bailout funds to Greece — and even possible EMU expulsion — if they fail to live up to the previous administration’s commitments. The loudest voices, not surprisingly, are coming from Germany. Such threats are likely to intensify the populist Greek aversion to austerity that they believe is being foisted upon them by core-Europe…and more specifically the Germans.

Indeed, the troika is going to be under intense pressure to not release the next round of bailout funds to Greece in June, due to the political uncertainty. In fact, the chaos in Greece has reportedly prompted the troika to cancel a mission to Athens that was scheduled for mid-May. Without those bailout funds, Greece will likely be driven to the point of disorderly default. This is something everyone says they seek to avoid, and yet it is looking increasingly unavoidable.

The rise in Spanish yields back above 6% is reflective of the mounting contagion risks that springs from Greece. Spreads across the euozone are widening as investors once again flee the periphery and pile into the perceived safety of German bunds. The yield on 10-year bunds have fallen to new record lows below 1.50% today. UK gilts have also fallen to record lows and the EUR-GBP cross has tumbled through key support at .8068 to establish new 3½ year lows.

US Treasurys are benefiting as well, with today’s $24 bln 10-year auction expected to fetch a record low award rate, not much above the all-time recording closing low of 1.719% from September of last year. While these yields are negative in real-terms, such is the price for the perception of safety, even as debt is clearly the source of the problem. Demand for Treasurys is underpinning the dollar, which in turn is triggering the algorithms that Mike notes are forcing gold deeper into its range.

• US wholesale sales +0.5% in Mar, just below expectations of +0.6%, vs negative revised +1.1% in Feb; inventories +0.3%.
• Germany current account surplus rose to €19.8 bln in Mar, vs upward revised €11.7 bln in Feb.
• Germany trade balance (sa) €13.7 bln in Mar, unchanged from upward revised €13.7 bln in Feb; imports +1.2%, exports +0.9%.
• Japan Leading Index (prelim) +0.6% m/m in Mar, vs negative revised +1.7% in Feb.
• Japan Coincident Index (prelim) +1.3% m/m in Mar, vs +1.0% in Feb.
• South Korea Bok holds steady on repo rate at 3.25%, in-line with expectations.
• South Korea M2 +6.4% y/y in Mar, vs +5.0% y/y in Feb.
• Australia unemployment rate ticked higher in Apr to 5.3%, vs 5.2% in Mar.

09-May (Financial Times) — Spanish bond yields jumped over 6 per cent on Wednesday amid fears that uncertainty surrounding Greece was spreading to Madrid.

The yield on Spain’s 10-year bond, which has an inverse relationship with prices, jumped to 6.04 per cent, up 20 basis points.

Stocks on the Ibex 35 index fell 2.2 per cent, close to recent lows, as investors adjusted to the possibilities of the dangers of a new leg in the eurozone crisis.

Meanwhile, 10-year German bund and UK gilt yields both fell to fresh all-time lows of 1.53 per cent and 1.9 per cent respectively as haven buying was driven by rising worries that Greece may exit the eurozone.

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Why gold might be setting up for a big move higher

by Michael J. Kosares

Counter-intuitive forces are at work in the gold market. Europe is moving toward dissolution – erratically to be sure but inevitably nevertheless. Intuition tells us that gold should be moving higher under the circumstances, after all, we are talking about the beginning phases of a major currency, and perhaps economic, collapse.

But it isn’t. It is headed south. To what do we owe this curiosity?

The running conflict between rational and irrational forces has become a hallmark of the times. You see, we are increasingly giving over our thought processes in the investment market-place to external trends governed by computers and automaton traders who have nearly unlimited capital reserves they can throw in the direction their algorithmic software is telling them. Thus if the algorithm says that gold goes down when the dollar goes up and that the dollar goes up when the euro goes down, then that is the reality under which we all must live – no matter what our intuitions, or intellects, might be telling us. It used to be “don’t fight the tape.” Now it’s “don’t fight the algorithm.” Paper, not physical, trades are executed in the marketplace quite often without the intrusion of human contact, and thus the market proceeds as it is directed.

This is a hallmark of our age. And a strange age it is. What we are all witnessing, in my view, is part and parcel of the bubble psychology that dominates our times. With a bit of nuance, it is no different than the bubble thinking that preoccupied Holland during its tulip mania, or France during its South Seas investment schemes or the long list of extraordinary delusions and crowd madness chronicled by Charles Mackay in his now famous tome. Only this time it is driven by machines, a kind of madness that we have hard-coded into software that is running amuck, and no one seems inclined to understand the process, let alone stop it. Though I do not hold out much hope for the euro and the European experiment, at this juncture, I do see a bright future for gold – in the form of a breakdown in this odd, software driven marriage between gold and the euro. This breakdown, once it occurs, will have a catapulting affect on the price, as the reality sets in that the best hedge against what is going on in Europe is not the dollar, but gold.

Delusions, mania are epidemic; your portfolio needs inoculation

In Mackay’s book, Memoirs of Extraordinary Popular Delusions and Madness of Crowds, written in 1841, he perhaps unwittingly provides us one of the better templates for modern market behavior. Mackay’s mission as he described it in the original edition was “to collect the most remarkable instances of those moral epidemics which have been excited, sometimes by one cause and sometimes by another, and to show how easily the masses have been led astray, and how imitative and gregarious men are, even in their infatuations and crimes.” Delusion and mania, as it turns out, are epidemic and they can spread through the population just as insidiously and deliberately as the Asian flu. As a result, just as we inoculate our bodies against disease, we should inoculate our portfolios against the madness of crowds, or machines, if you will.

I doubt Mackay would have guessed that his book would be read, digested and taken as revelation by readers in the 21st century. At the same time, he probably would have not been surprised that the pull of the same dark gravity that caused people to throw their fortunes at tulip bulbs in Holland, or land they never had a hope of seeing in the New World, would be omnipresent in the age of computers, instantaneous communication, and the nearly infinite availability of market analysis. Yet here we are some 170 years later dealing with the same dark, inexplicable forces, the same delusional trappings and irrational behavior.

The highly successful 20th century speculator and gold investor Bernard Baruch put his blessing on this book as one of the secrets to his success on Wall Street.
Said Baruch:

“Have you ever seen in some wood, on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.”

This is the same Bernard Baruch who just before the stock market crash of 1929 dumped a good portion of his fortune into gold. When asked why he would do such a thing by the secretary of the Treasury, Baruch replied that he was “commencing to have doubts about the currency.” While others banked on the 1920’s stock mania, Baruch’s intuition was telling him that there was something amiss. He resisted the lure of the crowd. Thus, if you are commencing to have your own doubts about this odd tango being danced by gold and the euro, then perhaps you might want to distinguish yourself from the crowd.

The madness of machines and the China put

Extraordinary Popular Delusions is both complicated and timelessly revealing – a chronicle of herd behavior, delusion, mania, craftiness, and financial loss and gain. It is highly recommended reading and particularly applicable to the situation in which find ourselves today with respect to the gold market. Solomon taught us that there are no new things under the sun. Mackay teaches us how we might recognize the signs and that the crowd gone mad is a matter to be reckoned with in almost every era – our own not to be exempted. Baruch taught, through his personal investment decisions, that with respect to the madness of crowds and their inexplicable behavior, the best recourse is to run in the other direction. If the madness of crowds, or machines in this case, allows us a buying opportunity, then perhaps we should take it. In fact there are reports this morning of a “semi-official [gold] buyer in Asia.” One immediately thinks of the China “put” in the gold market wherein it buys the dips and puts a floor under the price.

Gold protects against these occasional bouts of social madness, and to buy it in physical form – as coins and bullion – is the most effective approach. There is an historical example, directly related to Mackay’s book, which illustrates the point. Early 18th century French finance minister, John Law, who perpetrated perhaps the most notorious mania covered by Mackay (the Mississippi scheme) ruined the French currency and, with it, the French economy. Needless to say, the citizenry did whatever it could to shelter itself from the rapidly depreciating paper scrip by going to gold. In one of his final acts before fleeing the country, Law abolished gold and silver coin as a medium of exchange, made gold ownership illegal and closed down the borders to anyone hoping to escape with hard assets. Needless to say, both Law and the public understood the value of gold under such circumstances.

Epilogue: Please resolve pi as soon as possible

With respect to the growing dominance of machines on Wall Street, I recall the old Star Trek episode that involves a visit to a planet where the inhabitants seem to be living in a state of perfect bliss. Captain Kirk knows that this cannot be right. There is no such thing as perfect happiness. As it turns out, the population is controlled not by a loathsome dictator who has drugged the population into compliance, but by a computer that has evolved sufficiently to somehow gain control of their minds. Something must be done, concludes Kirk, to break its hold. Spock comes up with the solution by instructing the computer “to resolve the value of pi” – an impossibility because its resolution, as we all remember from high school math class, is infinite. The computer spends all of its time and devotes all of its resources trying to achieve the impossible and the dictatorial hold it has on the population is released – a trick we might want to keep in mind for the day computers complete their mastery of Wall Street.

Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing: How to Protect and Build and Your Wealth with Gold.

NEWSLETTER SIGN-UP

08-May (MarketWatch) — Gold futures dropped by more than $40 an ounce Tuesday, on track to mark their lowest closing level of the year, as the dollar held onto gains amid continued concern about political upheaval in Europe.

Gold for June delivery fell $41.80, or 2.6%, to $1,597.30 an ounce on the Comex division of the New York Mercantile Exchange, after tapping a low of $1,595.50.

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08-May (Bloomberg) — Mainland China’s gold imports from Hong Kong surged more than sixfold in the first quarter, adding to signs that the country may displace India as the world’s largest consumer of the precious metal on an annual basis.

Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday’s data showed.

Demand has climbed in the world’s second-largest economy as rising incomes and curbs on property speculation boosted purchases. China may become the biggest user annually this year, according to a forecast from the producer-funded World Gold Council. Last year, total Indian demand including for jewelry and investment was 933.4 tons to China’s 769.8 tons.

“We’re looking at another solid year for Chinese demand based on these early numbers,” said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd. “While it’s largely related to price, negative real interest rates should keep demand strong.”

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08-May (Der Spiegel) — Greece’s election has brought a political sea change to the country, after bitter voters hammered established parties for supporting austerity measures in exchange for international bailouts. As Athens veers towards political chaos, German editorialists predict hard times ahead.

Greece appears to be sinking ever further into a political quagmire after a first push to form a new coalition government failed on Monday, just one day after outraged voters chastened the parties that have supported the country’s bailout and austerity measures.

Sunday’s election results revealed clear anti-austerity sentiments from voters, who toppled the two main parties that have dominated Greek politics for some four decades, the conservative New Democracy and socialist PASOK. Instead, many Greeks voted for smaller, more extreme, parties that oppose the strict requirements levied by the European Union and International Monetary Fund in exchange for bailouts.

Observers believe there is little chance of any of the parties being able to put together a viable coalition government, meaning that new elections may become necessary.

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08-May (USAGOLD) — Gold dropped sharply in early NY trade as global markets welcome Greece back to the front-burner of the eurozone debt crisis with renewed risk aversion. The yellow metal fell through support at 1612.80, establishing a 17-week low. Stocks and commodities fell as well.

The realities are starting to sink-in In the wake of Sunday’s Greek elections. Now that Antonis Samaras and the New Democracy party failed to form a government, Alexis Tsipras and the anti-austerity, anti-bailout Syriza party gets a stab at it. Tsipras said today that Greeks voted against the “barbaric bailout,” and the result of the election make the bailout accord “null and void”. That was enough to get investors moving toward the exits, because if Syriza succeeds in forming a coalition, the first order of business may well be to renege on the bailout deals, hurdling Greece back toward a disorderly default.

While Spain, Portugal and Italy be breathing a collective sigh of relief that the spotlight is no-longer on them, Greece back on the brink of default significantly heightens contagion risks throughout the periphery. In fact, discussions about the possible breakup of the eurozone are on the rise once again. With one of the core members of the EU in a bit of turmoil itself as a result of its change in government, one can’t be entirely sure whom France might back if Greece does indeed try to renege on its commitments.

For now, it’s ‘risk-off’. While gold tends to suffer in initial deleveraging — courtesy of the proliferation of paper-gold in recent years — this is exactly the kind of environment where physical gold truly shines as a preserver of wealth. We will frequently see robust physical buying interest into sell-offs of gold derivatives.

08-May (MarketWatch) — The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date, though the move failed to prevent a sharp fall for the Tokyo equity market.

The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16.

In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday.

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PG View: In the US, the Fed can still elevate stocks by manipulating the bond market. In Japan, after decades of ZIRP and QE, a little more overt action is now required…but even that seems to have its limitations.

08-May (Bloomberg) — A Greek political party leader who has vowed to rip up the terms of Greece’s international bailout was handed the mandate to try and form a government after Antonis Samaras of New Democracy failed to forge an agreement.

“This is a great moment for the Left, a great responsibility for me,” Alexis Tsipras, whose Syriza party placed second in May 6 elections, told President Karolos Papoulias in Athens today. Tsipras aims to forge a coalition of “leftist” parties that would overturn current bailout policy.

Greece’s Parliament is split down the middle on whether to renege on the terms of the two bailout agreements negotiated since May 2010. With the risk increasing of instability in Greece, the epicenter of the debt crisis, policy makers in Europe urged Greek leaders to quickly agree on a new government.

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PG View: Not surprisingly, markets are on edge this morning. If Syriza succeeds in forming a government it may well be seen as a mandate to renege on the bailout deals, which would hurdle Greece back toward an uncontrolled default, while significantly amplifying contagion risks.

07-May (AP) — Several candidates opposed to austerity measures were making a strong showing Monday in early projections from Italy’s local elections – the first nationwide test for Premier Mario Monti since he was named to save Italy from its debt crisis.

Analysts were watching for signs of voter anger over Monti’s austerity measures and toward mainstream parties that have supported them since Monti took over from Silvio Berlusconi in November.

Candidates for mayor in Parma and in Genoa who galvanized discontent with mainstream politics appeared to gain enough votes to force a runoff, projections showed. And the popular mayor of Verona, whose Northern League party has strongly opposed a new housing tax, appeared headed to a first round victory.

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07-May (Bloomberg) — Francois Hollande, who defeated French President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region.

“Europe is watching us,” he told supporters in Tulle, France, last night after he won about 52 percent of the vote. “Austerity isn’t inevitable. My mission now is to give European construction a growth dimension.”

Hollande inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in more than 30 years to fail to win re-election.

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07-May (USAGOLD) — Despite the political changes sweeping Europe, the yellow metal remains largely nonplussed. The euro, which opened at a 4-month low, has spent the day backing and filling the gap that was left. Uncertainty seems to be the new world order.

So it seems Europeans are not fans of austerity. Not a big surprise really, austerity pretty much sucks. And so the pendulum is apparently swinging back toward government spending, where Europeans will once again realize they don’t like being broke and in debt either. Lather, rinse, repeat…out with the old government, in with the new. The ability of governments to maintain power, their wills to honor past promises or broadly advance fiscal agendas is suddenly massively in doubt.

While the Greek elections were a pretty clear rejection of austerity, German chancellor Angella Merkel was quick to point out to Athens that “It is of utmost importance that the programmes that we agreed on with Greece continue to be implemented. The process is a difficult one, but despite that it should go on.” Meanwhile a Credit Suisse economist said the election results were “one of the worst possible outcomes” because of the uncertainty that will result, suggesting that new elections could be in the offing as soon as next month.

With the US Presidential campaign now officially underway, similar debates will play out here as well. Most Americans are generally against government imposed austerity when specific programs are mentioned as potential targets, but I think all but perhaps the most ardent Keynesians recognize that a debt to GDP ratio of 107% is unsustainable. The uncertainty that springs from this has prompted many to self-impose austerity — they are spending less and saving more — which in turn hamstrings any kind of true recovery.

With the country pretty evenly divided on fiscal matters, it is likely that Congress will remain divided as well. So no matter who wins the Presidential race, legislative gridlock on issues of spending and taxation will persist, breeding more uncertainty yet. The continued absence of meaningful fiscal reform may well prompt the Fed to step into the breach once again with the large blunt tool of monetary stimulus.

• Canadian building permits +4.7% in Mar, well above market expectations of -5.0%, vs +7.6% in Feb.
• Switzerland unemployment rate (sa) a tick higher at 3.1% in Apr, after negative revision for Mar from 3.1% to 3.0%.
• Switzerland CPI +0.1% m/m in Apr, below expectations of +0.2%, vs +0.6% in Mar; -1.0% y/y.
• Germany manufacturing orders +2.2% m/m in Mar, well above expectations of +0.5%, vs upward revised 0.6% in Feb; -1.3% y/y.
• Taiwan CPI 1.44% y/y in Apr, vs 1.21% in Mar.
• Taiwan exports-CC -6.4% y/y in Apr, vs -3.2% in Mar.
• Australia retail trade +0.9% in Mar, vs upward revised +0.3% in Feb.
• Australia building approvals +7.4% in Mar, vs negative revised -8.8% in Feb.
• Indonesia GDP +6.3% y/y in Q1, vs +6.5% in Q4.

06-May (Financial Times) — Another spring, another sputtering American recovery. For the third year in a row, what many anticipated to be a return to robust growth is beginning to look like another summer of hibernation. Last Friday’s payroll numbers showed a 115,000 drop in joblessness, barely enough to match population growth. And the ratio of Americans seeking work continues to go in the wrong direction, which flatters the official unemployment number. It fell a decimal point to 8.1 per cent last month. If no one had dropped out of the labour market, the official rate would have risen.

None of this should be much of a surprise. There are plenty of external factors to blame – the crisis in the eurozone, the persistence of relatively high global oil prices and expectations of a slowdown in China and India. To a greater extent than before, the US economy is affected by what happens to demand elsewhere. US domestic spending power is no longer the prime mover in today’s global economy. That era is unlikely to return.

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07-May (New York Times) — Vladimir V. Putin reclaimed the Russian presidency under the gold vaulted ceiling of a Kremlin palace on Monday, as police attempted to stamp out a second day of opposition protests in the city, passing on orders to detain anyone wearing a white ribbon.

In a ceremony anchored less in words than the physical attributes of power, Mr. Putin’s motorcade glided soundlessly through a city that seemed emptied of people. Inside the Kremlin’s battlement, he then walked over a long red carpet through a series of large chambers until he reached one as lustrous and intricate as a jewel box.

There Mr. Putin took the oath of office for a third time, extending his status as Russia’s paramount leader to a total of 18 years. He has said he may run for a fourth six-year term after that, meaning he could legally remain in power until 2024.

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07-May (National Post) — France’s president-elect Francois Hollande was plunged straight into the European economic debate Monday, as doubts over his plans and turmoil in Greece threatened to tip the euro zone back into crisis.

The 57-year-old Socialist won power on Sunday, ousting France’s right-wing leader Nicolas Sarkozy, and is due to take office formally on May 15 before embarking on a packed calendar of major international summits.

First on his agenda will be Europe’s debt crisis, where he is on a collision course with fellow EU leaders over his plan to renegotiate the bloc’s fiscal pact which many credit with saving the euro zone from meltdown.

Hollande promised the cheering crowds that welcomed his election that he would reopen talks in order that the pact focus on growth rather than simply imposing deficit-cutting austerity rules, an idea opposed by Berlin.

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06-May (Bloomberg) — Chancellor Angela Merkel’s party had its worst result in more than half a century in the northern German state of Schleswig-Holstein after an election that put the Social Democrats within reach of forming a coalition.

The result, in which the weakness of Merkel’s federal coalition partner once more hobbled her party’s ability to form a government, sets the tone for a bigger contest on May 13 in North Rhine-Westphalia. While polls suggest the SPD, the main opposition party nationally, will retain Germany’s most populous state, Merkel won’t be swayed by the party’s success at regional level to heed its national calls to spend more to end Europe’s debt crisis, said Manfred Guellner of pollster Forsa.

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07-May (BusinessWeek) — Greece’s election, in which the two main parties failed to win a combined majority, raised the risk that the nation will exit the euro and prompted calls for policies to boost European economic growth.

Greece now faces a 50 percent to 75 percent likelihood of leaving the euro in the next year to 18 months, Citigroup Inc. economists Guillaume Menuet and Juergen Michels wrote in a report today. They’d previously estimated the risk of a euro exit at 50 percent.

“Every country can decide to leave the common euro area, of course Greece can as well,” Austrian Chancellor Werner Faymann told state radio ORF today. “You just have to know what it means — and the Greeks will have to consider that.”

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06-May (BBC) — Socialist Francois Hollande has won a clear victory in France’s presidential election.

Mr Hollande – who got an estimated 52% of votes in Sunday’s run-off – said the French had chosen “change”.

Admitting defeat, centre-right incumbent Nicolas Sarkozy wished “good luck” to Mr Hollande.

Analysts say the vote has wide implications for the whole eurozone. Mr Hollande has vowed to rework a deal on government debt in member countries.

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06-May (WSJ) — Greek voters look set to set to say a resounding ‘no’ to the tough austerity imposed by the European Union and the International Monetary Fund.

Early estimates from exit polls in Sunday’s elections show that only between 31% and 37% of the electorate backs the two mainstream parties that support the belt-tightening measures in return for bailout loans.

A veteran Socialist Pasok party official said: “It seems that we have a complete change of the political map in Greece for the first time in more than 30 years. Although the two main parties could still form a minority coalition government it will be seen as illegitimate because of their low popular support and in any case it won’t last long.

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06-May (Financial Times) — Millions of voters are casting their ballots in the second and final round of France’s presidential election with François Hollande favourite to win in what would be the first victory for a socialist candidate in 17 years.

The Hollande camp appears confident of winning and has already begun making preparations for a celebration in the Place de la Bastille in eastern Paris.

The final opinion polls of the campaign, putting Mr Hollande as low as 52 per cent of the vote, suggested the result could be the tightest in three decades. Nicolas Sarkozy, the centre-right incumbent, is still hoping for a stunning comeback.

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06-May (Financial Times) — Greeks are going to the polls in a general election that is expected to reveal widespread anger with the country’s political elite.

Fringe parties opposed to the harsh terms of a €174bn bailout by international lenders are expected to do well.

As they cast their ballots, several political leaders made last-minute appeals to voters to avoid backing anti-austerity parties, saying it was crucial to keep up the momentum of reform.

“Each of us is making a decision today not only on who will govern the country but also on its course in the next decades,” said Lucas Papademos, the outgoing technocrat premier, who steered Greece through a partial sovereign default this year.

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by Mohamed El-Erian
04-May (Financial Times) — Friday’s US jobs data sound a warning that should be heard well beyond economists and market watchers.

With just 115,000 new jobs in April, the US economy is not creating enough employment opportunities to make a dent in the 12.5m jobless Americans in the labour force, of which a stunning 5.1m are long-term unemployed. Moreover, the disappointing monthly number managed to fall short of analysts’ massively subdued consensus expectation of 160,000, highlighting yet again the unusual sluggishness of the labour market.

…And then there is the labor participation rate which measures the number of adults in the labor force. This declined yet again and, at 63.6 per cent, is at a level last seen in 1981. In addition to highlighting the secular headwinds to income and wealth generation, this makes a mockery of the published unemployment rate of 8.1 per cent — a number that would be over 10 per cent if discouraged Americans had not dropped out of the labour force in their millions over the last few years.

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