The Jones Family
Research for Online Investors

by John Dalt

8/05/11

We got a great number for the Non-Farm payroll report this morning.  Asian markets had sold off overnight, and European markets were trading lower.  Futures for the U.S. market were slightly negative but started shifting to positive as we approached the release of the Payroll numbers.  The U.S. economy added 117 thousand jobs in July compared to only 46 thousand in June.  This was enough to drop the unemployment rate to 9.1% from 9.2%.

The futures bounced higher and it all appeared that happy days were here again.  After market opened a rumor circulated that one of the ratings agencies was prepared to downgrade U.S. sovereign debt after market close tonight.

Oops.  This was as welcome as a foul mouthed teenager at a dinner party.  Everything reversed and the bottom fell out as buyers disappeared.  By noon, the rumors were dispelled so buyers came back and entered the market.  We also got some news out of Europe that Italy’s government was working to enact a Balanced Budget Amendment to their constitution.

So, how good were the job numbers?  On the surface it looks wonderful.  After June’s numbers the market was anticipating a terrible number.  Some analysts even opined the possibility of a negative number.  The problem is once you read beneath the headline number.  There are fewer people working in the U.S. today than there were 30 days ago.  The unemployment rate dropped because more people have given up looking for work.  If you are not looking, you are not counted.

According to the Bureau of Labor Statistics, there were 153.2 million people working in the U.S. in July.  There were 13.9 million people unemployed.  There were 153.4 million people employed in the U.S. in June.  Bottom line, the U.S. has 200,000 fewer people working in July than in June.  This follows a similar decrease in May of 270,000.  You can read the BLS report.  It is a bureaucrats dream; lots of information to obfuscate the real facts.

Raising the debt ceiling made us dizzy trying to understand the budget numbers being thrown around.  I have read the Budget Control Act of 2011, and cannot find the line that says how much it is cutting from spending.  Imagine that.  A recent email from subscriber D.C. encouraged your editor to simplify the explanation.  Here we go.

U.S. Federal 2011 Budget:       $3,382,000,000,000
Government Tax collections:   $1,860,100,000,000
Deficit that must be borrowed: $1,521,900,000,000
Current Debt:                          $14,271,000,000,000

Suppose you have a neighbor that seems to have everything they want, all the latest toys and new cars every year. It is hard to imagine how the Jones family does it. Mr. Jones has a good job but they live like millionaires. We will knock seven zero’s off the Federal Budget and come up with your neighbor’s household budget. Here are the results:

2011 income:                  $186,010
Money spent:                  $338,200
Added to Credit Cards:   $150,219
Outstanding Loans:      $1,427,100

Under the Budget Control Act of 2011, here is their budget for next year.

2012 income:                   $189,730  (2% raises to keep up with inflation)
Proposed Budget:            $365,256  (Baseline budget increases 8%)
Control Act Cuts:             $   -3,850  (Tea Party says they have to cut back.)
New Austerity Budget:     $361,406
2012 Added to C.C.         $171,676
Total debt end of 2012: $1,598,776

Bottom line, the Jones family (and the Federal government) are going to spend more next year than this year. All this after credit counseling that we were told was a “good start to fix the problem.” Would you loan money to a family that owed credit card companies almost 10 times their annual earnings? That is what you are doing when you buy Treasuries. And now you know why it is hard to keep up with the Jones Family!

The mailbag:
I just got a note from an insurance agent.  The individual monthly Medicare insurance premium will be increased from $96.40 to $104.20 in 2012, $120.20 for the year 2013 AND increases to a wonderful $247.00 in 2014. Thank You Obama care! There is no increase in the social security COLA (cost of living adjustment); however, Congress also gave themselves a $3,000 a month Cost of Living Adjustment!—Buy, Sell, Hold and Long-Term subscriber R.A.

John’s reply:  Somebody has to pay.  More will come out.  Aetna announced they are leaving the individual policy health insurance market in Indiana.  Just the beginning.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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