Thoughts From The Frontline : Labor

The War for Spain

John Mauldin — Sat, 14 Apr 2012 15:17:00 GMT

The War for Spain
Spain Goes “All In”
“We Are Not Greece”
The New Labor Force
A Little Blue Suede Shoe Trouble

I fully intended to ignore Spain this week. Really, truly I did. I had my letter all planned, but then a few notes drew my attention, and the more I reflected on them, the more I realized that the inflection point that I thought the ECB had pushed down the road for at least a year with their recent €1 trillion LTRO is now rushing toward us much faster than ECB President Draghi had in mind when he launched his massive funding operation.So, we simply must pay attention to what Spain has done this week – which, to my surprise, seems to have escaped the attention of the major media. What we will find may be considered a tipping point when the crisis is analyzed by some future historian. And then we'll get back to some additional details on the US employment situation, starting with a few rather shocking data points. What we'll see is that for most people in the US the employment level has not risen, even as overall employment is up by 2 million jobs since the end of the recession in 2009. And there are a few other interesting items. Are we really going to see 2 billion jobs disappear in the next 30 years?

But first, a personal note. My friend and fellow writer/economic blogger Mike "Mish" Shedlock's wife has ALS, better known as Lou Gehrig's disease. I have talked at length with him the past year as the disease progressed. It is a truly evil affliction. Mish has stayed the course, working with his wife, and now the options will soon be down to her communicating with a device that follows her eye movements to choose words on a computer screen. I cannot even imagine the pain of living with a loved one in the condition.

Mish is not asking for anything for his family, but he is sponsoring a raffle for ALS research. Please consider buying one or more tickets, or making a small donation to the Les Turner ALS Foundation. The money will go to research to find a cure, so that someday no one has to go through such pain. Thanks.

The War for Spain

In my book Endgame, co-author Jonathan Tepper and I wrote a chapter detailing the problems that Spain was facing. It was obvious to us as we wrote in late 2010 that there really was no easy exit for Spain. The end would come in a torrent of misery and tears. Tepper actually grew up in a drug rehab center in Madrid – as a kid, his best friends were recovering junkies. (For the record, he has written a fascinating story of his early life and is looking for a publisher.) His Spanish is thus impeccable, and he used to get asked to be on Spanish programs all the time. Until the day came when the government created a list of five people, including our Jonathan, who were basically named "Enemies of Spain," and pointedly suggested they not be quoted or invited onto any more programs.

As it turns out, the real enemy was the past government. We knew (and wrote) that the situation was worse than the public data revealed, but until the new government came to power and started to disclose the true condition of the country, we had no real idea. The prior government had cooked the books. So far, it seems it even managed to do so without the help of Goldman Sachs (!)

In about ten days I will be sending you a detailed analysis of all this, courtesy of some friends, but let's tease out some of the highlights. True Spanish debt-to-GDP is not 60% but closer to 90%, and perhaps more when you count the various and sundry local-government debts guaranteed by the federal government, most of which will simply not be paid. Spanish banks are miserably underwater, and that is with write-offs and mark to market on debts that totals not even half of what it should be. If Spanish housing drops as much relative to its own bubble as US housing has so far (and it will, if not more), then valuations will drop 50%. The level of overbuilding was stupendous, with one home built for every new every person as the population grew. We know that unemployment is 23%, with youth unemployment over 50%. Etc, etc. We could spend 50 pages (which is what I will get you access to) detailing the dire distress that is Spain.

Which brings us to this week. It was only a few weeks ago that most everyone, including your humble analyst, thought that the ECB had bought a little time with its "shock and awe" €1-trillion LTRO. Lots of analysis said there would now be at least a year to put programs in place to deal with the coming crisis.

Yet we may now be fast approaching the Bang! moment when the markets simply refuse to believe in the firepower that whatever governmental entities can muster. It happened with Greece, as it has in all past debt crises. Things go along more or less swimmingly until, as Ken Rogoff and Carmen Reinhart so articulately detail in This Time is Different, we wake up one morning to find that Mr. Market has seemingly lost all interest in funding a country at a level of interest rates that is credibly sustainable. When interest rates ran to 15% for Greece, even arithmetically challenged European politicians could understand that Greece had no hope of ever paying off its debt.

When rates rose last year to almost 7% for Italy and 6% for Spain, before the ECB let loose the hounds of monetization, they were approaching the limits of sustainability. Rates came back down as the ECB either bought directly or engineered the purchase of the bonds of the two countries. But now the LTRO effect appears to have worn off, and yesterday interest rates for Spanish ten-year bonds climbed again to 5.99%. There is a large auction for ten-year Spanish bonds next week, which the market is clearly anticipating with a bit of concern. Meanwhile, Italian interest rates are not rising in lock step, which shows that the anxiety is now clearly directed at Spain. Ho-hum, move along folks, nothing to see here in Rome.

(What follows now is a mix of the facts as I read them and speculation on my part. I admit I may be reading more into the information, as I squint at it at 3 AM, than is justified. But then again, there is a substantial amount of history that suggests I am not totally off base...)

Spain Goes "All In"

I came across this tidbit from typicallyspanish.com, and my antennae started to twitch (hat tip Joan McCullough). The key is the second paragraph. (Hacienda is the common name of the Spanish tax ministry, otherwise known as the Agencia Estatal de Administración Tributaria.)

"Spain led the loss in the number of self-employed workers in Europe in 2011. One in two of the self-employed to lose their jobs in the EU over the year was Spanish. Seven out of ten self-employed in Spain do not employ anyone else. Over 2011 Europe lost a total of 203,200 self-employed workers, 0.6% fewer than in 2010.

"Following the news that cash business transactions over 2500 € are to be banned, Hacienda has said they will not fine anyone who admits that they have been making payments of more than 2,500 € over the previous three months. The cash limit is part of the Governments anti-fraud plans which have been approved today, Friday. Those Spaniards who have a bank account outside the country now face the legal obligation of having to inform Hacienda about the account. The Government hopes its anti-fraud measures will bring in 8.171 billion €."

My fellow US citizens will be saying to themselves, "So what? We have to report our foreign bank accounts, and any large cash transactions are flagged." But gentle reader, this is much different. This is new law for Spain, basically currency control writ large, and bells have to be going off all over Europe.

First of all, note that Greece never tried to require its citizens to report cash transactions or to list foreign deposits. This is the new Spanish government revealing serious desperation. The government's back is to the wall. They have to know they will not collect the taxes they need to generate, but are going to try anyway to demonstrate to the rest of Europe (read Germany) that they are doing everything they can.

In a side note, on Wednesday, Spain's interior minister introduced new measures to thwart plots using "urban guerrilla" warfare methods to incite protests. And the local papers are printing op-eds by economists talking about how the effort to comply with German austerity demands will just make the economy worse, and that the government is not taking into account the resolve of labor unions to oppose them. "Germany is the problem." It pains me to say this (truly it does), but this is what we were writing about Greece, not all that long ago. We are seeing footage of demonstrations, verging on riots. It is a familiar pattern.

Second, let's review what I wrote a month ago. I noted that the LTRO money was being used by Spanish banks to buy Spanish government debt (and Italian banks were buying Italian government debt, etc.). The intention was to help the two countries specifically and Europe in general to finance their debts and allow banks to shore up their capital as part of that effort. But what that does is yield the unintended consequence of making a breakup of the eurozone easier, as it helps get Spanish and Italian debt off the books of German and French banks.

The only reason Germany and France, et al., cared about Greece is that their banks had so much Greek debt on their balance sheets, in many cases more than enough to render them insolvent. Bailing out the banks directly would have been costly, so better (thought the European leaders) to do it with bailouts from funds created with guarantees from the various governments (which is a backdoor way to get it from taxpayers) and the European Central Bank. A crisis was avoided and there was a more or less orderly Greek default – which anybody who bothered to look at the math saw coming well in advance.

A further side note: Spanish-bank borrowing from the European Central Bank doubled last month, "revealing a dangerous dependence on emergency funding that on Friday triggered renewed turmoil in financial markets." (The Telegraph) And the Spanish stock market is down some 30% over the past year.)

So, in the effort to make sure that everyone pays their taxes and to stop tax fraud, the Spanish government is going to find out which of its citizens have moved their money out of Spain. And let's be clear, money has been flying out of the banks of Spain and Portugal (and to some extent Italy) as it did, and still is, in Greece.

And it will be easier to track that offshore money than you think. Some people, I am sure, moved their money into cash and then out of the country. But others simply wired the money, thus leaving a trail. Spanish banking regulators can easily require they be given that information, and what bank will say no to the regulators? Spain does not collect taxes from its citizens if they are residents of a foreign country (as the US does), but it can tax everyone who lives in Spain. And if you live in Spain and decide to diversify your risk among a few other countries? I am not sure of Spanish tax law, but I reasonably assume you are supposed to report all your income from whatever source. (Otherwise there would be no one investing with Spanish banks, brokerages, and investment advisors –if it were legal not to report foreign investments, then everyone would invest outside of the country.)

Let me hazard a modest prediction: We will see a rather sudden and substantial need for physical cash in certain other "peripheral" countries, as now their citizens may not want to leave trails as they go about opening foreign bank accounts. What is to keep Italy from doing as Spain has done? Or Portugal? Or France? Or Germany?

Let me be clear about something. I am not suggesting that people should not pay their taxes. If you choose to live in a country, you should pay the taxes that are required. What Spain is trying to do is simply make sure that all their citizens pay the proper amount of taxes. If there was already 100% compliance, there would be no need for new regulations like Spain's. And the same goes for the US. Our penalties are rather stiff for not paying taxes, more so, I'm guessing, than in most of Europe. I have on more than one occasion noted that the national sport of Italy is tax avoidance.

My friends in Spain tell me a lot of business is done in cash. But that is the case in the US and almost everywhere I go. There are a lot of (ahem) "independent" taxi drivers, services, etc. that do not take anything but cash. Maybe they report everything, but I do not bother to ask. (When I was a waiter in college, did I report all of my tips? I was required to report a minimum amount of income for each hour worked, but did I report everything? Since it has been 40 years and the statute of limitations has run out by now, I might admit to missing a few dollars here and there.)

I imagine there are quite a few Spanish citizens who are not sleeping well this weekend. And more than a few people tossing and turning in other countries as well. If the next month comes and goes without any sign of unusual cash movement in Europe, then I will owe the peoples of peripheral Europe a big apology for doubting their willingness to pay their taxes. Or maybe it will turn out that they were better at "avoidance" than your average American, and planned their movements far in advance...

Let's get back to the central point. Spain is too big to fail and too big to save. The bond markets are clearly getting nervous, much sooner than was planned. Spain is clearly attempting to demonstrate that it will do everything in its power to comply with the new European austerity rules. Yet Prime Minister Mariano Rajoy has warned that the situation has created "a vicious circle that strangles Spain."

Rajoy delivered a strongly worded speech to parliament, insisting that it was "as clear as day" that Spain would not need a Greek-style bailout. But in recognition that the country is losing market confidence, he appealed to other European leaders to be "careful with their comments" and remember that "what is good for Spain is good for the eurozone." (The London Telegraph)

One can look at the amount of money Spain will need to refinance in the coming year and look at their financial ability, then look at how much can possibly be raised by the European community, even under the proposed new structures, and readily come to the conclusion that there is simply not enough money to save Spain if the market goes Bang!

The only possible solution I see is for the European Central Bank to step in with some new program. ECB President Mario Draghi has demonstrated a marked ability to come up with new, creative ways to kick the can down the road. Finding the money to bail out Spain is hopefully in his book of tricks. As fellow central banker Ben Bernanke has noted, Mario has a printing press. And the LTRO showed he knows where it is and how to use it.

"We Are Not Greece"

The German Bundesbank is saying as loudly as it can, "QE? Nein!!" But I count only two German votes among the 23 that compose the board of the ECB. Spain is demonstrating to its European brothers and sisters that it is doing all it can. "We are not Greece" is the clear statement. And "We need and deserve your help." Yesterday, Rajoy pointedly noted again that "What is good for Spain is good for the eurozone."

One should not underestimate the willingness of politicians who are viscerally committed to a certain action (in this case European unity) to spend someone else's money in the pursuit of that action. Especially if that money is a hidden tax in the form of debt monetization.

The markets are moving up the time table on the next large monetization of Spanish (and eventually Italian?) debt. Germans will shout that this is inflationary, and for them it probably will be. But much of the rest of Europe is in the grip of deflation. Spain is clearly in a classic Keynesian liquidity trap. This is what can happen when you have very different economies operating under one monetary roof. This is not simply a banking or sovereign-debt crisis, it is about a massive trade imbalance and huge differences in the productivity of labor. The trade imbalance between the south – Portugal, Spain, Italy, and Greece – and the north (mostly Germany) must be solved before there can be any resolution of the economic crisis. This is Economics 101, which European politicians seem to have slept through.

There will be the attempt to create some sort of fund to buy Spanish debt, but it will prove to not be enough. And given recent market movements, it may not be able to happen fast enough. It will not surprise me if the ECB uses the promise of such a fund as a pretext for acting sooner.

And yes, this will lower the value of the euro. We will have to see how far Europe is willing to push the process. Greece will soon default again (they are in a depression and have a national election in early May), Portugal is still moving toward being bailed out, and the Irish are growing tired of having to repay the British, French, and Germans for bailing out their failed banks. Think bailout fatigue isn't growing among European voters? Stay tuned...

The New Labor Force

I will end this letter with the beginning of what I intended to write originally and hope to finish next week. Work and employment is changing before our eyes in the US and much of the developed world. As the Baby Boomer generation reaches retirement age and finds out that either it cannot afford to retire or does not want to retire, the "trickle-down" effect to younger workers is starting to become apparent in the data.

Let's look at three charts (hat tip to John Hussman, who called this to our attention and got me looking at the details). The first shows the employment level in the US for the last five years. The gray area is the official period of recession. Employment growth since the end of the recession has been only a few hundred thousand jobs a month; but since employment is a lagging indicator, you can claim that we have recovered 4 million jobs since the employment bottom in late 2009 or about 2 million jobs since the 3^rd quarter of 2009. It all depends on where you want to start your count. But we are still down roughly 4.5 million jobs since the beginning of the recession. This has been the slowest "recovery" since the end of WWII.

Now let's look at the next chart. This is the employment level for those over the age of 55. Notice that it kept rising all through the recession and especially after. People over 55 have seen their total employment level rise by about 4 million jobs since the beginning of the recession, and over 3 million jobs since the 3^rd quarter of 2009. Almost any way you look at it, those over 55 have seen their jobs level improve over those who are younger. If you take the end of the 3^rd quarter as your marker, the Boomer generation has seen its jobs level rise by 3 million, while overall jobs rose by just 2 million! Those who are younger are actually falling behind!

And once last chart before we go. Last week we looked at how the civilian participation rate (the percentage of the population who have a job or want a job) for the US has been falling for a decade and especially since the end of the recession. You can attribute a high percentage of the apparent decrease in unemployment to the fall in the participation rate.

Except for one group or cohort. This next chart is the participation rate of those over 65. Their participation rate is rising. The graph is "noisy," but the trend is clear. Whether willingly or out of necessity, older workers are staying longer in the work force. And given the rather lackluster employment growth, they are taking jobs that would normally go to younger workers, which is why we are seeing higher rates of unemployment among the latter. We will go into the why of that next week, but a great deal of it has to do with work skills.

A Little Blue Suede Shoe Trouble

My travel schedule is rather hectic, and I will be on the road some 22 out of the next 26 days. Only in the US, which is easier on my body, but air travel has long lost its romance. Airport security can take the fun right out of travel, not to mention the time. Today I was lost in thought, thinking about this letter as I stood in line. I went through the drill, as I have done hundreds of times, taking out the laptop, taking off the coat and shoes, emptying the pockets, etc. Except this time I forgot the shoes. I went right on through the line with the new body scanners (which for some reason I don't like), then began to collect my gear and noticed my shoes were not in the tray. (And yes, these are the very same blue suede shoes that Swedbank bought me a few weeks ago in Stockholm, when my bags were lost. I have found them to be quite comfortable and stylish travel shoes.)

So I looked down. I was still wearing them. I laughed and remarked about it to the security guy at the tail end of the line and began to leave, when suddenly they stopped everything. Seems I had found a particularly zealous security person. Not only did I have to take off my shoes, but I had to go back through security and get scanned all over again. Next time I will try being funny with a more amenable crowd.

It is time to hit the send button. It is once again late, but I get to sleep a little later here in Frisco, so I can adjust. Have a great week.

Your proud member of the working Boomer generation analyst,

John Mauldin

John@FrontlineThoughts.com

It’s All About Jobs

John Mauldin — Sat, 07 Apr 2012 19:35:00 GMT

Just Trying to Keep Up
Participating in the Labor Force
Some Good News on Employment
San Francisco, Denver, Austin, Philadelphia, Washington DC, Fort Lauderdale, etc.

Today's employment numbers were decidedly soft, but the unemployment rate went down anyway, and that is about the best you can say. And this being a holiday weekend, it provides us an opportunity to look deep into the employment numbers, while we put off thinking about Spain for at least a week. And who knew that being an unmarried Asian-American in the US was a risk for unemployment? Plus a few other interesting items will make for an interesting letter.

Just Trying to Keep Up

March saw "only" 120,000 jobs created. Expectations were for 200,000 new jobs. It wasn't all that long ago that any positive number would have been seen as good, but with the last six months averaging 200,000 jobs, this was disappointing. It gives force to the worry that once again we could see the employment numbers get soft during the spring and summer. And adding to interest in the topic, the employment numbers will take on a decidedly political tone this summer, as every poll shows that jobs and the economy is the #1 thing on voter's minds. This will be underscored only four days before the presidential election on Tuesday, November 6, as the jobs report for October is scheduled to be released on Friday, November 2. Think that one won't be analyzed more than usual? I keep writing that the current release is adjusted so often that it is hard to see more than a trend in the actual monthly releases, but that will not keep pundits from using the release to support their candidate with all the spin they can muster.

There is reason to believe that today's lower number was partially due to the weather being so good in the earlier part of the year, so that what is usually seasonal employment started earlier than is typical; so it might be better to average the last two months, which is still disappointing in that it barely stays ahead of population growth. At this rate it will be another three years before we get back to new employment highs, and that does not factor in any population growth. And it also assumes there is no recession in the meantime. Given that the US must start at some point to get its budget balanced, there is little hope that more government spending (aka stimulus) is on the way.

The Bureau of Labor Statistics churns out a massive amount of data each month. Let's look at one table and then discuss what we see. This is Employment Situation Summary Table A of the Household Data report, seasonally adjusted.

First, the unemployment rate fell by 0.1%, to 8.2%. But we see that the number of people who are actually employed dropped by 31,000, so how can the unemployment rate fall? Because the number of people looking for a job dropped by 164,000. If you aren't looking for a job, you are not considered unemployed. Thus the participation rate, or the number of adults either working or looking for work, dropped by 0.1% to 63.8%.

Note that this table shows 133,000 new jobs. This is the HOUSEHOLD report, which is the report created from a survey of households. The 120,000 new jobs number is from the ESTABLISHMENT report, which is a survey of established businesses, plus a guess as to the number of jobs created from new businesses that have been born in the last month, also known as the birth/death ratio. This month the birth/death number added 90,000 new jobs to the total number. The B/D ratio is a very volatile number. It is based on data from the last five years and is projected forward. Again, the unemployment number is taken from the household survey, and the new jobs number is taken from the establishment survey. While you can get a new jobs number from the household survey, it is notoriously volatile and essentially useless as a month to month indicator. As an example, it was 428,000 in February. Variations can run in the high hundreds of thousands month to month.

But over time the household survey gives a pretty good picture and eventually comes quite close to the establishment survey, although there are often some major adjustments after a year or more that help bring the numbers into alignment with the actual numbers that come in from tax data.

Now, let's look at a few other items. You can find employment by age, race, education, and gender. This page has a summary, although you can get very detailed data if you want to. For instance, this month we find that those with a college degree have a 4.2% unemployment rate, while 12.6% of those who did not finish high school did not have a job. Teenagers have a 25% unemployment rate. That number falls with each ten-year increase in age, until we get to those who are over 55, who are down to only 6.2% unemployed. Women have a lower unemployment rate than men at all ages.

Married men and women (spouse present) seem to fare better, with an average unemployment rate of 5.2%. The graph below shows us that married men tend to lose jobs faster during a recession but also get back to work quicker. I guess it helps you find a job if you have someone reminding you to go to work every morning.

If you had never been married you had a 12.5% chance of being out of work in March. For what it's worth, Asian-Ameroicans seem to do slightly better in most categories than whites, while African-Americans have almost twice the unemployment levels. Hispanics are about halfway between whites and blacks across the board. One odd thing that stuck out was that married white couples have a lower rate (5.3%) than Asian couples (6.2%) while never-married whites are unemployed at 10.5% and Asians at 9.2%. I am sure my readers, both Asian and white will have all sorts of anecdotal reasons for this, but even though I have Asian daughters and black sons (adopted, for those who wonder how), I don't get that one. You can find more data than you want to think about athttp://www.bls.gov/web/empsit/cpseea10.htm .

Participating in the Labor Force

Earlier we talked about the "labor-force participation rate." TThis is the percentage of working-age persons in an economy who are employed or are unemployed but looking for a job. Typically "working-age persons" is defined as people between the ages of 16-64. People in those age groups who are not counted as participating in the labor force are typically students, homemakers, and people under the age of 64 who are retired.

Let's look at three graphs from the St. Louis Fed FRED database. The first is the participation rate of men since the late '40s, and the second is the participation rate of women.

The first graph shows the participation rate of men falling consistently since the 1950s and then plunging since 2007. This is a 20% drop overall. Contrast that with the significant rise of women in the labor force until about 1995 and the gradual decline since 2008. In the United States the average labor-force participation rate was usually around 67% (since 1990) until the recent recession.

Let's look at one last graph of the total participation rate, but this time it will not be seasonally adjusted. Note the very large seasonal volatility in the number. This was especially true when they began collecting the data in the late '40s, but the seasonal variation has lessened with time; and since the recession it has fallen back to where it was in the late '70s. This just demonstrates in yet another way that more people want a job than can find one.

Just as disappointing as the total new jobs this month was the average work week fell, especially in manufacturing. This does not bode well for the next few months. Interestingly, the average wage for manufacturing is now 2% below the wages paid in the service industry.

Some Good News on Employment

Looking elsewhere, we can find some good news on employment. The polling company Gallup produces its own household survey each month. Gallup does continuous daily polling all through the month, while BLS takes a sample week in the middle of the month. While the Gallup overall unemployment number was at 8.4%, higher than that of the BLS, it did drop sharply in the last half of the month. And if they use the same seasonal adjustment the BLS uses, the number drops to 8.1%. Both are down sharply over the last month, and Gallup noted that most of that drop was in the last two weeks.

Gallup makes the following comments at the end of its release this week (http://www.gallup.com/poll/153761/Unemployment-Declines-March.aspx?ref=more):

"… The March and January rates are the two lowest since Gallup began monitoring and reporting unemployment in January 2010. They are also consistent with Gallup's other behavioral economic data for March showing a new high in Gallup's Economic Confidence Index and a post-recession high in itsJob Creation Index as well as strong consumer spending.

"While the sharp drop in the U.S. unemployment rate during recent months is clearly good news, it raises some significant economic questions. Traditional economic analysis raises the question of why the unemployment rate is falling much more rapidly than can be justified by the modest pace of current economic growth. Answering this question is essential to determining the sustainability of the declining trend in unemployment.

"Federal Reserve Board Chairman Ben Bernanke made this issue the centerpiece of his recent speech to the National Association for Business Economics, noting, 'the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion.' He went on to explain his hypothesis that companies shed many more jobs than necessary during the recession and financial crisis of 2008-2009, and now they are correcting their workforces for this understaffing of the past. The chairman went on to suggest that achieving further declines in the unemployment rate is likely to require a more rapid pace of economic growth going forward.

"If Bernanke is right, then the rapid decline in the unemployment rate might be approaching its end as individual businesses achieve a right-sizing of their workforces. Further, traditional economics also suggest that many people who have been sitting on the sidelines waiting for the economy to improve might decide that now is the time to seek a job, increasing the baseline figure used to calculate unemployment. In turn, this could keep the unemployment rate from decreasing or even send it higher, negatively affecting economic confidence and the overall economy – not good news for political incumbents, including the president.

"On the other hand, the economy might continue to build on the momentum indicated by the current positive trend in Gallup's behavioral economic data, or perhaps the economy is already growing faster than the current economic data suggest. Either way, if true, the unemployment rate could fall below 8.0% in the not-too-distant future – particularly if the workforce does not grow – meaning good things for the economy, incumbents, and the president's re-election effort."

Gallup had one more chart that does not bode as well for political incumbents, although even here they find a bright spot in the direction of the data. We will close with this. Gallup's US underemployment measure combines those unemployed with those working part-time but looking for full-time work. As a result of sharp declines in both of these groups, the underemployment rate, on an unadjusted basis, fell to 18.0% in March from 19.1% in February 2012. The underemployment rate declined to as low as 18.0% last July before reversing course in August; it also increased from November through January. This compares with the BLS U-6 unemployment rate of 14.5%, which is the rate of unemployed plus those who are part-time but want full-time work.

Employment and the economy in the US are getting better, just not as fast as we would like. And the world is still vulnerable to a renewed crisis in Europe, which seems to be coming back around. David Kotok notes that Greece is "in a downward death spiral." He continues:

"The private losses on Greek debt are mostly taken. The government/institutional/official losses are in the hands of politicians and still lie ahead. The Greek economy shrinks as the debt burden grows. This perpetual subsidy from others is on an unsustainable collision course with eventual Greek financial collapse. Meanwhile, 92 members of the Greek parliament have offered amendments to water down the austerity budget (hat tip to Barclays). The Greek prime minister vows to defeat all of them. Next week Greece will announce its bank recapitalization plan. Those banks that are deemed 'viable' will be able to gain financing from the ECB. Those that are not will need to fund liquidity from the Greek central bank under the Emergency Liquidity Assistance (ELA) program (hat tip to Credit Suisse). Note that ELA lending is central bank advances with lower-grade collateral. The Greek tragedy continues.

"We are tracking ELA balances in every euro zone country. It is not easy to do. The central banks of the 17 euro zone nations do not break it out in a single available figure. They also report with a lag. There is little reporting consistency among them. Greece has only revealed its ELA balance through November. We estimate it was about 40 billion euros then, up from about 7 billion in July. We have no idea what the balance is today. The European Central Bank could separately identify each country's ELA balance but chooses not to do so. Why not? Consider this: would you deposit your money in a bank that was in a national system with rising ELA? Not if you are sane. The flip side is that Eurozone folks have to guess. So they move money faster than they otherwise might and cause a bank run and an increase in that country's ELA. It is always better to cut off a small loss and be forthright about it than to maintain a growing loss and try to hide it. But politicians do not know how to learn that lesson."

Indeed. That seems to be the one consistency across nations. Politicians never learn until it is too late, and even then…

San Francisco, Denver, Austin, Philadelphia, Washington DC, Fort Lauderdale, etc.

Yes, all of the above cities are in my next three weeks. I am trying to figure out who exactly is creating my travel schedule. It could not have been me. I swear it has to be an American Airlines accountant, intent on fixing their bankruptcy with my travel! But some of the travel will be fun, with a little off-time thrown in. Details next week.

I was at a Dallas Mavericks game last week with a friend who is also a local investment advisor. I pointed out that while our record is mediocre, we have had a lot of injuries this season. If you factor in all of the players being back for the play-offs, we will have the deepest bench in the NBA. And yes, our team is "old," but that is what everyone said last year, and we won it all. If the old guys can remember the glory days of their youth, we could really make another run at a championship. And if Lamar Odom can forget what Kardashian sideshow he is in, get over not being in LA, and act like the star he is getting paid to be? Then we can just keep running real talent at teams that may have a better starting five but can't compete with our next five, let alone the 12 legitimate NBA players we will have. I will admit to maybe being a little animated. Perhaps I got a little overenthusiastic.

"John, why can't you be this optimistic about the economy when you write on Friday nights?" my friend asked.

But what would be the fun in thinking we'll go out in the first round? Sometimes you just gotta believe.

It's time to hit the send button. It's late and I need my beauty rest. Most of the kids and some friends will be here on Sunday, and we will fire up the grill. I hope you have a great week as well!

Your really an optimist at heart analyst,

John Mauldin

John@FrontlineThoughts.com