By Elliott Wave International

Did European Union leaders make the sovereign debt crisis “go away” last week?

Not even close. What they did agree on is tougher budget rules:

“…17 countries of the euro zone…agreed to run only minimal budget deficits in the future and allowed the European Court of Justice the right to strike down national laws that don’t enforce such discipline properly…”
Wall Street Journal, (12/9)

Will the EU agreement prove bullish or bearish for world stock markets, including the Dow Industrials?

Let’s put it this way: The evidence suggests that government intervention in the economy does not alter the dominant trend of financial markets.

For example: Look at the DJIA chart and try to identify when the U.S. government bailed out Fannie Mae, Freddie Mac, and other financial institutions.

“[The chart below] shows that in fact these actions took place in the early portion of the biggest stock market decline in 76 years. These actions did not push stock prices back up. The market finally bottomed months later, at a time when nothing along these lines happened.

“It is no good to claim that these actions had results eventually. By that reasoning, any future turn in the stock market would prove the contention.”
Elliott Wave Theorist, March 2010

If anything, the face value of this chart argues that economic government intervention makes stocks go down.
There is simply no “cause and effect” relationship between government actions and stock market trends.

The stock market’s price pattern is governed by the Wave Principle:

“Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life.

“….The market’s progression unfolds in waves. Waves are patterns of directional movement.”
Elliott Wave Principle, (p. 21)

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Tim Iacono

More evidence that economists in general and dismal scientists at the Federal Reserve in particular are hopelessly and dangerously detached from reality (i.e., guided by the mistaken belief that, if something doesn’t exist in their models, neither does it exist in the real world) comes via this Associated Press story about a new study by the central bank detailing how wild speculation drove the late, great U.S. housing bubble.

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,”the researchers noted.

I saw this last week when it was originally published and should have mentioned it at the time (the report from the New York Fed can be found here), but, now that it’s getting lots of attention in the mainstream media it’s a case of better late than never.

Experienced traders recognize that volume typically dries up going into the holiday season. Light volume and the holiday seasonality generally push equity prices higher. The discussion of whether Santa Claus comes to Wall Street has arrived in earnest.

I do not envy Santa as he has the most arduous task of determining if Wall Street was naughty or nice. I suppose it depends on whether he reviews recent performance, or if past performance comes into play. Clearly coal will likely be found in a few stockings soon enough. If I were John Corzine, I would not expect to get a lump coal, but something far worse potentially.

In all seriousness, the bullishness has gotten pervasive in the media and economic data points such as unemployment and consumer credit have improved according to the government. One way to gauge investor sentiment is to look at the weekly advisor sentiment numbers courtesy of Bloomberg and Investor’s Intelligence.

According to this week’s advisor sentiment numbers, advisors who are bullish advanced to 47.4% from 44.2% last week. Bearish advisors dropped to 29.5% from 30.5% from the previous week. The 29.5% bearish data point matches a level that has not been seen in nearly 4 months. Bullishness has clearly become the leading expectation in the marketplace.

Only one asset has the opportunity to be “The Grinch” and ruin Christmas on Wall Street. If the U.S. Dollar rallies sharply, risk assets are certain to get hammered lower. In addition to the bullish tenor of market participants, most market pundits and gold bugs believe strongly that the U.S. Dollar is doomed fated for lower prices.

When I look at the long term momentum of a stock or commodity contract I will look at a monthly chart and plot the 12 month moving average against the price action. While it seems simple, equity and futures positions adhere to the 12 month moving average quite closely in many cases. The analysis is very simple as prices above the 12 month moving average equate to bullishness and prices below the moving average predict lower prices. The monthly chart of the Dollar Index futures is shown below:

As can be seen above, the Dollar Index futures are showing strength currently. The 12 month moving average is starting to flatten out which is also a bullish indicator. When looking at the daily time frame we can see that price action is trading inside a wedge pattern and is bouncing higher off of support:

An additional catalyst that could push the U.S. Dollar higher is the economic tragedy that is Europe. European political leaders need to come up with a series of strong solutions that will stabilize their economic crisis otherwise the Euro will weaken further. A weakening or potentially crashing Euro will push buyers back into the U.S. Dollar. This would in turn place downward pressure on equities and commodities.

S&P 500

On Thursday the S&P 500 flushed over 2% lower by the close as the European Central Bank disappointed investors with an expected 0.25% rate cut and no new bond purchase announcements. The bulls will tell you that the Thursday the week prior to monthly option expiration usually is volatile and price direction is generally in the opposite direction of the primary trend. We will find out next week whether that axiom holds true. The daily chart of the S&P 500 is shown below:

The strength of Thursday’s move is not going to easily be reversed. The European leaders need to shock the market with tangible decisions and launch a major offensive against their growing fiscal issues. If European leaders disappoint investors, the reaction to the news could be a violent selloff that leaves bulls flatfooted next week.

Those who are leaning long in size should consider that their trading capital is being leveraged on the hope that European leaders can come to a groundbreaking agreement. I will be in cash watching the price action in the S&P 500. However, once the dust settles and others have done the heavy lifting, I will likely get involved with a directional trade. Until then, I am just going to ponder if I were Santa, would Wall Street get a present or a lump of coal?

Get these weekly reports and trade ideas free here: www.Optionnacci.com

JW Jones

By Elliott Wave International

Is the bank really the safest place to keep your money? Robert Prechter joins the Mind of Money host Douglass Lodmell to discuss what backs bank deposits and how you can keep your hard-earned money safe.

We invite you to watch the interview below. Then read Robert Prechter’s free report, Discover the Top 100 Safest U.S. Banks.

What is the best course of action to safeguard your money? Read our free 10-page report, Discover the Top 100 Safest U.S. Banks, to learn: The 5 major conditions at many banks that pose a danger to your money. The top two safest banks in your state. Bob Prechter’s recommendations for finding a safe bank. And more! Download your free report, Discover the Top 100 Safest U.S. Banks, now.

Given the failure of the “RISK OFF” trade to develop any serious downside momentum this week, I am using the dip this morning to take a small profit on my S&P 500 ETF (SPY) puts.

We had every reason to go down, given the Standard and Poor’s threatened European debt downgrade on Monday night. If this despised and deeply flawed ratings agency had made this announcement in September or October it would have been worth at least ten (SPY) points to the downside.

But they didn’t announce it then, they announced it now, and in the post Armageddon world this gets you only a modest two point dip. It’s an old trader’s adage that if you throw bad news on a market and it doesn’t go down, then you buy it. The risks have just risen that the Santa Claus rally continues for a few more weeks. Plus, if I can duck a major headline risk this weekend and still keep some change in my pocket, like the European ministers meeting, I am going to take it.

As it is way too late to buy, this means cover your shorts. This is doubly true for options holders who have a heavy price to pay in time decay and falling volatility over the holidays.

On top of this, we are looking at retail holiday sales that are coming in better than expected and a seasonal liquidity push to year end. Although consumers are depressed about the outlook for the economy in 2012, they are apparently dealing with their sorrows through buying a big screen TV, an Apple iPad, an Xbox 360, or a Snuggie.

There is another factor at work here. Any hedge fund manager who has had a great 2011 tends to step out of the market now and go flat. This locks in their gains until their 20% performance bonuses are paid out in January. Any profits in hand now get paid out in cash in 30 days. With a 42% year to date return, I certainly fall into that category.

My profit on this trade came to (9 contracts X 100 X $.32) = $288. For the model $100,000 virtual portfolio this adds 29 basis points to the total return. It’s better than a poke in the eye than a sharp stock, and will afford me some silver eagles to toss in the Salvation Army pot next time I go to the mall.

For those who wish to participate in my Trade Alert Service, my highly innovative and successful trade mentoring program, please email John Thomas directly at madhedgefundtrader@yahoo.com . Please put “Trade Alert Service” in the subject line, as we are getting buried in emails.

By Jeff Clark, Casey Research

A young woman – let’s call her Andrea – inherited some money from her father in late 1997. She was only nineteen at the time. Not knowing the first thing about investing, she kept the money in stocks and bonds as her father had, wanting to hold on to it until she really needed it. She played it “safe.”

She got married last year and so began to withdraw the money. She was pleased to see a chart from the broker that showed her portfolio was up about 20%. While admittedly not a great return over 12 years, her account had nevertheless survived both the 2000 tech crash and the 2008 market meltdown. She knew not all investors could not say the same thing.

Andrea began spending the money, thankful that she’d saved the money to start a family. But a cruel reality slowly began to set in: the money didn’t seem to be going very far. She couldn’t quite put her finger on why, but it all clicked when she saw the lofty price of a new SUV she wanted. She remembered her Dad’s favorite vehicle back in the day – a Ford Ranger pickup – and recalled him boasting that he paid only $8,500 for it in 1992. A comparable vehicle today costs more than twice as much.

It hit her like a slap in the face. While the number of dollars in her portfolio was greater than what she inherited, they bought less stuff. It was such a revelation that she actually uttered the words out loud…

“My investments didn’t keep up with inflation… I LOST money!”

Gold Is the Benchmark

Whether they realize it or not, the same thing is happening to most people’s investments. Over time, real returns are diluted because of inflation. The only reliable way to measure the value of investments is in terms of a financial intermediary that cannot be inflated: gold. That way, investors can tell how they’re doing in real terms.

This has practical ramifications for all of us. Someday, we (or our heirs) are going to spend some of the wealth we are accumulating. How much we can actually buy with our gains will directly depend on how hard inflation has hit whatever our investments are denominated in. A 15% gain in dollars is only 9% in real terms if USD inflation was 6% during that time frame. A money-market return of 1% is a losing investment if denominated in something inflating at 3%. In Andrea’s case, by keeping all her funds in dollars, her 20% gain turned into a 16% loss in purchasing power.

In other words, since most people don’t adjust for inflation, their investments are not doing as well as they think.

In contrast, if Andrea had kept part of her inheritance in gold, that portion would have grown 332% (from December 1998 to June 2010, when she got married). More importantly, she would have lost no purchasing power during that time. In fact, after inflation and taxes, Andrea could’ve bought 50% more in goods and services than in 1998, if purchased using liquidated gold. She could buy two small pickup trucks today with the same number of gold coins it took her father to purchase the Ford Ranger in 1992. (This all while gold went nowhere for those first three years and lost a third of its value in the fall of 2008.)

With gold as her savings vehicle, she could have completely sidestepped the erosion in the dollar.

How have you done?

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Re-Indexing in Gold – “This Changes Everything”

To demonstrate the effect of currency dilution, we’ve developed a tool for re-indexing popular indices from dollars to gold. Doing so provides a more accurate picture of the dilution of investments made in dollars (and would work just as well in euros or other currencies). We use gold in grams so the indices won’t be priced in decimals.

Here’s how the DOW has fared since 2000 when measured in both dollars and gold:

(Click on image to enlarge)

While the Dow Jones Industrial Average is up 4.7% in dollar terms, it’s lost 82.5% when measured in gold grams. An investment of $10,000 on January 1, 2000 would total just $10,470 today (excluding dividends) – but in gold it’s worth only $1,750.

In other words, investments made in the DJIA Index have not only lost money in real terms, they’re worth a pittance when measured in gold. This is a breathtaking loss.

How about a broader measure of stocks, like the S&P 500?

(Click on image to enlarge)

The S&P 500 is down 15.1% in dollars since 2000, but it’s lost 85.8% against gold. If you’ve owned an S&P index fund, you not only have fewer dollars that what you started with (excluding dividends) but have fallen dramatically behind when compared to the monetary asset of gold.

How about the technology sector?

(Click on image to enlarge)

Tech stocks show a whopping decline of 38% in dollars over the same time period, but money invested in that sector has lost 89.7% when measured in gold grams.

We also decided to look at some foreign markets. Are they doing better than the US?

(Click on image to enlarge)

The stock market for Hong Kong, one of the largest exchanges in Asia, shows an increase of 6% in dollars. However, it’s lost 82.3% when priced in gold.

(Click on image to enlarge)

The primary stock market for UK companies is down 22.4% since 2000 calculated in dollars, but has fallen 87.1% in gold grams.

Conclusions

Obviously, measuring portfolios in dollars exaggerates performance in real terms. This isn’t to say that one shouldn’t invest in stocks. It means that one must: a) be cognizant of how results compare to gold or other real assets that one might buy with whatever currency one is dealing with; b) adjust brokerage statements to allow for currency dilution; and c) not rely on stocks in general to outpace inflation.

In fact, it isn’t just investments that are eroding. Our entire world is being devalued, even as one reads this article – from groceries and gas to cars and college. Someday we’ll want to spend the gains we’re making; how will we avoid the long-term erosion of the currencies we invest in?

The answer is simple: save in gold. The dollars you keep in a money-market account will steadily lose value year after year. In fact, monies deposited into a simple savings account in 2000 have lost an incredible 25% of their purchasing power since then. Conversely, if those savings were denominated in gold, the wealth would have not only been preserved but increased. We believe this trend will continue – and accelerate. It will become increasingly important to your financial future that you cash in earnings from time to time and save them in precious metals – not in dollars, euros, yen, yuan, or even Swiss francs.

Don’t make the mistake Andrea did. Save in gold. That new car or retirement home or world travel you want to spend money on someday will be a lot easier to afford if your savings are denominated in the one asset that can’t be debased, devalued or destroyed.

[Don't continue to be robbed by government – take steps today to start preserving your wealth. This report will help you get started.]

By Elliott Wave International

Lost in the clamor over the central banks’ “let there be liquidity” pronouncement, Standard & Poor’s just downgraded fifteen major U.S. and European banks.

The downgrade doesn’t mean Bank of America, Goldman Sachs, Citigroup, Barclays, UBS, Wells Fargo and others will close shop tomorrow. But the long-term credit downgrade does raise questions about their stability.

After all, the 2007-2009 financial crisis has supposedly passed. But during the two-year “recovery,” did most big banks really return to sound fiscal health? Well, Standard & Poor’s downgrade speaks for itself.

One reason for the downgrades was Standard & Poor’s own revision to its rating system. Nonetheless, CNBC reported (11/29), “The outcome of the re-rating of the biggest banks was worse than S&P has forecast for all banks.”

And apparently, the big banks were in worse shape in 2008 than most people realized. Thanks to the Freedom of Information Act, Bloomberg just revealed that banks got more bailout money from the Federal Reserve than was previously made public:

“The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy.”
– Bloomberg, November 28

And in light of the downgrades, what does this revelation say about assurances of financial stability that come from the banks today?

Please consider this insightful excerpt from the September Elliott Wave Theorist:

“The Coming Worldwide Bank run”
“In the late 1990s and mid 2000s, the loan-to-deposit ratio for U.S. banks was nearly 1.00, meaning that almost all deposits were lent out. That shortfall alone was a serious problem, because if even 5% of depositors had decided to withdraw their money, banks would have been unable to pay. Some of the banks’ loans were quickly callable, but by 2006, the credit-fueled real estate boom had claimed a large percentage of outstanding loans, both inside and outside the banking system. These loans are not quickly callable. The problem was serious in 2002 and enormous in 2006. Now it has become acute, because many loans are becoming fossilized, as the market for mortgage investing has dried up while foreclosures on the ‘collateral’ have been slowed by court actions and politics.

“The specter of a banking panic has become far darker since the collateral for bank deposits — land and buildings — has fallen globally in value at the steepest rate since the Great Depression. One day this shortfall in collateral value will impress itself on people’s minds, and there will be an unprecedented run on banks around the globe…. Yes, I know about the FDIC, but I don’t believe it will be able to fulfill its promises when most banks go bust.”

Notice the phrase in the last sentence of the quote, “most banks” This obviously implies that some banks are safer than others.

What is the best course of action to safeguard your money? Read our Free 10-page Report titled “Discover the Top 100 Safest U.S. Banks” to learn: The top two safest banks in your state. The 5 major conditions at many banks that pose a danger to your money. Robert Prechter’s recommendations for finding a safe bank. And more! Download your free report now.

By Doug Hornig and Alex Daley, Casey Research

In the world of finance, there is always talk of bubbles – mortgage bubbles, tech stock bubbles, junk bond bubbles. But bubbles don’t develop only in financial markets. In recent years, there’s been another one quietly inflating, not capturing the attention of most observers.

It’s an education bubble – just not the one of student debt that has graced the pages of theNew York Times and so many other publications in recent months.

The problem is not that we are overeducating ourselves as many would have you believe. Rather, it’s that we are spending a fortune to undereducate ourselves.

The United States has always been a very educated country. But it is becoming less and less so, especially in the areas that matter to our individual and collective economic futures. Our undereducation begins with a stubbornly high dropout rate among secondary education students. About a quarter of those who begin high school don’t finish.

In an educational system where graduation from high school at a minimum level often means no grasp of mathematics beyond basic arithmetic, no training in basic personal finance, and no marketable professional skills, this is an obvious problem We can and should do more to prepare high school graduates for the world they now live in.

The big problems aren’t rooted in high school education, however, but with the decisions we as a nation are making in the education we get beyond the compulsory level.

Of those students who do make it through high school, 30% will not go on to any further education. That means 70% enroll immediately in a two- or four-year degree program, a major increase from the about 49% three decades ago. Despite rising college entry rates, we are not graduating any additional college students. That’s largely because among those who immediately enroll in college post high school, some 40% are not expected to get their degrees within six years.

The result: our overall college-educated cohort has flatlined over the past 30 years. The number of American citizens aged 25-34 who have attained a college education – including either a two- or four-year degree program – is exactly the same as the percentage among 55-64-year-olds, at 41%. (The US is also the only developed nation where a higher percentage of 55- to 64-year-olds than 25- to 34-year-olds has graduated from high school.)

Thirty years ago that 41% figure led the world in college grads; now we’re 16^th and trending lower.

Many have suggested that it’s because we have a less than stellar college education system. But nothing could be further from the truth. While it has some problems for sure, the US remains a leader in post-secondary educational quality. One need look no further than the increasing number of foreign students pursuing advanced degrees in the US. For the 2009-10 school year, about 690,000 non-US citizens were enrolled at colleges in the US – the highest level in the world and up 26% from a decade ago.

Not only are foreigners attending our schools in record numbers, they are far more apt to pursue high-level degrees than US students. Foreign students constitute 2.5% of bachelor’s degree students, 10% of graduate students, and 33% of doctoral candidates.

Despite a top-notch educational system in the US, we’re failing to take full advantage of the opportunities it provides. But the bad news doesn’t end there.

In the 21^st century, intellectual capital is what truly differentiates in the job market and what helps a country grow its economy. Investments in biosciences, computers and electronics, engineering, and other growing high-tech industries have been the major differentiator in recent decades. In order to be competitive in those fields, however, a nation must invest in so-called “STEM” studies (Science, Technology, Engineering, and Math).

During the latter half of the 20^th century, as more and more US high-schoolers opted to at least start college and were able to afford to go, their choice of academic pursuits have tended away from STEM subjects and toward the less-rigorous liberal arts.

When fewer students attended college and even fewer jobs required technical skills, private employers, and especially government, could soak up the overflow, putting people to work provided they had a degree, any degree… for a while. English literature, sociology, psychology, communications, fine arts, gender studies, and the like were majors that led, inadvertently, to nontechnical jobs – the blue-collar work of an information economy, marketing, and business, and of course to teaching the increasing numbers of new college students.

However, more careers than ever now require technical skills. Economic growth has slowed and unemployment rates have spiked, making employers much pickier about qualifications to hire. Plus, boomers have chosen or been forced to work longer in those professorships and other jobs.

There is now a glut of liberal arts majors. A classic bubble, born of unrealistic expectations that the investment of a hundred grand (or more) must result in a cascade of job offers. Or at least one.

It’s not happening. A study from Georgetown University listed the five college majors with the highest unemployment rates (crossed against popularity): clinical psychology, 19.5%; miscellaneous fine arts, 16.2%; United States history, 15.1%; library science, 15.0%; and military technologies and educational psychology are tied at 10.9%.

Unemployment rates for STEM subjects? Astrophysics/astronomy, just about 0%; geological and geophysics engineering, 0% as well; physical science, 2.5%; geosciences, 3.2%; and math/computer science, 3.5%.

STEM jobs also pay more. The list of the 20 highest mid-career median salaries, by college degree, features no careers from the liberal arts. Instead, according to a survey from PayScale.com, at the top we find: petroleum engineering, $155,000/yr.; chemical engineering, $109,000; electrical engineering, $103,000; material science & engineering, $103,000; aerospace engineering, $102,000; physics, $101,000; applied mathematics, $98,600; computer engineering, $101,000; and nuclear engineering, $97,800.

Liberal arts degrees provide few prospects for graduates. Yet the bubble continues to inflate.

In 2009, 1,601,368 bachelor’s degrees were conferred in the US, a 30% increase from 2000, which should be a good thing. But of these, a large plurality, 590,678, or 36.9%, was awarded in one or another of the liberal arts. That’s higher than 2000′s 36.1%.

Moreover, the next most popular major was business, with 347,985 degrees, or 21.7% of the total (up from 20.7% in 2000). And it was followed by health professions at 120,488 (7.5% vs. 6.5% in 2000); and education at 101,708 (6.4% vs. 8.8% in 2000). The business bulge would be okay if students were trained in how to start their own businesses. But it’s more likely that they dream of a lavish Wall Street job, one few will ever attain. In fact, that PayScale survey listed business as only the 59th best-paying college degree.

At the other end, these are the bachelor’s degrees earned in STEM subjects, as a percentage of 2009′s total, compared with 2000: engineering, 6.4% (down from 8.8%); biological and biomedical sciences , 5.0% (down from  5.1%); computer and information sciences, 2.4% (down from 3.1%); physical sciences and science technologies, 1.4% (down from 1.5%); and at bottom, math and statistics, 1.0% (up from 0.9%).

Americans don’t get it. Foreigners studying here do. True, the highest concentration of foreigners is the 21% in business and management. After that, though, comes engineering  at 18%, nearly triple the level of US students; physical and life sciences (9%), and math and computer science (9%).

More than one in three foreign students at US colleges are entering these fields. Compare that to to fewer than one in six US collegians. Fine and applied arts, English, and humanities collectively account for only 12% of the foreigners’ total.

There are any number of reasons for the emergence of the US’s liberal-arts bubble. One is easy money. Students have been encouraged to attend college by the availability of loans, both governmental and private sector, and the disproportionate wealth of their baby boomer parents’ generation.

In addition, many companies began requiring a degree – any degree – for entry-level jobs that could adequately be filled by a bright high-schooler.

Institutions of higher learning bear some measure of blame as well. Liberal arts programs are much more profitable than hard sciences – professor salaries are lower as their non-academic options are lower, less equipment is required, and of course, recruiting is easier.

Other factors might include the stigmatization of “nerds” who take on more challenging studies; the lack of quality math and science education in secondary schools (where are they going to get great teachers when there’s so much money to be made with the relevant degrees elsewhere?); and the widespread misperception that any college degree will punch one’s ticket to an easier life.

As more philosophy B.A.s wait tables, it’d be nice if we could wave a magic wand that populated high school science and math classes with teachers who inspire students and students who want to be inspired. But, alas, this a generational bubble.

Lacking that, high school counselors should begin warning students of the perils of spending four years pursuing an interest for which there is no market and advising their charges where the real opportunities lie.

Would-be liberal arts majors must face the reality that one of their few hopes for a future job is to teach the same subject to the next generation, and that competition for the few such specialized positions is going to be intense.

Furthermore, there remains a wide gap between males and females with regard to math and science. Since three females are now attending college for every two males, this is a vast untapped resource. If females currently are discouraged from becoming interested in STEM subjects from an early age, as much research indicates, that’s reversible. If they can actively be guided toward those fields, that’s doable, too.

The US has led the planet in scientific research and technological innovation for a long time. But that is changing. Other nations, especially in the developing world, are minting new scientists and engineers faster than we are. Without major changes to our cultural attitude towards math and science, and some pretty serious changes to the educational system to support it, we risk becoming second-class citizens in a techno-society that we largely invented.

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Courtesy of Mish

In Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force I presented some quick facts on the drop in the unemployment rate.

• In the last year, the civilian population rose by 1,726,000. Yet the labor force fell by 67,000. Those not in the labor force rose by 1,793,000.
• In November, those “Not in Labor Force” rose by a whopping 487,000. If you are not in the labor force, you are not counted as unemployed.
• Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Labor Force and Unemployment Rate Adjusted for Population Growth

Reader Tim Wallace responded with a very nice set of graphs and commentary. Wallace writes:

In the entire history of the labor force data, only in 1951, 1961, 1964, and 2009 did the labor force “shrink”. It also “shrank” in 2011 off 2010. Also note that from 1964 to 2007, only in 1991 at 631,000, 1995 at 723,000 and 2002 at 801,000 did the labor force fail to add more than 1,000,000 people.

However, in 2008 the labor force only expanded by 776,000. This was followed by a loss of 826,000 in 2009, a trivial gain of 155,000 in 2010 and a loss of 67,000 in 2011.

If you look at the average labor force growth from 1948 to 2007 of 1,579,000 the labor force should have expanded by 6,316,000 2008-2011. Instead the labor force expanded by a mere 38,000!

Thus, 6,278,000 people are unaccounted for in the unemployment numbers based on historical averages.

The final graph takes the adjusted data and calculates the unemployment number off the adjusted workforce and those that actually have jobs. The unemployment numbers using this historical trend method show the following numbers for November in these years:

Unemployment Rate Adjusted for Population Growth

2007 4.7%
2008 7.3%
2009 11.7%
2010 12.4%
2011 12.2%

I am sure it is just coincidence, but it is interesting to note that the flat lining of the labor force began in earnest with the Obama administration.

Tim

Thanks Tim!

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Tim Iacono

The Labor Department reported that nonfarm payrolls rose by 120,000 in November while there were major upward revisions to data from prior months and the unemployment rate reached a two-and-a-half year low, falling from 9.0 percent to 8.6 percent.

September payrolls were revised from a gain of 158,000 to 210,000, nearly matching the recovery high of 235,000 set earlier in the year, and October payrolls, originally reported as an increase of 80,000, were revised to a gain of 100,000.

There will be more as soon as the Labor Department website recovers from its crash…