The Economy and My Conflict This Labor Day

by JDH on September 3, 2011

As is often the case, I’m conflicted.

On the one hand, it pains me to watch the economy crumble, because it’s not just the economy that is careening through this depression; it’s people.

Real people, your family members, friends, and neigbors are losing their jobs, and they don’t know what happened. They worked hard for the same company for many years. They started a family, bought a car and a house. And then, seemingly without warning, their job was gone.

At first, it was no big deal. They had always worked, so they assumed that it wouldn’t be that difficult to find another job.

But there was no “other job”.

It’s very difficult to go from earning $25 per hour, with full benefits and four weeks paid vacation, to finding a job as a greeter at Walmart, part time, for $10 per hour.

You slowly realize that you can’t keep your house, or your car, or your lifestyle.

That is the sad reality of Labour Day (or Labor Day for my American friends).

For many, there is no labour.

The August jobs report showed no jobs added in August. Apparently that’s the first time since 1945 that the economy has reported net job growth of zero.

So now what? What will President Obama’s job plan be, to be revealed this Thursday? Sadly for him, he’s not got a lot of options. The Federal Reserve cut overnight interest rates to near zero in December 2008, and that hasn’t improved the job picture. They’ve also bought $2.3 trillion in securities (ie. they’ve essentially printed money), and that hasn’t helped. In fact, the unemployment rate is higher now than when Obama was elected, and that’s not good, for him.

In fact, let’s flash back to last year, the 2010 Labor Day Weekend; here’s what the President had to say:

THE PRESIDENT:  Good morning, everybody.  As we head into Labor Day weekend, I know many people across this country are concerned about what the future holds for themselves, for their families, and for the economy as a whole.

As I’ve said from the start, there’s no quick fix to the worst recession we’ve experienced since the Great Depression.  The hard truth is that it took years to create our current economic problems, and it will take more time than any of us would like to repair the damage.  Millions of our neighbors are living with that painfully every day.

But I want all Americans to remind themselves there are better days ahead.  Even after this economic crisis, our markets remain the most dynamic in the world.  Our workers are still the most productive.  We remain the global leader in innovation, in discovery, in entrepreneurship.

Now, the month I took office, we were losing 750,000 jobs a month.  This morning, new figures show the economy produced 67,000 private sector jobs in August -– the eighth consecutive month of private job growth.  Additionally, the numbers for July were revised upward to 107,000.  ….

Thank you very much.

Q    Mr. President, what are the other incentives that you mentioned Monday, sir?

THE PRESIDENT:  Well, I will be addressing a broader package of ideas next week.  We are confident that we are moving in the right direction, but we want to keep this recovery moving stronger and accelerate the job growth that’s needed so desperately all across the country.

(Emphasis added by JDH).

Wow. Kind of like deja vu all over again, eh?

A year ago the President was boasting about all the jobs the economy created, telling us there were better days ahead. So far, we haven’t seen it.

He was also announcing a “broader package of ideas” that he would be releasing in the week after Labor Day, just like he’s doing again this year. More of the same, I presume?

The sad fact is that the government cannot create permanent jobs. All the government can do is take money from one person (the taxpayer), and give it to someone else (a government employee, or someone who provides services to the government). That’s it.

So what will President Obama propose to create jobs? More of the same. More spending on “infrastructure”, more changes to the tax code. More deficits.

And perhaps more stupid spending on homeland security, like the silly border controls between Vermont and Quebec.

So why, then, am I conflicted?

I’m conflicted because I’m profiting from misery.

The bulk of my portfolio is in precious metals. Stocks like FNV.TO – Franco-Nevada Corp.

As you can see, it’s been a good summer for Franco Nevada, and it closed on Friday very close to a new high.

Clearly the smart money (probably in China, Russia, and other places) realizes that the next few years won’t be great for the U.S., so they are placing their bets on something that can’t be printed: gold.

I have placed my bets in the same place, so I too stand to profit from the turmoil. Perhaps profit is the wrong word; perhaps I’m just protecting myself from the storm ahead.

“Storm” is a good metaphor, I believe, since storms are volatile, and that too should work to our advantage. I have placed my bids on a number of stocks I would like to own, and I’ve placed them in a “ladder”. If the stock is trading at $40 today, I’ve placed an order for a portion of what I want at $38, with further bids at $35 and $30, so if we have a big drop, I deploy cash.

In the same way I have sales orders in on stocks I recently purchased.

For example, on August 23 I purchased some Franco-Nevada warrants (WTS-FRANCO-NEVADA 13MAR12) for $10.69. The next day I placed a sell order for those warrants at $12.50, which would give me a 15% profit. The warrants closed on Friday at $12.18, so my sell order is not filled yet, but conceivably at some point next week I will cash out, and pocket the cash.

Then, at some point in the next few weeks the market will drop, and my buy orders will get filled. Lather, rinse, repeat.

To be clear, you may be wondering why I would sell warrants in a company I believe is a good investment. The answer, quite simply, is that it’s not a profit until you sell, so there comes a time when you have to take some profits off the table. However, the warrants in the example above are not a significant part of my portfolio. I also own the underlying stock, in larger quantities, and I have no intention of selling that position anytime soon.

So that is a summary of my labours this Labor Day Weekend.

I trust you too will also ponder the nature of labour, hopefully while sipping a cooling beverage.

Thanks for reading; see you next week.

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