Let’s have a little discussion on the labor market. There’s been some interesting reports coming out lately that send us a mixed signal on what’s really going on with job growth. As of now, the situation is far from good. Unemployment just edged down to 9% on Friday from 9.1%, after reports told us that 80,000 jobs were added in October. The trick to better understanding these numbers though, is to better understand the report itself.

Now I’m not going to give you a full on explanation of how our government conducts the Current Population Survey (CPS) which is responsible for determining monthly unemployment. But I will give you a quick run down. First of all, there are two surveys involved in this report: one household survey and one business survey. The business survey usually holds the most weight in terms of significance (the survey size is much larger at 440,000 business sites), but I want to take a look at the importance of the household survey first. It sheds light on a few areas that are critical to determining the true health of our labor market.

The household survey covers 60,000 households, which averages out to about 110,000 individuals. For each monthly survey, 1/4 of households are changed so as to make sure that no household is surveyed more than four months straight (although they are surveyed a year later as well). One of the aspects that makes the household survey so valuable, is how quickly it measures the creation of new businesses in comparison to the business survey. So let’s take a look at October’s CPS. The difference in the two surveys, especially over the past three months, is very interesting.

If you were to look at only the household survey, you would be a lot more optimistic about the labor market recovery right now. In October, the household survey (HHS) showed some very good signs;

• The long-term unemployed (those who are jobless for more than 27 weeks) fell by 366,000 to 5.9 million
• Involuntary part-time workers declined by 347,000 to 8.9 million
• Labor force grew by 181,000 in October

And here’s another question I can’t outright answer! Why? Because there are too many possible outcomes, and remember, you need to be ready for each and every one of them. So let’s take a look at the landscape.

Occupy Wall Street is proving to be quite the force to reckon with. Not only has it spread throughout the U.S, but it’s also spread throughout the world. So first off, what are these people protesting? To give you a very broad answer, they’re protesting the power of Wall St, along with how reckless they are with that power. For example, one of the main issues with OWS is the fact that Wall St was largely responsible for a near collapse of our financial system, and Main St was then responsible for bailing them out. It doesn’t help that while Wall St was getting bailed out with tax payer money, a majority of executives were getting millions in compensation. I’d say that’s a pretty rational idea to protest. So let’s now take a closer look into what these (predominantly young) men and women are looking to change.

Their demands are scattered, but we know that they’re looking to fundamentally change the monetary system. You’re hearing cries from people to go back to the gold standard or to abolish the Fed (Ron Paul). You’re also hearing cries to fundamentally change the constitution. It seems that there’s already a plan to hold a constitutional convention in Philadelphia during next year’s Fourth of July. And I certainly hope you all understand why this convention will be held in Philadelphia, and not somewhere else like DC or NYC! If you don’t, go to your local bookstore and get a history of the American Revolution.

Whether or not Occupy Wall St has enough popular support and traction to do these things is up for major debate. At the beginning of this protest, I would have simply said: “Hell no.” But now, I’m starting to have my doubts. I’m starting to really believe these guys might be able to change something. When you have more than 50% of the general population backing you, which Occupy Wall St. does, then your concerns will be very relevant in the upcoming 2012 election.

Let’s now take some time to talk about the gold standard, and whether or not any idea of going back to it is a good idea. The first question I would ask someone who brings up this idea is, ‘Do we actually have enough gold to back a gold standard?’ I highly doubt we do (the U.S. gold reserves haven’t been audited in years). Some will then reply that it doesn’t matter. They’ll bring up historical arguments, perhaps the Bank of England in the early 20th century. In 1910, Britain was in charge of the international gold standard, although they only had 1.2% of the world’s gold reserves. Look back about a hundred years and change, in the late 18th century, and you see that Britain’s stock of gold was constantly changing, while the pound’s value had not changed (because the pound was pegged). I would then ask, what would have happened if the people made a run on these banks, and there wasn’t enough gold to back their certificates. I mean, back in those days, that ‘certificate’ signified exactly how much gold it was worth. So in those times, if there was a bank run, the only result would have been catastrophe. And in today’s highly complex, globalized world, there is a MUCH better chance of bank runs due to media and how panicky people get.

What else is wrong with the gold standard? My next answer, in my opinion, is the most important. The gold standard takes away options; options that make governments and economies more adaptable to cyclical environments. For one, the gold standard would take away any power of controlling inflation or deflation. In today’s world, that would make the economy a sitting duck. Things have become FAR too technical to dramatically simplify the system like that. All it would do is make us more vulnerable, while deepening market cycles just as it had during the Great Depression. What do I mean by this? A gold standard is pro-cyclical, meaning that whatever direction your economy is going in, the gold standard will further intensify that cycle. Say the economy is over-heating, or starting to really slow down, with gold standard in place, there is no way to try and balance the economy. The gold standard further intensifies the trend, making things worse.

On top of that, what makes the gold standard even trickier is the level of dedication the government has to sticking with the system. If the international markets seem to think you’re going to do something like devalue your currency, than they’ll just drop the dollar and buy gold (take a look at the Great Depression, this happened multiple times, which exacerbated the situation). In order for the gold standard to truly work, you cannot alter your currency in any way. Again, this makes the economy more vulnerable to rapid change, especially in the era of globalization.

So in conclusion, I think the gold-standard makes an economy a lot more vulnerable in a globalized world, and takes away many tools that our governments utilize to counter-balance market cycles. Take a look at 2008. If the Fed hadn’t acted the way it did, the world would be an entirely different place. It would have been a depression like the world has never seen. Now I understand everybody’s fury directed at the Fed, I do. In all reality, it is unfair what happened. Wall St almost crashed the system, sending Main St into a horrible economic mess, and it was Wall St that got bailed out; not Main St. But you must remember something, as unfair as it is, it was for the greater good. Wall Street isn’t just Wall Street; it’s the heart of our economy. If Wall St collapsed, our nation’s cash flow would have dried up. And then Main Street would have been much, much, much, much worse off. So while it was unfair, it was necessary.

What Occupy Wall St could do, rather than pushing for some type of gold standard, is to change the level of accountability and transparency of the Fed. I know these sound like empty words, but they’re important. The Fed, in all reality, is probably way to powerful for its own good. There needs to be checks and balances; such as a limit to its power. I do agree with the fact that we can’t stimulate the economy every time things get iffy. I’m also a firm believer of the old Navy Seal saying: ‘Pain is weakness leaving the body’. We need to learn that our economy is cyclical, and that we can’t throw money at every downturn. We need to be willing to take doses of pain, which will in turn strengthen the future. But please, taking away the Fed and all it’s tools… would jeopardize the future of our economy, and our competitiveness on the global scale.

In the end, I do support a lot of what Occupy Wall Street stands for. Seeing CEOs receive millions of dollars of bonuses while the U.S taxpayer is bailing out those companies that these CEOs brought to the brink of collapse is extremely frustrating. And the income inequality and share of power is also frustrating. The elite most certainly do control far too much of our Nation, and the world. On top of all of that, our debt is absolutely ridiculous and it’s severely constraining the future growth of our economy. All this must change. All I’m saying is, don’t think the gold standard will make it any better!

I felt obliged to do a daily update due to all the recent news in the markets. If you follow any major financial reporters, you’re probably confused with how quickly economic forecasts change. Like I said in the weekly re-cap, one second you’re seconds away from driving off a cliff. And then snap! Turns out your vehicle had better control and you were able to make the turn before heading off the cliff. Well, let me say this. There are a hell of a lot of cliffs right now, think of it like driving a Porsche at a 150 mph in the Grand Canyon; you’re constantly trying to dodge cliffs. Well, we just dodged a few. Macro data coming out of the U.S continues to be better than expected. On Friday, non-farm payrolls reported that the U.S. added 103,000 jobs. That beat the average estimate of 59,000 jobs… by a good amount. So good news there. This once again shows the U.S. is putting up quite a bit of resistance towards a possible recession. What else has improved? Auto sales are up to a seasonally adjusted 13.1 million. This is a pretty big jump from the previous 12.1 million reported in August. Commercial construction, along with the ISM manufacturing report also showed surprising increases. We saw a .2% rise in commercial construction spending and an uptick on the ISM index to 51.6, from 50.6 last month (anything above 50 shows expansion). All of these figures are great news, but be very, very weary. I wouldn’t be popping the champagne yet, not until these numbers turn into a trend.

We’ve also got more goods news. Imagine that, huh? An article dedicated to good news. So I was surprised to see Nicholas Sarkozy (France’s PM) and Angela Merkel (Germany’s PM) come out and say that they’ll do whatever it takes to support the Eurozone. I’m especially surprised by Merkel, who has 80% of her population telling her: ‘No more bailouts!’. These two leaders didn’t disclose any details, so along with many other people in the markets, I’m still skeptical. Details are expected at the end of the month; so I wouldn’t go to crazy until they come out.

What else? We saw a pretty solid rally in Asia today, mainly based off of China’s actions to bolster local banks in hopes to calm market fear. China’s Investment Corp. increased it’s holdings in a few key state-run banks. This is good, as it shows China’s desire to start bolstering up it’s support of the banking sector. Watch for more updates on China and it’s actions towards the banking sector; because a lot more needs to be done to improve China’s increasingly inefficient banking sector.

That’s my market re-cap for the day. While it may look like the bulls are starting to add some momentum to the charge, I’m very cautious about how long that momentum will last. Look for the better than expected U.S macro data to subside into a trend. Also, be weary of what’s going on in Europe. I still don’t think they have the tools in place to properly deal with a Greek default. And I don’t know how much longer Merkel can support these bail-outs when 80% of Germany is telling her not to.

Until next time…