Unless we begin to close this gap [the widening Govt spending deficit as a percentage of GDP], then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.” - Bill Gross, Pimco Asset ManagementI have nothing to say about last night's Presidential debate other than that Romney cleary kicked Obama's ass - thoroughly. The reason I have nothing to say about it is that there was absolutely zero substance behind the statements and rebuttals. I heard nothing concrete, with specific examples, of how either candidate would specifically address the catastrophic fiscal and economic problems we face. Great, Romney got an "A" in debate class and Obama got a "D." I will be surprised if it makes much of a real impact on support for either candidate from actual voters and it will likely not move the "needle" on the distribution of electoral college votes. But it sure sells a lot of advertising for all the network news programs who broadcast and dissect the empty rhetoric.
Having said that, do not make the mistake of believing the mass media myth that the stock market is staging a big rally today because Romney won the debate. That's just outright silly. To begin with, from a percentage standpoint, gold, silver and mining stocks are up significantly more than the broad equity indices. The reason the markets are higher is seeded in my comment about the lack of actual details or gameplan for the implementation of fiscal and economic policy. In fact, in that absence - beneath the platitudes and empty campaign slogans - was the implication that the market can expect a whole helluva lot more money printing and Treasury debt issuance. That is the reason the precious metals and mining stocks are leading the markets higher and why the dollar is getting hammered today.
Now that I've got that out of the way, I will focus on the real issues affecting our system. The biggest issue is the strength - or lack thereof - of our economy. Yesterday a "touchy feely" economic report, the "services" ISM index, was released and it showed a slightly better gain than expected. Of course the commentators and analysts jumped all over this as a signal that the economy is improving. Of course, when you look at the individual components of the index, a different picture emerges. The prices component jumped 3.8% - vs. a 1.8% gain overall for the index - and the employment component declined 2.7%. Not sure how that can interpreted as anything but grim. But since Bernanke has pegged his QE policy to employment, it means we will see more QE than was announced after the last FOMC meeting.
Today the factor orders metric for August was released. It showed 5.2% drop. Orders for aircraft and computers plummeted. Not mentioned in the media about the report is the fact that the 2.8% gain for July was revised lower to 2.6%. The Government loves to play this game of reporting a number and then revising that number down the next month, knowing most eyes are focused only on the current month's metric. They are really notorious for doing this with the jobless claims number. In fact, just today the weekly jobless claims number was reported 367k in jobless claims, a little lower than expected but higher than last week's number. It just so happens, that last weeks number was revised higher by 4k to 363k. The Government plays this game every week with the jobless numbers.
Just a note ahead of tomorrow's non-farm employment report for September. The mean expected number is a 113k gain in jobs. I would not be surprised to see the number reported to exceed this estimate. Every four years there's a seasonal gain from temporary employment connected with the Presidential election. Because a good number will benefit Obama, I'm sure the brain trust at the BLS has been instructed to conveniently leave out the "seasonal adjustments" that might otherwise be used to account for the temporary election-related hiring. Just speculation on my part, but I bring it up in case a "good" number is reported.