• Why you won’t see a payrise anytime soon
• Why the punters are confused about crude oil
• The real state of the union

By Selva Freigedo in Albert Park

Have you ever heard the word ‘thouseuro’?

No, it’s not some kind of mythical creature.

Chances are, you never heard it before, because…I made it up. Well, kind of.

It’s a translation from the Spanish word ‘mileurista’. Mileurista is a slang word combining two separate words: mil (a thousand) and eurista, from the currency, the euro.

It refers to someone who works full time to make around €1,000 per month, as a salary.

And, let me tell you, until a few years ago, no one in Spain wanted to be a ‘mileurista’.

Why?

Well, mileuristas were overqualified and underpaid. A €1,000 a month salary back then was a modest income.

Let me explain.

You see, in Spain during the 2000s, being a mileurista had negative connotations.

Why?

Well, things were good back then, and there were great chances of making LOTS more money.

Construction was booming and there were cranes all over the skyline. Kids were leaving school early to work in soaring related industries like construction, real estate, you name it. It was where the money was.

There was a lot of cash around, and people were spending freely.

In fact, I know many people in hospitality that were making a fortune on tips. Many worked the bars for a few years to then buy property in their countries of origin with their earnings, where it was cheaper.

Many ended up with one, two, even three properties…and no mortgage. Jackpot!

But, this negative view of the mileurista soon changed.

You see, 2008 hit, but that was only the beginning of it. Not many people really predicted what would come next.

Unemployment went on to increase to over 25% by 2013.

With so many people out of work, there was a lot of competition out there for the few jobs available…and as this happened, salaries started going down. Law of supply and demand, right?

All of a sudden, the perspective of being a thousero didn’t seem that bad. In fact, as salaries plummeted, many people wished they had a salary close to €1,000…or even a job!

Unemployment has decreased since but is still high in Spain, which means that salaries haven’t seen much of an increase in recent years.

Meanwhile, costs of living have been increasing. I mean, I see this every year I visit. Every year I find things are more expensive. It’s not only that the exchange rate is worsening, prices are actually increasing.

So, Spain decided to try out something to boost salary growth.

In 2019, Spain increased their minimum wage from €736 (around AUD 1,170) to €900 (around AUD 1,430). This is a 22% sudden salary jump.

The increase is bringing them closer to other European countries minimum wage, as you can see below:

But, the measure is creating a hot debate.

Will the increase spur spending which will then increase hiring and reduce unemployment…or will it create inflation and higher unemployment?

While it will bring some much-needed economic benefit to workers on minimum wage, my guess is that it could increase underemployment, and make the problem worse. 

While official figures put the unemployment rate at 16%, my contention is that the real unemployment figure is a lot higher, because of underemployment. That is, when workers are not getting as many working hours as they would like.

And, it’s not a Spain only problem. It isn’t the only country struggling to create salary growth…or increasing the minimum wage to spark higher salaries.

From Bloomberg:

‘Madrid joins other governments around the world, including France, Greece, a Canadian province and some U.S. states, that have recently lifted minimum-wage rates to jump start broader salary growth, which has remained sluggish despite the economic recovery. […]

‘At the European Central Bank, officials may be watching as they monitor labor-market developments and underlying price pressures across the region. Its efforts to lift inflation have had limited success: Core inflation is 1.1 percent in the euro area, and even lower in Spain.[...]’

The problem is though that global growth is now slowing. If we haven’t been able to recover from the 2008 crisis and create employment and salary growth, then it’s unlikely we will now.

Australia has seen booming times in recent years.

Now there are worries that growth is slowing too. The Reserve Bank of Australia (RBA) recently cut their growth forecast for this year. Mainly because of lower consumption and a decreasing property market.

Employment could be starting to slow…and salary growth is nowhere to be seen.

Here is Bloomberg again:

‘Signs are emerging that a two-year hiring burst that cut Australian unemployment by almost a percentage point is starting to cool.

‘Labor market resilience has been central to the Reserve Bank optimism, but the prospect of slower hiring and a jobless rate drifting higher would make it tougher to maintain its “glass half full” approach. Such a turn would erode the likelihood of faster wage growth and inflation heading back toward the midpoint of the RBA’s 2-3 percent target.[…]

‘Even as unemployment declined, under-employment has remained elevated, signaling that workers are unable to secure as many hours as they would like. This supports the view that the market isn’t as tight as a 5 percent jobless rate might have suggested in the past. Furthermore, in the major east coast states of New South Wales and Victoria, the rate is closer to 4 percent and there still isn’t much evidence of wages strengthening.

‘[…] the gap between unemployment and under-employment is now the widest in decades. Moreover, the initial widening -- as the former fell and the latter rose -- coincided with a slowdown in wage growth, showing just how influential under-employment has been.’

I have been hammering about this for a long time, that employment figures are not what they seem. That they aren’t showing the real truth, and that while employment figures are low, high underemployment is one of the main reasons why wages aren’t rising.

Around the world employment is tight…but we are not seeing any wage growth.

My point is, we haven’t seen wage raises while things have been good, with global synchronized growth and a booming property market. Chances are, we may not see one for a while if things worsen. 

Best,

Selva Freigedo,
Editor, Markets & Money

Why Punters are Confused about Crude Oil
By Jason Stevenson in Chiang Mai, Thailand

Here’s the latest from the Economic Times:

‘Last week, the crude oil was stuck in a constricted trading range, with futures ending marginally higher, but suffering a weekly loss of close to 5 per cent. 

‘The market sentiment was majorly dominated by expectations of a slowing demand in the coming quarters. With the European Union also joining a growing chorus of large economies signalling downwards revision of growth forecast, thereby stoking concerns of an impending global growth slowdown. 

‘The optimism built around expectations of a speedy resolution of the US-China trade logjam, seems to be fizzling out. The US President Donald Trump has indicated that meeting Chinese President Xi Jinping when he’s in Asia at the end of the month may be too soon in terms of trade negotiations.’

The world is becoming increasingly uncertain about the future.

Europe is slowing down.

China is riddled with debt, with economic growth slowing. 

Emerging markets aren’t exactly booming either.

Meanwhile, while producing more crude oil, US economic outlook is stronger. But it’s caught in the middle of a trade war with China. There’s no certainty that it will strike a deal by 1 March ― when more tariffs come into effect. That worries the market. A slowing, uncertain economy isn’t good news for crude oil.

I’ll explain…

A lost world

There’s significant policy risk around the world. Crude oil prices are fluctuating as a result. Yet, despite the confusion, Standard Chartered is bullish. Oil Price wrote about its view earlier this week:

‘Standard Chartered sees Brent rising much farther, averaging as high as $74 per barrel this year, before averaging as high as $83 per barrel in 2020.

‘There is very little clarity on how much oil will be lost in Venezuela and Iran, for instance, and the White House has a great deal of influence over these issues. As of now, the U.S. is squeezing Venezuela as hard as it can, effectively barring both the import of Venezuelan oil and the export of U.S. diluents to the country. That puts much of Venezuela’s oil production at risk.

‘The problem is that Trump’s goal of regime change in Venezuela conflicts with its Iran policy. Simply put, it is going to be tough to shut in output in both countries without sending crude oil prices significantly higher.

‘If anything is certain when it comes to Trump’s whims and desires, it is that he wants low gasoline prices. It’s not clear how he achieves that while simultaneously encircling and shutting down the oil industries in both Venezuela and Iran.’

Standard Chartered sees crude averaging US$74 per barrel this year, with supply shortages. OPEC has cut production, as discussed last week. It plans to cap output at January levels. That should see global crude inventories rise by around 0.1 million barrels per day this year. In other words, not much.

OPEC has enormous influence over crude prices… 

Saudi Arabia ― the oil cartels assumed leader ― could cut production to drive prices higher. But I believe it wants to please Donald Trump. Trump seemingly turned a blind eye last year, when the country was accused of murdering Jamal Khashoggi while visiting a Saudi consulate in Turkey. After the event happened, Saudi Arabia started supporting Trump’s lower oil price policy to ease tensions.

The move was enough to send crude prices lower.

Nonetheless, with geopolitical uncertainty rising and production capped around the world, there’s a risk crude prices could take off this year. This could happen without a China–US trade war solution, mind you. There are geopolitical concerns. That said, if a deal is signed before 1 March, oil prices are more likely to skyrocket. A deal would ease market concerns, possibly increasing crude demand in the process.

Stranded in ‘no-mans’ land

It’s not time to be bullish or bearish though. There’s still too much uncertainty. Here’s our view from last week:

‘I’m sitting on the fence for now. But sometimes there’s no other choice. Remember, smart punters let the trend develop before jumping aboard.

‘Keep your eyes on US$64 per barrel ― it’s the level to watch. There’s no indication that crude will break through the target, technically speaking. But if it does on a weekly basis, it should be taken as a buy signal.’

Crude prices haven’t closed above US$64 per barrel. That suggests uncertainty remains, which is pretty clear from the fundamental story. Here’s the latest daily chart for Brent crude oil ― the international oil price:

The chart might look busy. But don’t pay attention to the separate lines. Focus on the coloured channels. Technically speaking, while it’s too early to know, crude might have made a formal low in late-December. It could be in the process of re-rating higher. Mind you, the current bounce seems to be slowing. 

Crude oil MUST close above US$64 per barrel to move higher.

I’m leaning towards it happening, if a US–China trade deal happens on 1 March. The coloured channels show that crude oil remains in an uptrend, after all. A closing above US$64 per barrel would move crude from the pink channel to the blue channel. That would confirm our bullish thesis.

Pay close attention to pink uptrend channel. It’s defining the market for crude oil. Crude has traded within the channel for the past two months. The upper pink line acted as resistance in 2016 and 2017. The lower pink line provided support during those years. The lines will matter going forward.

Remember, the market moved to re-test support into the end of last year. But it didn’t make the distance. That suggests underlying strength. It reversed to re-test resistance, where it’s slowing today. It’s impossible to know what happens in the future though. There could be a random event that changes everything, which is why you should focus on the numbers.

A daily closing above US$64 per barrel would be bullish.

A daily closing below US$57 would bearish, shown by the upper red trend line.

It’s that simple.

Remember, US–China trade tensions are driving the crude oil story today. A US–China trade deal is likely to send crude prices skyrocketing, where a no-deal could to send crude prices crashing. At the end of the day, whether the next move is bullish or bearish, smart punters wait for confirmation before buying and selling. You might not make as much money. But you certainly might save yourself a heartache or two.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money

PS: For other ideas in the resources space, check out my newsletter ― Gold & Commodities Stock Trader ― here. I’m positive on gold right now and correctly warned it would breakout last December several months in advance. You might have read some of my warnings in Markets & Money. The gold miners reacted strongly to the breakout. If you missed out on the gains. Don’t worry. The stocks in your FREE report could be the next to run hard.

The Real State of the Union
By Bill Bonner in Paris, France

We live in an Era of Busted Dreams (EBD). Yesterday, we looked at one of them — the banged-up hope that Donald J Trump might turn things around.

It seems more and more unlikely.

First, because he doesn’t know what is going on. Second, because he doesn’t really want to change it (it made him rich…and POTUS).

Third, because he couldn’t change it anyway (the Deep State decides the important issues).

And fourth, because that’s not the way dreams bust; they need to be more than dented…they need to be completely crushed…and ground to powder…before the rebuilding can begin.

Fiends and malingerers

This morning, more dents appeared. Republicans and Democrats reportedly agreed to let Mr Trump build a few more miles of wall, leaving approximately 1,400 miles of border with neither wall nor fence.

If it is true that there are hordes of fiends and malingerers trying to get across the border, they will still be able to.

If it is not true, The Wall is just a waste of money. (There was no wall in the 1950s…when, arguably, America really was great. What is different? There was no war against drugs or widespread welfare system, either.)

But the EBD didn’t just happen. As we explored last week, among our most ancient and powerful instincts is the ‘us versus them’ impulse. Always challenged…under threat…menaced and harassed, we learned to stand shoulder to shoulder with the ‘us’ against ‘them’…and build walls to keep them out. That is how we survived.

But the simple ‘us versus them’ analysis doesn’t really explain how we got where we are. And it won’t help us understand what is coming up next.

Sinister trends

Over the last half century, the sinister trends — more debt, more wars, more centralised power — continued, through both Republican and Democratic administrations. Sometimes slower, sometimes faster…but nobody from either party put on the brakes, or much less turned around.

Not once was the federal budget genuinely balanced. The insiders gathered up more clout and cash. The elite became bolder, richer, and sassier…and the average citizen became weaker, more cowed, and more dependent.

‘We are born free, and we will stay free,’ said Mr Trump in his SOTUS. But that is a busted dream too.

Americans are now among the most heavily policed people in the advanced world. There were three federal crimes in 1789; there are more than 4,000 today.

With so many laws, it is no wonder that so many break them. The US has the largest prison population in the world — with 10 million picked up by its gendarmes annually and more than 2.2 million in its gulags (5 times as many as in 1970) — half of them for a made-up crime, involving marijuana.

Its government agents — using ‘civil forfeiture’ rules — steal more wealth than common thieves.

Its armed troops garrison close to 800 foreign outposts and, in the last half century, are responsible for more deaths than Russia, Iran, North Korea…and the whole ‘Axis of Evil’ put together. Barack Obama, like Stalin, personally approved each day’s assassination list.

And rather than rise up against their whip-masters, Americans say ‘thank you’ to the TSA for rifling through their underwear!

That is the real state of the Union and perhaps the biggest busted dream of all: The American Dream has become an aging, heavily indebted empire struggling to hold onto its place in the world, led by a corrupt elite whose only real goal is to keep the juice flowing — to themselves.

And like every degenerate empire before it, this one is doomed to a financial collapse. And since our usual beat is money, we turn our attention now to the monumental crisis that is coming.

Bring the punchbowl

The dream was that smart people with PhD’s in finance and economics could do a better job of guiding the economy than market forces.

Led by Milton Friedman, in 1971, they changed the money itself — removing the constraint of gold so they could manipulate the currency more directly.

Then, they began using ‘counter-cyclical monetary policy’ to offset the market’s moods. It was William McChesney Martin, the longest-serving Fed Chair in history, that said it was his job to ‘take away the punchbowl just as the party gets going.’ In other words, tighten up the money before things got out of hand.

All too human, the nation’s money custodians proved to be very good at bringing out the punchbowl; they were very bad at taking it away.

Then, in 1987, Alan Greenspan, then Fed chief, went further. He let it be known that he’d come in with as much alcohol as necessary to keep the party going. The excitement increased…louder and louder…wilder and wilder…until 1999, when someone must have called the cops.

But the crash of the dot-coms put only a temporary damper on the fun. In came the feds with more cases of Jack Daniels…and it was ‘Party On!’…until 2007.

This time, the problem was serious. Homeowners couldn’t keep up with their mortgage payments. And this time, the feds came not just with more liquor…but hard drugs, too.

Quantitative easing, QE, they called it. Thus, did they not just make EZ credit EZ-er, but added some $3.6 trillion in new money, too. It was an emergency, they said, promising to ‘normalise’ later.

And of course, now it is 10 years later.

And now, the Fed says it won’t be normalising any time soon. This is the new dream that is coming into focus…that deficits don’t matter…that debt can increase indefinitely…and that the feds can simply add money whenever the going gets rough.

Republicans and Democrats will both go along with it. ‘Us’ and ‘Them’ will come together to protect the flimflam they both benefit from.

Borrow! Spend! Print! Do ‘whatever it takes.’ Damn the deficits!

And then The Wall will make more sense — as a shovel-ready public works project!

But that is when the going really begins to get rough…and millions of private dreams are busted too.

More to come…

Regards,

Bill Bonner

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