Please follow my story this morning.

Far away from North America, in Madrid, Spain, thousands of protestors are marching to protest high unemployment and poor government. They have marched for weeks.

The unemployment rate in Spain is 21%. According to The Associated Press, unemployment among those aged 16 to 29 in Spain stands at 35%. The thousands in the march are very well organized, accompanied by physiotherapists and masseurs (The Globe and Mail, 7/24/11).

Back to America…

On Thursday of this week, the U.S. may have its largest municipal bankruptcy ever in Jefferson County, Alabama. The county, with a population of 660,000, has struggled for three years under $3.0 billion of sewer bonds that have matured and that the municipality cannot repay. Creditors, led by JP Morgan Chase & Co., want their money. About 500 county employees are on unpaid leave.

The road from Madrid, Spain, to Birmingham, Alabama, is a long one. The problems in Greece, Portugal, Spain and Italy are mature and are only getting worse. How do citizens survive with 21% unemployment?

In America, I believe our problems are only starting. Remember, the government and the Federal Reserve have done everything in their power to keep the economy going. We are starting to see stress on municipalities and states that cannot balance their books or repay their debt.

Imagine the havoc that higher unemployment, a rapidly devaluing greenback, higher interest rates and higher inflation will play with municipalities and states? I really wouldn’t be surprised to see large, organized citizen protests become the new phenomenon in America in 2012.

Michael’s Personal Notes:

Wrong, wrong, wrong. They’ve called it all wrong.

The financial news sites this morning are reporting that gold is hitting a new record high on fears about the debt ceiling for the U.S.government not being raised. “Gold surges to record as U.S.debt impasse threatens default, AAA Rating,” is a headline that Bloomberg ran this morning (7/25/11).

In my humble opinion, gold is not rising in price because Congress will not raise the U.S.debt ceiling. It’s actually the opposite—gold is rising because the debt ceiling will be raised. And when it’s raised, the official U.S. debt will run up from its current $14.3 trillion to maybe $16.0, $17.0 or even $18.0 trillion.

That’s what gold is really worried about…spiraling national debt, which brings about a devaluation of the U.S. dollar and possibly inflation.

It’s a forgone conclusion that the U.S.debt ceiling will be raised. Politicians—both sides of the house—would not dare to have the U.S.default on its obligations.

Where the Market Stands; Where it’s Headed:

It’s more of the same for the market as far as I’m concerned. The assault toward Dow Jones 13,000 is on. The bear market’s last gasp will be bringing the Dow Jones into 13,000 territory, as it attempts to lure more investors back into stocks.

As the Dow Jones plows through 13,000, inexperienced reporters and analysts will tell us that the agreement between Obama and Congress to raise the debt ceiling is causing stocks to rise. Rubbish.

The higher the national debt, the greater the risk  for higher interest rates. We are near the end of a Phase II bear market.

The Dow Jones Industrial Average opens this last full week of the month up 9.5% for 2011.

What He Said:

“I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures and the construction market. These events will dampen the U.S economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S.economy later this year.” Michael Lombardi in PROFIT CONFIDENTIAL, August 23, 2007. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA

Well, it’s official.

This morning, the October U.S. job numbers came out and the unemployment rate in the U.S. has now moved into double-digit territory. Currently, 10.2% of American workers are unemployed — the highest level since 1982, when interest rates were also in double-digit territory.

I won’t get into the specifics of the job loss numbers, as this information is widely available on straight business news sites. (But I do want to draw to the attention of my readers that home builders continued cutting jobs in October, with 62,000 jobs cut last month alone — as I have been writing, the housing market is far from rebounding in the U.S.)

Here are two very important points on the job loss numbers that you will not read elsewhere this morning:

Firstly, and I don’t want to scare you with it, but if we had 10% unemployment in 1982, when interest rates were also at double-digit levels, by bringing interest rates steadily lower, the unemployment rate fell. Today, with interest rates at zero, how can we bring interest rates lower to stimulate the economy and to lower the unemployment level? We can’t. We are basically screwed.

Central bankers brought interest low after the 9/11 catastrophe to save the economy, but when the economy got better, they just kept reducing interest rates (which ended up causing the boom), as opposed to raising interest rates to tame the boom. So, what happened after the boom went to bust? Well, interest rates went down again; this time to zero.

It is my belief that the movement of interest rates by a central bank is the single most powerful “gun” it has to sway the economic tide. Unfortunately, our gun has no more bullets left, because interest rates cannot go any lower than they are.

The second important point for investors concerns the jobless rate: If anyone tells you that the worst is behind us for the economy because we are only losing half the number of jobs we were losing in the early months of 2009, don’t believe them.

Why? Simply because the economy is still so fragile. Take the Canadian example. In Canada, consumers and businesses were feeling “good” after the Canadian economy actually created jobs in the months of August and September. With currency traders believing that the worst was behind for the Canadian economy, they started to expect interest-rate hikes, thus moving the Canadian dollar close to parity with the U.S. dollar.

This morning, it was announced that the Canadian economy lost thousands of jobs in October — almost wiping out the job growth it experienced in the previous two months.

The worst is far from over for the unemployed of this country and for the economy. No one can tell me the economy is getting better.

Michael’s Personal Notes:

What’s it going to take?

Since late 2002, I have been yelling to my subscribers (and anyone else who would listen for that matter) to get into gold-related investments. Gold bullion was trading around $300.00 an ounce in late 2002, early 2003. This morning, the yellow metal opens at just under $1,100 for the same ounce. Hence, gold has gone up 267% in the past seven years — good compounded growth of about 20% a year.

Sure, the easy money in gold is over on the bullion side. While I still believe that gold bullion will surpass $2,000 in this cycle, that’s only a 100% gain from where we are today. But quality gold stocks could be trading at two, three or even four times than what they are trading at today if gold bullion does reach $2,000 an ounce. That’s because most of these gold producers have their mining costs fixed.

Unfortunately, only a small percentage of investors and analysts expect gold bullion’s price to keep rising. Why do I say this? Because, of the many investment newsletters we publish, it is our gold stock newsletter that is the hardest sell. If I had to put it into numbers, I would say about 95% of people who have some sort of investment portfolio have no exposure to gold-related investments.

So, what’s it going to take for investors to jump onto the gold bull market? Maybe they are waiting for the big mutual fund companies to start taking a position in gold stocks. Unfortunately, by that time, it will be too late.

Where the Market Stands:

The last few days, I have been writing about how too many analysts and advisors had been turning negative on the bear market rally that started in March of this year…with the consensus being that the rally was over. In fact, just this past Wednesday, I wrote, “Most of what I read today is that the bear market rally is over. Just remember, the stock market always delivers the opposite of what analysts and investors expect.”

Well, yesterday, the market delivered a big “opposite” for investors, as it experienced its single biggest day since July, with the Dow Jones Industrial Average up 204 points — up two percent in a single day. The Dow Jones, now up over the 10,000 level again, is up 14% for the year.

As I have been writing for days and weeks, I do not believe the bear market rally that we have been enjoying since March 9, 2009, is over yet.

What He Said:

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10, 2008. WCI Communities, the largest U.S. luxury homebuilder, filed for Chapter 11 protection on August 4, 2008.

No one was happier than me on Friday to hear the news of 308,000 new jobs created in the U.S. in March. Just the day before, my PROFIT CONFIDENTIAL commentary noted that the lowering of the U.S. dollar value against world currencies would have two possible effects, depending how fast the dollar dropped.

A gradual decline of the dollar, I noted, would cause Americans to start buying American again, pushing up our domestic employment. However, a rapid fall in our dollar’s value would cause a confidence crisis among foreign U.S. bond buyers, resulting in a U.S. debt crisis.

Friday’s employment numbers (and the recent economic performance of such countries as Canada who suffer with a weak U.S. dollar), gives credence to the Fed that its slow dollar devaluation model is working. Hopefully, the Fed will stay the course.

But if you are wondering why stocks did not deliver a rally on the big employment numbers no one expected, it was because the market read between the lines of the employment figures.

— Hiring in the manufacturing sector remained unchanged in March after almost three years of reporting job losses. So no new jobs here, but the bleeding has stopped.

— 71,000 new jobs were created in the construction industry, 47,000 new jobs in the retail sector. The big question: Are we replacing white collar jobs with blue collar jobs? More specifically, are the thousands of American young adults who finish university with degrees going to see their potential jobs go to India while we replace those jobs with clerks working at Wal-Mart?

— Since employment started to decline in the U.S. in March of 2001, we are still down 1.96 million workers.

— Even though 308,000 jobs were created in March, the official unemployment rate went up to 5.7% from 5.6%.

— After the better-than-expected job numbers were announced, some analysts started to suggest the Fed might raise interest rates one-quarter point before the November election to cool the growth. Economists say that when the U.S. economy is “firing on all cylinders,” it should create 250,000 jobs a month, a number we easily surpassed in March. The bond market surely reacted as though rates were going to rise.

So maybe after some further investigation, and reading between the numbers, the good-news employment figures left a lot open to interpretation. The market is saying “we want to see more.” And we couldn’t agree more.