Friday, June 26, 2009

More Numbers that Just Don't Add Up

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More U.S. government statistics were out today. Income is up, spending is up and savings are up - all in the midst of the worse recession since the 1930s. It must be something in the water that makes this possible. Actually, it's more likely something is up in the little known government office for the adjustment of statistics to make them look better. There was a significant rally in the markets yesterday and it also had a peculiar look to it.

The mystery of rising incomes in the midst of a severe recession is explained by one-time stimulus checks mailed out last month by the federal government. Because of these income was up 1.4% on the month. But even without them the government claims incomes was up 0.2% for the month. Yes, unemployment is soaring, workers hours are being cut, business is declining and yet people are making more money. If this is what happens in recession, think of how well America could do if there was a depression! Real disposable income (income after taxes and inflation) is supposed to have been up 1.6% last month as well. Americans aren't spending all this new found loot however, spending was only up 0.3%. The savings rate climbed to 6.9%. As recently as April 2008 it was zero. Increased savings are a sign of lack of confidence in the economy. Why, I can't imagine. Clearly as the U.S. economy gets worse, people make more money.

The Commerce Department also released the PCE deflator today. This is the number to used as the inflation rate when they calculate the GDP. The lower the number the higher the GDP figure. The core PCE came in at 0.1% for the year. So there is NO inflation (I really have to find out where these people shop). Bonds rallied on this great news and the yield on the 10-year fell to 3.51%. If it drops down to the 3.00 level its probably a great shorting opportunity.

All asset classes seemed to have rallied yesterday, which is unusual. Even more unusual the Dow, Nasdaq and SP500 all went up the same percentage. I am not sure that I have ever seen this happen before, although it must have. Volume on the Nasdaq was slightly below average. Volume on the Dow was anemic. The Dow reclaimed its 50-day average, but stopped at the 200-day. It is trading between the two today.

NEXT: Watch the Dollar Itself and Not Media Coverage

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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