July Consumer Spending - Reports of Its Health Greatly Exaggerated

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The U.S. stock market reacted jubilantly to July's consumer spending numbers. Apparently, it didn't see the bad news the BLS report contained. Some of this was understandable since the AP (Associated Press) article -- carried by hundreds of news outlets -- seems to have reported more favorable numbers than the ones the government released.

The important take-away from the report was that disposable personal income adjusted for inflation (or more accurately adjusted to reflect some of the inflation that actually exists) was down 0.1%. So if there was any increase in consumer spending, it was taking place on money being borrowed by already tapped out consumers. U.S. consumer debt, including mortgages, is already more than the $15 trillion GDP. Federal government debt is approaching that amount.

Both the BLS and AP reported that consumer spending increased by 0.8% in June. This number is unadjusted for the official inflation rate. The rise was concentrated in the durable goods component of the report. The BLS reported this as being up 2.0% and AP had it up 1.9%. Apparently, U.S. consumers ran out and bought more automobiles and automobile parts in July. According to the government, they then spent less on non-durable goods (items that last less than a year). According to AP, they spent more.

The BLS report had non-durable goods spending down 0.3% in July. AP reported it up 0.7%. Both reports had spending on services being up, the government by 0.5% and AP by 0.7%.  The story reported by AP was far more favorable that the one told by the U.S. government, which was in turn much more favorable than would be the case if some realistic inflation rate was used. The discrepancy for the non-durable and services numbers in the two versions is probably a consequence of AP using numbers not adjusted for inflation. These numbers will always make things look as favorable as possible. This is not news; it's public relations that favors Wall Street and makes the government look like it's doing a better job with the economy than is actually the case. Traditionally, this would be referred to as propaganda.

While the spending on durable goods was concentrated in transportation, increases for services took place because Americans were using more electricity to run their air conditioners during the record hot weather in July. This does not indicate the economy is getting better, nor that it is even flat. It indicates that it was hot in July. Yet, the AP couldn't wait to quote economists that claimed the consumer income and spending numbers that it reported indicated a U.S. economy with rosy prospects. Perhaps they should try including comments on the actual numbers next time.

The BLS report can be found at: http://www.bea.gov/newsreleases/national/pi/2011/pi0711.htm

One of the hundreds of places the AP report can be found is:
http://finance.yahoo.com/news/Consumers-spending-rebounds-apf-1701587266.html?x=0&sec=topStories&pos=4&asset=&ccode=

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.

Was Window Dressing and M&A Driving Friday's Market?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The market had a spectacular rally on Friday with the S&P 500 up 2.1% on the day. It was unlikely the August durable goods report was responsible for the market's action, since durable goods fell 1.3%. End of the quarter window dressing from mutual fund managers was a more likely explanation with impending mergers and acquisitions news being another.

Window dressing is when funds buy winning stocks so they can show them on their books after the end of the quarter and imply they owned them all along. This has been a common Wall Street practice for decades. September has been an incredibly strong month for stocks. Although there are four trading days left in the month, so far September 2010 looks like the best September since the 1930s Great Depression. Which year during the depression depends on the index. As of Friday, the S&P 500 was up 9.7% on the month.

The U.S. markets were falling apart during the summer, but the tone changed dramatically after the Fed restarted quantitative easing (money printing). The Europeans have been pumping money at the same time through their Euro-TARP program. All asset classes - stocks, bonds, and commodities - have been rising on the liquidity flood.  Based on market performance, an observer would assume that the U.S. economy has not only turned around, but is zooming and problems in the eurozone have been fixed. Neither is the case. The mainstream press has done its best though to paint a rosy picture. It managed to put a positive spin on Friday's reported drop in August durable goods.

Not only was the S&P 500 up 2.1% on Friday, but the Dow rose 1.8%, the Nasdaq 2.3% and the small cap Russell 2000 was 3.3% higher. These are huge movements for one day. Trading volume was ho hum as usual. Despite press reports, economic news wasn't the cause of this action. Window dressing was likely the major driver, with mergers and acquisitions adding fuel to the fire. Too much cheap money is leading to a boom in this area. If companies don't see potential growth because the economy is weak, easy money lets them buy growth by acquiring another company.  The new combined company then lays off a lot of workers, which raises the unemployment rate and creates bigger economic problems down the line.

The big liquidity surge is well-timed for the U.S. election on November 2nd. The administration and its supporters are likely to be citing the good performance of the stock market as evidence that their programs are working. This has already happened in the past. The 2009 stimulus bill was also timed to have maximum spending in the second quarter of 2010 and not early on when the economy was in horrible shape. A huge 'Recovery Summer' PR campaign was planned as a lead in to the fall election, but lack of evidence of a recovery caused it to fall apart. The Fed then had to restart quantitative easing to paper over (quite literally) the problem and create some good news in the market. The good news should continue until November 2nd. It might even peak that day. We will just have to wait and see.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.

July Durable Goods Add Support to Recession View

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After an existing home sales report yesterday revealed that the U.S. housing market is currently in worse shape than it was at the bottom of the Credit Crisis/Great Recession, July's durable goods report today further confirmed that the U.S. economy is sinking into a recession.

The headline number, an increase of 0.3%, seemed OK if not particularly good. Only a single item, a huge 76% increase in commercial aircraft sales, was responsible for keeping the number above zero however. Durable goods orders ex transportation fell 3.8% in July. The transportation number, particularly the aircraft sales component, is highly volatile. A strong number one month can be followed by a very negative number the next month. As for the rest of the components of the report, some were eyepoppingly bad.

Machinery orders, which fell 15%, were the weakest number in the report. It wasn't just the extent of the drop that made it so awful, but more importantly it was the biggest decline on record. Yes, the drop was larger than the decline that took place at the bottom of the Credit Crisis/Great Recession when the U.S. economy was falling off a cliff. Computer orders were down 12.7%. Capital goods orders were down 8.0%, the biggest drop since January 2009, just after the Credit Crisis/Great Recession bottom. Orders for electrical equipment and appliances were down 5.9%.

Altogether, July durable goods orders indicate that the manufacturing sector of the U.S. economy is rapidly turning south. This is particularly troubling because it was manufacturing that had the biggest upturn in the last year (the four times larger service sector didn't improve nearly as much). What will provide economic growth, now that manufacturing is weakening? An even more important question is: If some of the manufacturing numbers are as bad as or worse than the bottom of the Credit Crisis/Great Recession and this is also true of the real estate market, how is it possible that the U.S. economy is not currently in another recession?

Disclosure: No positions

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

8 More Reasons Why a Double-Dip is Coming

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


As earnings season continues and one company after another beats expectations, the economic numbers are continuing to come in below estimates. The data and indicators are increasingly painting a picture of an economy that is falling apart. Here are a few of the reasons why another recession is imminent:

1. U.S. orders for durable goods fell 1.0% in June. Economists expected them to rise 1.0%.  Excluding the volatile transportation sector, orders fell 0.6% and shipments were down 1.3%. Inventories rose for the sixth month in a row, indicating goods are being produced, but they're not moving out the door.

2. Industrial output in China fell 2.8% in June. A "potential weakening of the global economy" was cited as the cause.

3. The ECRI (Economic Cycle Research Institute) weekly leading indicators index has fallen as low as minus 10.5. There has never been a case when it has gotten this low and there hasn't been a recession.

4. The Consumer Metrics Institute's Growth Index has been negative since January and is now around minus 3.0 (it fell to around minus 6.0 in August 2008). It leads U.S. GDP by approximately two quarters.

5. The U.S. trade deficit widened in May and was the largest in 18 months. This happened even though oil imports fell over 9%. Rising oil imports are usually the factor that makes the trade deficit go up. The trade deficit subtracts from GDP.

6. After a sharp drop in June, U.S. consumer confidence fell even more in July. The Conference Board's latest reading was 50.4. As usual, economist's estimates were on the high side. A reading of 90 or above indicates a robust economy. Before the most recent recession, consumer spending was 72% of GDP.

7. U.S. weekly unemployment claims refuse to drop below 400,000, the approximate dividing line between recession and non-recession. At no point during the current 'recovery' have they gotten that low. The unadjusted number of claims for the week of July 17th was 498,000. Even though companies are reporting huge earnings increases and raising estimates for next quarter, more and more workers continue to lose their jobs.

8. The economic cheerleader-in-chief, Fed Chair Ben Bernanke, gave a gloomy report on the U.S. economy last week in his bi-annual testimony before congress. Bernanke didn't see the subprime crisis coming, nor did he realize the U.S. was in a recession in the spring of 2008, months after the recession had begun. So if even he admits the economy is weak, it must really be in bad shape. Bank of England Governor Mervyn King, has also recently stated, "Britain can't be confident that a sustained recovery is under way".

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.

Stocks Weaken With the Economy

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


U.S. stocks are in sell off mode this morning with all major indices trading below their 200-day moving averages. If current trends continue, the Dow and S&P 500 will give a bear market trading signal next week.

Problems in Europe continue to be a drag on the markets. The prices of Greek debt credit default swaps (CDSs), a type of bond insurance, are rising rapidly again. Experts say they are now indicating a 57% chance of default. Meanwhile, strikes are planned throughout France because the government is trying to raise the retirement age to 62. Investors should assume that EU attempts to reduce the socialist gravy train will be fought tooth and nail by the populace everywhere on the continent. Good news came out of Australia however. Prime minister Kevin Rudd was forced out because of his unpopular 40% super-tax on the mining industry (a key part of the Australian economy).  Australia doesn't have the debt problems that exist in the U.S. and Europe.

In the U.S., the economic numbers continue to be less than impressive. After the disastrous New Homes Sales report yesterday indicated a 33% drop in sales in just one month, the Durable Goods report showed a 1.1% decline in May. Weekly claims fell to 457,000, still well within recession levels, and this got some positive commentary from the cheerleading section of the press. The stock market didn't seem impressed however. While weekly claims have been much better this year than the depression levels they were at early in 2009, they have yet to indicate that the U.S. has recovered from the recession that began in December 2007.

The technical picture for stocks turned south again this Wednesday with the Dow and S&P 500 falling and closing below their 200-day moving averages. The tech heavy Nasdaq dropped below its 200-day yesterday, but managed to close just above it. It looks like it will close below it today. The small cap Russell 2000 is trading below its 200-day today for the first time since earlier this month. The 50-day moving averages for all the indices are still above their respective 200-days in a typical bull market pattern. The 50-days are all falling however and in the case of the Dow and S&P 500, it looks they will be crossing below their 200-days next week. This is a classic bear market signal.  Investors should be watching this carefully.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.

U.S. Economy Continues to Deteriorate Despite 'Recovery'

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


A number of economic reports in the last few days indicate that the U.S. economy has not only not failed to recover from the recession, but continues to fall deeper into a hole. Banking, consumer confidence, employment numbers, durable goods and the housing industry - each representing a different aspect of the economy - are all sending out troubling signs. Despite the onslaught of negative data, mainstream economists continue to echo the official U.S. government view that "the recovery is still on track".

Updated statistics from the FDIC indicate that there were 702 banks on the troubled list as the end of 2009. This is an increase of 27% from the third quarter. FDIC numbers also show that U.S. banks cut lending by 7.5% in the fourth quarter of last year. Since lending is the lifeblood of the economy this doesn't bode well for the future. The FDIC also had to put aside an additional $17.8 billion for future bank failures. Its deposit insurance fund is now at a negative $20.9 billion. Despite statements that it has enough cash to keep operating (Bear Stearns and Lehman Brothers made similar claims), it is only a matter of time before the FDIC is bailed out. This will take place before the end of the year and will be done by tapping a line of credit from the Treasury department. Expect this event to be downplayed by mainstream media reports with claims that it is not really a bailout.

While the U.S. banking system continues to dissolve, consumers are losing confidence in the economy. The Conference Board numbers for February fell a whopping 10.5 points to 46 (around 100 is a good number). The present situation subindex fell to 19.4, the lowest level since February 1983 when the U.S. was trying to recover from a severe double dip recession. Before the Credit Crisis, consumer spending represented 72% of the U.S. economy. Without their participation, a sustainable recovery is not possible. Other reports indicate there is no way in the near future that consumers can resume their vital economic role. Consumers not only don't have credit, credit card debt was dropping at close to a 20% annual rate at the end of last year, but they are worried about the job market as well.

The weekly jobless claims indicate why the job picture is still troubling. Initial claims were up 22,000 last week to 496,000 (a number around 400,000 indicates recession and 300,000 indicates a healthy economy).  These numbers are highly volatile because they come from state unemployment offices that are notorious for backlogs in processing the claims. This problem occurred during the holiday season and the claim numbers were consequently lower. The mainstream media then fell all over itself to report the tremendous improvement in the employment picture, instead of the real story of bureaucratic incompetence that was preventing accurate numbers from being produced.  Market watchers usually only pay attention to the four-week moving average to get around this problem. This number has risen by 30,000 to 473,750 in the last four-weeks.

The just released Durable Goods report got major headlines about how bullish the number was. This is only the case as long as you don't look at the details of the report. Responsible for the good headline number was a 126% increase in civilian aircraft orders (these orders can be cancelled by the way). Outside of transportation, orders fell 0.6%. Core capital equipment and machinery orders dropped 2.9% and 9.7% respectively. These two numbers are the important ones that determine the direction of the economy. For all of 2009, durable goods fell a record 20%.

Finally, housing doesn't look like it is in recovery mode either. Housing was the epicenter of the Credit Crisis and it will be years before all the damage wrought by the bubble will be worked out. According to the Mortgage Bankers Association, mortgage applications for home purchases have just fallen to a 13-year low. New home sales in the U.S. fell to the lowest level on record in January (records go back almost 50 years). Government nationalized Freddie Mac reported it lost another $7.8 billion in the fourth quarter. That brings its total loss to $25.7 billion for all of 2009. Freddie Mac purchased or guaranteed one in four U.S. home loans in 2009. The Obama administration has promised a blank check to Freddie along with its companion housing entity Fannie Mae, also nationalized and bleeding money, to cover losses up until 2012.

This is little evidence that the U.S. economy has recovered from the recession or is going to recover from the recession any time soon. The support for the recovery viewpoint comes from government statistics that have been highly manipulated. All governments of course want to present a rosy picture of their handling of the economy for political reasons and it is much easier to make the numbers better than it is to actually make the economy better. Eventually the public catches on to this game however. The recent consumer confidence numbers indicate that the American public is no longer buying the public relations story, but is starting to pay more attention to the realities they have to face on a day to day basis.

Disclosure: No positions

NEXT: The Impossible Contradictions of U.S. Consumer Spending

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.

Why You Can't Trust U.S. Weekly Jobless Claims

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Our Video Related to this Blog:

The market was ecstatic with the November 25th U.S. weekly jobless claims figures. According to the report the number of Americans filing for unemployment fell 35,000 from the week before, dropping to 466,000. Bullish headlines such as "Jobless Claims Plummet to 14-Month Lows" were all over the web. Commentators immediately started gushing about unemployment turning around and job gains being just around the corner. Stock futures perked up, the U.S. dollar continued a sell off already well underway, and gold which had been rallying strongly turned down on the news.

As for myself, I stopped paying attention about 15 years ago to the weekly jobs claim number the week of the release. Why? At that time, there was also an unexpected major drop in the claims figures. The markets went crazy on the news. One week later, the number was revised sharply upward with a statement from the BLS (Bureau of Labor Statistics) that one state had not gotten their figures to the department a week earlier so they hadn't been included in the totals. While the BLS knew this at the time, it did not inform the public of this important inaccuracy. The error was quite substantial as well, since the state that didn't report was obviously California. It should also be noted that the November 25th report was released on a Wednesday, one day earlier than usual, because of the Thanksgiving holiday on Thursday. It is quite possible not all the state data came in early enough to be included.

At the same time the weekly jobless claims were released, the monthly Durable Goods and Personal Spending reports also came out. Durable goods declined 0.6% for October indicating a weakening economy. A drop in defense spending was blamed (just another form of government spending propping up the U.S. economy). However, orders for cars, machinery (needed for factories), computers and communication equipment (both needed for offices) also fell. Personal spending was up 0.7% in October. This is hard to believe considering U.S. consumer credit has had a major drop in the last year and the over 10% unemployment rate has negatively impacted consumer income. Where is the money coming from for the increases in spending?

The most significant market action on the release of all this data was the falling U.S. dollar. The trade-weighted dollar cut through the recently established 75.00 support level and traded as low as 74.40 in early morning New York trading. There is a strong band of support between 72.00 and 74.00. Expect a bounce off the top of that band initially, with an eventual test of the 2008 low around 71.50. While the dollar hit another yearly low, spot gold hit another new all-time high, trading up to $1183.80. Expect to see more of the same in the future.

Disclosure: Long gold, no dollar positions. Long time critic of the BLS.

NEXT: Desert Bubble Bursts, Blows Sand in Market's Face

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


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.

So Much for That Recovery

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The G20 meeting ends today and precious metals should be under pressure and the dollar should continue to rally. Traders are worried that some rumblings about supporting the U.S. dollar may come out of the meeting, although the Japanese Finance minister recently said he was uninterested in intervening to drive the Yen down. While something could be said, the likelihood that anything would be done in the near-term is less than nil. Currency intervention is expensive and the printing presses of the major central banks are already booked full-time to support government economic stimulus programs.

The much ballyhooed impending U.S. economic recovery seems to be crumbling. While this only means more government stimulus and money printing, gold and silver are selling off instead of skyrocketing on the news (no that doesn't make any sense). The U.S. Durable Goods report came out this morning and it was down 2.4% in August. A drop of 48% in highly volatile aircraft orders was mostly responsible for the decline , as was the 98% increase in aircraft orders last month that lead to the rise in July. Autos were still up 0.4% last month with the impact of the Cash for Clunkers program waning. Core capital goods, which are the key to what is really going on in the economy, were down 0.4% in August. They dropped by 1.3% in July. So far, there doesn't seem to be any solid evidence of a sustainable recovery in manufacturing.

The bad durable goods numbers followed a 2.7% drop in existing home sales in August that was announced yesterday. That report indicated that 31% of U.S. house sales were 'distressed' (foreclosures for example) and that sales were concentrated in the low end of the market. Well that sounds like a description of a healthy housing market doesn't it? As if the banking system didn't have enough trouble from residential real estate, worse news today came from a report on large bank loans (these are loans over $20 million). Of these, 22.3% are 'troubled'. That is up from 13.4% last year. As a reminder, the U.S. banking system is supposed to have been 'stabilized' according to the Federal Reserve.

While things may look bad in the U.S., they seem to be worse in Japan. Japan is an export based economy and exports there fell 36% in August. Car shipments were down 50% and steel down 43%. GDP was positive last quarter and Japan supposedly exited its most recent recession (one of many in the last two decades)...well, maybe not. The stock of Japan's largest brokerage house, Nomura, plunged 16% last night on the news that it was issuing more stock. This is the second new stock issue in 6 months. Japan has been 'stabilizing' it financial sector for 19 years now. The U.S. looks like it is heading toward long-term 'stabilization' as well.

NEXT: Precious Metals Watch

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

GDP - Report is Bad, Reality Worse

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The U.S. government released the fourth quarter GDP figures today. The report showed a 3.8% annualized decline in the economy, which would be the worst showing in 26 years if it were true. It is not. This report continues the unbroken chain of fantasy that has emanated from the U.S. commerce department recently (the Inflation and Employment reports are the U.S. government's other great works of fiction). Even the internal figures in the GDP report show that the economy is in much worse shape than the top line number indicates. The lie was so outrageous this time that even the ever credulous mass media included statements in its reporting about the likelihood of the number being revised downward when 'new' data becomes available (or when the embarrassment of so many people laughing at the report becomes so great that the government is forced to publish a somewhat more realistic number - don't expect the truth under any circumstances however).

The first place to look for manipulation in every GDP report is in the inflation figure used to adjust the nominal figure to get the reported or 'real' number (growth caused by inflation is not actual growth and that is why this adjustment has to be made, this adjustment is the GDP deflator). According to the U.S. government, prices FELL by 5.5% in the U.S. in the fourth quarter of 2008. The government also claimed that the prices rose only 1.2% in the second quarter of 2008 (a time when gas prices were heading above $4.00 a gallon, food prices were soaring, and the government's own PPI report indicated inflation of around 13%, yet somehow the GDP statiticians couldn't find any inflation that quarter). If a more realistic inflation figure had been used, GDP for the fourth quarter may have declined 8% or 9% - a depression level drop.

The bigger decline in GDP is supported by looking at the individual components of business and consumer spending. Spending by businesses on equipment and software fell at a whopping 27.8% annualized pace, the most since 1958. Hard hit homebuilders slashed spending by 23.6%, even deeper than the 16% annualized cut in the prior three months. While internal U.S. economic conditions were bad, there was no relief from exports either. U.S. exports, whose alledged growth earlier in 2008 helped produce better GDP figures, turned negative. Exports plunged at a rate of 19.7%, the most since the deep recession of 1974. Despite these horrendous conditions, the GDP report also claimed businesses increased inventories substantially (which adds to current GDP growth, but would subtract from it in the future). just taking out this supposed inventory increase, U.S. GDP would have contracted by 5.1% instead of 3.8% last quarter.

The consumer component of the GDP equation didn't look any better either. U.S. consumers cut back spending on durable goods (items expected to last a year or more such as cars, appliances, furniture, etc) by a huge 22.4%, the largest amount since 1987. Spending on non-durables (which includes most necessities such as food and clothing) fell by 7.1%. A decline of that magnitude has not been seen since 1950. Despite these very large declines, the GDP report stated that consumer spending fell by only 3.5% in total (on the surface it doesn't seem possible that you could get this number from the component parts).

Despite the Credit Crisis which had ravaged the economy in 2008, the U.S. government claims that the American economy grew (yes, grew) by 1.3% in 2008. This is down from 2.0% growth in 2007. Anyone who believes this number, probably also thinks that pigs can fly. Obviously, the Commerce Department in Washington is trying to statistically prove that this can happen, although it doesn't seem to be possible anywhere else in the country.

NEXT: Negative Outlook for the Market from January Barometer

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

When Silence Isn't Golden

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Global terrorism reared it ugly head again with the horrific attacks in Mumbai in the last two days and the foiling of a plot to blow up Long Island railroad trains in New York City. One reason Mumbai seems to have been targeted is that it is the financial capital of India. If they had their way, the forces behind the terrorist threat would establish a totalitarian theocracy that would bring us back both socially and economically to the Middle Ages. It is not surprising that they would want to destroy the symbols of opulence created by capitalism. Unfortunately, the government-financial complex of the world's industrial economies has done more in this regard in the last few years than the terrorists could ever do.

The forces of ignorance though have not been extirpated in the U.S. by any means and I have a personal experience that took place at the same time to confirm this. An economics blog that is part of a well-known 'educational' site quoted an entire paragraph commentary of mine (my name was not mentioned) dealing with how people need to know the truth about the credit crisis and the state of the economy. This economics 'expert' for this site replied to my claims with the assertion that people who make such negative statements and predictions (doesn't matter whether or not they are true apparently) are helping to cause the economic problems the U.S. is experiencing! If markets and democracies can function without people having access to the truth, I am unaware of it. And of course, if you extend this logic, the less bad things the public knows about a company, the better off the investors will be (Enron actually made claims similar to this by the way).

Despite my best efforts at trying to spread reality throughout the land, the recently released U.S. consumer confidence number increased slightly from last months record low. Apparently it was falling energy prices that caused the slight uptick. Consumer views of current conditions however worsened even further in the November report. The October durable goods report didn't help create a rosy picture either. There was a 6.2% plunge following a 3.3% drop in September. On the consumer side, September was the month when purchases of asset backed paper for credit cards literally came to a halt - meaning no ability on the part of the big banks to fund any additional credit card debt to keep the American economy going (hence the sudden change in emphasis for TARP that was announced recently). Year over year delinquencies in credit card payments rose 17% and charge offs 45%.

Investor confidence in the state of the economy seems to have fallen to new lows if you consider that corporate bonds in the U.S and Europe have the highest yield ever relative to government debt. And while Citigroup is busy imploding, it just issued a report on its predictions for the gold market in the next two years. Citi is predicting gold could rise to $2000 an ounce (something New York Investing predicted many months ago). Their reasoning is that all the liquidity being pumped into the financial system is going to be highly inflationary (something New York Investing first said in September 2007). Rumors that China might increase its gold holdings from 600 to 4000 tons in order to help reduce its large dollar holdings (something else New York Investing mentioned as a possibility many months ago) seems to have contributed to Citi's bullish call on gold. All in all a clear pattern seems to be emerging - if only New York Investing would just shut up and stop making predictions, none of these things would happen and everything would just be fine - not!

NEXT: Synchronized Contractions Give Birth to Global Recession

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.