Our Current Economic Illusions

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.

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When reading economic statistics, you should see if they are consistent (they rarely are) and make sense based on real world observations (lately they don't). On Thursday, December 3rd the U.S. productivity numbers were released, as were same store sales and weekly unemployment claims. The story these three pieces of data are telling are quite different, which means at least one and possibly two of them are not correct.

Productivity in the U.S. is supposedly up astronomically. It rose by 8.1% last quarter and this is after being revised down from being up 9.5%! The recent downward revision of third quarter GDP from 3.5% to 2.8% meant the productivity numbers would be lower as well. Productivity is essentially the amount of GDP produced per worker. Since employment is falling in the U.S. and GDP is supposedly rising (the two moving in opposite directions is illogical) productivity has to go up. According to the government, it is going up a huge amount. Is there any major new technological advance or innovation accounting for this? None, that anyone knows about. Economists claim that productivity has gotten better because the least productive workers have been fired. While this might give the numbers a percentage or so boost, it wouldn't give them an 8% boost. The alternative explanation is that GDP is being grossly overstated by the U.S. government. There is substantial documentation that this has indeed been the case for the last three decades.

Same store sales is not a government report and the November numbers clearly show an economy in trouble. Sales were down 0.3% year over year. While this may not seem so bad initially, it is when you consider sales were down 7.7% last November, which was the height of the Credit Crisis meltdown. They are even lower now. Analysts (who are almost always wrong) originally forecast a 5% to 8% increase for this November. Consumer spending accounts for 72% of U.S. economic activity and is still obviously in bad shape. Yet, the government tells us that GDP is growing nicely. There seems to be a contradiction there.

If you read the mainstream media coverage of the weekly jobless claims you would have seen that the U.S. employment situation is getting better because there were only 457,000 new claims during the week of Thanksgiving. Of course, you might consider that few employers would lay off workers right before a major holiday and that state unemployment offices were closed because of the holiday, so this would obvioulsy lower claims. The BLS (Bureau of Labor Statistics) states that they make some 'adjustments' for this though. Claims at even the 400,000 level indicate significant recession and they need to drop to the 300,000 level to indicate a healthy economy (you will see much higher numbers cited in most mainstream media reporting). Continuing claims are still rising and have hit 5.5 million. This number doesn't include an additional 4.5 million on extended umemployment benefits. A large percentage of the American work force is not eligible to collect unemployment as is, so the numbers are even worse than they appear. While there are those who claim that unemployment is a lagging indicator, statistics from the past don't support this notion. The real lagging indicator seems to be the truth about what is really going on in the economy.

NEXT: U.S. Employment Figures Don't Add Up

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.

Global Stock Markets Weaken

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.

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Both the Nasdaq and Dow were down 2% yesterday. The S&P 500 and Russell 2000 were down 2.3% and 2.5% respectively. Euro markets were also down yesterday after the route in the Chinese market Sunday night. While the Nikkei held up on election news, it was down 2.4% last night. Global markets have been rising together for the last 6 months and now seem to be selling off in tandem as well. China led the world's stock markets up and seems to be leading them down.

As expected, the ISM Manufacturing report yesterday came in above 50, which indicates expansion. It was the first time in 19 months above this level. The 52.9 reading was up from 48.9 in July. The new orders component was up 10% and was responsible for much of the rise. As has been pointed out in this blog, the Cash for Clunkers program is behind much of the recent burst in U.S. manufacturing activity. Recovery is only meaningful if it takes place without government stimulus however. Otherwise the economy falls right back down as happened in Japan repeatedly in the 1990s and 2000s and seems to be happening in the UK right now. The glowing bullish AP coverage of this report at least also stated "as long as consumers remain hamstrung by weak pay and job losses and wary of ramping up spending, the economy might not be able to sustain a recovery". Oh really?

Weak pay is the operative word. The Productivity Report today had productivity up 6.6% last quarter, the most in several years. While the rah-rah-rah media gave the usual bullish spin to the news, it is actually quite bleak. The big rise took place because labor costs fell so much. They were down 5.9% in Q2 after being down 5.0% in Q1. This means a lot less money is going into the average consumer's pocket. At the same time credit availability is also being cut. So how are consumers going to increase spending? Retailers are currently reporting that back to school sales are weak as should be expected. So much for 72% of the American economy doing well.

The dollar was up yesterday as has been the case since March when stocks sold off. It closed at 78.76, above its 78.33 breakdown level. It was below that key point part of the day. Gold was mostly flat yesterday, but was trading at $965 this morning. Silver is above $15. Gold is trying to get back to its $1000 breakout level and may do so soon.

NEXT: Inflation News Sends Gold Soaring

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.

Only TARP Recipients Should Worry About Deflation

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:

Finally some minor logical restriction has been added to the historically wasteful TARP program. TARP is essentially welfare for Wall Street and companies receiving welfare should be forced to live like people who used to receive it, if they want the handouts. The $700 billion of taxpayer money was supposed to be used for lending, but nothing in the bill mandated that would happen. There aren't even records of where the money is going, although maintaining exorbitant executive salaries and bonuses is obviously one of destinations for the funds. President Obama has now restricted these salaries to a still generous $500,000 (the President of the U.S. is paid only $400,000). Stock options are allowed, but only once the U.S. is paid back the money it has given to these financial companies. This is only likely if major inflation reduces the debt (and your savings and retirement payments) to essentially nothing.

Anyone who reads this blog is well aware that we have been predicting just such an economic scenario for a long time. Central banks throughout the world are engaging in policies that will insure massive inflation is inevitable and they are covering their irresponsible policies by waving the threat of deflation flag. The Bank of England just cut rates to 1.0%, down from 1.5% (which was already the lowest since the late 1600s - yes, 1600s). The BOE has more than hinted that this is just another step on the way to ZIRP (zero interest rate policy), which now exists in the U.S. and Japan. It also stated that it WILL BE expanding the money supply (as if somehow they haven't already been doing this). Like the U.S. central bank, the BOE claims that it is worried about deflation, even though the official inflation rate in Britain is 3.1% (you may assume the actual rate is somewhat to a lot higher) and the pound is dropping precipitously, which is highly inflationary. Lower interest rates and increased money printing will only weaken the currency further. Yet the BOE is worried about deflation.

Central banks are taking the disastrous decisions to create inflation in a desperate attempt to prop up their collapsing economies. The true depth of the economic downturn is being hidden from the public by manipulation of the data and a compliant press that fails to question even the most absurd claims of the government statistical offices. As an example, the U.S. Labor Department released productivity figures for Q4 2008 today. Productivity (the amount of output per hour of work) was allegedly soaring at the end of last year. The claim is that the number of hours worked is dropping a lot faster than output. The alternative (and correct) explanation is that the government has lied about output and overstated it considerably. While there is a lot of evidence to support that U.S. GDP is being overstated, you will not see it in mainstream press coverage of the Productivity story... just an emphasis on the ridiculous headline numbers.

The press articles on Productivity are also being used to prop up the deflation bogeyman. One AP article (likely to be reprinted in hundreds of papers across the U.S.) stated, "The results underscore how the deepening recession has removed the threat of inflation". No AP, the results underscore the depth of lying that the U.S. government will engage in to hide the real economic story from the American public.

NEXT: U.S. Unemployment Rate Rises to 13.9%

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.