Friday, January 29, 2010

Morning Update/ Market Thread 1/29

Good Morning,

Wait, no, it's a Glorious Morning, Comrades! The central planners have good news regarding the health of their country… yes, it’s true that 6 million people losing their jobs is really the same as creating 2 million jobs, and now we can rejoice in knowing that a failing economy is really growing at a 5.7% pace! Truly glorious!

And for that masterfully trumped up report we get slightly higher equity futures, the bounce in the DOW and S&P can be seen below. I left the DOW as a 30 minute chart so that you can see the channel boundaries. A rise above the upper boundary will indicate that wave 2 has likely begun, should it fail to pierce the boundary, then wave 1 is still in progress, having already lost nearly 700 points from top to bottom:

I feel embarrassed and ashamed to even talk about the GDP report. Disgraceful how far from reality that number is. And the fact that I, or anyone else, needs to waste so much time explaining why it’s so far separated from reality is just sad. Let’s start by remembering that on these quarterly reports they annualize the number, meaning that their measured growth was about 1.4%, and it will be undoubtedly revised downward in the subsequent revisions, the revisions become so huge that no one can possibly value this report as having any value or meaning at all. Also, you will not read the headline from the cheerleaders that 2009 GDP for the year was -2.4%, even with their trumped up numbers. Remember, GDP is measured in dollars, not anything real, it is then highly manipulated via the deflator and a multitude of other adjustments.

Here's Econoday's report, when you start looking inside at things like imports falling and inventory adjustments, it doesn't look so hot:
Fourth quarter advance estimate of gross domestic product was up more than expected at an annualized rate of 5.7 percent. This was the quickest growth rate in more than six years. Analysts had expected an increase of 4.5 percent. The fourth quarter gain primarily reflected an acceleration in private inventory investment, a deceleration in imports and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE. Real final sales of domestic product - GDP less change in private inventories - increased 2.2 percent in the fourth quarter, compared with an increase of 1.5 percent in the third.

The change in real private inventories added 3.4 percentage points to the fourth-quarter change in real GDP after adding 0.7 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second.

Fourth quarter real personal consumption expenditures increased 2.0 percent compared with an increase of 2.8 percent in the third. Durable goods declined 0.9 percent, in contrast to an increase of 20.4 percent. Nondurable goods increased 4.3 percent, compared with an increase of 1.5 percent. Services increased 1.7 percent, compared with an increase of 0.8 percent.

Real nonresidential fixed investment increased 2.9 percent in the fourth quarter, in contrast to a decrease of 5.9 percent in the third. Nonresidential structures decreased 15.4 percent, compared with a decrease of 18.4 percent. Equipment and software increased 13.3 percent, compared with an increase of 1.5 percent. Real residential fixed investment increased 5.7 percent, compared with an increase of 18.9 percent.

Real federal government consumption expenditures and gross investment edged up 0.1 percent after jumping 8 percent in the third.

Slower inventory depletion is not the most promising way to guarantee growth and may indicate a slower rate of growth ahead until companies become more confident about the recovery. The biggest challenge to sustainable growth still remains with employment.

It’s my contention that the real economy has not really grown at all in the past decade and that our stated total goods and services produced is DRASTICALLY overstated. Not just because of a falling dollar, but in large part due to the “growth” of financial engineering where assets are marked to model and hidden from view, yet counted as adding to our productivity.

Here’s a link to the report at the BEA: QTR 4 GPD.

And here’s a John William’s Shadow Stats alternative GDP chart, while his calculations are showing far lower than BEA reported growth, I think that actual activity is substantially less but that cannot be measured due to the opacity of the shadow banking system and its effects on GDP.

Chart of Growth in U.S.Gross Domestic Product (GDP)

The inability to produce reliable and realistic economic data is a MAJOR flaw of our current system. When we look back on what happened, what is occurring with the data will be a major contributor. If you can’t measure what’s happening, how can you make any valid decisions? This mislabeling leads to huge misallocation and the assumption of far greater risk than is appropriate. People who compare our debts to our GDP, for example, are NOT comparing apples to apples if they look at historic ratios. Our actual debt to GDP, since GDP is vastly overstated, is vastly understated.

This is why Freedom’s Vision creates the Independent Data Panel that rolls all the government statistics into a single, completely Independent and transparent reporting agency. Their basic tenant is to produce accurate data, remove opacity, and remove any insider advantage.

1. Complete transparency is one of several, yet ultimately the final check and balance:
i. ALL data is made available to the public, free of charge.
ii. NO ONE, individual, firm, or politician is to have access to the data before the public. This prevents the insider advantage and again is a check and balance on those collecting and disseminating the data.
iii. Method of data collection and raw data MUST accompany all reports.

2. Statistics shall be separated and reported in three categories:
i. Raw data.
ii. Timeless data – methods shall be developed to report data in such a manner that the methods of calculation can be repeated and reported consistently over time. This ensures that future generations can compare apples to apples.
iii. Modern data – these are data that can be improved and changed over time. However, all such changes shall be completely transparent and shall always be presented with the raw data and with access to the way in which the statistic is compiled and calculated.
If you want to live in a nation in which you are proud, I would encourage you to support Freedom’s Vision and take the money power back to secure our money, freedom, and future.

And in the more to be proud of department, our fine Senate yesterday voted to increase the deficit ceiling by a mere $1.9 Trillion:
Jan. 28 (Bloomberg) -- The U.S. Senate voted to increase the federal debt limit by $1.9 trillion, to $14.3 trillion, a figure lawmakers said would be enough to accommodate borrowing for the rest of 2010.

The vote was 60-39 to send the measure to the House, which will take it up next week. The increase is more than twice the size of any of the four previous debt increases lawmakers approved in the past two years.

The party-line vote was a win for Democrats who fended off Republican attempts to force them to pass repeated, smaller increases in the debt ceiling before the November elections.

“Why $1.9 trillion? So that the Congress doesn’t have to face up to the debt ceiling before the next election,” said Senator Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee. “The people in this country have a right to know whether or not this Congress is going to do something about controlling the rate of growth in the debt before the next election.”
Terrific to politicize this issue. Once again the central bankers are the ones who set up this system and it is they who profit from it while it shackles the rest of America.

$1.9 Trillion will only last until the end of the year?! And that’s without counting all the other unfunded liabilities. How much money is that? Let’s break it down…

$1.9 Trillion divided by 307 million, the population of the United States, equals $6,188. That’s for every man, woman, and newborn, or equal to $24,755 for my family of four!

$1.9 Trillion divided by the BEA’s 140 million workers in the United States equals $13,571 for every worker! Guess what, all four members in my family work – that’s $54,284 for just my family, for just one year, it is just the debt on the Federal level and does not include prior debts, future debts, debts on other governmental levels, or INTEREST, which, by the way, at 5% adds another $2,714.

Does that math work?

Okay, let’s do the same for $14.3 Trillion, our current account deficit at the end of 2010. First of all, at 5% interest (yes the interest rate is lower than that now, but we are spending TRILLIONS to artificially buy that rate down) the interest expense this year will be $715,000,000,000 (reported to be half that by the Treasury, again a number based on shoveling more money to buy down rates - this will come to an end). That’s Billion with a capital B. Please keep in mind that our national INCOME is now only running about $2.2 Trillion, meaning that interest alone with 5% interest will take up about a third of our income.

Oh, and if we are running a $1.9 Trillion deficit, or more, in 2010, then our deficit just this year is nearly equal to this nation’s income! You want to talk about math that doesn’t work. Go ahead, Congress, and vote to keep increasing the ceiling, you might as well because game over occurred quite some time ago.

$14.3 Trillion equals $46,579 for every man, woman, and child.

$14.3 Trillion equals $102,142 for every worker, $408,571 for my family of four.

Again, this is without counting any future liabilities which drives the national level indebtedness to well over $1 million for just my family alone.

Is it fair to say that it’s time to step outside of the central banker DEBT backed box? I think so.

Now, how does this administration handle this? Well, they see that wages are not going up and they see that businesses are not hiring, so why not just make every new hire in the nation a government employee by giving businesses $5,000 for each person they hire? Sure, we can afford to do that with our debt backed money, surely that will help Americans right?

NEW YORK ( -- When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.

Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."

Obama will travel Friday to Baltimore, where the local unemployment rate is nearly 11%, to unveil his tax-cut road map. The $5,000 per-worker tax credit he's calling for would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.

Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.

$33 Billion isn’t anything, is it? And what do you suppose the unintended consequences of this little ditty might be? Wage inflation? More devaluing of our dollar? Is this really America? Do people really think that can work in anything but the very short term? I swear it’s like living in some sort of fantasy nightmare, somebody please wake me up, okay?

I had a bunch of charts to show you, but this is taking far too much time to get posted so I just want to say that the downward channel has broken to the upside, and that we formed a descending wedge over the past couple of days that has now also broken to the upside, meaning that it appears that wave 2 up is beginning.

I’ll try to have more technical stuff as I have time, but I think the fundamental landscape is far more important at this juncture. Those who think that the debt situation is workable are simply mistaken. There’s a brick wall up ahead and we’re doing over 100 mph straight at it. Eh, what’s another $1.9 Trillion, just another brick in the wall…

Pink Floyd - Another Brick in the Wall: