Thursday, September 29, 2011

Morning Update/ Market Thread 9/29 - Inflation/ Deflation Debate Debunk Edition…

Good Morning,

Equity futures are higher this morning, with the dollar lower, bonds twisting lower for the fourth day in a row, oil higher, gold & silver higher, and food commodities mixed.

Our third and “final” look at Q2 GDP came in higher than expected, adjusted from +1.0% to 1.3% on the 1.2% expectation. Again, this is all nonsense as our GDP is vastly overstated. In fact even what they call “final,” isn’t really final, as it will be adjusted once more next year. Tiresome debunking the continuous flow of disinformation statistics – this one suffers mostly from counting credit creation as growth, as well as understating inflation which also overstates growth. For what it’s worth, here’s econocomplicit:
Economic growth for the second quarter ended up stronger than previously estimated but remained anemic. The Commerce Department's final estimate for second quarter GDP growth was bumped up to a rise of 1.3 percent annualized, compared to the prior estimate of 1.0 percent annualized and to first quarter growth of 0.4 percent. The median market forecast called for a 1.2 percent annualized gain.

Final sales of domestic product were revised to an annualized 1.6 percent from the previous estimate of 1.2 percent. Final sales to domestic purchasers were revised up to 1.3 percent from the second estimate of 1.1 percent annualized. By components, the most notable upward revisions were to nonresidential structures, PCEs, and exports.

Economy-wide inflation was revised up incrementally to 2.5 percent annualized, compared to the previous estimate of 2.4 percent and the first quarter rise of 2.5 percent. Analysts had projected a no revision number of 2.4 percent.

Overall, economic growth was very sluggish during the first half of 2011. More recent monthly data are very mixed but net suggest marginal strengthening at best for the third quarter.

Speaking of trumped data, Jobless Claims suddenly fell back below the 400k mark down to 391,000. Of course the prior week was revised higher, this time by 5k. Here’s Econoguess:
It turns out Hurricane Irene may have elevated jobless claims all along. At least that's what the Labor Department is suddenly hinting at, attributing a giant 37,000 decline in initial claims in the September 24 week to state offices catching up with hurricane-related data. A Labor Department official also told Market News International that end-of-quarter factors are also coming into play as offices catch up on their work. Adjustment problems tied to calendar shifts may also be at play.

Initial claims totaled 391,000 in the week, far below Econoday's consensus for 420,000. The prior week is revised 5,000 higher to 428,000. The latest week is the first sub 400,000 reading since early August and is the lowest since early April. The four-week average is down 5,250 to 417,000 from a revised 422.25 in the prior week to end five straight weeks of increases. Still the average is roughly 5,000 higher than the month-ago comparison which isn't a positive signal for the monthly employment report.

Continuing claims, in data for the September 17 week, fell 20,000 to 3.729 million with the four-week average down 5,000 to 3.743 million. The month-ago comparison is mildly positive showing a nearly 15,000 decrease. The unemployment rate for insured workers is unchanged for a seventh week at 3.0 percent.

Stock futures are rising sharply in reaction to this report as well perhaps to the upward revision to second-quarter GDP which came out at the same time. But there's plenty of surprising noise in today's claims report which may limit its impact on the markets and on expectations for next week's employment report.

“Surprising noise in today’s claims report…” Yes, it’s okay to call it what it is… manipulation. Remember, any number above 350k is a jobs losing proposition, we’ve been shedding jobs for years now without pause.

Pending Home Sales are released at 10:00 Eastern.

Yesterday the Shanghai stock market along with copper price both simultaneously hit new two year lows. Over the past 10 years or so, the Shanghai market and our SPX have moved pretty much together. When they diverge from one another, the other usually plays catch-up. Prior to the late 2007/2008 decline, the Shanghai led the way, a big gap developed and then the SPX crashed. A pretty similar gap has developed now, a three year chart is seen below:

There’s no doubt that China got overheated and that “growth” (money creation) is now slowing. Because a large percentage of China’s business is American centric, they do tend to follow one another.

Yesterday a guest posted some thoughtful comments on the Daily Market Thread. He points out that the central banks create and then feed BOTH inflation and then deflation, using the inflationary leg as the set up to trap people in debt, and then the deflationary leg to strip them of the real assets. This is definitely true, central banks have intentionally caused deflation and used it to their advantage for centuries – JPMorgan famously did this, but I also think this is presently the case as well.

All the central bank has to do is tighten the supply of money, and those in debt wind up turning over real assets to the banks. Thusly the banks profit on the ride up, and then they profit again on the way down gathering assets to inflate again on their next cycle. If I were a narcissistic central banker, this would sound like good sport, and I would encourage others to debate all day long which is coming next, inflation or deflation.

Like I’ve always maintained, there are going to be waves of both, but since private individuals control the production of money, the overall trend will be more and more money until confidence in the money system is completely gone. We are losing confidence now, I would maintain that confidence in our money is too high, and that the system is closer to collapse than the vast majority of people know.

It is the deflationary wave that keeps the system going longer – the more it is fought, the shorter the life of the currency, the sooner those who control its production will lose their power. The central banks are under pressure now, they are walking a tightrope that is not attached at the end to which they are progressing.

My point is that there is no point in arguing inflation or deflation. There is both, and both work to the people’s disadvantage as long as private bankers are in charge. Focus your positive energy on them, withdraw your support of their schemes and their puppet politicians, their negative karma will bite them soon enough.