Official data does not really indicate a US economic recovery
Posted on 12 September 2010 with 3 comments from readers
Optimism about the US economic recovery last week is based on false data and ignored the far more conclusive report from the Economic Cycle Research Institute. The stock market has recovered, but the US economy is still on the floor and heading down.
The leading indicator’s index of this New York based independent forecaster has an annualized growth rate of minus 10.1 per cent, a level last reached at the end of 2008, and lower than anything seen in the second down leg of the 1980s recession.
Sinking fast
This authoritative, independent data series allows only one conclusion, that the US economy is sinking fast and that government spending is not going to keep it growing in the near future.
Part of the problem is that US taxes are about to rise by $380 billion over the next 10 years, and that is equivalent to about two per cent of GDP annually. Thus tax rises will eat up any growth in GDP in this period of low growth.
US stock markets are pricing in rising corporate profits. But how can this happen if the economy is at best stagnant? A better-than-expected July trade deficit was still north of $40 billion, not the stuff of an export-led recovery.
It is already clear from cash retention and non-investment by companies that they are planning for a period of low or no growth. This will become a self-fulfilling forecast and is completely inconsistent with the rising profits needed to take share prices higher.
And it is also far from certain that the long period of low interest rates required to achieve traction in the US economy will actually be achievable. At some point the bond market will fall over, and interest rates will go up. Equities will suffer in this far from painless process.
Bond implosion
Without cheap money there will be even more pressure on consumer and business spending and investment, and another downward screw on the US economy. Besides the stubbornly bad unemployment figures suggest that the US economy is not really showing much sign of recovery and is stuck in a deep hole.
The optimism that greeted the latest figures was misplaced as seven states did not actually file their data due to a public holiday. And let us not forget that the 473,000 initial claims for unemployment benefits are not far off the peak of the 2001-2 recession, and far too high for this stage of a so-called recovery.
Headline economic growth is already forecast to head lower in the second half, and it is hard to see where a recovery might come from after that. This will feel like a double dip recession, whether or not it actually is one, and stock market optimism is clearly misplaced right now.
Presumably at some stage economic indicators will reflect this state of affairs, and the ECRI index will not be ignored. The figures for US housing are still indicating a deep recession, nothing has changed there. The stock market rally is a nonsense.
Futures on the Vix are priced at a near record. The last time this happened was May 2008, two months after Bear Stearns collapsed and before a 40 per cent stock market crash.
3 Comments posted by readers:
Good commentary, Peter. It sums up the general commentaries + readers’ responses that have appeared on your blog over the past few weeks.
A Word about Stock Market Optimism:
Your statement that “… and stock market optimism is clearly misplaced right now” caused a knee-jerk. What the general public doesn’t realize is that the so-called optimism is also a synthetic derivative which is created by the NY Traders and the too-big-to-fail investment banks.
There’s an old saying about capital: “whoever has the most capital will rule.” With the potent combination of FED backing, extremely high leverage, excessive use of derivatives in the trillions, etc., these banks synchronize their actions via “manufactured” optimism on each “poor” trading day by buying futures to force the cash market back up, while simultaneously entering naked shorts in the precious metals markets, to scare investors from placing capital there. Hence, a totally manipulated market.
The Good News:
One of the things that many astute investors have noticed about the gold and silver markets over the past month or so, is the fact that these fraudulent tactics by the big banks are finally breaking down. Every attempt by the big banks to drive down the gold and silver price has been met with aggressive buying.
Methinks the “End Game” cometh soon.
An Update:
After re-reading my above post, I realized that I neglected to qualify my comment on the “End Game”. For those who may be interested, here it is:
There is a great deal of financial terrorism (or financial warfare, take your pick!) going on around the world today, led principally by the big, fraudulent US banks. In a very real sense, these highly fraudulent entities rule the world. The rest of the global financial community knows it, obviously doesn’t like it, but that’s the way it is (for now, anyway!) . . . and while I stated above that the “End Game” is nigh, I’m also not naïve. I fully expect that the coming market fall, together with the resulting global financial turmoil, will not really be the “end game” as such, but merely a precursor to it. Wash, rinse, and repeat. The real question is “how long can the global financial community put up with this “wash, rinse, and repeat” series of cycles?
Nobody knows the answer to that question, but it surely must have an end point. And the other big players, especially China and Russia, are making their own moves and trade deals to counter the US banking cartel.
You are going to see one hell of a bullish rally this week. Look at the Index in Taiwan and in Hong-Kong. Key indicator was the Taiwan Index passing 8,000 today. Watch the DOW rally on Monday big time.
Economy in the US sucks and all news is bad but regardless of the news money has to go some where and when they don’t see returns coming from Real-Estate or other investments they will pump the stock shares up until they blow up. Also, the Arabs are now back from their one month of fasting so they have the urge to spend and oil money has to go some where. Since no one is buying real estate now they for sure won’t be spending money on more real estate projects.