Friday, August 7, 2009

The Truth About Those Supposed Green Shoots

We have been maintaining all along that what the Government and media refer to as "green shoots" is nothing more than a temporary slowdown in the rate of decline of the economic conditions in the U.S. Today's employment number is a perfect example. The 247,000 jobs lost in July as reported today is being heralded as big a victory for the Obama Administration and another "green shoot" sign of a recovering economy. Notwithstanding that the Goverment employment number is subjected to unbelievable statistical manipulations and future revisions, it was still a quarter of a million jobs lost just in one month AND huge private sector job losses were offset by massive Governent hiring. Not the sign of a healthy economy.

But I wanted to bring your attention to the 33% decline in the Baltic Dry Index since its recent peak in early June. The Baltic Dry Index is considered a very accurate barometer of actual global economic activity, as it measures globally the shipment of commodities - base materials used in economic production:

As you can see, this index of economic activity had a huge move higher when China starting buying beaten down commodities hand-over-fist this past spring. As per the linked Bloomberg article, China has slowed down their commodity purchases and this index is heading south again:

Given that the private sector and manufacturing base in the U.S. continues to shed jobs, it is clear that economic activity in the U.S., or lack thereof, has had no bearing on the rise in Baltic Dry Index and is probably dragging it lower. In fact, Cisco reported earlier this week that their next quarter's sales will be down at least 15-20%. Cisco's revenue stream has always been considered a benchmark barometer of economic activity in this country.

So the next time you hear someone mention "green shoots," take a look at the more accurate "grass roots" indicators, like the BDI above, or what companies like Cisco are actually reporting. Those tend to provide a lot more substance than the hot air marketed on CNBC and Wall Street.

As an aside, I would like point out that China's slowdown in commodities purchases does not include gold. We know this because China has indicated to the IMF that not only would they like to buy the 403 tons of gold the IMF wants to sell, but China would actually like buy ALL of the IMF's 3200 tons of gold:

Gold is going to go much higher this year, especially as the truth about what's really happening in the U.S. economy is translated into the stock market, which is now more overvalued on a p/e basis than the Nasdaq was at the height of the tech bubble.

Regarding today's Government enhanced job loss report, this commentary posted at explains truth behind the hype and backs it up with data:


  1. Nice counter argument to the "green shoots" rubbish.

  2. A very good argument indeed.
    Baltic Dry index is a good leading indicator.

    I also find the Gross Private Domestic Investment to be a useful leading indicator. And that's not looking good either.

    Keep up the good posts.