Wednesday, July 17, 2013

The Economy Is Tanking - Real GDP Is Now Tracking Negatively

I'm sure by now everyone has seen the reported plunge in housing starts and housing permits on Tuesday.  Single-family housing starts declined for the fourth month in a row.  I have been expressing the view for a few months now, and backing the view up with copious amounts of evidence, that the housing market is getting ready to tank - and tank hard. Incidentally and anecdotally, just in the past couple of weeks I've noticed a literal avalanche of "for sale" signs all around central Denver.

And more economic data was released on Monday which further reinforces my contention that entire economy is in a serious decline.  In fact, based on several recent economic reports, it's probably safe to say that the GDP, on a real, inflation-adjusted basis, is now retracting - i.e. we're in a recession.  As John Williams of explains:
Underlying economic reality remains much weaker than Fed projections. As actual economic conditions gain broader recognition, market sentiment should shift quickly towards no imminent end to QE3, and then to expansion of QE3. The markets and the Fed are stuck with underlying economic reality, and, eventually, they will have to recognize same. Business activity remains in continued and deepening trouble.
Seeking Alpha has published my latest analysis of the economy and the reasons I claim that the economy is back in recession:   Negative GDP and No Taper Coming

Please note that to measure real GDP, I'm using the latest reported annualized CPI as calculated by the Government.  In fact, the true inflation rate is significantly higher, which means that real GDP is in serious contraction.

Don't act shocked when the Fed announces even more QE before the end of the year...


  1. So, real GDP is seriously negative, Housing is going to implode & The Bernank can't raise interest rates or Taper because -to quote him in todays chat with CONgress - "the economy will tank." The longer they wait to exit the worse the situation will be and the 99% slumber.
    Question is when? When will the US go Greece4X?
    Will it happen overnight or will there be a bank holiday?
    Will the dollar be replaced with a red or blue dollar worth 30%, 40% or 50% less that the week before?
    WIll there be Zombies in the streets?
    I think yes, just when is the question.

  2. Dave, I don't think Bernanke will announce even more QE before the end of the year. Bernanke is going to step down next January. He is not supposed to pull a new rabbit out of his hat. By the way, who do you think will become the next chairperson? Yellen the bitch or Summers the dickhead?

    1. Doesn't matter who's in charge of the Fed after Bernanke. It will have to be someone who is good at spinning a good story around why the Fed is printing even more money

  3. Hey Dave,
    Hey I hear some Coilorado town is issuing permits to shoot down FBI drones out thereM Can you get me signed up? There is a whole bunch of us needing some practice here in the USSA. I live outside DC and see them flying around. Maryland is also equipping State and County police cars with license plate scanners. The surveillance state marches on. Take it easy buddy. We need to wait until we can see the whites of their eyes, radars, scanners, aerial photo cells. It is going to get fun soon.

  4. China reportedly planning to back the yuan with gold

    Beijing's possible move to back the yuan with gold would not be meant as a strategic measure to strengthen the national currency and increase its attractiveness as an investment medium. Rather, it would be a flaunt aimed at demonstrating to the world (and to the USA in particular) that China is capable of taking the risks associated with a departure from the dollar standard. Experts warn however that, apart from benefiting no-one, such a decision may actually have catastrophic consequences.

  5. Just look at what is going on in the middle east. If the U.S. and or Isreal start a war that attempts to knockout Syria and Iran (Syria is a proxy for Iran)then all bets are off. The Russians have deployed forces and are ready. The Chinese have also said hands off. The psychopaths in D.C. think that they can stave off a dollar collapse by controling the entire middle east. U.S. forces are spread too thin. The Russians and Chinese know this and that economicly the U.S. is weak and getting weaker. Things will get to epic fail purportions if the U.S. continues on this suicidal path.

  6. Department of Homeland Security Warns Employees: They Face “Legal Action” for Clicking on a Link

    You know a government has lost all credibility and is nothing more than a rotting carcass of corruption and criminality when it starts taking draconian steps to prevent its own employees from knowing the truth about what it is doing. Incredibly, an internal memo from the Department of Homeland Security (DHS) last Friday to employees threatened them with "administrative or legal action from the Government" if they commit the heinous crime of clicking on a link from the Washington Post. Yes, the Washington Post. Click here to view a copy of the actual memo. TechDirt has some poignant thoughts on the matter:

  7. US High Technology Gulag Redux

    Published on Jul 15, 2013
    If You Have Nothing to Hide, You Have Nothing to Fear
    If You Believe in the LIES You have Been Told, You Have Nothing to Fear
    very day, people leave a digital trail of electronic breadcrumbs as they go about their daily routine. They go to work using electronic fare cards; drive through intersections with traffic cameras; walk down the street past security cameras; surf the internet; pay for purchases with credit/debit cards; text or call their friends; and on and on.

    There is no way to predict in advance which crucial piece of data will be the key to revealing a potential plot. The standard operating procedure for the Domestic Surveillance Directorate is to "collect all available information from all available sources all the time, every time, always".

  8. I have enormous respect for Dave in Denver and find his analysis spot on. I do question John Williams a little though, on his inflation figures being quite so high and his calls for hyperinflation by year end 2013. Nevertheless, the message in this article resonates with me and dovetails with what Peter Schiff is saying. Instead of waiting for that recovery that is just late, people should be scared shitless right now. When QE is increased, we could quickly decend into a currency crisis/loss of confidence/downgrade by S&P and Moody's if they are still allowed to rate sovereign debt when that happens, selling of treasuries and dumping of dollars by foreigners, increased velocity due to fear of price increases as worthless fiat chases real goods, which is self reinforcing, etc.

  9. Your attention please, China to back Yuan with Gold.

    Bye Bye U.S. Dollar.

  10. Chase, Once Considered "The Good Bank," Is About to Pay Another Massive Settlement

    Chase is turning into the Zelig of the corruption era. In virtually every corruption scandal, the bank is in the background somewhere. The HSBC money-laundering mess? Chase was reprimanded for similar abuses. The Madoff story? They're under investigation there. MF Global? As banker to Jon Corzine's notorious firm, they were part of a $546 million settlement to return money to MF Global's outraged customers. Jefferson County? That was them. And again, you might have heard of Abacus, but Magnetar was just as bad. Not that anyone's counting or anything.

    Memo to colleagues on the White House pool: could someone please ask the president if Jamie Dimon is still his favorite banker?

    Read more:

  11. "The markets and the Fed are stuck..."

    They are stuck in this dance-cycle, which will continue till either the Feds can't continue doing this or the markets finally reach its zenith and then there's a "fire sale".

    However, there are also hundreds (some hidden) "bubbles" out there. Had we been strengthening our economy, we would be able to sustain any shock waves. Now any one of them can take us out and I won't be surprise if this is how it happens (and these are small bubbles). Canada and China have over-heated housing markets that could pop at any time (however, there may be more efforts put in to contain them since they are hard to hide from view). The problem for Ben & Co. is that the 1930's depression didn't have a dead currency and world-wide globalization as we do today. We're now one big globalized creature where one stab given in one area sends pain traveling throughout the whole body.

    This isn't an USA problem only; the bubble pop will enrage the whole world.

    Just wanted to write this first. Look forward to reading your article, Dave. I always check out some of the comments afterwards to see where people's heads are at.

  12. Hey Dave, If Detroit only had their own printing press !

  13. Safeway 2nd quarter income falls after sale of Canada stores

    Safeway made less money in the second quarter of the year after the supermarket company sold its stores in Canada, prompting the grocer to lower its earnings expectations for the year.

    Income for the 12-week period ending June 15 fell to $8.4 million, or 3 cents per share. That compares with income of $122.7 million, or 51 cents per share, a year ago.

    But when adjusted for one-time items, including the sale in Canada and the hefty tax attached to it, income totaled 51 cents per share, slightly beating analysts' expectations of 50 cents per share.

    Store sales also declined for the second quarter in a row, falling to $8.7 billion from nearly $10 billion in revenue for the first quarter of 2013. The grocer posted $8.8 billion this time a year ago. Safeway officials said on Thursday that the decline was due to lower fuel sales at Safeway gas stations and the sale of Genuardi's stores on the East Coast in 2012.

    "It's not particularly good," said Bob Reynolds, an industry expert with Reynolds Economics and a former Safeway employee.

    Wall Street had expected more than $10.4 billion in sales.

  14. Off the topic. I think the real backwardation in gold is more severe than reported. According to the LBMA, GOFO, like LIBOR seems to be just an indication. Bullion banks can undereport GOFO to play down the physical shortage just as they did to LIBOR back in 2008.

  15. Nevada’s unemployment rate inched up to 9.6 percent in June, with Las Vegas and Carson City posting major increases in jobless numbers.

    The state Department of Employment, Training and Rehabilitation reported today there were an estimated 132,400 persons out of work statewide in June, an increase of 900 from May.

    Department Economist William Anderson said Nevada’s rate “remains stubbornly high” compared with the nation’s 7.6 percent, but he added it was still 2 percent below June 2012.

    There were an estimated 100,100 unemployed in the Las Vegas area, a 10.1 percent rate. That is the highest rate since the 10.2 percent rate in January. In May, there were 92,400 people unemployed, or 9.3 percent.

    Carson City’s rate of unemployment jumped from 9.5 percent to 10.1 percent.

    The department did report, however, that there was a growth of 3,700 new jobs during the month. And for the first six months of 2013, the number of new jobs totals 23,600.

    The department said the unemployment rate in Washoe County rose from 9.2 percent in May to 9.8 percent in June.

    Not included in the statewide jobless numbers are “the discouraged workers,” Anderson said. There are 13,200 who have given up looking for work.

    [Read your article at seeking alpha today, Dave. Excellent!]

  16. Is This The Final Straw?

    Saudis’ Unprecedented Break with Washington over Egypt (Is that a Golden anvil around President Obama’s neck)?

    We have seen so much news recently and many stories. When they are knitted together point to a picture where the dollar will be supplanted as the world’s reserve currency and where gold will play some sort of role. Even looking at the gold market from different angles gives you signs that something is definitely in the works.

    I came across this article yesterday written by William F. Engdahl which has strangely gotten very little press considering the ramifications which are huge. Behind the scenes it appears that Saudi Arabia is backing away from the U.S. Our “partnership” goes all the way back to 1945 and was certainly reinforced in 1973 when they agreed to trade oil ONLY for dollars. Just after going off of the gold standard Henry Kissinger cut a deal which created instant and massive demand for dollars which allowed us the rope we have used to financially hang ourselves.
    Saudis’ Unprecedented Break with Washington over Egypt

    One of the least commented aspects of ousting Egypt’s Morsi is the defiant act of the Saudi Royal House in backing the ouster of the Brotherhood and supporting the military restoration. The Saudi move is unprecedented in its open defiance of White House declared backing for the Muslim Brotherhood. The implications of the split are huge.

    Twilight in the desert?

  17. "The 2008 shock was certainly violent, but the reactions of the system, countries and central banks with their bailouts on an unprecedented scale, managed to hide the worst consequences: downgrading of the West in general and the United States in particular, a forced cleanup of the economy, a heavy fall from an artificial standard of living, mass unemployment, the beginning of social unrest… have been able to be partly neglected in favour of recovery hopes kept alive by irresponsible policies diverting liquidity to the banking systems and stock exchanges.

    Sadly, whilst the world drugged itself, global issues weren’t addressed… five lost years: the building is even less strong than before the crisis; the US “solution” orchestrated by the Fed, that everyone else left it to manage to take the time to dress their own wounds, has been to put out with gasoline the fire which they themselves lit.

    It’s not surprising then that it is still the US, pillar of the world before, refusing to fall in line, with their faithful Japanese and British floats, which is once again igniting the world situation. And this time, we shouldn’t rely on bankrupt countries to save the situation: they are on their knees following the first shock in 2008.

    Therefore, it’s actually a second world crisis which is looming, once again caused by the United States. Ultimately this five-year period will have been nothing other than taking a step back to enter into an even bigger crisis, which we have called “the crisis squared”."

  18. Sub investment grade companies face a record $101 billion refinancing wave next year, raising fears of a shake out among debt-burdened companies.

    The amount of debt owed by companies in Europe, the Middle East and Africa rated as below investment grade, or 'junk', that is due in 2014 has risen to $101 billion, up from $84 billion this year, according to Moody's, the ratings agency.

    Nearly half of that debt carries a negative outlook compared to 34 percent a year earlier. In contrast U.S. high yield companies will see their total debt maturities decline to $79 billion next year from $168 billion.

  19. Granny's 'Irrational' Gold Obsession Is Wholly Rational

    In an unbelievably condescending article in Bloomberg, fittingly titled, "Granny's Gold Bars Are Key to Vietnam Push to Boost Dong", the unstated author gives this game away. "Granny" doesn't want to give up gold because of experience, including recent experience, of high inflation and devaluation. Should Granny just sign up for the poorhouse because the Vietnamese central bank wishes to "defend" the dong via financial engineering? Might Granny's irrational obsession with gold, as the article tries to portray, be actually rational self-interest lying beyond the grasp of conventional economic theory's own self-obsession with socialized economics? The central bank has been bitten by the Gold Bug, not Granny.

    If the dong was "worth" what its central bank believes, they should have no trouble with Gresham's Law confirming as much. But "they" care not about value or even Granny, only the ability to control the financial destiny of their own system - socialized economics over individual rational self-interest.

    What is true in Vietnam today is equally comparable to every developed nation under the thumb of central bank unilateralism. To this even Bernanke admitted the appeal of gold against "extreme events", which fully contrasts with his puzzlement. But where this partially reconciles in the modern economic canon is that he trusts his own abilities to perform as central planner, while discounting that so many may not (he has a Princeton pedigree, after all). In the conventional narrative where gold is a misunderstood asset class, the Federal Reserve is populated by heroes that saved us from the mess of banking and free markets.

    We know better, as banking has not been about free markets in a long time, most certainly under the interest rate targeting schematic, and the desperate crises that continually roil into volatility are the handiwork of unilateral management of fiat without competition. If gold was actually money today, paper dollars would have been spent into oblivion.

  20. There has been a lot of talk here of the NSA spying on us.

    You need to come to the realization that the operating system you have has a back door for them (windows,mac,linux). That also means servers around the world do also. This is a lot more serious than anyone thinks.

  21. Detroit bankruptcy: Is it a warning sign of things to come?

    What if Detroit isn't a blip? What if, instead, the city's decision to enter bankruptcy proceedings is a sign of things to come?

    Crazy talk? Maybe. But that was the prediction in a recent book by Wall Street financial analyst Meredith Whitney, best known for being one of the very few mainstream analysts to foresee the 2008 banking meltdown.

    Interestingly, she also predicted this week's Detroit bankruptcy.

    That may seem less impressive now that it has happened. On the other hand, the screams of outrage from lenders who are being offered 10 cents on the dollar for their billions in bonds by Detroit show that it wasn't obvious to them.

    "I wish there had been a lot more outrage over the past 10, 20 years," said Kevyn Orr, the bankruptcy expert charged with cleaning up Detroit's accumulated financial mess, at a news conference Friday.

    The fact is, long after Detroit's decline had become obvious, the city's government kept borrowing and lenders kept lending.

    Some of the municipal debt against the future was hidden in the city's own books in the form of off-balance-sheet pension responsibilities. Other borrowing was obvious to everyone, in the form of bonds secured — at least notionally — by Detroit's future tax revenue.

    Which is exactly Meredith Whitney's point. In her book Fate of the States: The New Geography of American Prosperity she says the Detroit crisis is far from unique. "Awash in new tax revenues, cities and states borrowed and spent as if the good times would never end. Unfortunately, they did," Whitney says in the book written well before the current bankruptcy filing.
    From what was once one of America's richest cities, Detroit has fallen on tough times. (Mark Blinch/Reuters)

    She says that in the wake of the U.S. property meltdown of the past few years, the cities and states that found themselves dangerously in hock were also the ones that had hidden pension debt, just like Detroit.

    She says lenders have been poor at taking that into account. "State and local governments have underfunded — even non-funded — their pension funds for years now, and they can't seem to break the habit," Whitney writes. "In New Jersey, actual debt is at least four times greater than bonds outstanding."

    Part of Whitney's analysis is especially interesting to Canada. Looking at the American experience, she says that the accumulation of debt in places that were formerly prosperous is contributing to a population shift to areas like the Midwest and the Dakotas, the former "flyover" states.