Just when you think things can’t get any more ridiculous, magically they do. Your country’s revised GDP number is an insult to the intelligence of anyone with an I.Q exceeding that of a gerbil. My conclusion is that there is something horribly wrong in the overall system and the powers- that- be are trying to groom things prior to the revelation of the truth. - A well-known Investment Strategist in private correspondence with me yesterday (private except for NSA surveillance)I was going to write out a detailed analysis of yesterday's "advance GDP estimate" for Q3 and not get into the employment report number just released today. But today's jobs gain report for October was so absurd that I'm not really sure it matters the extent to which the details are dissected and analyzed for credibility because the headline print for both numbers is so unbelievable that it would stretch the imagination of history's greatest fiction novel writers to come up with them. When you write fiction, you have to give your audience some small thread of a reason to "suspend disbelief." But the GDP and Non-Farm Payroll reports are just too inconsistent with just about every private survey on the economy to allow even for the temporary suspension of disbelief.
I almost feel like I would be insulting the intelligence of the reader to dive into some of the most troubling sub-components of the headline data because the headline numbers themselves are just too absurdly beyond credibility. Here's what John Williams of Shadowstats.com, who's collected, analyzed and written about Government economic reports for decades, has to say about the GDP report:
The GDP remains the most-worthless and the most-heavily modeled, massaged and politically-manipulated of government economic series. It does not reflect properly or accurately the changes to the underlying fundamentals that drive the economy.Just briefly on GDP: Yesterday's 2.8% headline number - and remember this is a "seasonally adjusted annualized" number - included .89% which was attributable to inventory build. Now, we know most big manufacturing firms are posting flat or declining revenues, which means end-user demand is declining. So I'm not sure why businesses would be building inventories, especially since the inventory build added .5% to Q2's GDP print. Why they would continue to build even more of something that no one seems to be buying is beyond logic. I explained this dynamic with regard to automobile sales reported for October, which you can read about here: Misleading Auto Sales Report. I will say that the GDP headline number was 50% higher than Wall Street was expecting and most of that 50% is comprised of this inventory build. No one expected it because it doesn't make sense to anyone based on the true fundamentals of the real economy.
But then again credit is free right now and it doesn't cost them anything to borrow in order to finance the inventory build. What this does mean is that at some point, probably in Q4 and Q1 next year, businesses will have to cut back and that will subtract from GDP. If you subtract the inventory build from GDP, you get a 1.8% number. The inflation index was 1.9%. If you subtract the effect of inflation from the nominal GDP number, it means that ex-inflation and ex-inventory build, GDP actually contracted on a real basis. That's a recession and an economic recession is consistent with just about every non-Government economic and consumer report available.
As for today's jobs number. I'm just not sure how that headline print has any kind of credibility whatsoever. I was just informed by an esteemed colleague that the birth-death model (that fictitious job creation device the Government uses to make jobs appear out of thing air) added 126,000 jobs - the most of any October going back to 2003.
Furthermore, buried in the Government's own report is a statistic that shows that 935,000 people dropped out of the labor force. Where did they go? They applied for and now receive some kind of Government support: Welfare/food stamps - the welfare rolls grow by the thousands every month - the last number I saw showed close to 50 million people receiving food stamps; Social Security Disability - Obama liberalized the qualification hurdle for SSDI and there's 11 million people receiving it now vs. 7.3mm when Obama took office - that's 3.7 million more people than in December 2008 - a 51% increase; people who can't find jobs have no problem getting student loans to go to schools like DeVries and University of Phoenix, where they learn how to change hub caps and paint fingernails - when you get a student loan and go to school, you drop out of the labor force - student loans and auto loans made up 99% of all non-mortgage loans received in the last 12 months.
That's where most of the nearly 1 million people went last month who are no longer considered part of the job market. The rest just disappear down the proverbial rabbit hole. But the labor force participation rate is now under 63% of the population. It's where it was in 1978 when most households were still one-worker homes and women stayed home to raise the family.
One last point about how absurdly fraudulent these Government reports are and I have not seen this mentioned yet in any analysis. If you look at a breakdown of the GDP report in terms the change of the components from Q2 to Q3, you find that consumer spending, service spending, fixed investment and exports all declined in terms of subtracting from the growth rate as calculated. Think about that for a minute. How can private businesses be hiring people if consumers are spending less, service businesses are seeing a decline in demand and capital expenditures are declining? It just goes to show you what an insult to our intelligence these numbers are.
I will end with one note, which I believe signifies that my analysis is 100% accurate. I have been bearish on the housing market for many reasons. You can read through my articles posted on Seeking Alpha to see my analysis which is backed with hard data, starting with this one: The Housing Bear Is Back. Well today, despite the massive ramp higher in the Dow and the S&P 500, the Dow Jones Homebuilder Index (DJUSBH) is down 3.4%. That's a big drop for any day in that index, but on a day when the broad equity indices are up nearly 1%, it is sending a very ominous signal about the economy. After all, if the economy is doing so well per the Government reports today and yesterday, how come the housing stock index down 25% from its high print early this year? If the mark of a bear market is when a stock or an index drops 20%, how come no one in the financial media - or even ANY analysts besides me - are not talking about the new bear market in housing? The housing mini-bubble has been about 80% of any economic strength over the last 2 years. That is now gone.
Have a great weekend. Enjoy what you can, as much as you can, for as long as you can - there's no telling when we'll wake up a the collapse.