Thursday, December 5, 2013

Is Atlas Starting To Shrug?

Today the Government released its second revision of Q3 GDP, which showed a big upward "revision" from 2.8% to 3.6%.  These numbers are seasonally-adjusted, annualized figures which in and of themselves are highly problematic with how they are derived.  Notwithstanding that, when you drill down beneath the headline reports, the components that make up GDP are downright ugly.

The revised number was almost entirely from a massive upward revision in the size of the Q3 inventory build-up by businesses. As has been written about ad nauseum, we know that retailers and auto dealers have amassed a huge amount of inventory, waiting for a recovery in consumption that will never materialize.

Speaking of consumption, that particular component of the GDP revision was revised down for a second time, 1.24% originally reported to .96% in the latest iteration.  What this says is that consumption, which has been 70% of GDP for over a decade, has dropped below a 1% growth rate.  If you strip out the inflation component of that growth number, it means that consumption actually declined on a real basis.  In other words, unit volume sales to consumers declined.  Think about that for a minute...

As you can see, unless the consumer makes a miraculous spending recovery, the economy likely has hit a wall during November.  The Thanksgiving weekend retail sales reports pretty much confirm this.  Although the growth in online sales has been promoted as a big positive, e-commerce represents less than 6% of total retail sales.  Retail sales declined over that weekend.  The consumer is tapped and so is our economy.

One last point about this, the release of today's factory orders report for October confirms my thesis here.  Durables dropped 1.6% and non-durables dropped .2%.  If you strip wholesale inflation out of the numbers, they are even worse.  Note this:  the inventory build-up that occurred in Q3 is likely going to turn into an inventory liquidation, which will negatively affect Q4 GDP.  Also, this is consistent with my analysis posted yesterday which showed that the housing market is headed south.

Finally, with the headline reports bullish as they were today, shouldn't the stock market be screaming higher?   The Dow is down 60 pts as I write this and the SPX is down almost .5%.  Even more interestingly, the dollar has tanked hard.  Theoretically, with the taper promoters out in full force today, the dollar should be screaming higher.  It's not.  Qu'est-ce qui se passe?  

Today's action in the dollar - and this whole week for that matter - tells us the market is starting to perceive just how ugly the U.S. economic and financial situation is.  No one is talking about the next budget/Treasury debt limit fight, but it's right around the corner.  I think a lot of players at the dollar "poker table" are folding their cards and chairs and walking away from the game.

The Fed has no hope of reducing QE and the market is perceiving that.  That's why the dollar has sold off hard this week despite the parade of positive headline economic reports.  Under the hood is a different matter.  Be careful with your dollar-based assets.  The stock market right now is more dangerously over-valued vs. the fundamentals than it was in early 2000.  I'm not the only one saying this.  Jim Rogers made this statement on  yesterday:  "Be prepared, be worried, and be careful...this is going to end badly."


  1. Just went out to Costco and bought 24 rolls of Charmin. I figure between today's G.D.P. numbers and tomorrows N.F.P. that's a whole lot of (bull) shit to deal with.

    1. Love it!

      We should also remember that the GDP calculations were revised earlier this year to make headline numbers look better than they are, as if the data wasn't massaged enough already!

  2. Dave, you've been focused on housing and the economy lately, not so much on gold. What's your current take of the latest drop to the low 1200's and silver to $19?

    I do appreciate the non-gold articles as well!



    1. Ciao! Buona Sera

      I've stopped commenting directly on gold because the extreme degree of manipulation going on right now it makes it impossible to write intelligently on the topic. In a way writing about what's happening in the real economy and showing how and why the economic reports are fraudulent and showing how and why the real economy is collapsing is indirectly commentary on gold.

      I say this because the extreme degree of manipulation in the metals using paper right now is directly proportionate to how bad the condition of our economy and political situation is.

      I think the wheels will come off very quickly in the 1st quarter and we'll see gold and silver make a move that will shock just about everyone. If not then, it will happen sometime during 2014.

      Families are in bad shape right now in general and the retail sales over the long holiday weekend reflect that.

      Obama is losing control of what has been his steadfast political base of support pretty quickly. More people hate him and the Government everyday. It's going to get ugly.

  3. Bitcoin as a Black Swan?

    There are the IRS issues, too. Is bitcoin a currency, or an investment? Different tax rates apply. How does one prove a capital expenditure, or a loss, or a gain? Who in their right mind would even report such a thing?

    There is the bankruptcy angle, too. What if one has a stash of bitcoins, and declares bankruptcy. Are the bitcoins valued as a currency on the schedules, or as an investment, or what? Further, who would even claim such a thing on their schedules when they are so easy to simply hide?

    Does this concept not open up a whole industry of bitcoin entrepreneurs? I can envision that a person will offer a service to hold a bankrupt debtor’s assets in the form of bitcoin until after the bankruptcy discharge. The debtor would convert everything into bitcoins before the bankruptcy filing, transfer them to the holder for a small fee, file the bankruptcy, then wait for discharge before getting the bitcoins back from the holder. It is seamless, anonymous, and untraceable. It preserves the debtor's assets, while simultaneously allowing the debtor to eliminate debts owed to unsecured creditors. After the bankruptcy, the debtor emerges free and clear, with his or her stash intact. This is massively deflationary for the big banks, and for the whole daisy chain scheme of collateral in general, and the central banks or authorities have NO remedy or way to prevent this from happening.

    There is not a single bankruptcy attorney I can think of who can figure this one out and prove that the debtor was hiding assets. There is thus, no effective remedy to prevent massive bankruptcy fraud by any debtor willing to undertake this scheme. It is akin to the MFGlobal theft. We all know what happened, but it cannot be proved, and Corzine walked. The little guys now can do the same thing, risk free. Why will they NOT do it?

    1. Fascinating. Seriously. This is the first I've heard of these questions about Bitcoin.

    2. I thought that also, however , i can do the same thing with my silver and gold could i not. If i see another housing crash coming,i could extend my line of credit to the limit ,load up on silver and gold,bury it in the ground, and then when i'm under water,claim bankruptcy,and so long suckers. Just sayin

  4. Alex Stanczyk: Physical Supply Never Been Tighter

    Well, there you go.

    …At this Swiss refinery there have been several times this year on which they were unable to source gold, this shocked me. They’re bringing in good delivery bars, scrap and dore from the mines, basically all they can get their hands on. This gentleman has been in the business for 37 years, he was there during the last bull market in the late seventies. I asked him when was the last time this has happened, that he was unable to source gold, he said never. And I clarified it, I asked: let me make sure if I understand what you’re saying to me, in the last 37 years you’ve worked in the gold industry this has never happened? He said: this has never happened.

    …There was one other comment that was fascinating, he said sometimes when they get gold in, it’s coming from the back corners of the vaults. He knew this because these were good delivery bars marked in the sixties. This is a huge supply squeeze and its worse than anything that has happened in the last four decades. At some point there is going to be a massive squeeze on the price.

    …All four Swiss refineries combined may be doing as much as [supply China] 2000 tons this year. That doesn’t include what the Perth Mint ships to China, it doesn’t include the 400 tons the Chinese mined domestically, and it doesn’t include what they mined offshore with the mining companies they own all over the world. I suspect that total Chinese demand can reach as much as total global mining production this year.

  5. Speaking of tapped out consumers, it looks like the credit standards for those supposedly robust car sales have been thrown out the door. Look at the loan-to-value ratios for the average new car loan. They are comical! People are throwing down an average of $26,719 on a new car with virtually nothing down, and the used car loan LTVs are worse of course....

    1. Great find - thanks for the link AL. Delinquency rates for auto loans spiked up this year too.

  6. "No one is talking about the next budget/Treasury debt limit fight, but it's right around the corner."

    The debt cieling was suspended, no more fighting, they can borrow all they want...

  7. As always, excellent work! Defcon 2?

    1. More like: get out of this country and hide on a warm island somewhere before it's too late

  8. Great post as usual Dave. I emigrated 13 years ago and watching this train wreck from abroad is like having HBO , What a mess !

  9. The Pathology of the Rich - Chris Hedges on Reality Asserts Itself pt1

    Published on Dec 5, 2013

    On RAI with Paul Jay, Chris Hedges discusses the psychology of the super rich; their sense of entitlement, the dehumanization of workers, and mistaken belief that their wealth will insulate them from the coming storms

  10. I went to the antique auctions yesterday and watched three or four new bidders for junk silver. One of them was an ex-cricket professional who travels the world watching the cricket and dealing in second hand watches. He buys these in Adelaide and the English fairs and sells them in Hong Kong. Apparently now he's dealing in junk silver because the price is good enough in Hong Kong to merit the airfares and the Chinese are buying all the silver medallions and St Christophers they can get. Junk is a main stay of silver recycling if the Chinese are buying the junk and the concentrate they will soon run out of supplies. Anybody got any details on the premium on junk silver in Hong Kong as far as I can find out they want commerative minted coins and stamped jewellery and almost pay the new price. junk dealers will only pay $17-18 a gram for scraqp gold, yet alone silver.

  11. I Googled “Evil” and it Took Me to Google

    Google is funding Grover Norquist’s Americans for Tax Reform, the Federalist Society, the American Conservative Union, and the political arm of the Heritage Foundation.

    And there’s more really bad news: Google is funding ALEC, the powerful, secretive, and destructive lobbying force from which many companies concerned with their public images are fleeing. ALEC is in the news this week, holding its 40th annual meeting. Together with allies, is applying as much pressure as we can. And it might just be that the tide is turning. Google just might have to start worrying about whether its users favor plutocratic plundering or not.

    ALEC targets state legislatures around the country to roll back labor rights, environmental protection, civil rights, public health measures and more. Using big money, corporate clout and smooth lobbyists, ALEC teams up with like-minded state lawmakers to draft and enact regressive legislation.

  12. Low bank wages costing the public millions, report says.

    "Almost a third of the country’s half-million bank tellers rely on some form of public assistance to get by, according to a report due out Wednesday.

    Researchers say taxpayers are doling out nearly $900 million a year to supplement the wages of bank tellers, which amounts to a public subsidy for multibillion-dollar banks. The workers collect $105 million in food stamps, $250 million through the earned income tax credit and $534 million by way of Medicaid and the Children’s Health Insurance Program, according to the University of California at Berkeley’s Labor Center.

    The center provided the data to the Committee for Better Banks, a coalition of labor advocacy groups that published the broader study, to be released Wednesday, on the conditions of bank workers in the heart of the financial industry, New York. In the that state alone, 39 percent of tellers and their family members are enrolled in some form of public assistance program, the data show.

    “This is the wealthiest and most powerful industry in the world, and it’s substantially subsidized by our tax dollars, money that we could be spending on child care or pre-K,” said Deborah Axt, co-executive director at Make the Road New York, one of four coalition members. "

  13. "The American Petroleum Institute (API), a trade association for the oil & gas industry, said in its weekly inventory report after markets closed on Tuesday that the U.S. crude oil inventory has fallen by 12 million barrels in the week ending last Friday. The group also reported that gasoline stockpiles fell 119,000 barrels and distillate supplies rose 540,000 barrels.

    That 12 million barrels must have evaporated. Or somehow a number was misreported. The API gets its data voluntarily from refiners, bulk terminal owners, and pipeline companies.

    Analysts at Platts have estimated that last week’s crude supply fell by 1.25 million barrels, that gasoline inventories are down 119,000 barrels, and that distillate supplies are up 540,000 barrels.

    U.S. refinery capacity had been running at about 90% of capacity, so unless something really weird is happening to all that crude the API number has got to be the result of erroneous reporting or some other vast anomalous event. API does not offer any explanation for the massive drop in crude inventories.

    In the week ending November 22nd, the U.S. produced about 8 million barrels of crude a day and U.S. inventories rose by 3 million barrels that same week. No supply reduction of sufficient magnitude has been reported, no pipeline has stopped flowing, and no refinery has experienced an unexpected shutdown.

    And it has been illegal to export U.S.-produced crude oil since the mid-1970s. If the crude is leaving the country, it is being smuggled and it’s really hard to hide a VLCC that holds about 2 million barrels of oil.

    There is no logical explanation for a drop of 12 million barrels, so we’ll just have to wait to see what the U.S. Energy Information Administration has to say when its report on crude inventories is published tomorrow."

    1. In the Plano , Tx area , regular gas prices were $ 2.85 per gal . , that is until the Oil Industry started to close retain gas stations in the area . There were seven retail Chevron gas stations within a four mile radius of my location . Now , after shutting down all but two stations within this area , regular gas prices have jumped to $ 3.29 per gal . The price for crude has remained the approximately the same price . A seven mile drive to another part of Dallas will get you a $ 2.19 per gal at another Chevron ! All this , while the U. S. overall oil consumption down ? What ever happened to the " Law of supply and Demand ? " Oh , that's right ! , get ride of supply and the price gets jacked-up !

  14. "Central banks around the world are pumping trillions into the economy. The goal is to stimulate growth, but their actions are also driving up prices in the real estate and equities markets. The question is no longer whether there will be a crash, but when.

    When 42-year-old hedge fund manager Mark Spitznagel wants to forget about his high-stakes business for a while, he heads to the goat farm he and his wife Amy purchased in the bucolic hills of Michigan. There, he produces cheese according to environmentally sustainable methods, because he views modern agriculture, with its large-scale pesticide use and automated factory farms, as degenerate. In fact, he says, factory farming is "an ideal metaphor" for the economy.

    In Spitznagel's view, the world's financial and equities markets are also dysfunctional, and what happens there is unhealthy and anything but sustainable. As a money manager, he has also opted for an alternative business model of sorts: He's betting on a crash.

    For his customers, Spitznagel's multi-billion-dollar fund acts as an insurance policy against the next meltdown in the financial system. When the market is doing well, they lose modest amounts of money. But they cash in as soon as prices take a nosedive, even when all other investments are going up in smoke.

    The hedge fund manager has made a lot of money in the past with his prognoses, and he is convinced that substantial turbulence is on the cards for the near future. "The setup is there for it," says Spitznagel."

  15. Is China colluding with top bullion traders to suppress the gold price while buying up global gold reserves?

    This is manipulation by very big traders, notably JP Morgan and possibly acting in collusion with China…

    1. It doesn't really matter, does it? If China is helping the manipulation process along - and I would if I were in their shoes and were trying to buy as much cheap gold as could with my limitless supply of dollars - they are at least buying and demanding delivery of the actual physical. JPM is long the actual paper. Eventually that paper will be better used as fire kindle or toilet paper.

  16. 203k Nonfarm Payroll Jobs Added (Bartenders And Restaurant Staff Lead Again), Personal Income Declines -0.1%

    The November jobs report is out from the Department of Labor and nonfarm payrolls rose more than expected. 203,000 jobs were added versus the expectation of 185,000. However, most jobs added were low paying jobs and holiday season related.

    WHERE were the jobs created? The biggest winners were low paying jobs related to the Holiday season for the most part:

    Food services and drinking places 17.9
    General Merchandise Stores 13.8
    Temporary Help Services 16.4
    Home Health Care Services 11.8
    Sporting goods, hobby, book, and music stores 11.7

    The fly in the proverbial jobs ointment is that personal income declined -0.1% in October. While personal spending rose +0.3%. It’s beginning to look a lot like Christmas! Debt in every budget.

    And bear in mind that there are still 91.3 million not in the labor force.

  17. Shanghai Exchange Has Delivered More Gold Than Fort Knox!

    China has been the fastest growing economy in history. We just don’t know what is happening in China from a financial point of view. Right now the US dollar is the pinnacle of the world’s financial system. But the problem with the US dollar is it is being printed ad nauseam, like a Xerox machine. This has devalued the dollar. It certainly has helped the Americans, but it hasn’t helped the Chinese, who are sitting with some $3.7 trillion of foreign exchange reserves.

    So the Chinese have been buying hard assets such as companies. They have also been buying copper and gold. I visited the Shanghai Gold Exchange in 2009, and today that futures exchange is bigger than the Comex. Most importantly, if you look at their deliveries, they have delivered 8,655 tons of gold since 2009. That is a staggering amount of gold because that’s more gold than the Americans are supposed to have at Fort Knox.

    The Chinese have consumed somewhere in the neighborhood of 1,700 tons of gold in just the first 8 months of this year. This works out to the Chinese consuming all of the world’s production in one year. Where is that gold going? I believe that gold is going into their foreign exchange reserves.

    The renminbi is already the second largest currency used in global trade now. So the Chinese are moving to make the dollar antiquated. The renminbi will eventually have some sort of gold backing. I think that role for gold will be very important for China’s growth. We also see China flexing its muscles militarily, but we have to stay focused on China’s role in the global financial system, and that’s definitely growing, and this is good for gold.”!.html

    so where are they getting the gold from???????????

    1. GLD, the other physical ETFs except PHYS, directly from mine production. I have spoken to several mining executives who say they are selling commitments directly to end-users - i.e. JPM buys it and it goes straight to the smelter and refinery and then to HK/Shanghai

    2. thank you...great blog....have a great weekend!

  18. Book-Cooking Bank Gets to Keep Cooked Books

    Here's a not-so-comforting lesson for investors, courtesy of the Securities and Exchange Commission. Just because the SEC says a company's earnings were fraudulent doesn't mean the company will ever be required to correct them.

    The SEC this week accused Fifth Third Bancorp of committing accounting fraud during the height of the 2008 financial crisis. The company agreed to pay a $6.5 million penalty to settle the agency's claims.

    The funny part: Fifth Third, which is Ohio's largest bank, has never acknowledged to this day that its numbers were in error. The SEC isn't requiring it to do so now. A Fifth Third spokesman, Larry Magnesen, said the company considered whether it needed to do a financial restatement and decided it didn't.

    Reasonable people might disagree about whether Fifth Third committed fraud. Per the usual protocol, Fifth Third neither admitted nor denied the SEC's allegations. Yet it's beyond belief that the company never had to set the record straight about its financial statements. Fifth Third first disclosed the SEC's investigation in its 2010 annual report. So the bank has had a few years to revise its figures.

    Surely an accounting error that is fraudulent also should be deemed material by SEC. Yet the agency isn't treating it that way. An SEC spokesman, John Nester, declined to comment.

    According to the SEC's Dec. 4 administrative order, Fifth Third's loss for the third quarter of 2008 would have been more than twice what it reported, had it complied with generally accepted accounting principles. The bank had been trying to sell some troubled commercial real-estate loans that had plunged in value. However, it continued to classify the loans as "held for investment" instead of "held for sale." This let the bank avoid a $169 million writedown that quarter. Fifth Third reclassified the loans the following quarter. It sold most of the loans at issue in December 2008 and in 2009.