Tuesday, March 29, 2011

More Economic Fairy Tales And Robert Gibbs Joins The Circus...

The 20-30% of the people across the country who actually bother to read/listen to the news were greeted this morning with yesterday's "good news" about consumer spending and existing home sales.  Of course, mainstream media only regurgitates headline data and Wall Street/industry apologists throw in bullish spin for good measure.  And thus, Americans go about their day living the illusion. 

Consumer spending was reported to have increased .7% for February and was the "fastest" growth in four months.  HOWEVER, the news reports never analyzed a breakdown of the source of that "growth."  Well, I'm here to report that the "growth" was price inflation, primarily at the gas pump, and that if we had a way to measure "unit" volumn then sales growth on an inflation-adjusted basis would have shown a decline.  It's the unit volumn that contributes to real economic growth, not price inflation.  I don't have time to dig
up the data to prove my point, but here's a good analysis I did happen to stumble upon on marketwatch.com:It’s no wonder consumers are turning cautious again: After taking higher prices into account, consumers’ purchasing power fell in February. More and more of their income is going to pay to fill up the car and the pantry, expenses that can’t be ignored, leaving them with less to spend on other things. Meanwhile, wages aren’t rising as fast as prices are.   LINK
The second piece of home-spun economic data was the "pending home sales" index, which is compiled and released by the National Association of Realtors.  By their measure, pending home sales (i.e. contracts to purchase existing homes) increased by 2.1% in February, although they are down nearly 10% from Feb 2010.  While I will say that it is likely that, with banks looking to unload foreclosed inventory to make room for even more foreclosures, there was a marginal increase from January's depressed levels, this data is extraordinarily inconsistent with the purchase mortgage application data released on a weekly basis by the Mortgage Bankers or America Association, which has been plummeting almost every week.  If you are looking for a reason to question the reliability of the NAR's data, besides applications for mortgages to purchase a home, then take a look at this remark by Lawrence Yun, the chief economist for the NAR and perpetual cheerleader/data-spinner:  “We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability.”  LOL

Here's the  LINK from Bloomberg news.

If you want good insight to what is really going on in the economy, here is the Bloomberg summary of the Goldman Sachs weekly same-store-sales index, which was up .2%:  "the report says March has been a tough month for retailers but ties the weekly gain to strength at supermarkets and drug stores offsetting weakness for seasonal spring goods."

Please note two things: 1) the weekly "strength" was tied to supermarkets/drug stores, which I would argue is inflation-based, not unit volumn-based and 2) there was noted weakness for seasonal spring goods, which I would argue is indicative of declining "discretionary" spending.  Both observations lead me to conclude that the economy is double-dipping...

And then there was this Case-Shiller monthly 20-city home price index, which showed an across-the-board decline in home values in January, except of course in Washington, DC.  Here's the LINK  This is really bad news because, as I have demonstrated in previous posts, the C-S index is skewed away from the price-effect of foreclosures, and thus understates the true decline in home prices going on out there.  This is horrible news not only for current home owners, but also for the banks and investors who are invested in mortgage paper, which is losing its "equity" cushion on a steady basis. 

Anyone think QE2 will be it for the time being?  Better think again because with collateral value shrinking in this country and the economy headed back into the tank, if the Fed were to stop printing money it would likely lead to economic armageddon, not to mention the fact that the Government would lose its primary source of funding...

And now for what you would think is a joke, but falls into the "so absurd that I couldn't have made this up" category, it was announced yesterday that Obama's former press secretary, Robert Gibbs, is going to sign a major league employment agreement with Facebook, to help them with communications.  Here's the LINK I guess one would have hoped that anyone associated with Obama's Presidency would devote their career to making America a better place to live. But then again, Obama and his clan completely shed their campaign skins once they got into office, so I guess I shouldn't be surprised that Gibbs decided to whore himself out like this for the sake of his bank account.


  1. "Meanwhile, wages aren’t rising as fast as prices are."
    Just a comment from the trenches, Dave.

    Two weeks ago my boss handed me a sealed envelope and stood there, waiting for me to open it. Inside, on company letterhead, was a notice that they had awarded me with a 2% raise.

    As I read the letter - amazed that I even received a raise at all - my boss sheepishlishly apologized for the small amount, and told me everyone who reported to her had received the same raise.

    I thanked her, but deemed it prudent not to point out that this 2% raise had already been nullified by rising energy costs and their effects on everything that we buy.

    And then last weekend I took an amount of cash equal to nearly half of this pay raise, and bought a stack of nice Morgan Silver Dollars.


  2. Dave,

    Do you think the fed will hold off on the announcement of qe3 and let the market/commodities sell off and the dollar rally to get the inflation noise to quite down a bit. This will get many of the fed critics to change their tune as they see their stock portfolios get hammered. Then these critics will cheer for more qe. I have accumulated a nice position in precious metals and junior miners and have some cash on the sidelines. I don't want to dump this cash just yet in case of a scenario as described above where i would be able to buy up more pm and juniors at a discount. I know for a fact if I go all in with my cash that we certainly will have a correction so I am holding cash for a short term bounce. Either way i'm sure I will be wrong. Another story that seems to have more below the surface is Pimco moving 100% into cash. Seems like Gross is getting the sheeple to jump out of bonds so he can front run the fed back in at a better price.

    Should be interesting.

  3. OMFG, Gibbs to Facebook. So sick. Another reason to hate that damn thing.

  4. http://www.marketwatch.com/story/home-prices-slide-but-the-end-may-be-in-sight-2011-03-28?link=kiosk
    I may not live in the USA but I know this guy is dreaming!! Houses may be cheap as a factor of wages but food and fuel most certainly are not!!
    Always enjoy reading your blog.

    --Justin from Canada

  5. Hi Dave,

    Just found following news. Looks fishy. Looks like some of Indian physical buying may be diverted towards ETF operated.


  6. Dave,

    You turned me on to James Turk. Thanks! Here's his latest article:


    All the best to you and yours, and to all who visit your wonderful site.

  7. In reference to comments from last week, the option expiration was not a sign of Cartel weakness. To turn the market sharply lower from its Thursday posture was actually quite remarkable.

    The trading since then is not a sign of accumulation but rather an intention of driving the market lower in the coming days/weeks. You need look no farther than Wednesday morning's action for proof of this thesis.

    Look for gold to be driven to 1390 and perhaps 1370 on any dollar strength, however fleeting, in the month of April.

  8. The Silver Dragon is rising from the ashes!

    Up over 100% from the lows.

    Time to get back in boys? Blue skies?


  9. It is now time to seriously consider moving to Utah.


    In a related note, PM takedowns only last hours whereas in the past they lasted for weeks/months. TPTB are on the waning edge of their PM manipulations and by proxy their paper-power-control-paradigm is just about dead.

    Joe M.