Friday, November 8, 2013

I'm Not Sure How The Government Can Report GDP And Payroll Numbers This Absurd And Expect Anyone To Believe Them

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, 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.


  1. I think they'll feed us whatever numbers they want to.....

    How America Was Lost

    Paul Craig Roberts

    “No legal issue arises when the United States responds to a challenge to its power, position, and prestige.” Dean Acheson , 1962, speaking to the American Society of International Law.

    Dean Acheson declared 51 years ago that power, position, and prestige are the ingredients of national security and that national security trumps law. In the United States democracy takes a back seat to “national security,” a prerogative of the executive branch of government.

    National security is where the executive branch hides its crimes against law, both domestic and international, its crimes against the Constitution, its crimes against innocent citizens both at home and abroad, and its secret agendas that it knows that the American public would never support.

    “National security” is the cloak that the executive branch uses to make certain that the US government is unaccountable.

    Without accountable government there is no civil liberty and no democracy except for the sham voting that existed in the Soviet Union and now exists in the US.

  2. Good Job Is Good Enough as Subprime Car Buyers Lift Sales

    A year ago, with a credit ranking in the bottom eighth percentile, “I would’ve told her don’t even bother coming in,” said Helfman, who owns River Oaks Chrysler Dodge Jeep Ram, where sales rose about 20 percent this year. “But she had a good job, so I told her to bring a phone bill, a light bill, your last couple of paycheck stubs and bring me some down payment.”

    As the fifth anniversary of the Federal Reserve’s policy of keeping interest rates near zero approaches, the market for subprime borrowing is once again becoming frothy, this time in the car business. As with mortgages in 2006 and 2007, the central bank’s stimulus is making it easier for people with spotty credit to buy cars as yield-starved investors purchase riskier bonds linked to auto loans.

    While surging light-vehicle sales have been one of the bright spots in the U.S. economy, it’s increasingly being fueled by borrowers with imperfect credit. Such car buyers account for more than 27 percent of loans for new vehicles, the highest proportion since Experian Automotive started tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession.

    Issuance of bonds linked to subprime auto loans soared to $17.2 billion this year, more than double the amount sold during the same period in 2010, according to Harris Trifon, a debt analyst at Deutsche Bank AG. The market for such debt, which peaked at about $20 billion in 2005, was dwarfed by the record $1.2 trillion in mortgage bonds sold that year.

  3. Don't have the stats, but I believe I heard that consumer spending or confidence indices (or possibly both) plumbed 35 year lows last month. Just in passing, I personally have never seen people this broke in years! You can't spend what you don't have. This manipulation and outright falsification of statistics which you are constantly exposing is indeed reaching hyperbolic forehead slapping levels of absurdity. Its intended effect I believe is to continually demoralize those who believe in anything even remotely approaching the once commonly recognized metrics and integrity of financial disclosure and true price discovery. the ECB sideshow this past week was only matched by this most recent noise and theater of the regularly scheduled Friday joBS report by the B(L)S accompanied, of course by the two waterfall selloffs in the metals at the same time on each successive day. ho hum... you're absolutely correct. no thinking or discerning individual can take this seriously.

  4. How Big Money & Big Media Undermine Democracy
    November 8, 2013

    This past Tuesday, special interests pumped big money into promoting or tearing down candidates and ballot initiatives in elections across the country. It was a reprise on a small scale of the $7 billion we saw going into presidential, congressional and judicial races in 2012. To sway the vote, wealthy individuals and corporations bought campaign ads, boosting revenues at a handful of media conglomerates who have a near-monopoly on the airwaves.

  5. I went to the job center last Thursday and there was a whole new group of recently unemployed people. I really enjoyed listening to the union worker complained of how they were lied to by obama about obamacare. This was a very large group and there has been no mention in the local media of layoffs, only about that "wonderful road to recovery" (sic). at least they were all blaming obama for being unemployed.

    All these numbers are manufactored. Other nations are pulling the same trick but they also end up admitting that their economy is stalling/slowing down. Last month, the Bank of Canada (BoC) backed off its stance that its next rate adjustment would be upward, a position the BoC has held since April 2012, instead adopting a neutral stance. This shift, opening the window for a rate cut, was underscored by the BoC also reducing its growth forecast into next year, noting that business investment and exports have disappointed.

    If you look globally, this forcast is being predicted all over the world. Even in Germany, which has always had a strong economy, it is slowing down. How long the US can hold out at its lies remains to be seen and what or who will get the blame this time remains to be seen. But the longer this continues, the worse will be the cure (pain).

    1. I'm beginning to think Obamacare could be the black swan everyone is looking for. It will trigger the big problems that are being covered up with printing money and Govt transfer payments.

    2. Actually Obama/Care and Black/Swan match really nicely on several levels ;-). great work as always, keep it up.

  6. ECB Caught Using Fictional Rating System for Italian Bonds Used as Collateral for Loans

    Spiegel online has an article on the non-transparent as well as fictional way the ECB treats Stripped Bonds (Strips) of Italian Banks handed over to ECB as collateral for loans.

    Currently ECB rates various Italian Strips with an “A” rating, though no rating agency rates Italian bonds, let alone Strips, with an A.

    ECB claims it is correct, because a tiny rating agency, DBRS, still rates Italian bonds with an A. However, DBRS said to Spiegel upon being questioned, that this particular rating was not to be applied to Strips.

    Two hours later DBRS sent an email to Spiegel, claiming that they (Spiegel) must not use this information in public.


  7. Why Does JPMorgan Still Have A Banking License?

    I was, well, still am, reading up on the latest developments in the wonderful world of Libor, and the name JPMorgan pops up a lot in connection with all that. There's of course the recent -probably still tentative - $13 billion settlement with the US Justice Department. Seeing all the separate cases that have either been settled or are under active investigation in which JP Morgan is mentioned, along with a couple small lists in the WaPo And HuffPo, I figured it might be a good idea to make a more complete list (though I have no doubt I could make it twice as long) of actually investigated cases America's largest bank is a part of.

    JPMorgan's total assets amount to $2.509 trillion, its derivatives exposure is $70-$80 trillion, and it's certainly too big to fail and systemically important. But seeing a list like this, how can anyone not wonder that if this is what the system depends on, the system itself is so rotten we need to get rid of it? I mean, what does it take, a modern day version of the Untouchables? Not that I think they'd get JPMorgan for tax evasion, mind you. But right now, nobody gets them for anything at all, except for a few billion here and there in fines that the perpetrators themselves don't even get to pay. The $13 billion settlement is only just over a third of what JPMorgan is spending on lawyers to defend itself and it executives.

    My guess is that should be more than enough to revoke JPMorgan's banking license, at least temporarily. Instead, the bank keep posting huge profits and the executives involved in all these cases keep receiving huge bonuses. Of course there are people honestly trying to hold Jamie Dimon and his gang responsible for their actions. But as long as they can't be simply put out of business, as anyone in just about any other sort of business would, it's not much use. Fines and settlements are a waste of time and money if someone else winds up paying them. And what does it say about America if it feels that it must let these guys get away with everything and anything? In my mind's eye, I see one of those typical endings to an old John Ford western, with both the spirit and the rule of law riding off into the sunset.

  8. Government Big Ears

    Las Vegas is installing “Intellistreets” light fixtures capable of recording conversation

  9. A Conspiracy to Hide the Truth:
    Jim Puplava: Professor, when the CBO publishes its projections they use something called the extended baseline forecast. They also have something called the alternative fiscal scenario, which is basically more realistic. This year they reported only the extended baseline forecast. Why did they do that?
    Professor Kotlikoff: I don’t know. They claim it wasn’t for political reasons and I believe them. There are very good economists at the CBO. The director is a very good economist, but you have to wonder why is it that for the last 6 or 7 years they put out the extended baseline as well as the alternative fiscal scenario at the same time so everybody could see what they really project versus what really amounts to a lie about the fiscal future of the country.
    I sent him [head of the CBO] an email and asked whether he was under some sort of political pressure to withhold this information and he said that was a big insult, and he was very upset with me for suggesting that. But then he said that the reason he hadn’t released it was because they didn’t think anyone was interested. I said, well obviously we’re interested—it’s the only thing worth looking at.
    Everybody should be calling the CBO and asking why they’re doing this. This is a pattern, you know. The Clinton administration—we put out the fiscal gap studies for a couple of years on the President’s budget. The Clinton administration then censored it. The guys who’s now head of the National Economic Council, the Chief Economic Advisor to President Obama, was the one who did the censorship back in 1994. President Bush’s Treasury Secretary O’Neil wanted us to do a fiscal gap accounting for the President’s budget in 2003 and he was fired in December 7, 2002, and that study was censored two days after he was fired. So, this is not accidental. This is more or less a conspiracy to hide the truth to keep ourselves and our kids in the dark about what the politicians are really doing, which is trying to garner the votes of older people and then get reelected and leave a bigger mess for our kids to handle.

  10. Dave, I have 2 newbie questions:
    1. You mentioned some time ago that you were not aware of any gold stocks that the Cartel could use besides the GLD. But how about the gold in Fort Knox and NY Fed? You mean the gold there was already used up?
    2. You also mentioned the short interest on the GLD had to deliver gold. But from which website do you know that the short interest is naked shorts? If the short-sellers borrowed the GLD share that they short, they wouldn't have to deliver gold to the GLD.
    Many thanks.

    1. We don't know what the naked short interest is in GLD. The short interest I'm referencing is the short interest as reported through DTC. You can google "short interestest stocks" and find several sites that track short interest.

      It has been thought and largely proved with "dotted line" analysis that the gold the Fed safekeeps is either sold outright or has been leased out. The gold at Ft. Knox is there largely for show. Much of the Fed's gold in storage there was moved to "deep storgage" at West Point. It is thought most of that gold has actually been sold to cap the market or "sold" via bulliion leasing.

      Go spend some time with the archives at and you'll find plenty articles backed with data and facts which discuss this in-depth