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The Next Major Bull Market Will Be In…

Submitted by Phoenix Capital Research on 04/01/2011 19:52 -0400

Economic nonsense.

I am not trying to be flippant, nor
humorous. Indeed, we in the US will very likely see a massive escalation of
propaganda, phony economic data, massaged labor statistics, and the like in
2011.

I’ve been railing against “massaged”
government data for years. Whether it’s GDP numbers, housing data, unemployment
claims, or retail numbers, virtually every economic metric the Government or
state department publishes these days is massaged or adjusted to paint a
picture that is far rosier that the real economic realities facing the US.

Let’s take US GDP Growth numbers, for
instance. The most common manipulations used to overstate this number are:

1)
Understating
inflation

2)
Overstating
production of various segments of the economy

3)
“After
the fact” revisions lower

Regarding #1, virtually every one on the
planet realizes that the Fed’s CPI (measure of inflation) is a joke. For those who are new to this little
game, first off you need to know is that the Government has altered its measure
of inflation several times in the last 100 years.

The original measure was to simply keep
track of how much it costs to buy a particular basket of goods (say meat, milk,
eggs, gasoline, etc). However, the problem with using this measure is that it
quickly demonstrates that the cost of living has gone up in the US dramatically
as a result of US Dollar devaluation.

Indeed, if you’re trying to pump an
economy higher on credit to cover up the fact that incomes have fallen 40% or
so in 30 years (while simultaneously forcing consumers into financial
speculation in order to maintain the illusion of wealth), the last thing you
want is for Joe America to realize “hey,
wait a minute, back in the ‘60s or early ‘70s only one parent worked and people
were able to get by… why are both parents now working and still in debt up to
their eyeballs?”

Consequently, the Feds changed their
inflation measure to remove the costs of food and energy (after all, how many
consumers actually need to buy items from those sectors?). The beauty of this
is that it not only hides the fact that a gallon of milk now costs $4 or so vs.
$1.15 in 1970 (and milk is DEFINITELY not three times as awesome now as then)
but it also allows GDP to appear larger.

In order to illustrate this last point,
think of a company that produces staples. Let’s say that in 1970 this company
produced $1 million worth of staples. Today, this company produces $5 million
in staples. So the company has grown five times larger right?

Not
if inflation has risen five fold over the same time period. Instead, all you’ve done is shrink the
value of the currency in which sales are denominated (in this case Dollars).
Put another way, your company has NOT grown, it’s just that the currency it sells
Staples in has lost a HUGE amount of value.

However, if you CLAIMED that inflation
only rose three times as high (rather than five) then your company APPEARS to
have grown a lot more. In simple terms, by changing the measure used to account
for inflation, the Feds are able to make GDP growth appear larger than it
really is.

Other GDP accounting gimmicks include
overstating various economic segments and posting a higher growth number that
is then revised much lower in the future. The Government also uses this on
unemployment claims and numerous other statistics.

The above examples only pertain to GDP
growth. Virtually EVERY economic metric published these days (whether it’s
retail numbers, housing numbers, unemployment claims, inflation, etc) has
similarly glaring defects/ issues that cover up just how bad things have gotten
in the US.

Indeed, the worse the US economy has
gotten, the poorer the economic accounting has become. Consider the following:

§ The US was only officially declared to be
in a recession on December 1, 2008: right AFTER the ENTIRE financial system
nearly imploded.

§ At that time, the recession was claimed
to have begun in December 2007 (so it took a full YEAR before the Feds
announced the obvious).

§ The recession was declared “over” by Ben
Bernanke and pals in August 2009: a time when one in US eight mortgages were in
arrears or foreclosure and one in eight US citizens were un/ underemployed or
on food stamps.

§ The Financial Crisis is largely thought
to be over (or at least the worst is over) despite the fact that NONE of the
real issues plaguing the system have been fixed (not to mention the ongoing
problems in the derivatives, commercial real estate, and debt markets).

With a Presidential election coming up in
2012, I believe we are at the beginning of a REAL bull market in economic/
political nonsense. The massaged data, nonsensical proclamations, and other
shenanigans we’ve seen over the last decade are JUST the beginning.

After all, no one is going to run on a “we’re in a Depression, not just a
Recession, and we’ve spent several trillions of dollars without fixing anything
just so Wall Street can get record bonuses again” platform.

Instead, we’re going to see economic data
become even MORE divorced from reality, assertions that the economy is back on
track, and that at worst there is the specter of a “double-dip” recession
looming. Heck, even these fears are sugar-coated… literally (making an economic
nightmare sound like an ice-cream sundae is a GENIUS marketing move).

So, I for one, am mega-bullish on
economic/ political nonsense for 2011.
Put another way, I believe that the worse things get, the better they
will sound coming from our nation’s leaders/ pundits (we’ve already revised
3Q10 and 4Q10 GDP numbers higher).

After all, with a Nobel Peace Prize
winner upping troop numbers in a never-ending war, an economist who failed to
see two bubbles until AFTER the destroyed more than $11 trillion in wealth
winning Time’s Man of the Year, and a
CEO who somehow managed to convinced the government to give his firm $13
billion in bailout funds despite allegedly having hedged all its exposure on
the very investment that it claimed it needed bailouts for named Person of the
Year by The Financial Times, why couldn’t you spin record food stamp usage as a
“consumption miracle” or one in eight mortgages being in foreclosure as “careful
inventory accumulation” or a
Depression as a “jobless recovery”?

We all know how this situation will turn
out (HORRIBLY). The Fed lost control of everything in 2008. It will lose
control again in the future. Only this time it will be out of bullets. And
judging from what’s going on in the world right now, we can’t be far off.

On that
note, if you’re getting worried about the future of the stock market and have
yet to take steps to prepare for the Second Round of the Financial Crisis… I
highly suggest you download my FREE Special Report specifying exactly how to
prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).

Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.

Prepare Now!

Graham
Summers

PS. We ALSO
publish a FREE Special Report on Inflation detailing three investments that
have all already SOARED as a result of the Fed’s monetary policy.

You can
access this Report at the link above.

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Sat, 04/02/2011 - 09:41 | 1127707 IdioTsincracY

Finance was born to 'finance' worthy human endeavors. Right now is nothing more than a rigged Monopoly game. And to add insult to injury, the whole thing is now run by machines.

Banking, on the other hand,.... well, here is a quote from our founding fathers about banking:
"The end of democracy, and the defeat of the American revolution will occur when government falls into the hands of the lending institutions and moneyed incorporations."

Sat, 04/02/2011 - 09:29 | 1127685 SwingForce

Graham has done it! He has seen through the hoax Madness of Bernanke! Well done.

Ben. "Depression? What Depression? Now where's my Bangsta Bonus?"

Sat, 04/02/2011 - 09:00 | 1127681 geno-econ

Graham seems to imply there is a conspiracy theory behind every economic phenononem and if you can uncover it you can outsmart the conspirator and of coarse Pheonix can sell newsletters. Reality is much simpler--- modern capitalism in a global economy has degenerated to a greed level where most are willing to sellout their mother ,children and country for a weak buck. So unless we change our value and political system we are destined to self destruction. The Chinese on the other hand have a political system that at anytime can say NO to whatever harms their economy. Therefore all the Bernankes, Geithners and Blankfeins are in practice agents of China. Enjoy your Freedom while you can.

Sat, 04/02/2011 - 09:01 | 1127680 lamont cranston

as frenchie da frog sez, "the more things change, the more they stay the same."

Sat, 04/02/2011 - 08:38 | 1127660 IdioTsincracY

I've been reading ZH for a long time and I get the talk about the abuse, scamming, cheating, data manipulation, etc...
It is both informative and entertaining, however something is missing {or maybe I missed it]:
If the current system is broken what is the alternative? I mean, not even a real alternative, just a theoretical one.
This is one of the better forums on 'real' economics, and yet I see the same talk of 'stop the manipulation! let the market work!', as if the market was something governed by natural laws such as gravity.
I do not see the acknowledgement that there is no 'organic' market. All markets are created by human laws. And the point is not (or at least should not be) wealth extraction, but quality of life.
The inherent greed of the system is now pitting town against town, state against state, and in the global world, nation against nation, in a race to the bottom, trying to squeeze the last drop of profit from real human beings.
Is this the only viable economic philosophy? Homo Homini Lupus for ever?

Anyway, this is my first post, and it is already too long.
I thank all of you for all your contributions, it is a pleasure to have sites like ZH.

Sat, 04/02/2011 - 08:04 | 1127645 grekko

BTFDP: Buy The Dipshit Propaganda. Too many people do (present readers excluded). In the famous words of Peter Lorre, "WE are doomed!"

Sat, 04/02/2011 - 06:46 | 1127620 deez nutz

BTFD, BTFGM and get a RAM with HEMI as oil prices will go down to $20bbl as the world is just swimming in oil (or at least the GOM).

Sat, 04/02/2011 - 06:26 | 1127615 falak pema

There is a bull market coming : In going contrarian to the Benocide model.

That is now the mantra of the 'other world' : those who are not American surrogates.

See this unfold in China as main beneficiary. Which now has to show if it can walk the plank without tripping over into inflation overheat cum incompetency mayhem. Remember, China has forced marched into the industrial age in ten, say fifteen years!

This is an incredible exercise in catch-up ball for a nation of 1.3 billion. How will it manage this infrastructure leap with a competence base so stultified (communist party led), and with 'nuclear power plants' sitting on major earthquake faults, flooding river plains, land slide zones...you name it... with no due diligence culture and chin-chan-chao labor force?!

The potential for a mega TEPCO 'shit hitting the fans' bureaucratic screw-up is magnitude 9+, on the Kafkaian, totalitarian, cultural barometer scale. Opaque is not the word to describe this hot souped up chinese style entrepreneurial management...

But that is not all, as EU/Brazil/India/Russia/Venezuela will all be playing contrarian games. The MENA zone current hot-spot will be testing ground to see how they can break away from USA's hegemonistic model as it flounders under Uncle Ben's new plastic rice formula.

Brave new world... as Q-daffy sings I got Ras Lanuf egg still in my basket. Maybe the CIA currently buying every and sundry ex-hit-man in Q-daffy's staff will start paying dividends.

What happens in ME hen pen will be determining the course of future energy divide. As there is no way we can reach 120 MBPD oil equivalent requirements, that the global economy projections indicate, with a nuclear build freeze and current ME bubble trouble. We are heading into a major energy short-fall wall in the next decade. 7 billion world population going to 9 b? Hum....food, drinking water, energy short falls; black swans every where. It is the right time to be heading to the moon!

Sat, 04/02/2011 - 03:59 | 1127577 Fíréan

The bulls are as like trophy heads from a previous time hanging on the walls, yet we are given to believe that they are actually alive and well and only looking in through the windows . Truth be told the bulls are fake and dead, and the bears are running amok outside pulling the cabin to pieces.

Sat, 04/02/2011 - 00:34 | 1127415 davebrik99