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A Realistic Look At GDP
The backward revision economic data train continues, this time in GDP, which came in at a "better" than expected 1% while the prior quarterly data was adjusted significantly downward from -5.5% to -6.4%. Additionally, per a brand new revision to the way GDP data is presented, the GDP decline demonstrated over the past year is now the largest since World War II. Current quarter jiggering aside, downward revisions to prior quarters have left the decline in real GDP at -3.9% in the year through Q2. And to demonstrate, the severity of this downturn, the Q2 data concluded the first three-quarter consecutive period of falling GDP since 1953-1954.
Economic indicators that many were looking to for an advance signal of the inflection point of the recession did not materialize. Most notably, consumer spending fell a more than expected 1.2%, after a 0.6% improvement in Q1, and even the Q1 blip was merely a function of one-time tax rebates that concluded in May. On an adjusted basis excluding the benefits of one-off consumer fiscal stimuli, the consumer deterioration is truly unprecedented. As Rosenberg puts it:
"Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms? What do we do for an encore? In the absence of the fiscal largesse, it is quite conceivable that consumer spending would have shrunk at a 10% annual rate last quarter!"
Business investments continued their downward trajectory after an unprecedented 39.2% plunge in non-residential investment in Q1, to be followed by another 8.9% drop in Q2. Undoubtedly this continued drop makes the talking heads giddy that after such a massive two-quarter collapse, the only logical way in Q3 is up. This remains yet to be seen.
Another major negative data point was inventories, which fell by a record $141 billion in Q2. Yet due to the major drop in Q1, this only accounted for a 0.8% decrease in GDP, which was less then expected. And keep in mind that this percentage drop was nearly completely offset by increased governmental defense spending! Nothing like Uncle Sam to keep plugging the holes as they appear.
Furthermore, per the imposed revisions, there were notable changes to the personal savings rate: the Q1 number was revised downward to 4.0% from 4.3% pre-revision, however the negative savings rate in 2005 was revised to a positive. The downward revision also affected productivity data: output per hour worked was weaker in 2008 than previously reported: whether or not this a cyclical side-effect of the biggest economic collapse in 70 years remains to be seen.
In summary employment, industry data, and profits were under severe pressure over the past year, and downward revisions to growth in the year behind us are not much of a surprise. The concern is that while governmental spending was critical and necessary over the past 2 quarters to keep the collapse from being unprecedented, this form of governmental intervention is merely a non-recurring event. Try as he might, Obama is helpless to singlehandedly prop up the 70% of the $14 trillion of US GDP which is accelerating its weakening support of the economy. The increase in total unemployment rolls will puts further pressure not just for continued government subsidies in all sectors of the economy (to the chagrin and detriment of key U.S. trading partners), but also for the need of Stimulus II. Without it, disinflation conversion into outright deflation is a practical certainty.
Some more observations on the flight to deflation from Rosie:
And, it is not just labour income that is still in deflation mode. Practically all forms of income are deflating from a year ago — interest income is down 4.5%, dividend income is down 23.0% and proprietary income is down 8.0%. The only income that is really going up is the income from Uncle Sam, which is up more than 10.0% and we have reached a point where a record of nearly one-fifth of personal income is being accounted for by paychecks out of Washington.
And as David concludes:
But it should be known that Uncle Sam himself does not create income — he borrows cash from current bondholders and future taxpayers. Not the stuff that seems deserving of a 760x multiple.
It is a sorry state where the only thing that is propping the world's greatest economy are promises of improvement and confidence games via the traditional media, with hopes of propping up a stock market which has long since ceased to be an indication of economic reality. The convergence between the S&P and the underlying fundamentals is, unfortunately for the administration, inevitable, especially since the government has now single-handedly taken over a key portion of major GDP output industries. Numerous empirical studies, especially from communist block countries, demonstrate just how "effective" the government is, when it decides to get directly involved in running a substantial portion of the economy.
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Tyler, thanks for keeping it real. Just goes to show that any talk of a V-shaped really is delusional.
It's a sphincter shaped recovery , it's a new economy.
Do they accept it at Wal-Mart?
OT: I work for a large database company, and a couple of days back we had an internal presentation on a new streaming data capture and processing framework. It was about processing streaming data in real-time over extremely low-latency networks. The presentation went on for some time with internal details about the frmwrk (boring details...), but then towards the end, there was this slide about who the potential customers would be. And guess what...the major customers for this frmwrk were meant to be algorithmic trading programs at wall street firms....:-). Isn't this amazing? Here I am reading all this stuff about HFT on ZH, and coincidentally I find myself in a presentation in my company about this very technology. Its strange that wall street firms are in the limelight over HFT, but in reality, there is a large support structure behind this that actually wants to benefit from this too. I am sure, there are certain groups at networking companies and other hardware shops that specialize in just this kind of shit...
goes to show how far reaching the financialization of the economy has gone when a tech company, rather than develop products for the provision of useful goods and services in the economy, puts time and resources into developing products to support moving money around.
America is doomed, and a currency collapse will seal her fate.
IF Karl Marx were to be here today, he would been proud of current US of A! :)
Yes, Obama's engagements of Das Kapital....
I respectfully disagree. There is nobody in Obama's team who can understand the first Vol. of Das Kapital. The President's ideology seems to be firmly based in the writings of rather softer and more approachable Germnan Marxist, Ernst Bloch. Read "Das Prinzip Hoffnung" (Principle of Hope) and you would realize just how audacious is Obama's version of Socialism in America!
Pacal
Marx would have done it better. Nationalizing the "losers" and letting the "winners" keep their profits is clearly unsustainable as it relies solely on borrowing against the future. If the proletariat are going to be on the hook for nationalized companies, we should be taking over the good ones while letting the dead ones rot... this is what Marx would have done.
Just show some patience , it'll come.
Marx would be appalled. We have nothing close to socialism in America today, we have fascism.
Tyler, the strange action in stocks, gold, and bonds raises the question is there something lurking out there? I have attached an article from Barrons ref the CIT Group. Although this seems to be old news, were we led to believe that CIT is not going to be a problem similar to last year's list of Don't Worry firms FNM.FRE,AIG, LEH,BSC?
By DONNA CHILDS | MORE ARTICLES BY AUTHOR
CIT's failure could be as devastating as Lehman's.
Article New Comments (1)
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12:38 pm ET August 1, 2009
Joseph Canepa wrote:
The government criteria on CIT might well be based on how either a CIT rescue or a CIT financial collapse would effect Goldman Sachs.
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CIT GROUP STANDS ON THE EDGE OF A PRECIPICE, knees shaking. In doing so, it tests the Obama administration's proposals for regulatory reform.
A major financial partner to small and midsized businesses, CIT works on Wall Street and Main Street at the same time. But CIT is opaque to those who will pay for its failure, because so few people understand its business.
CIT provides commercial finance services to about one million smaller businesses, chiefly in the manufacturing, textile and garment industries. Many of these clients are small, family-owned businesses without access to adequate bank financing. CIT finances them by "factoring" their accounts.
Factoring involves purchasing the accounts receivable from the manufacturing clients. Suppose ABC Manufacturing wishes to distribute its products through a retailer known as Super-Mart. But Super-Mart pays its vendors 30 days after receipt of goods, and ABC needs funds now to pay its immediate obligations, such as payroll. ABC can factor its account to a commercial finance company such as CIT. ABC sells its receivables to CIT and receives some cash immediately. Super-Mart will pay ABC's invoices directly to CIT.
Let's say that ABC invoices $100,000 monthly to Super-Mart and CIT agrees to advance it $80,000 monthly against the receivables. Under a typical non- recourse factoring agreement, CIT can't pursue ABC for the $80,000 it has advanced if Super-Mart fails to pay the invoices. On the other hand, ABC has a running credit exposure of $20,000. Should CIT fail, ABC becomes an unsecured creditor. It cannot stop the monthly payments from Super-Mart to CIT, even to collect the $20,000 that really belongs to ABC.
On television the other day, Bew White explained what CIT's crisis means to his business, Summer Classics, a patio-furniture manufacturer. White directly employs 300 workers in Alabama, and he indirectly employs another 1,000 or so workers outside the U.S. in captive factories (involving a capital investment in the manufacturing subcontractor). Because CIT won't release cash to its clients, White cannot make payroll and will soon be forced to lay off employees (if he hasn't done so already).
Every day that CIT holds those unsecured credit balances -- cash due its customers -- more factories close and more workers lose their jobs. CIT's instability harms its small-business customers and could cause a crisis in the trade credit finance markets, which could have been avoided if Congress had heeded early warnings.
The Treasury was in close contact with Wall Street players during the crises precipitated by the failures of Lehman and Bear Stearns last year. But it appears indifferent to the pleas of smaller businesses that pose commensurate systemic risks to the global supply chain.
A new regulatory framework for finance must simplify the system and insulate producers from financial risk. Bew White, his suppliers, his customers and his employees should be able to do business without being abused for the enrichment of more sophisticated players.
Congress could amend the bankruptcy code to release the small businesses held hostage to CIT, but CIT could run out of cash this week, at which time we may face a collapse in the trade finance markets on a Lehman scale. The White House has only a few days to study the mistakes of the past. It should listen closely to those with the most at stake.
ask yourself... 'What would Goldman do?' about CIT
If GS gains form CIT dying, then so be it. But it looks more like buddies in GE will profit well with CIT demise so perhaps they get the a bone thrown their way.
sounds like pure BS
"Should CIT fail, ABC becomes an unsecured creditor."
that's BS.
Should CIT fail, Super-Mart can happily keep the money. While ABC should find another firm like CIT to sell its receivables.
At the end of the day, there's only one loser - CIT.
Hey how am I supposed to know who to believe. Thanks a lot! If Super-Mart has agreed to pay CIT instead of ABC then why wouldnt they still have to pay them. I just don't see how ABC would be an unsecured creditor. It's a loan against their asset, you can't take away the loan and the asset.??
This is all well and good but the NY Times is scooping you on CAPCO.
Come on TD get us the real skinny!!!
I loved how -1% was touted in the media as better than expected when they revised the prior down by -.9%
There was even some clown on CNBC after hours saying we should buy oil since GDP increased.
WTF?????
Hi TD,
I heard that GS is keeping track of the # of visits to your website and using that data as an input for their trading strategy / trading desk to screw the greenshoot-impaired ! They will stop start buying puts if the traffic to your site goes down...
cheers
Not a bad indicator, as far as they go, except that the site is so new that it is still taking off like a rocket. I'd also watch traffic on Slopeofhope, evilspeculator and xtrends, all run by bears. Alexa shows that their traffic all bottomed in January, the last intermediate top.
Actually, I like this juncture in sentiment from a shorting perspective, since even hard-core bears seem resigned to more rally ahead. Is anyone at all bearish for the next few weeks?
I'm very bearish for the next few weeks....for too long there is an increasing amount of people who seem to think the market will stay flat or increase in august and even more folks who seem to think a big crash will occur "late summer, early fall". when it becomes so "obvious", it is obviously wrong. my bet is the rug gets pulled before then.
Today's Jerry's b-day; may he be rockin' in peace!
I'll second that!
It would be far to realistic and intelligent for the market to collapse down to it's fair value in the next few weeks.
No, this is the Obamunist market and I believe it will probably make a long and annoying run to 10000.
I think this is EXACTLY Great Depression 2.0 and that the suckers that fill their empty head with CNBC bullshit will not be officially wiped out until June of next year.
Seriously, you guys think this market will just magically sell off at this point? This is a fully manipulated market with no actual buyers or sellers.
I write this while standing at 104 E 26th
Happy 190th Birthday Herman Melville. Thanks for making this world a more beautiful place.
Queequeg!
I've come to a certain amount of peace between the shared bearish sentiments and the double-plus-getting-better-everyday media blitz.
In the end the real numbers suck but it's going to be the new normal.
The 'full-employment' bar will be lowered, much lower numbers will be accepted as 'healthy' trade stats. Structural unemployment will be much higher and those that can't replace their prior salaries are the ones to blame. It's a personal attack that effectively ends discussion and keeps things going just the way they are.
Equities can be pumped to infinity and debt doesn't matter. So the numbers are just numbers and the general electorate takes the direct hit to the private parts and accepts it as part of a mysterious economic cycle that at some inifinitely diminishing point into the future is supposed to pay off for them. When it doesn't they'll be too old and poor to do anything about it.
TD, instead of whining about lower economic activity as measured by innaccurate, old-fashioned measurements, it may be time to throw in the towel on this one. So many people have agreed to pretend that not-pretending is irrelevant.
must reading for the paralyzed mind.
Good luck if you ever encounter the Borg; resistance, my friend, is never futile...
Disturbingly, I think you're right. Being right doesn't mean very much. Everyone is ignoring it. I can't figure it out. I walk around in a state of cognitive dissonance for the first time in my 53 year life span. $13 billion handed to a bunch of creeps named Goldman and no one says a word.
Better off paying attention to family and friends, who wonder if you've gone off your rocker anyway pointing out the absurdity of it all.
Watch the Fox thing elsewhere linked on ZH.
From a former insider: GS actually got $52 billion when you count the FDIC guaranteed debt, commercial paper work, AIG monies etc. Excluding TARP.
"I walk around in a state of cognitive dissonance for the first time in my 53 year life span."
Ned, it's okay, your a little late to the party thats all, i've lived cognative dissonance since I was in 7th grade and realized the media pumped the number that died in the SF Earthquake that busted the bay bridge, just for ratings... I guess it slipped by most people, or they forgot, but since then I was a full-blood cynic....welcome to the world of the real....
See also:
http://en.wikipedia.org/wiki/Derealization
13 billion? How much has the Fed backstopped; and now they can borrow at 50 BP. WTF!!!
stated a differnt way real gdp is where it was during the first quarter of 2006....over 3 years of economic output up in smoke....
Buy oil because GDP is better than expected? No. Buy oil because if you go and look inside the XOM, TOT, E, and CVX reports you will find one devastating common denominator. All of them are unable to hit their 2009 production goals. Every single one is coming up short of their production goals. Think carefully about that. The price of oil today, at 69+ is $3 more than its average price in 2007 . . . in the middle of a freaking Depression. In the middle of a Depression oil is higher than it was in 2007! Why? Because new fields to hold up production as the old field dry up Are Not Happening -- and boys and girls, that's FOREVER. There's no fix for that. There are no, and never will be any, solar powered 18 wheelers that carry food from Iowa to NYC.
Yep,
http://www-static.shell.com/static/investor/downloads/financial_informat...
Shell results. Look in particular at page 10. The only place oil production increase was in Middle East, Russia, CIS, none of which are particularly friendly, or indeed democratic.
Everywhere else *decreased*.
Boone Pickens' idea to convert the 18 wheelers to nat'l gas might give us a little breathing room if ever adopted. I still am amazed that his ideas to convert cars to run on either petrol or nat'l gas didn't get much play.
Seems like converting 175,000 U.S. gas stations to nat'l gas (whole lotta construction, equipment, engineering, inspection, auto worker, etc. jobs) would be both a stimulous and help with the "importing" problem. Plus, building new 18 wheeler trucks/flex-engines would create jobs. Better than much of the nonsensical pork we see like the Cash for Clunkers....
Nojak,
The communists that run our country are not trying to do the right thing, they are trying to re-llocate our hard earned slave wages to their back pocket.
Yes, we have solutions. Like drilling for oil and natural gas in Alaska.
But the truth is that the democrats do not care about solutions, they care about stealing wealth from the taxpayer.
When oil dries up, countries can always start producing synthetic gasoline or diesel from coal and/or natural gas (utilizing solar, hydro or wind generated electric power) for the 18 wheelers. Nazi Germany was making it and so did White ruled South Africa. Increased use of (electric) railroads would help food distribution, too.
Here's the problem with the alternatives crowd. They all rely on the concept of "we'll just switch over". There is no switching over if you only get 1 month to do it. Or two months. Or three months. Who says the production decline will be gradual? Hell, you have most people thinking they are still burying dinosaurs in Saudi Arabia and it will never run out. If you have one bunch saying it will never run out, you have a long way to go convincing them not only that it will run out, but it could be sudden. There are all sorts of ways for production to stop suddenly. You switch to NOTHING if you starve to death in a few weeks.
>>
When oil dries up, countries can always start producing synthetic gasoline or diesel from coal and/or natural gas (utilizing solar, hydro or wind generated electric power) for the 18 wheelers. Nazi Germany was making it and so did White ruled South Africa. Increased use of (electric) railroads would help food distribution, too.
>>
anon #21944,
happen to agree with the point I believe you are making. we are past (just past, by no more than 3-5 years) peak oil. and, I don't think a lot of folks are prepared for it. nor are they prepared by how quickly permanent disruptions/changes to our "way of life" can and will happen. I feel woefully unprepared but am working harder/faster in correcting that each day.
"and even the Q1 blip was merely a function of one-time tax rebates that concluded in May."
If you're talking about the tax rebates in the stimulus package, this is wrong -- they're continuing through the end of the year.
government data is not reliable. the only thing you can know for sure about it, is that it's what they want you to believe.
if you just just go ahead and call the market always right, then you can take a piece out of it regularly. fundamental analysis is an academic exercise. trying to use it to invest and/or trade is highly speculative. the market doesn't heed fundamentals.
No, he's right. The payments to retirees were one time. The ongoing withholding reduction is . . .ongoing, but that's not the one time whamo. The retiree checks were. They get another Q1 or Q2 next year and not until.
And what is going to be used to run the machinery to plant and harvest the food grown in Iowa the folks in NYC are counting on receiving? Peak Oil, anyone!
"... And to demonstrate, the severity of this downturn, the Q2 data concluded the first three-quarter consecutive period of falling GDP since 1953-1954..."
Actually it's the first four-quarter consecutive period of falling GDP since the beginning of the Great Depression:
3. quarter 2008: -2,7%
4. quarter 2008: -5,4%
1. quarter 2009: -6,4%
2. quarter 2009: -1,0%
Christoph
from
bavaria-for-ron-paul.blogspot.com
15,5% decrase in GDP=Depression
The numbers are the annual rate of decline, but measured for a quarter.
You can't add all those up to get the total GDP decline.
I never understood how government transfer payments were part of the GDP.
Anything other than products is nothing. Legal services, taxes, insurance, regulations, are all overhead and need to be deducted from the GDP, not added.
right, the P being the operative letter, but I guess that's the "old norm"
Oil rises for the same reason stocks do. Program trading, not fundamentals.
Hopefully in my lifetime, producers will not be able to purchase an options contract for a good they don't care about taking delivery of. -Fuck the end user, I'll buy it from myself and pass on the cost.-
Check the data
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/txt/wpsr.txt
I used to watch an Multi Level Marketing company use hype to overcome the lack of results.. The "dream" was spun over and over (we're gonna get rich!) but in the end reality won out.
It will take a while but the contrast between reality and the hype will slowly win out. Perhaps quickly if a black swan turns up.
BS = H1N1 "vaccines".
Wash yer mouth out with soap there fella.
My wife dragged me into that MLM shit. She quit willingly enough however after we wasted about two grand.
Do you want to know what the "rally" from march till now did....
Have you ever heard of 'loss giving'?
Tell me why the news never reports...."Today the market rose due to loss giving"
They have no problem saying "The market fell on profit taking"
Another way to think of it....when the market rises someone is inducing buying at a higher price then the current shareholders bought at....hence the current shareholders are infact taking (or locking in) profits. So, when the market rises, people are taking (or realizing profits).
Keep an open mind the the manipulation of everything by the press, remember, believe nothing you hear, and only half of what you see. Remember, the HTF is faster than the eye.
I agree with the exception of the inflationary factors. I know what the data says, but we are facing a debased currency which will act inflationary very quickly. This is why commodities are flying right now. Debasing the currency has the same impact as high money velocity.
bonds screamed lower on the overall GDP deflator whch went from 1.7% or so to 0.2%. Have not seen anyone talk about this...seems that is what drove the bonds
The SPY RSI finally gets over 70 after a 50% move... The weekly is over 50 and the monthly still under 50.
Somebody here tracking the velocity of GS's $800 B Fed trading account?
Yes, and numerous empirical studies, especially from our own country during the onset of the Great Depression, demonstrate how "effective" the government taking a hands-off approach is, when it decides to not get directly involved.
What's your point? You only pay taxes on your capital gains, and still think that's too much?
Look mommy, a communist!
Little boy points to Anon #22065...
"Can we keep him, huh? please!"
Excerpt from: http://seekingalpha.com/instablog/216469-hardball22/20170-earnings-inflation-analyst-misrepresentation-goldman-nation?source=feed
"...2q09 GDP came in at -1.0% (better than the -1.5% expected). BUT, that -5.5% from last quarter was revised down to -6.4% in concerto with the 2q numbers release today, more than erasing the better-than-expected 2q numbers. Don’t forget, government spending was up 5.6% from 2008."
I am of the firm belief that we just saw the high for a few months. The dollar tells the story; it just hit the lows for the year. We will revisit SPX 1000 around X-Mas, for sure. But I am convinced we are headed lower in a hurry starting Monday.
As I said earlier, this is a fully manipulated market and I believe that it clearly is aimed at 10,000 before the wheels of our life completely collapse sometime next year.
The liars have been lying for way too long for rationality to return to this market any time soon.
There is no such thing as bad news anymore. Your house could be 75% on fire and it would be reported as 'better than expected' by the media turds trying to protect the American Scamjob.
P.S. I miss the blog already. This format blows.
second!
+3
Everything about this new site is so inferior to the blog lay out I don't even know where to begin.
I have resisted complaining about it because this site serves a MAJOR public service.
Check out this quote from Richard Veddar, and economist at Ohio State, in an opinion piece in Today's NY Times titled, "In With Recession/Out With Depression."
"The rise in stock market prices from unrealistically low levels is improving household balance sheets, consumer confidence and, ultimately, spending."
http://roomfordebate.blogs.nytimes.com/2009/07/31/in-with-recession-out-...
Is this a case of "if-you-repeat-something-enough-times-maybe-the-public-will-start-to-believe-it?"
Does anyone really believe this shit? How can these idiots be so disconnected from the real world? Do they really think that because the S&P is back near 1K that somehow the guy making $9.50 an hour working only 30 hours a week to support a wife and 2 kids will somehow start buying iphones and sham-wows and new cars and running up his now non-existent credit cards and we'll all go back to the world of make-believe?
What scares me the most is when they discuss "the consumer" on CNBC. Not "the public." Not "the citizens." But... "the consumer." As if, to these people, who obviously live in some other world different from the one the rest of us 330 Million live in, we are nothing but vehicles to purchase "things" and to support the less than 1% of the population that wishes to summer in the Hamptons and drive Maseratis and get paid hundreds of millions of dollars a year by playing 3 card monte with the economy.
These are scary, scary times we're living in, folks.
bye bye shorties, see you in the poorhouse BWAHHAHAHAHAHHAHHAHAHA
GDP And Debt - In Video (Attached Images)
http://market-ticker.denninger.net/arch ... mages.html
Consumer spending came in at -1.2% annualized, twice the decline expected by the consensus, in the face of huge fiscal stimulus. Leaves me wondering how the critical 70% chunk of GDP is going to perform as the cash-flow boost from Gov’s generosity recedes in the second half of the year. Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms? What do that mean for a sustained recovery? I know this is out of favor, but I think deflation is still at hand. The market rally since march just seems overly optimistic and screams of a bear market rally. Wages and Salaries declined @ a 5% annual pace, 1.5 million people will fall off extended UI rolls by the end of the year. Practically all sources of income are deflating from a year ago; wage, interest, dividend, proprietary. This is the flip side of COs reporting profit growth by cost cutting...
www.etfdesk.com
Search. Screen. Research ETFs
http://www.financialsense.com/fsu/editorials/martenson/2009/0731b.html
The US government is a poor display for the world. No wonder we are in this mess. the socialists will say free enterprise failed,but the fed.which isn't free enterprise and the SEC, which isn't free enterprise,but a Goldman Sachs enabler and the treasury, which is facism at its best has made a mess of things. The BLS is as twisted as any as revealed by the above numbers.