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You Cannot Build a Strong Economy or a Bull Market on Fudged Numbers and Lipstick
Let’s say that you just spent a large sum, to the tune of several trillion Dollars, bailing out various businesses that were literally run into insolvency by shortsighted and greedy business practices.
Having spent this money, your next concern becomes avoiding popular outrage as sooner or later folks will find out that this money was practically given away and that everyone else got a raw deal.
So, at that point your primary focus must become convincing the world that your policies worked and that you did in fact save the world.
How do you do this?
- The businesses you bailed out need to appear successful and profitable again
- The economy you “saved” needs to look to be in recovery
This is precisely the blueprint for what the Powers That Be have followed post 2009.
Regarding the bailed out businesses, the large banks are posting great profits by writing down bonds they own (and recording this as a profit) and by lowering loss reserves.
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $26.3 billion in the fourth quarter of 2011, a $4.9 billion improvement from the $21.4 billion in net income the industry reported in the fourth quarter of 2010. This is the 10th consecutive quarter that earnings have registered a year-over-year increase. As has been the case in each of the past nine quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings…
Fourth-quarter loss provisions totaled $19.5 billion, about 40 percent less than the $32.7 billion that insured institutions set aside for losses in the fourth quarter of 2010. Net operating revenue (net interest income plus total noninterest income) was $3.8 billion (2.3 percent) lower than a year earlier, due to a $4.4 billion (7.4 percent) decline in noninterest income.
http://www.fdic.gov/news/news/press/2012/pr12023.html
Nevermind that most of these profits are illusory and that the policies used to create them (not thinking ahead but focusing on the near-term) are precisely what caused the 2008 Crisis. As long as headlines ready “great profits” all will be well.
Then of course there’s General Motors, the other bailout darling.
GM’s Crowded Truck Stop
A year ago today analysts rained on General Motors’ parade. Wall Street’s finest pointed out that GM’s strong February 2011 sales were boosted by extremely generous incentives to customers. These turned out to be wholly unnecessary too: Japan’s earthquake 10 days later wrecked competitors’ supply chains. U.S. carmakers gained market share, slashing inventory and making record profits with solid pricing over the next several months.
While not wishing natural disasters on anyone, GM could use a deus ex machina of some sort this year. Not only did it lag every major carmaker last month with a mere 1.1% U.S. sales gain (fellow bankruptcy victim Chrysler notched 40%). But GM’s dealer inventories are also at a post-bankruptcy record of 667,000 vehicles, up 29% versus a year ago and 59% compared to two years ago.
And it’s the wrong sort of inventory to boot: With pump prices surging, GM has 116 selling days’ worth of trucks gathering dust. Zero percent financing, anyone?
http://blogs.wsj.com/overheard/2012/03/01/gms-crowded-truck-stop/
In this situation, GM is seeing some sales growth, though it’s the worst of any major carmaker. However, what the company is really excelling at is delivering cars to dealers, in a sense, maintaining the appearance of economic growth, when in reality the cars are just sitting on the lots unsold.
Here again, the “success” is illusory in nature.
As for the other issue, (making the economy you “saved” look like it’s in recovery), you’ve got Government bean-counters with an entire arsenal of seasonal adjustments and other accounting gimmickry to make the economy look far better off than it really is.
Case in point, the BLS claims we ADDED 243,00 jobs in January. That’s an odd claim given that the BLS admits, in the very same report, that without adjustments, the US actually LOST 2.69 MILLION jobs in January.
This is roughly a discrepancy of 3 MILLION jobs. And this 243,000 jobs number for January also comes along with upward revisions that saw roughly 50,000 jobs added in both October and November.
So according to the BLS, the US is on the upswing again, maybe not in a HUGE way, but overall things are improving: we’re adding jobs and unemployment is falling (from 8.5% to 8.3%).
In the end, both policies (making the bailed out businesses look successful and the economy strong) essentially boil down to fudging the numbers. And whether or not people fully understand these issues, most Americans have a sense that the Government is lying to them about the “success” of the 2008 bailouts and the recovery.
Put another way, most Americans know that all this talk of recovery is just putting lipstick on a pig. They know that the economic reality facing the US is in fact far worse than the numbers claim. Heck, it’s the people are on unemployment, food stamps, and are unable to find jobs that know the real situation in the US.
An equally dangerous problem is the fact that professional investors (institutions, hedge funds, traders) are investing based on this fudged data. We’ve already seen how this kind of situation plays out before (2007-2008). What happens when the REAL situation in the economy and the financial system comes home to roost? What happens when Americans’ retirement accounts get decimated by yet another collapse as most asset managers and financial advisors have yet to even regain their 2008 losses.
Big hint: it won’t be pretty.
Make no mistake, the entire “success” of the 2008-2009 bailouts and stimulus is just a mirage. And the people simply aren’t buying it. Which is why they’re pulling their money from the markets en masse (investors pulled $132 billion from Us-stock based mutual funds in 2011, that’s only $15 billion short of the record amount they pulled in 2008).
On that note, the time to prepare for the next Crisis is now while the system is still holding together.
If you’ve yet to take steps to prepare for this, I can show you how: my Surviving a Crisis Four Times Worse Than 2008 report is chock full of information on how to not only survive but thrive during the months to come.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.
Good Investing!
Graham Summers
PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.
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Gotta hand it to you this time Graham - good insights.
They spin stats right round, baby right round
Like a record baby, right round
Round, Round
The politician's motto: If you can't dazzle them with brilliance, baffle them with bullshit.
NEVER believe the government, even when it's telling U the truth.
How can one even invest with such numbers as Stockman said last week???BTW--i can understand this Zero Hedge taking Ron Paul money for advertising ,but why Obama"s Money ??
You know, I am really getting tired of being told by the MSM how rosy and strong the economy is. any idiot with a wallet will tell you it is fucking empty, because food prices are up thirty percent and fuel is up eighty percent, and all this in just three and a half years.
My unicorn died a long time ago.
I just kicked the habit of reading/viewing the MSM and I feel much better. My #1 source is now Zero Hedge - thanks Tyler!!!
"you cannot build a strong enconomy or a bull market on fudged numbers and lipstick"
but you can get re-elected
With 'Oinkanomics'?
I'm not sure I entirely agree with the "channel stuffing" criticisms of GM, unless they're offering dealers added incentive for taking the cars. Could it be that dealers, having run with much leaner inventory numbers over the last couple of years, seeing pent up demand in the market, and seeing signs of a recovery on the horizon, have decided to ramp up inventory in anticipation of a strong selling season? I'm not making any statement about whether the dealers are right or wrong, just that seeing them up their inventories is not in itself evidence of market manipulation. It just seems like a part of the business cycle, no?
Pent up demand? are you mad?. The average age of americans cars is now 10 yrs. I'll ride a bicycle before i buy a GOVERNMENT MOTOR car. and with an 80% increase in fuel cost. I may have to
So they shut down the Volt because dealers are overstocking in anticipation of big sales? Right.
isn't the real problem this: GM is writing these in the books as cars that are "sold", while they are still in the dealers' showrooms - thus, the (expected) "increase" is faked?
GM sure ain't channel stuffing their Volt after news of 1,400 lay-offs
Bumma will be disappointed with all his green (pet) projects flushing down the toilet ...he sure has the 'Midas Touch' of other pea brained socialist loons
Isn't this the same bullshit (channel-stuffing) that went on during the hi-tech/internet 'boom'? We all remember how well that ended! Are there any 'real' believable numbers on actual sales?
Are there any 'real' believable numbers on anything!
LOL!
but...but Bloomberg says stocks are cheaper than at any peak in the last 23 years.
http://www.bloomberg.com/news/2012-03-05/stocks-cheaper-than-any-peak-in-23-years-in-u-s-as-puts-highest-since-07.html
Stocks are cheaper for the primary dealers & TBTF banks who get the money to buy them for free from the Fed. I'd probably say stocks were cheap too if the fairy godmother handed me a wad of them out of thin air (or a printer). :-).
Because unlike those in the MSM, we are actually "living" in this still shitty economy.
Erin Burnett can afford to be bullish considering all the bitch had to do to live the 1% lifestyle was to get on her knees and juggle banker balls.
LOL! +10,000
Hear, hear. truth in words. My bowl of mirage is most filling.
Hey ! my pig takes offense to the lipstick comment ....
Representative Pelosi thanks you for sticking up for her...
Please be more precise when attempting to explain things to the masses ... it wasn't just given away, it was totally fucking made up from thin air (and a key press)! One minute it's not there ... then, hey presto, you owe us more!!
The genie is out of the bottle. The government has learned it can extend and pretend forever. It can print money, give half to the billionaires, half to expanding government, make up and fudge statistics, blow up enemies, and continue this process forever. And not just our government. All the governments are doing it now. Wheeee.
this process cannot go further for long
It's getting old i'll say that much.
broken record goin around and around (hic)