David Stockman Exposes "The Illusion Of Growth"

Authored by David Stockman via The Daily Reckoning,

The Wall Street Journal published a superb example of hopium recently in a sunny-side-up story entitled “U. S. Manufacturing Rides Rising Tide, Buoyed by Global Growth, Optimism.”

Indeed, this lazy cheerleading excuse for journalism captured the sum and substance of why the punters keep buying the dips despite troubles gathering all around.

That is, as the tax bill falters, the crusade to remove the Donald from office gathers strength, the Fed moves into balance sheet normalization and instability breaks out all over the world from the Persian Gulf to the Korean peninsula.

You would think the title says it all, but the WSJ was not nearly done. It cited a 156,000 pick-up in manufacturing employment since last November, rising energy and commodity prices as evidence of a booming global economy and double digit growth in business investment earlier this year, among other things.

American manufacturing has picked up pace over the last 12 months thanks to steady global economic growth, a rise in energy and other commodity prices, and increased business confidence.


Although progress isn’t being felt by all industries, makers of items ranging from bulldozers to semiconductors to food products are on the upswing as various measures of spending, sentiment and employment have climbed, while stock markets have hit record highs.

Yet every one of the trends cited in the WSJ article are less than a year-old. They coincide with the Great Coronation Boom in the Red Ponzi ( the run-up to Xi Jinping’s ascension to total power at the 19th Party Congress); represent only a minor up-tick from the 2014-2015 global deflation; and in the context of the current feeble recovery from the 2008 crisis represent nothing at all to write home about.

Indeed, I am confident that as the Red Ponzi goes into a stabilization and credit containment mode, as is already evident from the October economic data (fudged as it is), that the slight lift to global activity engendered by the latest China credit impulse will quickly fade. And with it the entire trading meme reflected in that WSJ puff piece.

But short of that yet to unfold but predictable global mini-cycle, the actual data on U.S. manufacturing output trends through September reveal nothing to smile about.

In fact, overall U.S. manufacturing production is still down 4.3% from its pre-crisis high back in December 2007, and was no higher last month than it was three years ago in November 2014.

Of course, global commodity prices did perk up during the last 18 months. Not only did they rebound off the bottom in normal cyclical fashion, but the hands of China’s central bank were more than a little evident.

When they unleashed the latest credit tsunami in early 2016, the hordes of Chinese speculators dutifully bought up all the iron ore, copper, steel, diesel fuel etc that was to be had and which could be readily financed in cash and futures markets alike.

Presently, they will be selling, too, as the post-coronation signals coming out of Beijing become unmistakably clear.

Nor is the above even the half of it. If you look at output of U.S. consumer goods, which is much less attached to the global commodity/industrial cycle, the rising tide of manufacturing output is nowhere to be seen.

In fact, consumer goods production has flat-lined for the last two years, and is still below where it was at the pre-crisis peak.

The same is true of manufacturing employment. There is no “rising tide.” Thus, between October 2007 and the April 2010 bottom, the U.S. lost 2.3 million manufacturing jobs — representing a loss of 76,000 high paying jobs per month.

By contrast, during the three years since October 2014, the U.S. has recovered about one-tenth of that loss — with manufacturing jobs expanding at a rate of  just 6,000 per month. That is to say, the WSJ was essentially trumpeting statistical noise.

We are now 120 months from the pre-crisis peak in November 2007. Yet the compound annual growth rate of manufacturing is just 0.08%. Which is to say, nothing.

By contrast, every prior peak-to-peak recovery pales that tiny beep of white noise into insignificance. Thus, between July 1981 and the July 1990 peaks, industrial production expanded at 2.18% a year during the so-called Reagan boom.

Likewise, during the Greenspan tech boom of the 1990s, the compound annual growth rate (CAGR) for industrial production was 4.02%. Even during the highly artificial and unsustainable Greenspan housing boom between December 2000 and November 2007, the index rose at a rate of 1.31% per year.

So Thursday’s industrial production number for October actually signaled that the U.S. industrial economy remains dead in the water. It is floundering in a manner that is off the historical charts — and not in a good way.

But stocks keep marching higher.

In short, financial information has been totally corrupted by the distortions of monetary central planning. Accordingly, when the third and greatest financial bubble of the 21st century collapses — and it is coming soon — it will also arrive as a great surprise.

As I keep insisting, monetary central planning systematically falsifies asset prices and corrupts the flow of financial information.

That’s why bubbles seemingly inflate endlessly and massively, and also why financial crashes and economic corrections appear to come out of the blue without warning.

Back in the winter of 1999-2000, for example, we were allegedly in the midst of a “new age economy.” The revolution in technology then underway, it was claimed, meant all historic valuation benchmarks — like P/E multiples, cash flow and book values — were irrelevant to stock prices.

Likewise, in the fall of 2007 there was nary a cloud in the economic skies. That’s because the Great Moderation led by the geniuses at the Fed had purportedly engendered a “goldilocks” economy destined to expand indefinitely.

Within months of the dotcom epiphanies, however, the highflying NASDAQ 100 crashed — eventually hitting bottom 83% below its new age heights. And 15 months after the S&P 500 reached its goldilocks peak of 1570 in October 2007 it staggered around in smoldering ruins at 670 — down 57% from its housing bubble high.

Today, the so-called stock market now consists entirely of what amounts to day traders and HST (high speed trading) machines. There is no “price discovery” in the classic sense of divining the true economic and political fundamentals. The casino has become entirely a ward of the central banks.

Needless to say, we are again on the precipice of a crash and correction that no one sees coming, but this one has an added twist.

Namely, three strikes and you are out!

What I mean, of course, is that the Fed and other central banks are out of dry powder. They are now stranded near the zero bound with bloated balance sheets that have actually reached hideous girth relative to current GDP and all historical experience — meaning they will have almost no capacity to reflate the next busted bubble, as they quickly did in 2001 and 2009.

Do yourself a favor and get out of the casino now.


hedgeless_horseman Five Star Wed, 11/22/2017 - 10:05 Permalink

The casino has become entirely a ward of the central banks.


We are stupid marks.  What is the con?  The con is that economic growth is both good and real.  It is most often neither.  The long con is nominal returns versus real returns.   What keeps the con going?  Apart from greed?  Money printing.    Please, understand that if the amount of money in a closed system doubles, the value of each monetary unit halves, and the price of everything, including stocks, increases 100%.  http://www.zerohedge.com/news/2017-01-13/what-can-we-learn-looking-carn…

In reply to by Five Star

Ivan de beers Wed, 11/22/2017 - 10:00 Permalink

David stockman is just embarrassing himself these days. The man is retired and should enjoy retirement. Leave the conspiracy theory game to tyler durden and alex jones.

geno-econ FreeShitter Wed, 11/22/2017 - 10:19 Permalink

Give him credit for at least warning us that we are heading towards catastrophy. He only has to be right once for folks to say I should have listened.  Incidentally , he was a Harvard Christian Divinity graduate before studying economics and you have publically exposed yourself as a free shitter bigot with no facts or figures to dispute Stockman's arguments.

In reply to by FreeShitter

rejected FreeShitter Wed, 11/22/2017 - 10:41 Permalink

Just like Schiff. Most now say he was just lucky when he called the last crash and now laugh when he says be careful.Not one fact Stockman said was incorrect. Not one figure was wrong. Calling a criminally controlled economy is nearly impossible. The FRB and Government lie about everything,,, yet today, they are the ones you 'believe'.  Give him credit for trying to warn all the lemmings blindly following the Pied Piper,,, that don't want to hear anything that doesn't fit the sky is blue narrative.And I have met some fine people that are Jewish.

In reply to by FreeShitter

Omen IV Ivan de beers Wed, 11/22/2017 - 10:49 Permalink

you should give him credit for unwavering "conviction"he calls it based on facts - the market is investing on momentum which has nothing to do with underlying economics today - Fed and other central banks buy and private investors follow the lead - SNB (see their balance sheet on specific stocks). there again this time -  will only be five guys in the room on the  telegraphed reversal as Paulson did with his 5 GS guys on "what if's"

In reply to by Ivan de beers

G-R-U-N-T Wed, 11/22/2017 - 10:15 Permalink

Sorry, but 'logic' analytics is overshadowed by belief, logic doesn't move markets, 'belief' moves markets!Just look at the volatility on the belief to cut taxes or not to cut taxes. To cut or not to cut, that is the anticipatory question!Dow 30 - 40k!

tion rejected Wed, 11/22/2017 - 11:04 Permalink

>Today it requires $350,000 to $500,000.What are you smoking Mister Fancypants?Prices in many of the big cities have been coming up to par with other international cities, but in much of the country, you know that part that people forget even exists, sub 200k houses in middle class neighborhoods are plentiful. 

In reply to by rejected

Bemused Observer ejmoosa Wed, 11/22/2017 - 11:06 Permalink

It does. That was kinda the point Jesus was making when he took the coin, looked at Emperor's image, and said "Give to Ceasar what is Ceasar's, and give to God what is God's"...or words to that effect. If you want to play with money, fine, but understand that you are playing a rigged game, with 'tokens' that belong to the government, who can and will devalue them, tax them or just confiscate them outright. If you count your 'wealth' by how much of Ceasar's money you have, you are fooling yourself in thinking it is really YOURS...you are only 'rich' by the sufferance of government authorities.You own your own labor, and the products you make, but once you exchange them for Ceasar's tokens you allow Ceasar to establish their value.

In reply to by ejmoosa

ebworthen Wed, 11/22/2017 - 10:12 Permalink

"As I keep insisting, monetary central planning systematically falsifies asset prices and corrupts the flow of financial information."Exactly.  No such thing as money anymore, just your labor - which is your life - being sold for the greed and avarice of the evil.

NEOSERF Wed, 11/22/2017 - 10:13 Permalink

And it appears that being a ward of the CBs is exactly what is needed.  They and they alone have the firepower to keep us from decades of -3% GDP growth even if the current +2% is an illusion.  What really is the alternative?  Balanced budgets never were and never will be again.  We must keep overspending to keep the collapse from coming.  Fiscal austerity?  Please.  That cow left the barn in the 1970s after we started massively overspending in every area of the economy and with a 70yr old infrastructure that needs to be at least maintained (it can't move forward), we have to spend or live with potholed roads and trains that run when they can (think Dinkins NYC type world).  The real worry is not so much in the US as I see it which is effectively trying to give people some wealth prior to the final collapse but that less savvy CBs in other parts of the world start to unravel.  When we start to hear (again) about the Fed stepping in to help in Japan or Switzerland or Italy, you'll know we are getting close to the end, but until then, pass the Chardonnay.

Anteater NEOSERF Wed, 11/22/2017 - 11:11 Permalink

We are all in steerage, fighting our way up to the promenade deck.When we get there, we'll see that all the lifeboats have pulled away.When we feel the bright sun and harsh salt on our faces, we'll realizeour struggle was all for nothing. We're all going down with this ship."You will have the best healthcare, the best!! And it will be so cheap, and so easy!"WINNING!! GUN KITS!!

In reply to by NEOSERF

Dumpster Elite Wed, 11/22/2017 - 10:27 Permalink

I kinda have some respect for Stockman, but honestly, he's starting to sound more and more like Gartman every time he's on here. If you had followed his advice for the last 4 or so years, you'd be pissed off at him right now. Eventually, he'll be right, and will be praised as some kind of financial messiah, of course.

Solio Wed, 11/22/2017 - 10:44 Permalink

The money is one thing, and the psyop against women is quite another for the past 50 years. The divorce rate started to escalate. And yet, moms that threw off their moral moorings to illustrate their displeasure with their marital disharmony, were, almost always, given charge of the children leaving dad on the outside, high and dry. The family and thus, society's meltdown was/is assured. Why were the divorce laws structured the way that they were? The whole diabolical charade was done in order to make more lost children available to the monster pedophiles that were always there waiting for them. When the people wake up to what has been done to them and their loved ones the demand for pikes will be beyond the horizon.

Scornd Solio Wed, 11/22/2017 - 11:07 Permalink

at the time of Womans Sufferage, 95% of american families were living on a farm. the woman of the Bougeuase Class, Marxists- decided that - to help
divide and destroy the middle class, they would convince farm wives that they were working too hard and that one vote per household was unfair.and that their children working was slavery....

it was rich ultra elite women and their men that did all if the - suggestion.

if farmers didnt have control of easily emotionaly manipulated wife- the whole house was destroyed.

it took only about 120 years to completly destroy the family and the nation from the foundation up. on a suggestion.

In reply to by Solio