Tuesday, August 11, 2015

Dicotomy: GDP Facts Versus Predictions and Other Tidbits

Did you know that Canada is in recession? The US media only points out what the powers-to-be like it to broadcast. They never talk about the fact that many EU members are in recession with overall growth of only 1%. However, we do know what Trump is worth and how many candidates are seeking the presidency. When the media mentions the economy, it loudly shouts a spin on any news like the current release of GDP numbers. It came in at 2.53%, however that translates to an average of only 1.45% which is nothing to brag about.
Now, what I would like to do is go back to the last quarter of 2014 when the pundits made their predictions for 2015. They have one common denominator: They're all wrong!
Back To The Replay
In November 2014 the shills called for GDP to expand at a 3.5% to 4%-plus rate. They all had their stat sheets with leading and lagging indicators. Everyday people like Sly and the Family Stone and myself called for a downturn. We were closer to the truth, but our voice is limited to classic rock stations and some internet communication.
Leading Indicator
of the indicators is the stock market. It looks out about six months in advance. The market had hit yearly lows for 2014 in October, but rallied and in the mix of that occurrence, the pundits made their call. They looked good in their Christmas suits, but lo and behold, the January barometer fell, indicating a down year for 2015. They did not panic. They have deep pockets and the belief that the Fed will cover their backs. Again, they appeared well dressed in their Easter apparel as the market hit record highs. Not so fast, Kimosabe!
Dow Theory
says that the industrial and the transports must climb together. Transports lagged. They failed which puts the market in disharmony. The analysts were wrong as the numbers for GDP reveal that they were off by 50%!
The IMF is another shill that made its 2015 forecast back in September 2014. Not to be alone the headlines were staggered with reinforcing claims by the Fed and the US government, the EU and central banks throughout the world. Basically, they predicted GDP to grow between 3.5% to 4%-plus in 2015. Bottom line: they were all wrong and off by 50%!
In fact, for the past six years GDP has averaged a mediocre 2% and every year the pundits said 3%-plus. All wrong!
The Fed and the government like to point to the declining unemployment, but people will take any job rather than go hungry. The proof lies in the fact that wages are stagnant. Retail sales reflect this aspect which falls in the
lagging indicator category.
Economists like to point out that housing is the most important aspect in this category and in our service economy. It has risen from depressed levels to a new annual cost average for a new house with an all-time record high. They add that building permits are climbing off the charts which supports their claims that housing is back. Again, not so fast Kimosabe!
The permits are skewered toward multi-family. First time buyers of single family homes are shrinking and overall family home ownership is at 1967 lows which is almost 50 years ago with a much lower population.
Oh, by the way, builders of multi-family units have a history that points to peak building just prior to a contraction. Dear reader, you can't spend what you don't have because unlike the Fed you can't print your way to a higher standard of living. Maybe none of the presidential candidates will say it, but our standard of living is not even in the top fifteen nations of the world, thanks to the Fed lowering the value of our dollar and the military controlling our yearly national budget. The trend in retail sales is down and since we are a service economy, the outlook points that way.