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If the truth is inconvenient ... just lie !!


kahuna1

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Second Part of monster post ....

 

In the case of CPI there is no positive unless it goes down. In the GDP case the higher the deflator the lower it makes the US GDP number and slower the growth is. In the case of CPI reported by BLS the Social security payments they make to retired people is adjusted to CPI and as such the lower it is the less they cough up. Same for US indexed bonds all two trillion odd of them the interest is paid on a margin over the reported and official US CPI. Nothing like a vested interest.

 

So lets just look at them and see how inconvenient it has become to report things.

 

In 2008 most foodstuffs and grains have risen 35-40% in US term but not going to look at this will look at something easier to identify since it represents 7% of consumer spending and 7% of CPI weighting so if it moves 100% it should move CPI by 7% ? Wrong in 2008 of course but lets look at the liars telling lies and one telling bigger fibs than the other.

 

Having looked at the US deflator and the US CPI number since one is a negative and the other a positive the Deflator is always slightly lower than the CPI. In fact in 1998 the two departments merged their methodologies and since then the average difference in 10 years between the two 1998 till 2007 was a mere 0.18% where CPI slightly higher than the deflator. That is of course to recent times.

 

On a side issue they changed both and how inflation is measured and tinkered with things which is one of the reasons why despite the price of houses rising 15% on 6 out of the last 10 years it never hit the CPI or deflator. Despite it being the largest single item the consumer spends money on it was removed for all intents in the 1988-98 period. Clearly it did not change on the way up and that's how this festering pile of an asset bubble was allowed to grow. If 30% of income goes into houses and they went up 15% in a year that would mean CPI of 4.5% or so and pre 1986 that's exactly what happened and changes in underlying asset prices forced changes in interest rates because if you have rampant asset inflation or a bubble it creates either an implosion in prices as the 1987 stock crash was about of the NASDAQ bubble or we see the underlying asset quality fall into the toilet when people pay too much for things that are in effect still only worth what they were before but they become convinced its worth $2- now not the $1.5 it was and as such we have banks holding in reality stuff they think is worth $2- but likely worth $1.5. Of course this went further and seeing both commercial real estate double and double again fueled by cheap credit and absolute rates at lowest levels in 50 years and very much the same for residential is where we sit now. Addressing one side without the other and ignoring the LBO's like the idiots who wanted Qantas at $6- sadly there were and are 500 idiots who succeeded for every one that missed.

 

Just to present the old methodology of measuring inflation they took it out because it was inconvenient the houses and other things that swung it around. A decent link which uses the old methodology for estimating these things shows the US GDP by removing the inflation and rampant inflation on the asset side understated the inflation and the negative deflator they used and as such REAL GDP was and is massively overstated and has been for some time. Similar buggering on every number you can think of and employment a classic where now if you work 2 hours a week your employed down from 12 hours 10 years ago.

 

http://www.shadowstats.com/alternate_data

 

Interesting site but again all besides the point and not entering into debate about any of these things. I believe they are in some ways correct. Taking something out of the CPI because the thing is volatile or hurts when its the size of housing and 30% of a families income was and is insane.

 

My only point visiting this issue is that when house prices were rising and going nuts neither the US CPI out of the BLS or the Deflator out of the BEA used to estimate the GDP via the deflator moved or varied. In far since 1998 the difference is so low its absurd and of course it should be they are in fact reporting the same thing !!! Inflation. Whether its was wrong to start with another discussion .

 

So are you ready. I can prove the level of absolute and outright lying going on is institutionalized of late in the US not just with CPI which I am going to cover but trade numbers where the imported amount of crude remains within 1% of what it was yet the rise of the price of a barrel of oil has never hit the underlying total. US Trade balance was around US$60 - billion when the price was US $75- per barrel and the BEA according to them after they adjusted the hell out of it the dollar value never changed. The sad fact is if you import 12 mmboe a day equiv between gas and oil mostly oil, and it rises Us$50- or US$65- roughly the trade balance should go from minus 60 to minus $80- billion a months. So how do they get around this trick ? Seasonal adjustments of course. What we have is whole slabs of numbers by various departments behind adjusted to extremes and reported as fact. In the case of trade the BLS numbers contradict the BEA numbers which don't agree with the DOE numbers in any shape or form which are again all contradicted by the Census bureaus numbers for retail sales which are good so reported with the price increases included but the numbers supposedly not adjusted for inflation have been altered and moved because when the price of something moves 50% and its 12% of all retail sales as is gasoline when the reported total moves 5% instead of 50% for gasoline station sales you know your stuffed. DOE reports someone is consuming the same amount despite the price hike , the BEA in trade numbers reports oh the price of oil is seasonally adjusted and still sits at US$100- per barrel in terms of trade but on the GDP number sit reports the exports of crude and oil products at US$135- and then choose to included the expanded retail sales numbers in GDP , expanded mind you due to price rises and something called inflation but then on the other hand when using an inflation adjustment to make the GDP a real number adjusted for inflation, it should pay to report raw numbers up 5% but uses the lowest possible adjustment down to create a nice picture.

 

If you follow this your doing well. Its complex and taking the best and reporting the benefits but none of the negative or adjusting them out is what is happening in the extreme and how I can say with some confidence the things I did at the start US CPI I suspect t if at least 6% vs the reported 4.2% if not 7%. GDP is being overstated by the low deflator used by at least 1.5% if one used the official CPI but since I will show you how untrue this even is its likely the inflation and deflator is understated by as much as 4.5% and instead of plus 1% just on this alone US is in a deep recession of minus 3.5% and given how much future it has deteriorated last 3 months when analysts even downgrade their earnings by 4.5% in a month its likely things got 2% worse last quarter and as such its not outlandish to me at least to say the US is going at MINUS 5% GDP growth.

 

Outlandish I suppose.

 

Back to the deflator vs the CPI and what has happened since June 2007.

Both lockstep up till then. Deflator used in June was 2.2% and CPI measure in June 2007 was around 2.4%.

 

BLS http://www.bls.gov/news.release/archives/cpi_07182007.pdf

And their CPI estimate yep 2.7%.

And BEA http://www.nasdaq.com/econoday/reports/US/...y/06/index.html

At 2.3 % but was latter revised to 2.4% .

 

So in June 2007 prior to the implosion of sub prime and anything else the two were close 0.3% apart. What happened last 12 months is one for the record books and a very inconvenient truth.

 

Oil was sitting in the US$55- per barrel for June 2007 and what happened by late 2007 was oil went and got naughty and in December the average for the Month was US$84- per barrel. So what happened to US CPI is on the record. It went up and went to 4.1% from 2.7% .

 

That was the impact for about a 50% rise in just oil. Sadly since then its not just oil that went nuts but grains and food up 35% imports from China one US reporting department has them rising at 14% annual pace in 2008 yet another which reports CPI has them after seasonal adjustment falling not rising.

 

Amazing stuff.

 

So Since we have two supposedly independent measures of inflation its interesting to note what has happened since June 2007 and then in 2008.

 

US CPI rose sharply up and until oil hit US$85- per barrel and since then there has been NO overall recorded increase in US inflation.

 

In December 2007 US CPI hit 4.1% but last month according to the BLS it sat at 4.2%.

I have commented on the statistical buggery that has gone on to allow this but simply put they have seasonally adjusted out any and all rises and gone nuts since US$100- not allowing any of it to show in the CPI number to date. Part of this was enabled by an awful 2007 and they closed quite a few refineries to upgrade them and promptly 3 caught fire and severely disrupt petrol supplies in 2007. This never appeared on CPI in 2007 and was correctly adjusted out since the underlying price of oil sat US$50-75 the whole time but retail prices spike to the consumer and it was correctly removed as a one off. The same cannot be said for oil and the rise to the consumer in 2008 and despite this the US statisticians have removed it all together from any reported number.

 

CPI Dec 2007 at 4.1% and now As of May 2008 4.2% so no move.

Consumer prices for petrol up 52% from Dec 2007 but this removed totally from CPI.

CPI has a weighting of 7% for fuel at US$2.50 ish ignoring the fact the demand hasn't changed and if the price is now 50% higher the weighting should be 7% times 50% or 10 % I would settle for any change in the CPI at this stage. If its 7% weighing this single rise adds 3.5% to the CPI yet amazingly it hasn't moved. Similar if not more alarming seasonal adjustments used in everything from food to transportation to apparel and all of it one thing contradicting another is insane.

 

Inconvenient in the extreme and if it hurts its OK to lie !!!

 

Oh it gets better but lets just look at the price of oil in 2007 the overall ave was US$64.20.

 

Dec 07 US$84.50

Jan-08 $84.70

Feb-08 $86.64

Mar-08 $96.87

Apr-08 $104.31

May-08 $117.40

Jun -08 $131.50

July ?? $140- or more.

So we have one department producing one set of CPI reads and it says despite the consumer getting smashed for 52% and the underlying price rising by 55% or so and it supposedly being 7% if not 10 % of what they spend inflation has not moved the expected 3.5-5% its only moved 0.1% up. Hilarious when I look at the US Census numbers and their estimates on retail sales and US gasoline sales are about 12% of the whole total of sales and they have been adjusting them to try and play down the change in spending patterns but sadly when 3-5% of sales goes into your fuel tank its diverted from stuffing your face at McDonalds. No wonder they are no longer the fatties of the globe we win !!

 

Okey dokey fuel is only about half of these rises. Food has exploded and council rates , power, electricity, airline and other forms of transport and so on. If you find the lack of movement on the BLS side disturbing its only half of the overall total I suspect. Yes we have no inflation.

 

Now if this was not bad enuf, the complete stuffing of things because its most inconvenient, oh it gets worse the deeper you look. One department reports one extreme because its a positive whilst the other adjusts the other way. If the BLS can adjust a 50% rise in consumer prices for petrol and another department can adjust the other way anything can be made to disappear . At least for a while. In the end it catches up and the world may be treated like a fool for some time but the contrast between EUR and its reported inflation impacts with a currency going up 6% its CPI measure has risen around 0.5% in the last 6 months and this is with a currency that's taken 6% of the sting out of half the rises. EUR just raised rates this week when their headline CPI hit 4%. To suggest US CPI is the same as EUR is insane and insulting and when the Euro has gone 15% up in a year and European prices were higher to start with the fact you pay $6- per gallon to start with a rise of 100 cents after exchange appreciation is taken into account is not much. USA has no cushion via currency and starting at US$2.70 a massive rise of US$1.40 per gallon off a US$2.70 base for oil alone something we use at 7% of CPI the difference for the USA given the lower starting price due to near zero taxes its risen 50% of the total or plus 3.5% onto CPI. Obviously this CPI is missing for the 2008 period where the impact of $1- on a $6- starting price at 7% weighting adds about 1% to CPI.

 

Again 3.5% impact vs 1% . Clearly Europe still catching up a bit with reality but USA ? What reality are they living with ? None reported to date.

 

Quite obviously I feel strongly about these numbers as reported right now. Making them disappear is absurd and meanwhile the underlying conditions to US consumers and US corporates is just shocking . No one makes money in times of rapidly rising price sand not reporting they are rising in the first place is why my good friend Robert in Zimbabwe had so much trouble. His solution was to fix prices at what he thought was fair. Result was nothing was offered for sale and anyone who tried selling at official prices went broke.

 

I don't need to plot revenge because the markets eventually catch up with every high flyer and deads*&)) out there. Quite amusing to see some clown 3 weeks ago talking up his company on the 7.30 report and saying sales are very strong and we are masters of the universe and then 21 days later downgrading their profit and the shares trounced. He certainly knew the state of affairs when he spoke to the 7.30 report but chose to lie. It always happens and sadly smart arses think they can get away with things. In this case its a country gone nuts especially last 12 months led by Paulson the ex head of Goldmans calling the tunes and say anything policy. I remember so many fools over the years from the AWA trader who said trading was easy and didn't understand why other found it hard, AWA nearly went broke thanks to him, to the Barrings idiot Leeson same thing to Soc Gen to lists of others from companies to countries and the bigger they are the harder they fall. Mexico Argentina Russia why not USA?

 

Now if it wasn't insulting enough the CPI number is suspect everyone accepts now being fudged lets remember there are two departments in the US which report CPI in different forms but stuck at the same level for 10 years. So in June 2007 one was 2.4% the deflator on GDP and CPI at 2.7%. CPI stopped going up according to the BLS when they stopped the price of oil rising above US$100- according to them via seasonal adjustments. So what did happen to the other CPI measure and why am I so sure the official CPI is wrong and understating the inflation I went into, how insulting would it be if the GDP deflator only was allowed to move from 2.4% in June 2007 to 2.7% as of the last GDP estimate when the absurd 4.2% CPI number is already quite clearly underrating things by a massive amount to see the other indicator only allowed to rise 0.3% vs 1.5% I think says it all.

 

If CPI is really 7% then GDP is likely minus 3-5% if not worse.

Think very hard about these as yet unmoved asset prices for things which are a function of interest rates even more so than the housing side. If it cost 3% to borrow and fund a new office block in the US and now the cost is about 5% around where you were expecting your returns to come in, when you have an economy falling at an unreported rate it doesn't make one bit of difference whether you choose to report it as factual or not. When the cost of funds is more than you take in via rent and your tenants themselves are on shaky ground if you choose to ignore the whole thing and likely fact the underlying asset quality and price you thought you had a s security is in fact 20% if not 40% lower of course it is allowed for you to do anything to protect the pretty picture.

To do anything else would be foolish, sadly I suspect it doesn't alter the outcome in the end just prolongs the eventual outcome and people buying into things that they still trust the reported values when there are not anything even close to it.

 

So in this case its all right to tell a lie if the truth is inconvenient or the revelation that things are not what they appear or even close to it because the potential downside is another 25% off US markets from here. It happens either way so if I have to wait another 9 months or 12 months till prices reflect the realities that's OK by me. Till then I sit on my hands.

 

 

Sadly trying not to sound like a fruitcake has left me sounding like one. US is lying its head off over all reported govt statisitics and messing with the marekts perceptions on how things actually are from the CPI to trade to retail sales to actual credit quality and anything goes. Anything at all. Plus in any asset value into your reports and the US Sec has even signed off on it.

 

Standing back CPI is quite cleary not what is reported and infaltion not even close. As the markets fall and we breached 5,000 this week obviously we are very much cloeser to the eventual low we will see on this cycle. Question is wher eis the low. For me they might try as they have a few times in the past and rally the market a long way but eventually the rotting core and take your pick comes home to rrost. Is the US broke and able to pay off this massive expansion in credit racked up the last 10 years ? That aside the govt overspending and outlook are shocking and either they slash spending and raise taxes or many things go beyond saving in any way. Corporate side and as yet touched on idiots paying $6- for a $3- share just one little subset of this mess.

 

Again I don't really care if the market should bounce from here on some US manufactured good news stroy because eventually with 20 thing spointing one way there is only one way for it to go. That is down. Cant cut rates any more cant spend more form the govt side, times almost up where they cant ignore inflation and whilst they choose to ignore the overspending and awful trade balance as well as awful govt overspending and awful US consumer debt and US corporate debt and US financial debt side I dont know which one hits first .

 

Not telling the truth even to yourself is never going to resolve anything and I actually hope given the amount of sheer Enron style stuff they have resorted to in recent times the punishment meets the scope of the idiocy that has gone on. Inconvienient and painful it might be , such is life :}

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If the truth is inconvenient or doesn't suit you its OK to lie.

 

What is the real state of the US economy ?

 

Not much one for conspiracy theories as such, I am going to make some just awful calls which contrast with the TRUTH as presented via current numbers and make some sad conclusions as to what happens next.

 

1\ US inflation is at least 6% right now and if oil sits here at US$145- its likely 7% by year end and the current pricing of the US bond market assumes a 4.2% CPI price as presented and US equity market as well relying on this assumption.

 

2\ US economy is well into recession and numbers as presented last quarter were deliberately overstated by a statistical cheating never seen before in the last 50 years. The plus 1% last quarter was by a reasonable measure overstated by 1.5% and since then corporate earnings have gone backwards by another 3% and the other side inflation has gone up by 2% making the likely real state of affairs this quarter at a very deep minus 5% sort of recession.

 

3\ US is broke and its ability to repay the 150% of GDP added to the total amount of credit over the last 10 years is not there.

 

4\ Beyond current issues Social security payments in the US by 2020 either mean US taxes have to be raised by 100% to honor current commitments or pensions paid for by 12.6% taken out of pay packets for 35 years have been spent and those about to retire in record numbers post 2010 as the baby boomers retire should just stay at work .

 

5\ The credit crisis is about 25% over. To date the write-downs total US$500- billion and are expected to end at $1- trillion or so. I believe the end bill will be about 4 times this. In simple terms to date 85-90% of write-downs have come from one sector and that's the Sub prime or residential housing sector in the US. Last 10 years the total debt vs GDP in the USA has exploded by 150% and ONLY 25% of it has come from the residential side. At present apparently even hotter sides where prices doubled and doubled again quicker than the residential side apparently these prices never move backwards. WRONG. Commercial real estate for example and lending there moved fast and harder and is MORE a function of interest rates than even residential. IF borrowers could get funds at US treasuries plus 0.5% vs back in 1990 when it cost them Treasuries plus 4% or 5% its understandable that the prices went nuts. When the US Fed cut rates to 2% under CPI and 2% negative rates the cost of funds didn't change at all for anyone. What happened was the absurd spread to cover risk went back to 3-4% and the absolute rate stayed the same if not a little higher. If after reading this you think US rates will remain low or the rest of the world does not either take matters into their own hands and mark up US rates I suspect you are foolish. Either the Fed raises rates or the US bonds are spat in wholesale lots.

 

When the cost of funds all up for a commercial venture was a mere 3% people were willing to buy a commercial venture in the USA for 5% return and think it was a good deal. Right now the cost of funds despite the 3.25% cut in rates for these ventures has gone UP since 2003/4/5/6 by at least 1% if not 2%. To make the sums work the yield that one buys a commercial property is much higher and as such the selling price a lot lower. When something moves from 5% to 6% it implies a 20% fall the other side. I believe despite no one willing to admit it the cost of funds is actually 7% now vs 5% for most of the post 2000 period and as such its like the residential housing side likely to bottom with 40% loss from its peak the commercial side is in if anything worse shape.

 

Nothing has been written off on this to date. Even more chilling is the same principal applied to the buyouts and takeovers that went off every second day during 2004/5/6 the prices paid were a function of this same financial model and its broken and was built on the premise of cheap funding forever amongst other things. To give you an indication of how stupid prices paid were someone was willing to pay $6- for Qantas and quite rightly the management said take the deal. Here 18 months later the price is $3- and looking like mud. Sadly of the proposed and funded deals 90% of them went through as idiots competed for the same assets at times and the Investment banks and Macquarie model have yet to see their day but its coming. They were able to lock in and cover themselves for a few years to 2009/10 but beyond that paying 3% more for their funds and by then the little secret being covered because its inconvenient is out, that being there was another bigger asset bubble which we cant talk about at present.

 

Sidebar on this, Packer during another time Old Kerry was a made man back in the 1980's when some fool decided to pay $1- billion for channel 9. Not too long after packer bought back channel 9 for a mere 200 million and Bond went broke and promptly forgot all about it. Young packer being no fool was offered the same deal but for 3 times the price 15 years later. He no longer owns channel 9 and I suspect like a repeat of the 1990's eventually he could if he wanted buy the thing back for 25% of what he sold it for. This is again outside the sub prime and outside the commercial real estate side but represents several trillion of the 22 trillion of increased lending post 1998. If the residential side was 4 trillion and of which the written off amount eventually gets to 800 billion or 20% it snot hard to do the maths with the rest when its 13 or 14 trillion between financials and corporates to think it seven close to being over this credit side is amusing and quite sad.

 

 

It would be very inconvenient to actually reports these numbers on a number of levels with a US election coming in November and a teetering stock market and a financial system striving to stem the flow of red ink and shore up balance sheets which have 10 years of insane lending practices on them and terrible asset quality underlying the whole mess.

 

Add to this the US structural problems even beyond this where the US govt for the last 60 years has collected 6.3% from every employee from every paycheck and 6.3% from every employer so in total 12.6% and then when you retire they are told, and to date have been paid an annuity called social security which is like a pension but this one is linked to how much you earn and you get paid out accordingly a monthly cheque for the rest of your life when you retire. Sadly instead of having a massive amount set aside as the amount of people who are retired and doubles in the next 15 years as the baby boomers retire, virtually all US govt. of the last 30 years have dipped into the social security savings and spent it. Clinton addressed this looming disaster and reversed the tax flows and actually had the US government in surplus in 2000 and the deficits growing post 2000 and stashed away to allow for this. Sadly along came George W and the war and the surplus turned into a tax cut where Buffett paid less tax than his secretary and 8 years later instead of having saved 7 trillion Bush has added minus 6 trillion to the pile and the looming day when the receipts on Social security vs the payouts being larger is now a mere 5 years away and by 2020 the negative flow will top US$1,000- billion per annum which is over the amount collected in TOTAL via taxes right now so to balance the budget in 2020 the tax level needs to double, or things need to change.

 

It is inconvenient to report the actual total overspending of the US govt right now so in the US budget numbers the surplus collected via social security right now which is over 300 billion is included in general revenue so when they report a deficit of US$500- billion as they are now it included US$300- billion they are stealing form social security and instead of the US govt deficit being 4% minus OF GDP overspending its 6% and if one adds the fact the shortfall and looming deadline when the baby boomers retire the actual interest on what they didn't save is MORE than the total either way and US govt real spending is likely 12% of GDP. Instead of having 30 trillion stashed in social security in 2008 they have a mere 3 trillion and its not being added to so interest on the 27 trillion shortfall is a conservative 800 billion more a year.

 

Talk about inconvenient these things ... STOP :}

 

Debt side, well I think we are all well aware of the US housing side problems. In effect the price of a house doubled from 1994 to 2000 , then via cheaper and cheaper credit and US interest rates being held at below inflation and an absurd 1% for 18 months the bubble got even worse and house prices doubled again 2000 - 2006 and up till early 2007 added another 15% on top of this. Right now prices off approaching 20% from the peak have some ways still to go to just get it back to 2005 levels and the low vs the absurd high I suspect is still another 15-20% more of falls in total 30-40%.

 

Not talked about is the US commercial property side which did exactly the same rise and if anything faster with commercial real estate prices doubling in 5 years as opposed to residential out of control where it took 6 years. Same for infrastructure prices and many other asset classes and these as yet seen time bombs on financials balance sheets need like residential to come back 25-40% from insane credit fueled levels.

 

What happened was overall an explosion of debt which saw the level of US debt in 1986 just double the level of GDP and even in 1998 at 2.5 times the level of GDP replaced with a number where the level of debt in the US economy went to 4 times the GDP from the 1998 level by 2007 and around 22 trillion or 150% of the US yearly GDP added in 10 years or 15% per annum is what fueled the US economy.

 

Madness where the US fed officials went mad and presided over the greatest expansion of credit ever seen, the greatest rise in house prices ever seen rivalling the Japanese madness of the 1980's and instead of hosing it down when US house prices were 150% of what they were in 2002 they cut rates to 1% , a level below inflation and sat them there for a long period of time which just spurred the credit free for all and real estate bubble to new heights of 2007.

 

Credit rules used since the dawn of time were ignored and a new order was instigated. The rules being that if you lend to a credit risk that is not great you demand a greater rate of interest than if you lend to a low risk proposition. Instead of charging 2/3/4% as was charged for hundreds of years to the lower risks the margins people became convinced were normal shrank to 0.1% or 0.5% for a really risky thing that would have struggled to get funding at even 5% over US treasuries back in 1990 was dive bombed by investment banks able to convince people and investors to buy paper and deals which were at best very risky and be happy to only get tiny fractions over low to ultra low risk forms of debt.

 

Part of this again is inconvenient to visit because it involves some truth out there, but the sub prime issue is out in the open and about half the losses accounted for, we now all can see the low income or no income loans for housing never should have been made in the firsts place. How many peoples lives are ruined as a result remains to be seen but with 3 million in total default on their housing loans in the US the likely end number will be I suspect approaching 5 million US families loosing their houses. What is inconvenient is the there is a far larger and as yet addressed problem on the business side and the growth of corporate debt by 5 trillion in 10 years and financials debt by another 7.5 trillion which is over half the total debt the residential side which is currently imploding is HALF the side of the other problems. The US govt debt out of the 22 trillion growth the last 10 years is around 5 trillion so the currently exploding debt issues is just the remainder which is 4 trillion or so growth a lot of which was rubbish and the as yet touched 12.5 trillion corporates racked up in more debt along with financials is as yet to face the music. The quality underlying some of the LBO debt or commercial property debts is worse than even the sub prime issues.

 

Inconvenient to address these things but still there are there. When you have the investment banks paying the ratings agencies about 90% of their total income to put a rating on a piece of commercial paper obviously to expect an unbiased rating is not really possible. When one adds the fact that a large source of back door entry to investment banks is from ratings agencies and if you cant get a high paying job after applying after 2-3 years working in a low paid job with a ratings agency is the best way to a job paying 3 times just the starting salary and possibly 10/20/30 times the money in 5 years. Results as expected with well up over 200 issues graded investment grade going down in the last 12 months.

 

Some links and yes some are out there and its possible to reach any conclusion you like on the Internet and some real fruity conspiracy theories abound and if you think the world is flat I am sure there a lots of compelling web sites which agree with you. However as a full time trader for 25 years I have heard it all however my dismay at the current state of affairs as presented and dismay at numbers which contradict other numbers which contradict realities has me scared as to the end result of the current state of affairs.

 

Scared ? You should be since the credit quality as not looked at is appalling.

 

Here is the most inconvenient truth of all.

Current US CPI is 4.2% as reported.

Current US GDP supposedly is plus 1%.

 

Admission of inflation being a problem is not allowed as is the fact the US is in recession.

 

Its outright lying and any way you wish to spin this its just that. Not big on conspiracies or similar nut job theories here is my explanation as to why and the how. Maybe you see this as extremist or me being a nutter for suggesting it but here goes.

 

What the US has is numerous bodies who report on the state of financial affairs and quite often we have two different US departments reporting the same thing in effect but of late the numbers as I have mentioned took on a very interesting tone about 2 years ago when every time the market was having one of the small corrections it periodically has out of the blue comes a number that everyone was worried about and instead of being weak 90% of the time it came out strong. Crisis over and we moved on.

 

Markets at times are paranoid schizophrenics and from the depths of doom and gloom to euphoria in a single bound. Nothing I suppose unusual with this. However aware of this and watching it the lengths this has gone to in recent times is astounding. Say anything and do anything to protect the integrity of the market and make soothing noises. Last 9 months its gone quite clearly beyond the policy of making soothing noises down to outright buggering of official releases.

 

Some can be ascribed to the plunge protection team led by Paulson on the US side and its sole goal is not to have a repeat of 1987 and a 20% meltdown at any cost.

 

Some links http://www.washingtonpost.com/wp-srv/busin...ackm/plunge.htm

 

http://www.financialsense.com/fsu/editoria.../2007/0809.html

 

http://en.wikipedia.org/wiki/Working_Group...nancial_Markets

 

It exists and I am not going to ascribe too much to it other than say they have done a wonderful job to date and my friend Robert from Zimbabwe is very proud of them.

 

Anyhow in recent times we had a crash in August 2007 and the thing that took the market out of the correction and then we hit new highs was a plan announced and shouted by US officials to save the sub prime issue was touted and large banks led by none other than Citibank was going to go out and buy all this sub prime paper and save the day. Well after citi declared a record loss and then another record loss and went to the market 3 separate times and likely a a fourth time this plan always was full of it. The asset quality was rubbish I think we now can see.

 

So in January yet again a new low and the end of the world. Again followed by a massive rally not to new highs this time but a long way from the lows. That time it was the mono line bond insurers and them going down. Out was hatched a plan to save them and get some unspecified investor to buy something that was broke and owing back then around $20- billion and no on going business and save the day. Result as of today is the two in question go down and their market cap is not US$1.5 billion and the 2 trillion in bonds they insure finally downgraded from Aaa even by Moody's last week. The plan to save them and touted yet again by Paulson and every other US official a mirage.

 

Then in march yet again another low and the reason was part the bond insurers but more the Bear Sterns fiasco and the result was central banks threw money at things bought third rated bonds and gave US treasuries in return and brokered a deal to save Bear Sterns and along with all this they slashed rates taking the sum total of cuts from 5.25% fed funds down to 2% Fed funds rate. Astounding and of course the market bounced on this along with the Govt announcing that it would throw US$150- billion in tax refund cheques to stimulate things.

 

Do you notice a pattern ? Maybe, but all besides the point.

 

How after such wonderful announcements can we yet again be at a new low for the US and Australian markets ? Well because they amounted to nothing. Sure throw US$150 billion at consumers and urge them to spend spend spend it. Sadly with petrol rises alone its taking around 1.5 times the refund and with food, electricity and every thing else rising in cost for every $1- They got $3- has been taken.

 

All the hot air of benrnanke and Paulson about saving this or that is futile and just hot air. Whether its plunge protection team or the pixie fairies the underlying outlook for US financials and credit quality is SHOCKING. For non financials the picture is if anything worse. Yes Worse. Don't report inflation which I will cover in a sec but on the ground the US consumers house loan has risen in price not fallen in the last 12 months despite the Us Fed's 3.25% in cuts the fact is the absurd spreads where consumers could get funds at US treasuries plus 1% was insane for a 30 year loan it was plus 3/4/5% for 50 years till 1998. Corporates are being slammed with rising costs and shrinking margins and on the other side trying to pass these along to an already weak US consumer means the fundamentals have been shocking for some time despite the rosy pictures painted by the media and the insane analyst calls. Even now the US stock market is priced with analysts calls for the next 12 months growing at EPS of plus 28% ... Insane is all I can say and that they missed the last 3 quarters earnings by over 50% should speak for itself but still we have the US stock market sitting a mere 20% off an all time high and clearly an asset bubble and one I have strong suspicions has not shown 25% of the likely up front write-downs and maybe only 12.5% of the long term effects.

 

Anyhow lets get to the real inconvenient side of things.

 

Lies and damm statistics or so they say. USA has several departments which release the US economic numbers which financial markets around the globe digest and act accordingly. We have the Bureau of Labor statistics which does lots but the ones of interest are CPI and PPI for this discussion and then the Bureau of Economic Analysis which does the US GDP numbers and US Deflator or the CPI in another form plus a few other things. Who else ? Dept of energy does fuel and imports of fuel and consumption also covered by BEA and BLS in other forms and the US census bureau does things like retail sales and inventories and Dept of commerce does some others and the US fed does others on top of this.

 

Quite a mess. Statisticians cant agree at the best of times but what has happened in the last 9 months defies logic and stinks.

 

GDP is calculated by the BEA and how they work out GDP growth is they take the raw numbers of increases and then adjust it by a deflator or CPI measure which brings the growth back to a real after inflation number. So in effect two separate departments calculate a CPI measure and report on it.

 

Sadly both are full of crap right now.

 

In fact there are so many contradictions between US government departments on reporting the same number but one reporting one extreme which is a positive for the economies and the other using the absolute opposite extreme and reporting that because its a positive.

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In reply to: kahuna1 on Saturday 05/07/08 05:21pm

It'll be interesting in a few years to see how historians treat this extended episode of "lies, damn lies and statistics" a quote attributed to Benjamin Disraeli.

 

The sheeple don't have a hope of understanding what is really going on underneath the machinations of the "dictatorship of the bourgeoisie". Their media certainly won't help them. Luckily the internet has enabled word to spread freely to those who are receptive as well as linking people of like mind and interests, I'm sure to the chagrin of "Big Brother" who was likely totally blindsided by this wonderful development which has so far remained relatively open.

 

Meanwhile perhaps hyperinflation is the only cure from this point forwards - deflate all debts and fudge earnings? Even a lowish 15% pa would have an effect, ie debt would halve in value in 5 years. An added benefit is the possibility of highly negative real interest rates which add further gloss to the profit-making potential.

 

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I like this guy as he gives it straight:

 

http://www.financialsense.com/Market/barbera/2008/0617.html

 

 

Disco Balls, Donna Summer, Pipeline Pressures

& the Great Housing Collapse

BY FRANK BARBERA, CMT

 

In a session packed with a great deal of economic data, the latest thermometer readings for the US economy continue to show a patient seriously laid up in the intensive care ward. To begin with, prices continue to soar with May Wholesale prices moving ahead at the fastest pace in six months for a single month period, and with a year-over-year rate of change still running at 7.24%, the PPI remains near a multi-decade high. Entirely unreported and with the most serious implications for where things are headed next, two measures of pipeline inflation continue to remain in long term high inflation territory. To start with, if we compare Wholesale prices to Consumer Prices, the PPI less the CPI, we find that with PPI now running at 7.24% annualized and (excuse me while I cough) CPI running at 4.08%, the spread between PPI less CPI widened out this month to 2.99%, near the highest levels since the late 1980ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s. A measure of Pipeline Inflation, the new highs in this gauge continue to suggest that Stagflation will be with us all for some time.

 

 

Above: Pipeline Inflation ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ PPI less CPI at a nearly 3% spread = very high.

 

 

Above: Soaring Crude Materials Index for PPI (thin line) versus PPI Finished Goods (thick line)

 

In addition to the PPI and CPI comparison, we can also examine the pipeline ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“pass thruÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ within the Wholesale price chain. To this end, the forward view is quite dim indeed as Crude Materials, the first wrung in the pipeline, are moving up at an annualized (hope you are sitting down) rate of 34.15% through todayÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s report, compared with the 7.24% for PPI for Finished Goods. ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s a whopping 27.74% percent of forward upside pricing pressure in the pipeline more powerful than anything seen in quite some time and confirming beyond question that the late 1970ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s have returned. With Donna Summer about to start a new tour in the summer months ahead, we can only wonder, will Disco balls be next?

 

Donna Summer Tickets Disco Ball

 

Elsewhere on the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“stagnationÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ side ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ check that, make it the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“contractionÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ side of the economy -- we found out this morning that Housing (big surprise!) remains ultra depressed. Home Builders started construction on 3.3% fewer homes in May, with Housing Starts falling to an annual adjusted rate of 975,000, the lowest level since the last major recession seen in 1991. In addition, Building Permits fell by 1.3% in May to a seasonally adjusted rate of 969K with Permits for single family homes tumbling 4%. Finally, reflecting this ultra negative sentiment that is now the hallmark of the great Housing Collapse, the NAHB/Wells Fargo housing-market index fell by a point to 18, matching the prior record low seen in its 22-year history. The survey shows that about one in five builders think the housing market is good.

 

 

Above: the Wells Fargo HMI Index ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ Housing Confidence

 

In the chart above, we use the HMI (ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“housing market indexÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢) as a leading indicator for the broad trend in consumer spending. ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s right, wealth effects, positive or negative, can dictate forward spending patterns and when prices are rising, homes are going down and people donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t have enough income growth to keep up; people begin to feel poorer. In the case of the HMI, it tends to lead by several quarters the directional movement in Personal Consumption Expenditures, a fancy economic term for ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“spending.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ In the chart above, we note that with HMI plunging to new lows, the outlook ahead for the next few quarters for this 70% Consumer spending driven US economy cannot be positive.

 

Of course, we always marvel at how the media manages to focus on the one grain of potential good news in any economic story, while managing to ignore the other 99% of bad news. So much gets swept right past the harried US public. Take for example the Retail Sales report issued just last week. On Thursday of last week, the Department of Commerce announced that Retail Sales for May 2008 grew by 1% versus April, and grew by 2.5% compared with year earlier (May 2007) data. At first blush, many economists heralded the better than expected data as a sign that US Consumers, freshly in receipt of some $41 Billion in government stimulus payment checks, were dutifully spending their new found riches at the stores and malls of the United States. This report came on the back of a reported surge of 1.80% in retail sales in April, leading some to wonder, if Retail Sales are doing so well, how could the United States possibly be in a recession?

 

Headlines and commentary following the news ran as follows:

 

From the NY Times:

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Retail Sales Rally, Stimulus Lends BoostÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“June 12 (Bloomberg) -- Retail sales in the U.S. rose twice as much as forecast in May as Americans snapped up electronics, clothes and furniture, evidence that they aren't hoarding their tax-rebate checks or using them just to pay for gasoline. The figures suggest that consumers, whose spending accounts for more than two-thirds of the economy, are helping stave off a deeper downturn. It's just amazing -- the American consumer's resilience in the face of everything negative,'' Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said in an interview with Bloomberg Television.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Associated Press - WASHINGTON - Retail sales jumped by the largest amount in six months in May as 57 million economic stimulus payments helped offset the headwinds buffeting consumers. The Commerce Department reported Thursday that retail sales soared 1 percent last month, the biggest increase since November. A wide variety of retailers enjoyed a good month, including the biggest increase at department stores and other general merchandise stores in a year. Recession? What recession?" asked Joel Naroff, chief economist at Naroff Economic Advisors. "Spending in April and May was solid in just about every category.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

Not surprisingly, to the casual observer or viewer of financial news or news radio, (where virtually no analysis of the data is ever performed), the conflicting economic headlines from one week to the next must seem ultra confusing. Of course, a closer look at the data reveals the real hidden secret, the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“devil in the details,ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ which officials ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ and surprisingly many economists -- never seem to speak about: inflation. Sure, year-over-year rate of change data may remain nominally positive, but one has to recall that these figures reflect a ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“price times salesÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ equation. Under this outcome, sales may be decreasing or flat, while prices are rising and the aggregate volume data can appear healthy even though a fierce downtrend is taking place. Thus, the secret in viewing Retail Sales numbers is to adjust for inflation, which these days, with prices for virtually everything moving up at a robust pace is the chief driver behind outwardly deceptive economic headlines.

 

 

Above: Monthly change of Aggregate Retail Sales figures adjusting for inflation.

 

Now before going on, I want to be exceptionally clear. Over the years both myself and others have written about the utterly ridiculous process of reporting inflation known as ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“CoreÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ Inflation, which excludes Food and Energy. Originally designed to supposedly ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“smooth outÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ and detect the underlying trend of inflation, the over focus on ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“Core InflationÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ has become perhaps the most absurd concept that has ever besieged the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“scienceÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ of economics. After all, we all have to eat and we all have to get around, so if Food and Energy prices are spiking, in the real world this is where we all live and this affects us all in a profound way.

 

Thus, when reporting inflation, we believe it is crucial to focus on the numbers that INCLUDE FOOD and ENERGY. Conversely, when looking at Sales data, it is unit sales growth that drives businesses forward, and unit sales growth (quantity) that reflects a healthy marketplace. In this case, allowing the inclusion of ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“rising pricesÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ distorts the aggregate figure and in this case, where Retail Sales are concerned, the figures should be analyzed using Retail Sales after inflation.

 

In any case, while this is just my view, for whatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s its worth, backing out the inflation puffery underpinning last week's retail sales figures, the so-called 1% rise in retail sales vanishes to become a very uninspiring .1% rise with a week showing four months running. This result very much agrees with the plunging consumer confidence and rising unemployment statistics reported elsewhere and sets a uniform picture. WhatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s more, if we then take this analysis a step further, we can look at the year over year Rate of Change gauge, again backing out the affects of inflation and we find, lo and behold, a long multi month downtrend in Sales. In fact, instead of the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“biggest gain since last NovemberÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ we actually just saw the first negative reading on aggregate Real Retail Sales since the last recession ended at the stock market bottom in 2003.

 

 

Above: Overall Retail Sales Adjusted for Inflation (ex ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ Food and Energy)

 

Above: Real Retail Sales ex-Inflation versus the Stock Market ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ now back into negative territory for first time since 2003 when last recession produced stock market bottom.

 

Above: 12 Month Rate of Change S&P Retailing Index ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ huge negative valuesÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ The stock market seeÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s the recession. How come most economists canÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t see the recession?

 

All of this is enough to drive a person insane, especially when the stock market rallies on the inane interpretation of totally misleading headlines. In the chart above, we show the annual rate of change for the S&P Retail group which in recent months has plunged deeply into negative territory. If things are so great, how come the S&P Retailing Index looks like it just leaped out the 99th floor window? Come on! Time to get real! S&P Retailers have crashed over 33% since the highs just last February -- a lot worse than the market as a whole -- simply because they know that the trend has been relentlessly downward; they know that this hidden trend has not been reported, but guess what. It still shows itself in their earnings which are also way down. Compare the chart above to the prior chart of Aggregate Retail Sales ex-Inflation. Notice any directional similarities?

 

 

Above: S&P 500 Retailing Index down 33.33% from the high last Feb 2007.

 

In addition to the aggregate Retail Sales figure, a perusal of inflation adjusted Sector Retail Sales data shows a variety of negative trends. Year-over-year, we see US Auto Sales now probing multi-decade lows. Does that sound reminiscent of what we have seen reported each month by the likes of Ford and GM? You bet it does.

 

 

Above: US Auto Sales (New and Used) adjusted for Inflation

 

 

Above: Inflation Adjusted Retail Sales ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ US Bars and Restaurants, Food Services

 

Next, we see that with Oil prices surging, discretionary spending continues to get hit, and hit hard as Retail Sales for Bars, Restaurants and Food Service is also at a multi year low, falling deeply into negative territory over just the last few months. What about other major components of the economy? Well, furniture is moving into deep recession, a multi-year low as is spending for Electronics, TVÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s, and other Household appliances.

 

 

Above: Retail Sales adjusted for Inflation ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ Home Furniture and Furnishings

 

 

Above: Retail Sales adjusted for Inflation - Home Furniture, TV, Electronic Appliances

 

On the Apparel front, we see a pure dichotomy that is heavily gender based. For women, who spend in the aggregate three times as much money as men on clothing, the rate of change is still in ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“let the good times rollÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ territory although on some shorter time series we see signs of topping even there. Perhaps the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“shop 'til you dropÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ mania of the last decade for young ladies is slowing drawing to a close with high Oil prices the ultimate arbiter. For men, the rate of change seems to be following the S&P with about a 12 month lag, and like virtually all the other time series is plunging to multi-year lows.

 

 

Above: Rate of Change for WomenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Apparel Retail Sales

 

 

Above: Rate of Change for MenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Apparel Retail Sales

 

Above: New Home Sales still have a good distance to travel on the downside in order to reach the bottoming zone seen in 1966, 1970, 1974, 1979, 1981 and 1990. Downside momentum still very high.

 

Thus, we see no cause for a change in the overall analysis which continues to suggest that the US is falling deeper into recession, and that at present, there is no bottom in sight for either housing or the broad US economy.

 

At the close, stocks ended with a loss of 112.52 index points on the DJIA, with the Dow closing at 12,156.56 ending with a loss of .92%. For the S&P, Tuesday saw the index end with a loss of 9.21 index points to finish at 1350.93, while NASDAQ closed lower with a loss of 17.14 index points at 2457.64. The 10 Year Bond ended with a yield of 4.22%, down .03 basis points while nearby Gold ended at $887.00, up .70 per ounce.

 

Frank Barbera

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Hi,

 

I am not sure any guy gives it straight.

 

whilst I sound on the fringe with this the US GDP as of last read basically has not moved its inflation indicator since oil was US$75- ish ... that accounts for the mere 0.3% they moved it.

 

The official CPI guys have not moved in effect since oil hit US$100-.

 

If I were like most economists or analysts lazy or trusting I too would be making similar calls based on the official numbers and going yep no inflation no real threat to rates so we can scratch that one off the list. no threat to companies earnings and do the same.

 

Sadly the next set of numbers out of the US will only represent oil for Apr-June and the ave US$118- likely costs lagging even lower than this because their trucking company still playing catchup with the rises already so maybe US$115 - .... these actual results I suspect poor and even poorer than analysts calls overall despite taking them down 5% in the last month. To have them then jump 10% the next quarter shows how absurd stupid and idiotic they are, not going to happen with whole slabs of prices catching up with reality.

 

I dont have to be politically correct.

 

However I make the call the US federal authorities are lying thru their teeth for the first time in 25 years . They are lying and the lie so large its a case of the bigger the lie you tell the more credibility it gets sometimes. What idiot who buys food in the USA thinks prices have gone down last 6 months ? Or someone who flies where the airline ticket may have even dropped but the fuel surcharge is now your firstborn child. As to petrol at the bowser or local rates or electricity and a host of other things 2008 has been shocking yet the headline rate has not moved ... CPI in DEC 2007 was 4.1% and in the last read 4.2%.

 

The guy you have referenced whilst he is mildly questioning the PPI and CPI he missed the point on both. PPI has also been seasonally adjusting the hell out of the numbers and I keep awaiting the real and actual price of oil imports to hit the series but they keep getting removed via statistical smoothing. At last read the PPI price of imported oil was US$114- for May but adjusted down and out by previous smoothing to US$100- . basically when oil went from US$80- to US$100- the move was taken out so the picture being painted right now is Us$100- for PPI not US $117- as was the ave for May the last set ... actual refined products the PPI adjustments were even worse and petrol after adjustment along with Diesel in PPI had US petrol prices at US$3- per gallon about 33% below reality and even more for diesel. Since in the PPI the fuel component and weighting is around 17% or at least was when petrol was 50% lower not reporting 33% ..... and thats exactly what they have removed via the buggering and seasonal adjustment meant the PPI rate should be 5% higher than is was 6 months ago.

 

PPI rate is about 1% higher than it was 6 months ago .... they couldn't keep out the rises because looking at the raw numbers in the PPI the food and grain input prices are up 40% they couldn't keep them out ... the manufactured or semi finished goods went up 15% again they couldn't keep it all out ... but they have done a mighty job on the PPI even more than the CPI and the CPI I suspect is understate on their own methodology by around 3% and the real rate is 7% vs reported 4%.

 

PPI due to a weighting of oil well over twice the PPI at 17% if the price of oil just toil forget the food and imported manufactured goods .... 50% on something weighted at 17% means the PPI should have gone up a massive 8.5% ..... letting it run 0.8% I suppose is a big thing but as a factor of production OIL and transportation costs via oil are a massive factor in the whole PPI equation.

 

No I am wrong ... in Nov PPI peaked at 7.3% then some serious playing started with the numbers so in Dec 2007 when oil was US$84.50 for the month the 12 month PPI inflation was 6.3% for the 12 months ..... last read

 

Oh my ... lets go from November when oil was similar to December US$85- per barrel.

According to the BLS PPI was 7.3% in November and since then how far have they allowed the energy index move ?

 

Have a look at it its pretty plain for all to see ... after seasonal adjustments the energy component of the PPI index moved Minus 3.5% then plus 2.2 plus 0.6 plus 2.9 then minus 0.2 then plus 4.9%. In total after adjustment 6.9%.

 

In plain English last 6 months PPI energy side heavily weighted towards diesel and petrol has according to them moved up 6.9%.

 

Did you know the price of diesel has gone up 60% on the retail side, petrol 51% in the same period and crude oil the slowest at 39% but thats just to US$117 mind you not to here and now.

 

Be afraid these adjustments I believe are temporary the seasonal ones then again maybe they resort to outright lying overall. They have not missed the rises at all its that they have chosen to statistically remove them and the crude rise in energy is actually there the raw numbers but they have outright removed its impact from the PPI because in their view it was a seasonal blip or a statistical abnormality . If you look down the tables the crude energy inputs are in fact showing the exact rises 39.1% for the Crude inputs on the energy side but after seasonal adjustment only 6.9% of a 39.1% rise to date is showing up.

 

Seasonally adjusted out .... table two the May 2008 release right hand side the energy side vs the first table after adjustments. Taking out something with a 17% weighting and making a 39% rise a 7% rise of 32% ... and this is just till May or US$117- per barrel understates the PPI in reality to May by 5.4% !!!

 

Its as plain as day what they are doing if your not a lazy economist and know your stuff.

 

If 5.4% on to PPI already at 7.2% doesn't scare you thats just to US$117- per barrel of oil so at US$145- ish its another 23% or in total 55% that the Energy component of the PPI at 7.2% is unrepresented on things. At 17 % weighting thats how I arrived at PPI in fact 15% and above .

 

Dec PPI

 

http://www.bls.gov/news.release/archives/ppi_01152008.pdf

 

May 2008 PPI

 

http://www.bls.gov/news.release/archives/ppi_06172008.pdf

 

Sadly US companies are being smashed with these PPI increases and forced to pass them on and when they put the happy meal price up at the 4 star restaurant by 8% as they did over there and 10% over here I am no longer going to have my birthday parties at McDonald's !!

 

I have never seen this extent of adjustment for so long. Katrina was a one off event and was smoothed and so too was the US refinery shutdowns and subsequent fires of 2007 but the adjustments to date last 6 months have combined the length of both the Katrina adjustments and the depth of the effect on petrol from 2007 when there is zero justification in 2008 for either adjustments.

 

Hoping the price comes back and your adjustments smoothing things are correct is no justification to understate CPI using exactly the same bogus methodology by what i suspect is 3% so CPI at 7% instead of 4.2% as reported and PPI has lost the plot even till the end of May and US$117 oil the understated side was 7.2% PPI reported when its in reality 12% but the catchup to oil at US$145- is another 3% onto PPI so PPI inflation reported at 7.2% vs a real number and an insane number of 15%.

 

I am not inventing these adjustments go thru the two releases and see for yourself.

 

Link to oil is easy enuf and you can find it yourself but it was for the months of November and December both around US$85- for the months and same in Jan 2008 rising slightly till May and the ave was US$117- for the whole months to June at US$132- or so.

 

they are lying their faces off at best. Hoping something happens is not always a good thing. Part of the problem I honestly suspect is the market was scared at US$75- to take oil above that level because of inflation and impacts on earnings. not reporting the PPI or CPI pain is nice but doesn't change the fact the consumer pays the price and has to budget accordingly. Companies hit ... no smashed with massive cost increases and unable to pass them on have their profits squeezed like a pip . this quarters numbers are going to be not great but that will not show a full quarter at US$130- just one at US$115- or so ...... and the proportion of costs that is made up by fuel gets larger as the price goes higher. When oil was cheap the transport costs made up bugger all of things and by US$75- they were as high as 10% of the mix and there was no other savings they could cut corners in other areas to compensate.

 

God forbid we average US$145- this quarter vs the last quarter of US$115- not that the PPI of CPI is reflecting either. As 32% discount on 117 as they are using its still Us$80 per barrel. Sounds insane but look at the table and after adjustment numbers somewhere between a raw rise of 39% and an adjusted 7% after adjustment the 32% disappears into some black hole.

 

US$145- vs $115 is another 26% for heavens sake. Unable to pass the last rises on the US corporate profits are going to look sick. As a result the companies which use transport are squeezing the truckers and going we dont want to increase the prices we payed in Jan 2008 so trucking and transport industries are imploding and Airlines and Parcel delivery guys the worst of all. Its at the stage where they just go broke or pass the rises on and the likes of Walmart being able to squeeze suppliers down the chain are over as time goes on. transport costs from China via shipping recently raised prices by 20% and are again asking for the sames rise. Again not reflected in this quarters numbers.

 

Sorry rambling ....

 

But the scope of what is being served to US public and financial markets right now is very very dangerous from many standpoints. Us corporates unable to ever get ahead of the price rises and as such its a spiral already set in stone to catch up. Corporate profits have not a chance of going up and the opposite looks assured unless you thing a real PPI inflation of 15% or so is something that one can make money on when your unable to pass it on.

 

With the rest of the world and massive amount of the 55 trillion US debt pile held by those overseas and the bond market with a yield on the 10 years at 4% ish and assuming the picture as presented at 4.2% is close to th mark will not react well to a 5% of 6% CPI let alone a 7% one. Not well at all.

 

Said it before in my ramblings ... but I believe they have gone too far with this and run a real risk of wholesale slaughter like when they went after the countries in the Asian financial crisis and South America and Russia. Full blown nuclear fallout is a worst case scenario and once a country decides to default wholesale on debt it never recovers. long ways away for the USA but the scope and size and level of the lies being told right now are at levels not ever seen before.

 

Simple as that. I have had little reason to doubt the US numbers as presented in a 25 year career in financial markets. That is till 18 months ago when funny numbers started when the market was at its lows out comes a positive number but this was nothing outright bad ... what has gone on last 12 months .... telling me PPI the price of oil is less than 7% higher after adjustment when its 39% on the raw side ... same level of adjustment for CPI .... doesn't hit the trade numbers or the positives do the fuel exports are up 39% on one side but the import numbers are up 7% on the other ?

 

enuf ....

 

Like these two links ... not great but better than most

 

http://www.rgemonitor.com/index.php

 

http://bigpicture.typepad.com/comments/economy/index.html

 

 

Worst ...

 

Bloomberg used to be ok but its become politically correct.

FOX CNBC both pathetic in the extreme .....

 

 

In the end its not even a question where the market goes the next 6 months, not with PPI at 15% and CPI at 7% . They choose to not report it the end result is the saem and hopes of a recovery less than zero. Take $20- from the consumers pocket with no pay rise its hurts other areas take $60- and its insane to think its not going to hurt.

 

Sure they might produce some lovely story for US consumption about the big bad mean person is vanquished or the US will save the day and the bounces might be vicious however with such sucky underlying fundamentals the chances of a recover I rate at zero. the chances of a severve 1987 style correction cant happen nowadyas the marekt has too many speed brakes and after it goes down a second limit it closes for 90 mins so its not possible. However another 20% from here over the next 6 months is about what I see. not in a single day or two days, the plunge protection team will announce some plan which sounds good like the last 3 it announced ... however its still goes down in the end.

 

Prices must refelct realities in the end.

 

Don't respect risk and you pay the price.

 

Awaiting 4,700 in the ASX 200 but beoming more in love with the 4,100 sort of leve after spending time looking at the raw numbers in the US vs those presented to stupid US investment bankers or idiot hedge funds.

 

 

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Very detailed and to me what you say is a given. Hand out the hard hats.

Slightly offf subject but relevant to lying and the future economy is the question of global warming. Nasa announced that they had made an error in their readings of the atmospheric temp. and the world has not been warming for the last ten years. What's melting the artic then? Who pays Nasa? Good old George. Makes me wonder as this type of announcement is very convenient to the current energy providers.

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Even if you believe the numbers it makes very poor reading for the US. I haven't seen one decent piece of good economic news out of the US recently. Ultimately banks are stuffed and with liquidity in the system being propped up by printing money it is all going to end in tears. If you look at who really controls the Fed then you will realise who they are trying to save... it is not Joe Average American.

 

Europeans are doing ok at the moment, but the UK looks very shaky to me. The residential property market is showing signs of imploding and banks are already creaking. If prices come off 20-30%, look out below.

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In reply to: theflasherman on Sunday 06/07/08 03:28pm

Hi flash,

 

Yep well been expecting the US CPI and PPI to explode for some time with the rising costs of things.

 

the Oil and energy side has been statistical removed from the CPI and PPI. Same can be said for trade numbers and the increased cost of importing 12 mmboe a day not appearing.

 

Its not just oil alone.

 

Last 12 months the price of imports has risen and this is just up till May when they average price of oil was US$117- per barrel the next month released over the next 2 days is for June and oil in June was far worse up around the US$130- ave and yet still more to come.

 

Even if I put this aside the import price index which measures everything imported in the last 12 months has risen .... 17.8% in price.

 

In the last 6 months its up 9.2% or at a faster pace than the first 6 months which saw CPI rise 1.5% headline and PPI 2.5% on the headline number yet both CPI and PPI to date have not increased by much PPI they couldn't hide it all but CPI not moving or moving by 0.1% when import prices have risen an annualized rate of 18% yet CPI doesn't move is just garbage.

 

http://www.bls.gov/news.release/pdf/ximpim.pdf

 

What is scary is the oil import price is time lagged and due to the fact he shipping of oil from OPEC countries includes a price time lagged up to 8 weeks the actual import price index up 17.8% for the 12 months includes not the May price of oil but an early April late March price which was US$110- or so.

 

All this is nice, but if one take out oil and looks at other things which after seasonal adjustment on PPI or CPI show zero changes for 2008 and then looks at the actual prices paid and how they arrive at after seasonal adjustments zero or negative price increases for the PPI or CPI it becomes even more annoying or concerning at least for me.

 

Going thru the tables and increases just in 2008 there are whole swags of import prices exploding which are contradicted by the PPI after adjustment numbers or CPI after seasonal adjustment prices.

 

In short either they have gone mad with seasonal adjustments or they are outright lying.

 

Never had cause to question the numbers in such depth in 25 years of watching them. Never because its not been the case of western govts of skewing the numbers to hide an unpleasant reality. Sure they may have unusual numbers via adjustments here or there but this is wholesale and total slaughtering and lying. Sad but only way one can logically reach these produced or manufactured numbers.

 

Next sets come out late this week and PPI and CPI following week and not holding my breath but turning a 38% rise in one thing into 6% after adjustment or a 52% rise in another into 12% after adjustment is nice for the the oil side but here are some which have disappeared or been totally reversed a positive rise in prices turned into either zero or negative when one looks at the CPI.

 

Industrial supplies excluding petroleum up 17% ... missing in action from PPI

Non durable goods supp + mat up 19% ... missing in action from PPI

Unfinished metal goods up 22% ... missing from PPI

 

 

On the consumer side .... last 6 months things like manufactured non durable goods are up a mere 3% on an annual basis sad thing is the raw number comes out showing the increase price paid then the next month its seasonally adjusted out however 90% of the rise comes from the last 6 months even after this buggering and the Chinese currency during the 12 months of 2007 appreciated 7% ... in the last 6 months alone in 2008 its done the same. Sadly since they started measuring cost of Chinese imports back in 1998 the cost has always been falling and a positive to US CPI and PPI via importing deflation for the first time ever they rose above zero in the middle of 2007 and right now despite some unexplained adjustments for seasonal factors which were utter BS making a rise in apparel price of 6% into a minus 1.6% fall even with three similar adjustments the reported rise in import prices last 12 months from China is still plus 4.6%. If you have a currency thats done 11% negative in th last 12 months if you suggested to me they cut the prices in any way shape or form from China I might call you a liar. But this is exactly what the seasonally adjusted index has done. Turned an actual increase that the raw number was at least the exchange rate appreciation of 11% into 4.6% . Even if it was just 4.6% its added to the massive increases in other categories.

 

Being blunt the USD has lost 11% against the CNY in 12 months. The numbers as presented suggest China who has inflation running at 8% and cost increase clear been higher than the reported US numbers by 4% not only took a 4% bath on the increased cost of production their side and then decided to slash prices a further 5.4% in CNY terms in total taking nearly 10% less in a 12 month period or so the story goes according to the US import price index. Sadly one set of numbers contradicts another and since despite Chinese numbers not being my favorite ones in terms of reliability suggesting to me in a 12 month period China dropped their prices 10% across the board to the USA is what the US numbers are suggesting. Or at least in real terms that is when one adjusts for currency and relative CPI pressures. Pretty absurd to even suggest it because if you dropped already thin margins the Chinese make on their manufactured goods by 10% in real terms would HALVE the profit margins there and no real evidence of any such thing in Chinese numbers but this is the case being presented by the US via another set of fabricated numbers.

 

Pretty simple stuff but again as absurd as the CPI not rising at all in 2008 when the price of petrol rises from US$2.70 to US$4.10 or the price of a loaf of bread up 35% in 2008 nope there is no inflation here in the USA.

 

Do they start to tell the truth this week and next week with PPI or CPI ? I suspect they are fresh out of seasonal adjustments ... then again i thought so two months ago when I noticed the actual prices being payed for Chinese imports rise 1% three months in a row but then they adjusted the numbers despite the fact the USD/CNY rate rose over 1% each of the months and since they didn't tell us I suspect they have viewed the rise of the CNY which has been a constant 1% per month last 6 months like the rise of oil as something seasonal and expecting it to come back.

 

I am still sitting on the bids in the AUD/USD at 48 cents and on the offer to sell USD at 340 vs the JPY as it was back in 1980. US has about 5 different departments which report statistics awaiting the CNY to reverse and the price of oil has not moved from US$100- and they sit on the bid. Maybe with oil it goes there but right now its US$145- ish and reporting its still US$100- for CPI or PPI or trade numbers or fudging retail sales will not change the reality.

 

last post till either 4,700 on the ASX 200 or the PPI and CPI in 10 days or so.

 

Find this whole state of affairs upsetting and highly disturbing that a country can be so arrogant and serve lies that even the dumbest of the dumb can see the prices of things are not flat and in fact rising and rising at disturbing rates. With a currency which has been strong we to some extent are lucky not to get the full impact however if petrol was now US$2.00 and we didn't have a currency up 15% I think we might be skeptical of a CPI that didn't rise. So why has the world swallowed the US presented picture ? How can Europeans with a similar currency appreciation now have a CPI about the same as the US and one which has risen 5 times as much as the US side in the last 6 months when their currency like ours has insulated and dulled down any imported inflation impacts ?

 

If you want a giggle the US imports from China when one looks at the Euro imports from China and price increases ... Europeans its seems are stupid and have been paying 10% more than USA when one accounts for the currency or so the presented economic numbers suggest. Obviously this is not the case or maybe US is just smarter than the stupid Europeans :} US is just better at driving a bargain and the Chinese took a 10% loss in real terms just to do business with the USA so the numbers tell me.

 

 

This is so absurd its annoying. USD depreciated against CNY and does it at 11% . So the cost of imports from China goes up how much ? Just 4.6% . In other words Chinese cut their prices by 5.4% to USA ? Absurd to start with. When Chinese CPI has risen by 8% and US by 4% and Chinese workers have demanded more and costs have risen more by 4% more the difference is around 10% Currency and costs inside China, instead of the Chinese raising prices in CNY a little maybe even passing on 2% of the difference they in fact cut their prices in CNY by 10% ? Because after the currency is taken into account this is what the US numbers suggest. An item which sold to a Us company in 2007 was costing CNY 100 and in 2008 its now only CNY 90 ?

 

Pull the other one ....

 

back in a week or so .... maybe sooner if the world wakes up but not expecting any change soon. Hard to accept something which has been reliable for so long has taken on the content of a trashy newspaper with page 3 girl and official releases are now for entertainment purposes not factual content.

 

Cheers

 

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In reply to: kahuna1 on Monday 07/07/08 08:54am

So why has the world swallowed the US presented picture ?

__________________________________________________________________________

 

K1: The WHOLE world hasnt swallowed the US presented picture, but guess what:

 

Those of us who read avidly the more informed world stockbroker analysts and newsletter writers have long since warned of just this sort of event, and been laughed out of court by those who did swallow the whole shebang, I can vividly remember in another place pointing out that fundamantally Sir Printsalot was creating an untenable situation, trust they dont have any borrowings as the wheels finally part company from the chassis.

 

Think on the positive side however, rest assured there WILL be sector winners, and there WILL be some fabulous bargains---just a matter of thinking about it and positioning oneself mentally.

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In reply to: theflasherman on Sunday 06/07/08 03:28pm

but the UK looks very shaky to me. The residential property market is showing signs of imploding and banks are already creaking. If prices come off 20-30%, look out below.

_________________________________________________________________________

 

Flasherman, 20-30%---its happening right now. Ive got family living in the prosperous South East. 100K from the big smoke. They tell me that estatge agents closing down like flies being swatted, nobody views property for sale. Different employment methods for property boys in the UK, usually salary plus car but no commision. ie the UK Estate Agents move very fast when things go wrong, here of course they dont get too concerned about the fate of the "Real Estate Sales Force" since all it costs the "Employer" is office space and a phone bill for which they extract 50% of the sales force earnings. The "lads" simply dont front up to the office when theyve had enough.

 

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