Q2 GDP: Gross Leveraged Lie
It is hard to find much positive regarding the gold trade lately. The attacks have been multi-faceted during the weak late summer season. So resort to something of value: THE TRUTH. As Ralph Waldo Emerson once said, “The greatest homage one can pay to the truth is to tell it.” When the US financial lattice work was showing clear signals of near total destruction, if not simple decimation, when USGovt bailouts seemed certain to cost in the trillion$ from mortgage agency rescues and FHA mortgage loan mulligans (second chance shot in golf), when US banks seemed caught in a race to raise more cash for equity from friendly foreign fools who fail to read the news, when the USEconomic recession has been turning broad and deep, when General Motors and Ford seem caught managing their death process toward a certain bankruptcy, THE USGOVT NEEDED A REALLY GOOD LIE FROM WHICH TO BUILD A DOLLAR BOUNCE. The Q2 report for the US Gross Domestic Product was a GrossDeception Perpetrated upon the world. The degree of its inherent lie was staggering to be sure, powerful in its impact. The acceleration of the economic recession is as grandiose as the official lie was grotesque. The importance of the accepted lie was momentous, enough to generate a significant USDollar bounce.
The story told at home in the Untied States was that the USEconomy would be the first to exit the troubled times since first to enter it with the explosion of the subprime mortgage crisis last August. The story told at home was that the Untied States is the only nation to eek out some positive growth, while Europe (including Germany), England, and Japan are officially showing negative GDP readings for the first time. The story told overseas was that the US has come clean on bank balance sheet damage, when the USGovt has finally installed powerful rescue plans to deal with the problem. Not a single theme is true. In fact, the lies have grown worse and the public scrutiny of the lies has grown almost totally absent.
THE SHAM GDP CALCULATION
The mechanism used to lie was the same trusty device relied upon in the past: LIE ABOUT INFLATION. Students of economics statistics seem to be asleep, all except the Shadow Govt Statistics folks, who never seem to be duped, as in EVER! The actual stat series involved in the official number crunching is called the Deflator. It is supposed to remove price inflation from the nominal growth. It seems to me that since the USGovt hack charlatan conmen dishing out numeric doctored statistics decided to call it a DEFLATOR so that sleepy people (including network anchors) do not realize that it is the exact same concept as the PRICE INFLATION INDEX in its ideal design. So the Deflator does not resemble the Price Inflation indexes at all, in practical numbers. That should raise questions, but this nation prefers headline news to detailed news. Let’s just take the official doctored CPI data and demonstrate the lie for the Gross Domestic Product in 2Q2008. The exercise shows how silly obvious the lie is, even shows how grossly inconsistent the USGovt statistics are. IS ANYONE AWAKE OUT THERE IN THE FINANCIAL NETWORK MEDIA???
The CPI for the months of the second quarter 2008 showed April at +0.2%, May at +0.6%, and June at +1.1%, ending with the highest sequential increases in a long time. The Q2 period was precisely when everyone including network anchors was expressing alarm at the high cost of everything, from food to energy to utility bills to shipping charges, extending to industry feedstocks, even to import prices from China. The Dow Chemical pair of 25% price rises was in the news. All these seem forgotten when the kooky klutzy GDP was released. The July CPI was again high at +0.8% but that is not the second quarter. So for the heavily doctored CPI in Q2, a simple average is +0.6% on the sequential calculation comes out. By the way, the sequential method enables even more nonsense to be built in, since changes from month to month are notoriously unstable. Annualize the CPI for this simpleton 0.6% average, and one gets about a 7% recent growth rate. The changes in consumer prices compared to a year ago have been in the 4.5% to 5.5% range. Oh heck, let’s just say the official doctored inflation for Q2 was a nice flat 5% for simplicity. And when it comes to USGovt statistics, simplicity is always a good idea. Their worker bees actively seek out methods to render the calculation complicated enough to confuse almost everybody. They like the geometric averages, the hedonic quality adjustments, the substitutions, all that crappola that the public does not comprehend, does not care about, and thus tends to trust the CPI more. The USGovt agencies must know what they are talking about, right?
The official US Gross Domestic Product report last week was an exercise in extreme corruption on the statistical front. It stated a +1.9% GDP growth rate for 2Q2008, in an exercise in pure unadulterated propaganda deception worthy of the annals of history. Even Nazi Germany’s Josef Goebbels would be proud. Tell a lie often enough, loud enough, and the public will believe it. They tell inflation and growth lies repeatedly. The corollary is to tell the big lie precisely when the system is most vulnerable and needs some good news. The public and investment community will latch onto it with glee, and not bother to check to see how ridiculous and absurd the story is. Then defend the ramparts, sell the story, and move on. After all, the past is revised toward reality, but often ignored since a lagged story. The future is where to plant the big lie, since it moves the markets (stocks, bonds, currencys). In time, a revision of the big lie will be done, but nobody will care since its story will again be lodged in the past.
### THE USGOVT G.D.P. FOR 2Q2008 SHOULD HAVE BEEN MINUS 2% ###
Here are the highlighted basic facts from the official USGovt economic growth GDP lie:
Ø The USGovt agency used a 1.1% annualized Deflator for inflation adjustment, which is absurd given the skyrocketing costs that quarter in every conceivable corner.
Ø Even the falsified CPI was registered at close to 5% on successive months within the second quarter.
Ø So the Deflator was 4% wrong high, even versus internal USGovt calculations.
Ø To be consistent within its own corrupted statistics, the nearly 2% GDP growth should have been published as a minus 2% result, a loud recession reading.
Ø The last two official GDP readings would have been –0.9% in Q1, -2% in Q2, back-to-back negatives for quarterly GDPs.
Ø Accelerating economic recession with heavy price inflation is nasty STAGFLATION.
TIME OUT TO EXPLAIN AN EXAMPLE
Time out! Take a minute to explain what is going on at a higher level. Removal of inflation from economic statistics is simple, but to be honest, 95% of Americans have trouble with basic arithmetic. Conversion to another currency on a trip to Ontario’s Niagara Falls is a major challenge. Dividing cost by quantity to find the best deal on large versus small cans of peaches or applesauce or packages of pens or pencils is a mindboggling challenge itself. If an entire economy has zero real growth, as in no growth at all, nothing, but that economy has a 5% price increase across the board, for every product and service in existence, then in the final wash, the economic growth should show 0% in the final figure. Simply, the 5% increase in the nominal amount of goods & services from business activity would have a minus 5% removal from price inflation, enough to render the final figure as 0%. It sounds simple, and is simple. However, if the officials do not recognize the price inflation, and call it 0%, then they would call the growth as 5% incorrectly. They essentially call any improper adjustment to price inflation as growth.
Any under-statement of price inflation is labeled as growth in a totally fraudulent fashion. The USGovt has recruited and trained expert accomplished teams of statistical liars in the Bureau of Labor Statistics. Better stat rats are employed in the Census Bureau, where years ago a friend of mine worked. The BLS is just plain conmen doctors of lies. They have been under-stating the Deflation series, the official measure of price inflation used for the Gross Domestic Product, for many years. The Deflator series typically runs lower than the CPI!!! In the above example, temper and moderate the lie. If they say that price inflation was only 1%, then the nominal 5% growth is adjusted toward a final 4% growth statement for the final published report. That is what the USGovt does. They under-state the price inflation, and whatever they deceive by, that amount is falsely called economic growth. That is one method how they have avoided reports for announcing negative growth in 25 to 27 out of the last 32 quarters.
NOW THE TRUTH ON G.D.P.
However, the truth is worse!!! The actual deflator, if reality were chosen, would have used something much higher. They supplied the graph above. The divergence between official story and truth is widening to an alarming level. The Clinton Administration is the original author to this great lie, with Rubin the co-conspirator, a fraud which costs recipients of Social Security, USGovt pensions, and US Military pensions every month. The lie is over 7% nowadays, between the true CPI and official CPI. The Shadow team actually measure 12.5% as the true honest CPI for people who must live in the United States, or is it the Untied States? Given the laws passed and erosion of liberty, it is more like Untied Snakes these days. The same Shadow Govt Stat folks measure the GDP for Q2 at minus 2.5%, after taking into consideration far more than simple deflator issues.
But the USDollar rallied, since even more powerful corruption was dictated before the US Presidential election, and while the USDollar was struggling in the face of both banking system devastation and failing economic prospects. A reality-based economic growth report would have sent the USDollar into a tailspin selloff, maybe even a rout. So they amplified the lies. The greatest production in any US industry is possibly the fraudulent statistics churned out in the dark chambers of the USGovt agencies. They do produce growth! Exceptions might be perhaps the computer, networking, tech telecomm, or biotech industries. To be sure, the US excels in military weapon technology, used to destroy things, and decreasingly on any defensive basis. The difference this time, in my book, is that the USGovt is lying in much more obvious blatant fashion, without bothering to use much to shield their gross lies. These are bold naked lies.
THE INCREDIBLE USDOLLAR BOUNCE
The USDollar has reacted powerfully from three important factors: 1) false USEconomic growth reports, 2) new weakness in Europe echoed by the EuroCentral Bank, and 3) a selloff from a frenzied crude oil price. The August Hat Trick Letter analyzes these items one at a time. An effective backroom force was also utilized by the central banker brethren, who find themselves desperately on the defensive to avoid systemic breakdown and bank system implosion. WHAT DID CENTRAL BANKERS DO??? The foreign central bankers actually doubled their pace of interventions to purchase USTreasury Bonds in US Federal Reserve custodial accounts, which broke the upside resistance. The last three weeks ending early August had twice the pace of USTBond purchases than the previous twelve months. Details are in the August report.
Is it unpatriotic to point out the grotesque economic growth lies and blatant intervention to corrupt free markets? Nowadays, yes, it seems. The newly defined patriot uses lies, covers lies, and criticizes those who expose lies. Such people wear brown shirts underneath their collared dress shirts, a joke that probably only 2% to 5% of Americans comprehend. Hint: see Nazi and nickname “brown shirt” movement in 1928 Germany. The USTBond is the vehicle for US$ support and movement. Clearly, the central banks are intervening to push the USDollar up, perhaps realizing with technical assistance from Treasury Secy Paulson that the DX index was vulnerable to a huge sudden rise.
The EuroCentral Bank was plain and clear. The ECB is not in a position to hike the official interest rate. They confirmed the economic slowdown that is spreading across the European Union. The euro fell right away, and powerfully so. My analysis a month ago was clear, that the ECB was not going to continue on rate hikes, and would probably reverse those rate cuts. Now my thinking is more akin to believing that the ECB wanted to engineer a top of the euro, so it could reverse from speculative gravity. Details of the disaster unfolding in Europe, centered in Spain perhaps, in the August report.
The last powerful factor was the selloff in the crude oil market. As the crude oil price falls, typically the USDollar strengthens. Demand for energy commodities generally are down in the Untied States. The Beijing Olympics seem to have caused a hiatus in energy imports to the Middle Kingdom. The result was a profound fall in the oil price, one fully warned and forecasted here, signaled by the XLE energy stock index. As the crude oil price fell from the 140s to the 110s, the USDollar was again bolstered. The problem zones like now Georgia in SouthWest Asia also create a global shock toward instability. My view is that a possible second front has opened in the Global Energy War, catching the depleted US Military and lame duck president off guard. Depletion of major oil fields continues. Mexico is now a net importer of crude oil? Gotta check that story which crossed my desk. Nigeria will surely continue as a national thug center, thugs in power, thugs armed at bandits, and thugs cutting deals with them. Crude oil output is not stable, regardless of the region globally. Even the Saudis are playing shell games, talking about output, not being clear as to sour crude versus sweet crude, even as their major Ghawar is in its 8-th inning out of nine.
The USDollar, via its DX index, has filled in a technical thin region between 73.5 and 76.5, and did so fast. Notice how in early June another milder but powerful surge was executed, again when the financial system seemed crippled. What has ensued actually makes possible the next serious decline in coming months. Notice the crystal clear symmetry in the chart, as the rise was as sudden as the fall. That spells instability for an easily occurring correction back down again. The US$ DX index has benefited not from inherent strength, but from relative weakness being realized in the euro. The British pound has also suffered steep declines, as forecasted here in the last several private reports. Even the Canadian Dollar has fallen. The Competing Currency Wars are at work, overtime. The USDollar is not gaining strength at all. It looks incredibly vulnerable. What has changed is that the US$ alternatives have vanished quickly.
The chart above is now encountering the 50-week moving average and the down trendline. It faces heavy resistance between 75 and 77 from the turn of year 2008. Look for a more gradual slide back to 73-74 range, as it fills from consolidation tied to much gyrations, debates, fluctuations, and competing scenarios. Like Wiley Coyote poised atop the chasm after a hearty chase, past the cliff ledge, he is in a bad spot. The clownbuck has no legs to stand upon here. The next round of bank failures and their inability to raise cash selling capital in balance sheet replenishment should be rather stark and a big wakeup call for foreigners who view the US$-USTBond tandem as safe haven. Mix some metaphors, why not? This all reminds me of great Tsunami that hit Thailand and Indonesia in late 2005, when a remarkable phenomenon occurred. The tide went out in a profound manner immediately before the floodwaters hit the shorelines. The financial markets are often well explained by water and weather analogies, as they explain market behavior from the ample liquidity flows, built-up pressures, and exposed differentials. The US$ rally is phony, technical, pushed by central banks, and owes more to the decline in euro, pound, aussie, kiwi, and loonie, than to any revival whatsoever in the US or its financial markets or its banks.
This is a bear bounce for the US$ DX index, one that rendered my forecasts as incorrect, to my dismay and surprise. The W-shape of the recovery does have the appearance of a clear reversal. One must wonder if a heavy long-term oversold condition was relieved, and nothing more. Time will tell. My radar is on the US banks, which will next contend with commercial mortgage losses and a surprising volume of prime mortgage losses, just when car loans, commercial loans, and credit card loans turn sour from the USEconomic recession fully denied. When bank losses extend from residential mortgages into the broad credit portfolios, the recession will finally be admitted, and central banks will be cutting rates in unison, coordinating their actions.
THE NEXT CHAPTER
Next comes central bank stimulus, monetary ease, and profound accommodation that launched the gold trade in 2002. The crude oil story seems the most paradoxical to the mainstream news anchors and guest. They applaud the demand destruction for oil sold, even for gasoline. That destruction comes from the USEconomic recession. The USFed is likely to cut rates next, not hike them. The crude oil speculation came unraveled partly from the gravity of heights, but also from the recession that is not recognized. The central banks will react soon to that recession. Furthermore, the lower crude oil price will give Arab nations less petro surpluses to invest in USTreasurys from recycle. Yet the 10-year USTreasury Note (TNX) yield stays under 4.0%. Important factors keep USTreasury yields down, starting with how price inflation is lodged within costs. Could we soon see lower Arab petro surpluses and lower energy costs result in higher long-term interest rates? Time will tell. A parallel paradoxical effect comes with the sharp reduction in US federal highway tax revenue from reduced miles driven and reduced gallons of gasoline purchased. A huge reduction of recycled funds is occurring back to states. Thousands of job cuts will result at the state level!
The Powerz are attempting to push down gold and dollar up as much as possible before the orchestrated autumn bank sector PULLED PLUG. Dozens of US banks are going to go bust. Also, the geopolitical chessboard seems badly tilted, adding to US financial vulnerability to the extreme. The Global War for Energy just witnessed a serious counter-attack by Putin. He must have looked into the US president’s eyes last month at the summit and seen little to impress, along with a lame duck in office. The tsunami should come this autumn, one to inflict serious damage on the USDollar. The gold trade is still an anti-US$ trade. A difficult transition is in progress for gold to become the global monetary inflation trade. A new foundation on futures contracts must be built. The past gold trade built upon anti-US$ foundation has been largely eroded. The next one to be built upon monetary ease and huge accommodation by major and secondary central banks, in reaction to global recession. A tough transition must occur. Soon gold is to become the hedge against global monetary inflation, as central banks fight at least a Western world economic recession, that includes Japan, Australia, and New Zealand.
The USDollar fundamentals remain extraordinarily weak, and weaker than just a couple months ago. USGovt deficits have doubled in the last year. Tax revenues are way down, like 10% down annually, another confirmation of the recession.Foreclosures for US homes rose by 55% in July, a sign of continued nightmare. Housing prices are accelerating down, as lending institutions holding properties have begun to cave in on price to sell at a time when foreclosures continue in their other doors. The new reality in the housing industry is that two markets are apparent and at work, one influencing the other. There are houses demanded and supplied for the public. There are foreclosures entering and being disposed. In recent months, the foreclosed properties are increasingly dominant, not only making up 30% to 40% of final sales, but continuing relentlessly to supply more homes to be sold, upsetting the balance.
Durable goods purchases are also consecutively negative. Job losses are reaching huge levels. Retail sales have turned negative in a skein, not adjusted for inflation. All the component economic data supports the big recession of more than 5% economic decline argued above. The US is mired in the worst STAGFLATION in over 30 years. Until the November US Presidential election, the USGovt will not admit a recession at all, but rather LIE MUCH WORSE. And worst of all, the USGovt is spending staggering money in a futile foreign war to support private profiteering in military contract fraud, black market arms deals, and without any doubt continued prolific contraband trafficking out of Afghanistan. They might require more funding, since Afghan poppy production has tripled under US aegis (help?), incredibly. How about investing those $200 to $300 billion per year in US infrastructure, gasoline refineries, bridges, pipelines, port facilities, wind & solar power systems, ethanol from sugarcane, and generally projects that employ Americans in ways that do not leave them with missing limbs, need for prosthetics, suffering from traumatic stress symptoms. Let’s launch a US investment program that does not enrich the private profiteers and security agencies in their syndicate operation.
The Competing Currency War has weakened foreign currencies to the point that the USDollar has few if any remaining viable alternatives on the paper fiat currency front. What remains is gold as that alternative. The transition is soon to take deep root. The gold trade will emerge in the next couple months as a response to central bank stimulus, to growing price inflation, to bank systemic risk, and to corrosive geopolitical risk (see Georgia, not as in Atlanta). Watch gold rise in price, perhaps even as the USDollar remains buoyant this autumn, as its competitor currencies continue to weaken.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
From subscribers and readers:
“Your analysis is of outstanding quality, the best I have read. In particular, as a person on the spot, I can confirm the accuracy of your bleak assessment of our prospects in the UK.”
(JanB in England)
“I just subscribed to your services and must say that your insights are so eye-opening that it is like having a window to the future. I never thought that they would in so much detail encompassing the entire world. With all that is going on, I still wonder how you are so in touch with it all.”
(ChrisB in Australia)
“The latest Hat Trick Letter is great work. I am still reading and absorbing, but this is just great analytical work. Truly inspired. I would say you produce a very sophisticated, detailed product that is the best of the bunch. Truly. You help keep me very focused on current events and help me keep my eyes on the distant horizon.”
(RichardB in Texas)
“Your unmatched ability to find and unmask a string of significant nuggets, and to wrap them into a meaningful mosaic of the treachery-cum-stupidity which comprise our current financial system, make yours the most informative and valuable of investment letters. You have refined the ‘bits-and-pieces’ approach into an awesome intellectual tool.”
(RobertN in Texas)
“Your reports scare the hell out of me every month, probably more so over time, since so many of your predictions have turned out to be very accurate. I am afraid you might be right that by the end of 2008, we are in a pretty severe situation, with civil unrest and severe financial stress on Main Street.”
(GeorgeC in Minnesota)
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com