"A Sham GDP For A Sham Economy"......

The high quality of the GDP aka "Government Domestic Product" growth is indeed "impressive".... As a GOLDBUG you gotta love this kind of "sustainable" growth.....

Solch "solides" und vor allem "nachhaltig" erkauftes GDP bzw "Government Domestic Product" Wachstum verdeutlichen eindrucksvoll warum ich starker Befürworter von GOLD bin..... ;-)

Mean Street: A Sham GDP for a Sham Economy Even Newmark

Americans rejoice! GDP grew by 3.5% in the third quarter and the recession is over.

It’s time to drink champagne, dance in the streets, and have a group hug with Nancy Pelosi and Ben Bernanke. But whatever you do, don’t ask yourself why the recession has ended. The answer might ruin the party.

The recession is over only because Washington decided it should be. With billions in fresh government spending, it was only a matter of time before GDP posted some growth.

It’s too bad all that government spending is borrowed money. Someday, we’ll actually have to pay off this year’s $1.4 trillion deficit.

Of course, all of the president’s Keynesian men will argue that everything is working to plan — the stimulus is stimulating. But it’s hard not to see today’s GDP bounce as a bit of a sham.

Just check out where the economy grew. Almost half — or 1.7% of the pickup in GDP growth came from “motor vehicle output.” That’s the summer’s $3 billion cash-for-clunkers program doing its thing.

H/T Clusterstock

But at what cost?

Edmunds.com just released some compelling analysis on cash-for-clunkers. Apparently, it cost the U.S. taxpayer about $24,000 per vehicle sold. Edmunds gets that number by dividing the $3 billion by the 125,000 additional car sales generated by the program. The methodology makes sense to me, but click here and decide for yourself.

The White House would probably contend that it’s impossible to determine incremental sales — meaning each sale that only happened because of the government $3,500 to $4,500 subsidy. And that the sale of each and every car spurs economic activity well beyond the program’s $3 billion.

But isn’t it possible that the Edmunds.com analysis is actually understating the true costs to the taxpayer? What about the interest costs on the borrowed $3 billion?

What about the cost of propping up GMAC so that it could underwrite cash-for-clunker loans?

That’s the catch with all this government intervention — lots of unforeseen consequences. And we never learn. The trillion dollar disasters with Fannie Mae and Freddie Mac haven’t stopped the government from tinkering with the housing market.

Consider another one of Washington’s smashing successes: the $8,000 credit for first-time home buyers.

For the third quarter, “real residential fixed investment” — also known as “homebuilding” — jumped 23.4%. That boosted GDP by another 0.5%. Do you feel like hugging Harry Reid now?

H/T Mark Hanson

> More Homes.......Just what the Doctor ordered...... Thank god there are only 18.8 Million Vacant Homes In Q3 ......

> Mehr Häuser.....Macht bei Ansicht der o.g. Grafik die das Verhältnis von neuen Hausverkäufen und neuen Zwangsvollstreckungen extrem viel Sinn..... Besonders wenn man bedenkt das in den USA lediglich 18.8 Million leerstehende Häuser existieren ...... Brauche nicht zu erwähnen das diese mehr als sinnvolle Förderung gerade ausgedehnt und verlängert worden ist......

But we’re not seeing the real cost of the homebuyer tax credit. This is very expensive stuff. The Calculated Risk blog figures the home-buyer credit costs the taxpayer $43,000 per incremental home sale. Goldman Sachs ran its own numbers, reckoning that each incremental home sale cost the taxpayer an astounding $80,000. Again, the methodology seems right to me, but decide for yourself.

And again, this analysis understates the program’s true costs. We don’t include the cost of all the fraud — even though we know thousands of false and improper claims are being filed.

We don’t consider the cost of propping up the FHA , which is now underwriting all of the mortgages

And we can never calculate the true economic cost of messing with home prices – though the crisis over the last three years certainly gives us a hint.

So, let’s party as we welcome GDP growth. But never forget how the party ends – a group hug with lots of tears.

UPDATE

Monument Securities' Stephen Lewis via FT Alphaville

Government purchases were surprisingly strong. Instead of falling back from what had looked an erratic 14.0% annualised rise in Q2, defence spending increased further, at an 8.4% rate.

Cheering Over Ugly Report MISH

Personal income decreased $15.5 billion (0.5 percent), while real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent last quarter. Those are horrible numbers

The savings rate is down, which no doubt has misguided economists cheering, but people spending more than they make is one of the things that got us into trouble.

The government sloshed trillions around and yet disposable income is down, jobs are horrendously weak, and the only reason GDP rose is wasteful government spending, cash-for-clunkers and extremely unaffordable housing tax credits whose effect is soon going to start diminishing even though the program was just extended.

I see plenty of chances for negative territory or at least extremely anemic growth starting in the second quarter of 2010, if indeed not the first quarter.Let's see what Christmas brings.

I am expecting far weaker numbers than most. In the meantime, let's party even if only for a day or two. Reality is likely to return soon.

Mark Zandi H/ Claculated Risk

This suggests that all the growth in Q3 was due to the stimulus package, and the impact will now wane - only 2% in Q4, and 1.5% in Q1 2010 - and then the package will be a drag on the economy in the 2nd half of 2010.

It's Alive, It's ALIVE, It's ALLLIIIIVVVE! Paul Kedrosky

Turns out coursing a few gigavolts of financial stimulus current through even an economy the size of the U.S. will still get Frankenstein off the slab, however briefly.

Inside GDP : The Figures Behind The Number ( nice chart )

Full GDP observations from Goldman Sachs ZH

David Rosenberg: GDP Head-Fake H/T Expected Returns

> Why i´m not surprised that the bubblehead from CNBC brouht up all the "Cash On The Sidelines"...... UPDATE: What a difference a day makes.... The same guys laughing at Rosenberg & spinning the cash on the sidelines, strong gdp, markets moving higher etc have reversed course and are suffering severe AMNESIA.....Click here for BUBBLEVISION at its best.....

> Passend zur euphoriuschen GDP Stimmung verwundert es nicht das der Typ von CNBC das Totschlagargument "Cash On The Sidelines" ins Spiel gebracht hat...... UPDATE: Was für ein Unterschied doch 24 Stunden machen können.... Dieselben "Gestalten" die noch gestern Rosenberg "belächelt" haben und was von Cash on the sidelines, starkes GDP, etc gefaselt haben leiden unter akutem Gedächnisverlust und haben Ihre Meinung um 180% gedreht....Hier klicken um zu erfahren warum CNBC als Bubblevision geadelt worden ist....

From the latest Rosenberg report

U.S. Q3 REAL GDP — ABSOLUTELY NOTHING TO GET EXCITED ABOUT

Never before did a gap between a 3.2% consensus GDP forecast and an actual print of 3.5% manage to elicit so much excitement in the equity market. It just goes to show how speculative the stock market has become. The question is why it is that the economy couldn’t do even better?

Historically, the auto sector adds 0.1 percentage point or 0.2 percentage point to any given GDP report. In the third quarter, courtesy of cash-for-clunkers, the sector added 1.7 percentage points to the headline figure, which is less a than 1-in-10 event in terms of probabilities.

Because of the housing and auto subsidies, the personal savings rate plunged to 3.3% in Q3 from 4.9% in Q2 — in the past quarter-century, there have been only four other times that the savings rate went down so much in one quarter.

If not for that plunge in savings, real GDP actually would have contracted fractionally last quarter. The entire GDP growth was funded by a rundown in the savings rate that occurs less than 5% of the time.

Moreover, what is normal in that first positive post-recession GDP release is a 5% annual rate of growth. That puts 3.5% in Q3 into a certain perspective, especially when you consider the massive amount of stimulus that underpinned the latest batch of data.

While it seems very flashy, 3.5% growth is far from a trend-setter. Let’s go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters.

That is almost 25% of the time, by the way.

And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak

Without "Cash for Kindles, I-Phones, trucks etc" 2010 will be very "interesting".... Thank god the "experts" still argue the stock market is discounting the obviously bright outlook for the coming years....How else would you justify one of the biggest stock market rallies of all time ( chart ) ...... Would be shocking to see the "Herd" get it wrong ......... ;-)

Ohne "Cash for I Phones, LKW´s usw. " dürfte das Jahr 2010 mehr als interessant werden.... Zum Glück schauen die Märkte ja wie uns regelmäßig erzählt wird voraus und haben die "exzellenten" Aussichten für die nächsten Jahre sicher eingepreist.... Wie anders ist einer der gewaltigsten Aktienmarktrallies aller Zeiten ( Chart ) auch sonst zu erklären.....Wäre ja auch das erste Mal das die "Herde" komplett daneben liegen würde, oder ? ;-)

Fuzzy Numbers Chris Martenson

"Enron-esque characteristics".......

Chris Martenson´s Crash Course Must See Clip!

Unmasking "creative accounting" on such unimportant subjects like CPI, unemployment, GDP etc via Chris Martenson's Crash Course. Click here to start the video. You will love it. Almost every other episode is as good as the "Fuzzy Numbers" clip. Got gold...... ?

Seit ich mit dem Bloggen im Jahr 2006 angefangen habe hat mich am meisten fasziniert wie es die USA schaffen mit zum Teil wahnwitzigen Kalkulations und Berechnungsmethoden Ihre Statistiken massiv "aufzuhübschen" und damit Ausländern die $ Anlagen schmackhaft zu machen. Betrachtet man wie die Mittelzuflüsse aus dem Ausland entwickelt haben muß man Ihnen ein riesengroßes Kompliment machen. Die PR und Spinversuche stellen die des Irakfeldzuges locker in den Schatten. Auf der anderen Seite muß man schon fragen wie man diese zum Teil halsbrecherischen Methoden die Enron & Co blaß aussehen lassen als Investor nicht durchschauen kann.... Das dabei die eigenen Bürger auf der Strecke bleiben und diese "kreative Buchführungen" furchtbare Auswirkungen haben interessiert die politische Klasse ( parteiübergreifend wohlgemerkt ) die ja bekanntermaßen nur bis zur nächsten Wahl denkt wie üblich nicht sonderlich.

Ich empfehle jedem dringend sich diesen informativen Clip zum Thema kreative Statistik der USA in Sachen Inflation, GDP, Arbeitslosigkeit usw. von Chris Martenson's anzusehen. Bin mir sicher das Ihr danach alle anderen Folgen mit Haut und Haaren verschlingen werdet. In stark abgeschwächter Form findet ähnliches sicher auch bei uns statt. Die Ausmaße die in den USA notwendig sind um dem Rest der Welt vorzugaukeln das der Boden noch nocht rausgefallen ist belegen eindrucksvoll wie desaströs die tatsächliche Lage schon seit Jahren ist. Behaltet die Aussagen vom Clip im Hinterkopf wenn trotz übler Lage demnächst wieder "überraschend" starke US Zahlen kommen. Beispiele wie diese beweisen einmal mehr warum trotz aktueller Schwäche Gold in mein Depot gehört...... :-)


Hat tip to Barry Ritholtz

I´ll Bet The BLS Will Miss This One....

I just want to remind you that i´m with Mish on Inflation ( see Inflation: What the heck is it? ). I also want to highlight a world class rant from Aaron Krowne on this topic. The Truth About Inflation .

But when you go with the "official" definition of inflation ( rising prices ) and take the history of BLS calculations or how Tim from The Mess That Greenspan Made has described it "Guantanamo-style torture of the inflation statistics by government economists" into account i doubt that they will adjust for such "complex" things like smaller box sizes .... :-).

Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ). Darüberhinaus möchte ich Euch diesen wirklich gelungenen Rundumschlag von Aaron Krowne zum Thema ans Herz legen The Truth About Inflation .

Wenn man aber der offiziellen Sprachregelung ( steigende Preise ) folgt und dann die äußerst "kreative" oder wie The Mess That Greenspan Made es ausdrückt "Guantanamo-style torture of the inflation statistics by government economists" in die Betrachtung miteinbezieht habe ich starke Zweifel ob diese Preiserhöhungen "enttarnt" werden...... :-)


Thanks to Wall Street Follies

Smaller Box, Similar Price
WSJ: Many food manufacturers are retooling assembly lines to produce smaller versions of everything from cereal boxes and ice-cream cartons to mayonnaise jars, margarine tubs and cheese packages. By giving consumers less for roughly the same price, food executives hope to keep consumers from moving to cheaper brands.

Consider General Mills Inc.'s Cheerios cereal. When the American Farm Bureau Federation sent members into supermarkets to conduct its second-quarter food-price survey, the 10-ounce box of Cheerios had vanished. So the volunteer shoppers turned to the box nearest in size, 8.9 ounces.

The smaller box cost $2.98 on average, up from $2.86 charged by the stores for the bigger box a year earlier. On a per-ounce basis, the retail price of Cheerios jumped 17% to 33.5 cents in the second quarter from 28.6 cents a year earlier.

General Mills spokesman Tom Forsythe said moves by the Minneapolis company can't alone explain the big retail-price jump. It's possible that supermarkets, which set the retail price, are taking advantage of an opportunity to add some margin of their own.

David Mackay, Kellogg's chief executive officer, said in an interview last week that his company has shrunk about 10% of its U.S. breakfast-cereal boxes by an average of 2.4 ounces. With the company's input costs climbing 9% this year, Mr. Mackay said he doubts grain prices will ever drop back to where they were just a few years ago.

Pimco´s Bill Gross Must Read Piece On CPI

The following post from Bill Gross is worth reading every single sentence. While i´m with Mish on what Inflation is ( see Inflation: What the heck is it? ) it is very telling how the US is able in depressing the symptoms of inflation. But as long as foreigners are willing to destroy money in buying US treasuries and agency paper one has to congratulate the US for their excellent PR ( no sarcasm! )........ I´m staying with gold......

Ich empfehle dringend das komplette Posting von Bill Gross zu lesen. Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ). Es ist schon bemerkenswert wie die USA es schaffen die Symptome der Inflation auf äußert vielfältige Weise zu manipulieren. Der Irakfeldzug ist verglichen damit ein Lacher. Solange Sie es trotzdem schaffen genügend ausländische Investoren zu finden die Gelder besonders in Staatsanleihen und Papieren von Fannie & Freddie zu versenken kann man es den USA nicht einmal übel nehmen die kreative Berechnung jenseits von Enron & Co zu heben. Man muß hier ausdrücklich das herausragende PR loben ( das meine ich ehrlich ). Ich für meinen Teil bleibe da lieber beim Gold......

Thanks to Wall Street Follies

Hmmmmm? Gross / Pimco - What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois “rail-splitter” willing to tell the American people “what up” – “what really up.” We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

This, dear reader, looks a mite suspicious. Sure, inflation was legitimately much higher in selected hot spots such as Brazil and Vietnam in the late 90s and the U.S. productivity “miracle” may have helped reduce ours a touch compared to some of the rest, but the U.S. dollar over the same period has declined by 30% against a currency basket of its major competitors which should have had an opposite effect, everything else being equal. I ask you: does it make sense that we have a 3% – 4% lower rate of inflation than the rest of the world? Can economists really explain this with their contorted Phillips curve, output gap, multifactor productivity theorizing in an increasingly globalized “one price fits all” commodity driven global economy? I suspect not. Somebody’s been foolin’, perhaps foolin’ themselves – I don’t know. This isn’t a conspiracy blog and there are too many statisticians and analysts at the Bureau of Labor Statistics (BLS) and Treasury with rapid turnover to even think of it. I’m just concerned that some of the people are being fooled all of the time and that as an investor, an accurate measure of inflation makes a huge difference.
The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late 1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.

In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of calculation. The results are not pretty, but are undisclosed here because I cannot verify them. Still, the differences in my 10-year history of global CPI charts are startling, aren’t they? This in spite of a decade of financed-based, securitized, reflationary policies in the U.S. led by the public and private sector and a declining dollar. Hmmmmm?

In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now in a chart shared frequently with PIMCO’s Investment Committee by Mohamed El-Erian, the divergence is beginning to raise questions as to whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor as argued in El-Erian’s recent Secular Outlook summary suggest otherwise.

The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens. But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low CPI in the calculation of nominal bond yields in effect means that real yields – including TIPS – are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories – bonds, stocks, and real estate – would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.

A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right. Hmmmmm?

What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.

Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world. Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.