It never ceases to amazes me how investors, who are in the business of pricing reality, can completely ignore the obvious. This became especially true during the internet bubble, as anything with a dot com on the end suddenly became worth billions. Remember K-Tel? Dr. Koop? I think you get the picture.
The same phenomenon is taking place today. While economic statistics continue to demonstrate a rapidly deteriorating economy, investors are all too willing to ignore everything and extrapolate a very unrealistic view into the valuation of equities.
The second quarter Gross Domestic Product (GDP) figures are a perfect case in point. The headline number of 2.4% was already signficantly below estimates made just weeks earlier. And, if we examine the data more closely, it is apparent that the quarter was even weaker than the estimate would suggest.
Inventories have had a major impact on growth over the past few quarters, and the change was estimated to have added more than one percentage point to the 2.4% annual rate of GDP growth reported by the Commerce Department Friday. But factory-order data for June shows that the estimate used to calculate the preliminary number was way off.
The report noted a 1.7% drop in nondurable goods inventories in June following a 2.5% drop in May. The Commerce Department had assumed a 0.5% rise for last month.
According to Shadow Stats, GDP revisions back to first-quarter 2007 confirmed that the economic downturn was more severe than previously reported. Rising inventories and slowing growth have set the stage for renewed quarterly GDP contraction in third-quarter 2010.
The upside revision to first-quarter 2010 growth from 2.74% to 3.73% was also largely the result of inventory growth, which accounted for 71% of the first-quarter’s total gain. Revised real growth was 1.09% for first-quarter final sales, or GDP net of inventory changes. Inventory gains also accounted for 44% of the 2.39% total growth in the second-quarter, with real final sales growth of 1.34%.
Even price inflation quietly was much worse than expected. The GDP implicit price deflator showed an annualized pace of inflation in second-quarter 2010 of 1.83%, up from a revised 1.05% in the first-quarter.
In an unusual divergence, annualized inflation for the Consumer Price Index in the second-quarter was a contraction of 0.72% versus a positive 1.53% in the first-quarter. The higher the inflation rate used in deflating the GDP, the weaker the inflation-adjusted number and vice versa.
While most economic data is backwards looking and has little to no predictive value, it's clear that the "recovery" has been nothing but a phantom. And, with money supply figures contracting at unprecedented rates, the economy and stock market are destined to follow.
Marko's Take
Showing posts with label Money Supply Growth. Show all posts
Showing posts with label Money Supply Growth. Show all posts
Wednesday, August 4, 2010
Thursday, May 27, 2010
Plunging Money Supply Has Ominous Implications
The lifeblood of the world financial system is money. When there's more of it sloshing around, times are typically good unless there TOO much of it, causing inflation. Econometric studies have shown that of the 10 components of the Index Of Leading Economic Indicators (LEI), 2 are the most predictive of future economic activity: growth in the Money Supply and changes in the Stock Market.
It can be argued, quite convincingly, that the Stock Market is itself is highly dependent on growth in money. In fact, it's possible, that ALL 10 components of the LEI are driven by growth in money.
The money supply is SCREAMING! Is anyone out there listening?
The broadest measure of money, called M3, is contracting at an accelerating rate that now rivals the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal orgy in history.
The M3 figures - which include a broad range of bank accounts and are tracked by monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6%. The assets of insitutional money market funds fell at a 37% rate, the sharpest drop ever. While a rising money supply does not always translate into boom times, a FALLING M3 has historically ALWAYS been followed by an economic contraction and a falling stock market.
Record stimulus spending has been an utter failure in triggering job growth and has barely produced any economic recovery. First quarter Gross Domestic Product (GDP) was revised lower to 3% from 3.2% this morning. The economy has lost more than 8 million jobs since the downturn began.
The Obama Administratio has an entirely different explanation for the failure of stimulus measures to produce the hoped for results. They are opting instead for further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97% of GDP next year and 110% by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to approve another $200 billion stimulus package to produce economic growth.
Federal Reserve head Ben Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, considering it too erratic to be of much value.
Mr. Bernanke has conveniently forgotten that double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 - just as the Fed talked of raising rates - gave a very clear warning that the economy and stock markets were about to go into freefall.
The White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4% of GDP) this year and set up a commission to target cuts. Mr. Obama, clearly a reader of "Marko's Take", has now understood that the second dip of this Double-Dip Hyperinflationary Depression is imminent.
The dominant voices in US policy-making, Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke are all Keynesians who reject monetary theory and have an extreme distaste to any mention of the quantity of money. Once they read "Marko's Take", perhaps they ought to open up their copies of "The Monetary History of the United States" by Milton Friedman and Anna Schwartz.
The die is cast. The crash in M3 has ominous implications. It means the second dip is imminent, the stock market will have trouble and on the plus side, interest rates will NOT rise for a long time.
Marko's Take
Interested in ideas on how to fix Social Security? "Social In-Security: The Solution" will be posted in the next 24-48 hours. To familiarize yourself with the ponzi scheme called Social Security, please check out our video entitled "Social In-Security: The Problem" by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
It can be argued, quite convincingly, that the Stock Market is itself is highly dependent on growth in money. In fact, it's possible, that ALL 10 components of the LEI are driven by growth in money.
The money supply is SCREAMING! Is anyone out there listening?
The broadest measure of money, called M3, is contracting at an accelerating rate that now rivals the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal orgy in history.
The M3 figures - which include a broad range of bank accounts and are tracked by monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6%. The assets of insitutional money market funds fell at a 37% rate, the sharpest drop ever. While a rising money supply does not always translate into boom times, a FALLING M3 has historically ALWAYS been followed by an economic contraction and a falling stock market.
Record stimulus spending has been an utter failure in triggering job growth and has barely produced any economic recovery. First quarter Gross Domestic Product (GDP) was revised lower to 3% from 3.2% this morning. The economy has lost more than 8 million jobs since the downturn began.
The Obama Administratio has an entirely different explanation for the failure of stimulus measures to produce the hoped for results. They are opting instead for further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97% of GDP next year and 110% by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to approve another $200 billion stimulus package to produce economic growth.
Federal Reserve head Ben Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, considering it too erratic to be of much value.
Mr. Bernanke has conveniently forgotten that double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 - just as the Fed talked of raising rates - gave a very clear warning that the economy and stock markets were about to go into freefall.
The White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4% of GDP) this year and set up a commission to target cuts. Mr. Obama, clearly a reader of "Marko's Take", has now understood that the second dip of this Double-Dip Hyperinflationary Depression is imminent.
The dominant voices in US policy-making, Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke are all Keynesians who reject monetary theory and have an extreme distaste to any mention of the quantity of money. Once they read "Marko's Take", perhaps they ought to open up their copies of "The Monetary History of the United States" by Milton Friedman and Anna Schwartz.
The die is cast. The crash in M3 has ominous implications. It means the second dip is imminent, the stock market will have trouble and on the plus side, interest rates will NOT rise for a long time.
Marko's Take
Interested in ideas on how to fix Social Security? "Social In-Security: The Solution" will be posted in the next 24-48 hours. To familiarize yourself with the ponzi scheme called Social Security, please check out our video entitled "Social In-Security: The Problem" by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Saturday, May 1, 2010
First Quarter GDP Shows Recovery... But How Real Is It?
Yesterday, the preliminary estimate of 1st quarter Gross Domestic Product (GDP) was released, indicating an annualized growth rate of 3.2% - down from the 5.6% annualized rate for the 4th quarter of 2009. Within minutes, officials of the Obama Administration were all over the media declaring the recession over and trumpeting the efficacy of their various stimulus plans. Strangely, after blaming the weather for the lack of job growth in recent months, they failed to credit the weather for the excellent economic news.
As with any government economic report, the headline number is a facade to the real story underneath. Worry not. Marko's Take, along with our staff of experts, is here to dissect the report and reveal the truth as to what's really taking place.
Spending by consumers rose at a 3.6% rate, more than double the 4th quarter pace and faster than any quarter in the past three years. But half the quarter's growth came from firms rebuilding inventories.
Consumer spending, which accounts for about 70% of the demand in the economy, remains the key. Consumer confidence has improved quite a bit from the bottom of the financial crisis, but remains depressed. The University of Michigan's Consumer Sentiment Index, released Friday, dropped slightly to 72.2 in April from 73.6 in March — and was well below the pre-recession levels, which exceeded 90.
Friday's data showed reported inflation remains tame, even as the economy climbs out of recession. The Federal Reserve's preferred gauge, the price index for Personal Consumption Expenditures, or the PCE deflator, excluding food and energy, rose an annualized 0.6% in the 1st quarter, compared with the 4th quarter's 1.8%. The Labor Department's employment cost index, the broadest measure of wages and benefits, rose 0.6% in the first quarter from the fourth, and was 1.7% higher than a year earlier.
Long-time readers know that we are not only highly skeptical of any economic new emanating from Washington, but that we can see right through the BS. Fortunately, we have the brilliant Dr. Williams and his fantastic site ShadowStats (http://www.shadowstats.com/) to assist us in this endeavor.
According to ShadowStats, the Alternate-GDP estimate for first-quarter 2010 was an approximate annual CONTRACTION of 1.5%. This reflects the bottom-bouncing at low levels of activity seen for much of the last year in key underlying economic series, not an economic recovery.
More disturbing is the analysis performed by Dr. Williams on the Money Supply. With just more than two weeks of reporting on April money supply, weekly contractions in M2 (institutional money funds and large time deposits) suggest that the pace of decline in the broader M3 is accelerating, with the nominal year-to-year change reflecting a record annual decline of roughly 4.8% in April, versus a decline of roughly 3.7% in March, if weekly reporting showed no further changes for the balance April.
According to Dr. Williams, real year-to-year change appears likely to deteriorate from a 5.8% contraction in March to an unprecedented reading of a 7% annual decline. Contracting annual growth in broad money supply nearly always precedes decelerating economic activity.
The contraction is money supply aggregates also signals systemic difficulties in the banking system. A properly functioning U.S. banking system would be lending increasing amounts of money, not contributing to a slow downward spiral in consumer and business credit outstanding and a pending renewed decline in economic activity.
The best way to really gauge what's going on is to pay attention to what you see anecdotally. Are you having trouble keeping up? Are your friends and family struggling? Are you paying more for food and gas and critical goods? These are better indicators than what Washington reports. Ultimately, if the "good" news is helping you, that what "good" is it?
Marko's Take
The California Wildlife Center is having a 5K walk on Sunday, May 2nd in Malibu. I'll be there, with my fellow "whacko-tarians". For more information on this wonderful organization and cause, please click here http://www.californiawildlifecenter.org/.
As with any government economic report, the headline number is a facade to the real story underneath. Worry not. Marko's Take, along with our staff of experts, is here to dissect the report and reveal the truth as to what's really taking place.
Spending by consumers rose at a 3.6% rate, more than double the 4th quarter pace and faster than any quarter in the past three years. But half the quarter's growth came from firms rebuilding inventories.
Consumer spending, which accounts for about 70% of the demand in the economy, remains the key. Consumer confidence has improved quite a bit from the bottom of the financial crisis, but remains depressed. The University of Michigan's Consumer Sentiment Index, released Friday, dropped slightly to 72.2 in April from 73.6 in March — and was well below the pre-recession levels, which exceeded 90.
Friday's data showed reported inflation remains tame, even as the economy climbs out of recession. The Federal Reserve's preferred gauge, the price index for Personal Consumption Expenditures, or the PCE deflator, excluding food and energy, rose an annualized 0.6% in the 1st quarter, compared with the 4th quarter's 1.8%. The Labor Department's employment cost index, the broadest measure of wages and benefits, rose 0.6% in the first quarter from the fourth, and was 1.7% higher than a year earlier.
Long-time readers know that we are not only highly skeptical of any economic new emanating from Washington, but that we can see right through the BS. Fortunately, we have the brilliant Dr. Williams and his fantastic site ShadowStats (http://www.shadowstats.com/) to assist us in this endeavor.
According to ShadowStats, the Alternate-GDP estimate for first-quarter 2010 was an approximate annual CONTRACTION of 1.5%. This reflects the bottom-bouncing at low levels of activity seen for much of the last year in key underlying economic series, not an economic recovery.
More disturbing is the analysis performed by Dr. Williams on the Money Supply. With just more than two weeks of reporting on April money supply, weekly contractions in M2 (institutional money funds and large time deposits) suggest that the pace of decline in the broader M3 is accelerating, with the nominal year-to-year change reflecting a record annual decline of roughly 4.8% in April, versus a decline of roughly 3.7% in March, if weekly reporting showed no further changes for the balance April.
According to Dr. Williams, real year-to-year change appears likely to deteriorate from a 5.8% contraction in March to an unprecedented reading of a 7% annual decline. Contracting annual growth in broad money supply nearly always precedes decelerating economic activity.
The contraction is money supply aggregates also signals systemic difficulties in the banking system. A properly functioning U.S. banking system would be lending increasing amounts of money, not contributing to a slow downward spiral in consumer and business credit outstanding and a pending renewed decline in economic activity.
The best way to really gauge what's going on is to pay attention to what you see anecdotally. Are you having trouble keeping up? Are your friends and family struggling? Are you paying more for food and gas and critical goods? These are better indicators than what Washington reports. Ultimately, if the "good" news is helping you, that what "good" is it?
Marko's Take
The California Wildlife Center is having a 5K walk on Sunday, May 2nd in Malibu. I'll be there, with my fellow "whacko-tarians". For more information on this wonderful organization and cause, please click here http://www.californiawildlifecenter.org/.
Monday, March 8, 2010
A Non-Bull In A China Shop!
China certainly has no shortage of investment fans, including such notable names as legendary investor Jimmy Rogers, who, along with billionaire-activist George Soros, co-founded the famous Quantum Fund. Recently, UBS and Morgan Stanley have turned bullish on Chinese real estate, despite fears that the market is in the midst of a massive bubble.
However, Marko's Take does not share their enthusiasm for China's prospects as articulated in some prior essays. To recap, China's demographic structure, which has been butchered by its population control efforts, is NOT conducive to long-term prosperity (http://markostake.blogspot.com/2009/12/baby-boomer-bust.html
China is also experiencing slower growth and economic stresses resulting from its currency peg to the Dollar (http://markostake.blogspot.com/2010/02/is-china-miracle-in-trouble.html).
But, the cracks in the ice continue to spread. Worsening economic problems have forced China to pare back its planned budgetary outlays.
According to a recent article in the Wall Street Journal, total government spending is slated to increase a relatively modest 11% this year, down from the 21% increase in 2009. Slower gains in both infrastructure and social programs are expected, China's finance ministry said in a presentation last Friday to the annual meeting of the legislature. While it promised more money for many of the administration's priorities, like education and housing, new spending was constrained by dim prospects for tax revenue this year.
The reports to the National People's Congress reflect the recent dis-harmony between Chinese official rhetoric, which still emphasizes the need to propel the economy and a series of actions in recent months to slow growth to head off possible overheating.
"There is insufficient internal impetus driving economic growth," Premier Wen Jiabao told delegates to the legislature, warrning of continued weakness in the global economy and persistent problems at home. Though he pledged that policies supporting economic growth will continue this year, he admitted that the scale is being reduced as the government worries about future strains on its finances.
China will shoot for around 7.5 trillion Yuan (around $1.1 trillion) worth of new local-currency loans this year, lower than the record 9.59 trillion Yuan worth of new loans banks extended last year. It will also seek to slow growth in broad money supply, or M2, to around 17% this year from nearly 28% in 2009.
One area of particular concern is the country's property market. Quickly-rising prices in some cities are discouraging many from purchasing homes, creating a political as well as an economic problem. "Bubble Speak" is mushrooming among China-watchers too, with some noted critics comparing China's situation to Dubai (http://markostake.blogspot.com/2010/03/dubai-enough-to-make-you-cry.html).
Another issue is the Chinese currency, formerly known as the Renminbi, which has remained pegged to the U.S. Dollar. Economists and currency-market participants increasingly expect that China will at some point this year allow its currency to rise against the greenback. Inflation in China is picking up as the economy recovers and from the booming increase in money supply.
Trade frictions are also on the rise. The currency peg has helped the country's exporters take advantage of the recent recovery in world trade, but has drawn increasing criticism from the U.S. and Europe, as well as China's Asian neighbors. For those critical of Chinese currency policy, Central Bank Governor Zhou Xiaochuan's indication that he is considering an exit from the peg was welcome.
The generally accepted notion that China is THE emerging superpower is quickly becoming more myth than reality. Those legions of Sino-philes are looking at some unpleasant surprises as China's many policy mistakes filter through the economy.
Still a fan of investing in China? TAKE ME ON!
Marko's Take
We expect our next segment on YouTube, explaining the Federal Reserve, to be posted within the next 24 hours. You can find our new series of video blogs here: http://www.youtube.com/markostaketv.
However, Marko's Take does not share their enthusiasm for China's prospects as articulated in some prior essays. To recap, China's demographic structure, which has been butchered by its population control efforts, is NOT conducive to long-term prosperity (http://markostake.blogspot.com/2009/12/baby-boomer-bust.html
China is also experiencing slower growth and economic stresses resulting from its currency peg to the Dollar (http://markostake.blogspot.com/2010/02/is-china-miracle-in-trouble.html).
But, the cracks in the ice continue to spread. Worsening economic problems have forced China to pare back its planned budgetary outlays.
According to a recent article in the Wall Street Journal, total government spending is slated to increase a relatively modest 11% this year, down from the 21% increase in 2009. Slower gains in both infrastructure and social programs are expected, China's finance ministry said in a presentation last Friday to the annual meeting of the legislature. While it promised more money for many of the administration's priorities, like education and housing, new spending was constrained by dim prospects for tax revenue this year.
The reports to the National People's Congress reflect the recent dis-harmony between Chinese official rhetoric, which still emphasizes the need to propel the economy and a series of actions in recent months to slow growth to head off possible overheating.
"There is insufficient internal impetus driving economic growth," Premier Wen Jiabao told delegates to the legislature, warrning of continued weakness in the global economy and persistent problems at home. Though he pledged that policies supporting economic growth will continue this year, he admitted that the scale is being reduced as the government worries about future strains on its finances.
China will shoot for around 7.5 trillion Yuan (around $1.1 trillion) worth of new local-currency loans this year, lower than the record 9.59 trillion Yuan worth of new loans banks extended last year. It will also seek to slow growth in broad money supply, or M2, to around 17% this year from nearly 28% in 2009.
One area of particular concern is the country's property market. Quickly-rising prices in some cities are discouraging many from purchasing homes, creating a political as well as an economic problem. "Bubble Speak" is mushrooming among China-watchers too, with some noted critics comparing China's situation to Dubai (http://markostake.blogspot.com/2010/03/dubai-enough-to-make-you-cry.html).
Another issue is the Chinese currency, formerly known as the Renminbi, which has remained pegged to the U.S. Dollar. Economists and currency-market participants increasingly expect that China will at some point this year allow its currency to rise against the greenback. Inflation in China is picking up as the economy recovers and from the booming increase in money supply.
Trade frictions are also on the rise. The currency peg has helped the country's exporters take advantage of the recent recovery in world trade, but has drawn increasing criticism from the U.S. and Europe, as well as China's Asian neighbors. For those critical of Chinese currency policy, Central Bank Governor Zhou Xiaochuan's indication that he is considering an exit from the peg was welcome.
The generally accepted notion that China is THE emerging superpower is quickly becoming more myth than reality. Those legions of Sino-philes are looking at some unpleasant surprises as China's many policy mistakes filter through the economy.
Still a fan of investing in China? TAKE ME ON!
Marko's Take
We expect our next segment on YouTube, explaining the Federal Reserve, to be posted within the next 24 hours. You can find our new series of video blogs here: http://www.youtube.com/markostaketv.
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