The Dow Jones Industrial Average and S&P 500 continue to make new highs. Each day I sit and wonder when will the house of cards fall? How can the stock markets continue the upward ascent when the only companion it has is inflation? Not the kind that the Federal Reserve tells us we are bearing — the real one — the one we pay when we go to the grocery store, pay college tuition for our kids, pay higher gas and electricity bills. That one.
First-quarter GDP shrank 1.0 percent. Lest you forget, this is shrinkage after we have conveniently forgotten that the United States has initiated a hedonistic methodology to calculate GDP, which double counts stuff and counts promises to pay into pension funds as GDP growth. Best estimates are that we added about 1 percent to 1.3 percent GDP growth due to those twisted facts. So in reality we shrunk by about 2 percent to 2.3 percent in the first quarter.
Economists blamed it on the winter weather. This is not really true though, as pockets of growth did occur in areas such as luxury brand items, higher-end homes, etc. If weather were truly the cause here, we would not have seen higher profits in sectors where the rich play. In fact, when you parse the housing data across most major cities in America, you will find that the housing growth is a myth.
For instance, 98 percent of the homes that were sold in the past several months have been to the top 2 percent of Americans. Further, 42 percent of the homes sold in the United States this year were bought with cash. If you put the pieces together, the pillar of growth for the United States — housing — is not a real growth story. It is a story of the rich getting richer and spending money. The other 98 percent are being left out of any growth opportunities.
Adding to the sleight of hand is the gross incompetence of the government departments. I am referring to the chaos that shook the markets Monday and then the two back-to-back revisions Tuesday. The Institute of Supply Management (ISM) data monitors employment, production inventories, manufacturing, etc. A number above 50 indicates growth and one below 50 indicates shrinkage. The ISM Purchasing Manager's Index (PMI) was reported as 53.2. While it was above 50, it was the lowest print since January.
Then Tuesday morning, on receiving complaints that the data seemed incorrect, the PMI was "corrected" to 56.0, the best of this year. This sent shock waves at such a revision and created disbelief. Again reacting to economists who believed the correct number to be 55.4, the ISM agreed and revised the number, yet again, to 55.4.
Now if that that does not shake your confidence in how reliable the published data are, I don't know what will.
Talking to consumers across the nation, the fear of not having jobs, particularly with youth (16 to 24 age group) facing the highest unemployment rates ever, indicates a lack of growth rather than a surging economy. But if you observe the markets, it would appear that the economy is nothing but balloons and seashells.
Across the pond, Italy and the United Kingdom have started adding prostitution and drugs to their GDP calculations. I'm not sure how they obtain reliable data when the current legal system does not produce credible data. Is this a precursor to wonton abandon of logic and printing data made to suite the establishment?
Yet, despite all of these distortions and feeble attempts at masking the data massaging that is going on, the average investor is fast asleep and buys stock rather than the one rock of certainty — gold.
Gold remained flat at $1,245 per ounce Tuesday. Have you bought gold yet?
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