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Flash Update  May, 12th, 2008 • M3 Growth Slowed in April — Still at 1971 High
• March Trade Deficit “Improvement” Not Credible
Flash Update May, 2nd, 2008 • Chances of Economic Rebound Now Are Nil
• GDP and Jobs Data Appear Rigged
• Other Numbers Confirm Intensifying Inflationary Recession
April 2008 Newsletter April, 29th, 2008 • Inflationary Recession and Banking Crises Intensify
• 4th-Quarter 2007 Gross Domestic Income Contracted 1.0%
• Covert Intervention in Currency and Gold Markets Likely
• Underlying economic and banking system fundamentals rapidly are getting worse, not suddenly better as touted in Wall Street’s fantasies. Another tall tale is of the Fed’s valiant fight against recession, while containing inflation. Now that the economy has been turned, the story goes, the Fed can slowdown or eliminate its easing so as to concentrate on its inflation fight. What nonsense! The Fed’s primary concern remains preventing a systemic financial collapse; everything else is secondary. The Fed has very limited ability at present either to stimulate the economy or to contain inflation, despite severe problems in both areas.
Flash Update April, 23rd, 2008 • Is The First-Quarter GDP Fix In?
• Oil Prices Cannot Double Without Serious Consequences
Flash Update April, 16th, 2008 • Inflation Fantasy
• Real Retail Sales Contracted an Annualized 4.2% in First Quarter
• First-Quarter GDP Contraction Locked In?
Flash Update April, 14th, 2008 • March “Core” Retail Sales Unchanged for Month, Down Year-to-Year
• Trade Data Enhance Prospects for 1st-Quarter GDP Contraction
Flash Update April, 4th, 2008 • Heavily Gimmicked Payroll Contraction Was Much Worse in Reality
• Other Key Data Also Confirm Sharply Deteriorating Inflationary Recession
Flash Update March, 30th, 2008 • Money Growth Continues Surging
• Cautions on Home Sales and Price Data
• Treasury and Fed Will Accept Any Cost to Save System
Flash Update March, 24th, 2008 • It’s Not Even Close to Being Over
• Inflationary Recession and Systemic Solvency Crisis Remain
• Gold Buying and Dollar Dumping Still Are Nascent
Flash Update March, 18th, 2008 • Fed Panic Continues in Pursuit of Systemic Salvation
• Inflation Understatement Used to Justify Fed Easings?
• Industrial Production Plunge Could Set Second Timing-Point for Official Recession
February/March 2008 Newsletter March, 16th, 2008 • Irrespective of Any Looming Central Bank or Central Government Interventions or
Other Activity, the Financial-Economic-Systemic Crisis Is Going to Get Much Worse
• Fed Abandons Inflation Fight
• Depression or Recession Depends on Depth of Downturn
• Gold Buying and Dollar Selling Muted by Covert Intervention?
• The systemic solvency/liquidity crisis has intensified at an accelerating pace, with three major, emergency Federal Reserve actions seen in the eight days through Friday. As we go to press Sunday afternoon, no new actions have been announced, but circumstances are so unstable that most anything is possible, including massive interventions in the markets as well as unconventional actions by central banks or central governments, coordinated or otherwise. Flash Updates or Alerts will be posted as needed to address developments.
Flash Update March, 14th, 2008 • February’s Unchanged CPI Not Credible
Flash Update March, 13th, 2008 • “Core” Retail Sales down 0.55% versus 0.56% Decline in Full Series
• Budget Deficit Surges
Flash Update March, 11th, 2008 • Solvency Crisis Deteriorates
Flash Update March, 10th, 2008 • Fed Sets Currency Printing Presses at Full Blast
• February M3 Growth at Record 16.8%
Alert March, 5th, 2008 • M3 Growth Hits All-Time High
• Hints of Systemic Unraveling Suggest Unusual Problems
• Risks Mount of Non-Traditional Federal Reserve/Treasury Actions
Flash Update February, 28th, 2008 • Recession Will Not Contain the Inflation Problem
• Money Growth Appears to be Surging
• Bernanke Remains Focused on Banking System Solvency, or Lack of Same
Flash Update February, 20th, 2008 • Monthly CPI Surge of 0.64% Masked by Seasonal Factor Revisions
• January Annual CPI Inflation at 4.28% (11.8% SGS-Alternate)
• Revisions Show Stronger Inflation
Flash Update February, 16th, 2008 • Money Supply Growth Surges Anew
• Nonborrowed Reserves Plummet Further
• SGS Will Continue Abandoned Government Economic Indicators Service
• Financial Crises Intensify
Flash Update February, 13th, 2008 • Real Retail Sales Continue Year-to-Year Collapse
• Core Retail Sales Up 0.11% for the Month
January 2008 Edition February, 11th, 2008 • Fed Saves the System — Almost
• As Fed Lending to Banks Tops Pre-1933 Bank Holiday
• Inflationary Recession Continues to Intensify
• Weak Economy Does Not Mean Lower Gold Prices
• Perils of Trying to Mimic Bad Government Data
• But for systemic intervention and manipulations by the Federal Reserve, it appears we might be contemplating a collapsed U.S. banking system and a looming deflationary great depression that could have dwarfed the bad times of the 1930s. Such is the good news. The bad news is that with those same systemic interventions, the Fed is locking in a hyperinflationary great depression in the decade ahead, with the turmoil possibly breaking by 2010 or earlier.
• Also, this month’s Reporting/Market Focus examines the Payroll Employment Benchmark Revision.
Flash Update February, 5th, 2008 • Mr. Bernanke Dispatches the Helicopters
• Solvency and Liquidity Problems Continue
• Fed Emergency Actions Are Keeping Banking System Afloat
Flash Update February, 1st, 2008 • Recession in the Numbers
• M3 Growth Appears To Be Firming Again
Flash Update January, 28th, 2008 • Outright Recession Reporting Unlikely for 4th-Quarter GDP or January Jobs
• Inflation and Dollar Concerns Ignored by Fed
Alert January, 22nd, 2008 • Fed Panic Indicates Mounting Instabilities
• Currency, Gold and Oil Market Intervention Highly Likely
Flash Update January, 19th, 2008 • Gimmicked Stimulus Cannot Reverse Structural Downturn
• Quarterly Industrial Production Contracted
• Housing Starts Plunge
• CPI Scuttled Annual Retail Sales
Flash Update January, 15th, 2008 • Retail Sales Revisions Show Sharper Downturn
• Inflation Irregularities Also Signal Reporting Distortions
Flash Update January, 13th, 2008 • Recession Recognition Settles In
• Moody’s Cautions on U.S. Credit Rating
• December M3 Growth at 15.2%
Flash Update January, 6th, 2008 • The Tempest Intensifies
• December Payrolls Really Contracted
• U.6 Unemployment Rate Surged to 8.8%
• Money Growth Remains a Problem
December 2007 Edition January, 2nd, 2008 • Actual 2007 Federal Deficit Topped $4.0 Trillion
• Fed Allows Strongest Money Growth in 36 Years
• Inflationary Recession Intensifies Sharply
• Dollar and Gold Breathers Are Proving Short-Lived
• Solvency Crisis Intensifies as System Careens Towards Economic and Financial Disaster
• Pushing the system ever nearer to the brink of the ultimate liquidity crisis, the Fed’s December 11th easing, albeit minimal, played to the Wall Street speculators, not to the increasingly troubled global community holding large quantities of a rapidly-debasing U.S. dollar. Those not-so-happy dollar owners can see the U.S. economy sinking quickly into an inflationary recession, with the U.S. banking system facing a solvency crisis and the U.S. central bank playing games with itself. Such portends very difficult times for the greenback and the U.S. financial markets in 2008. The gold and silver markets, however, will be primary beneficiaries of these troubles.
Flash Update December, 28th, 2007 • Economic Data Take Successive Hits
• Help-Wanted Advertising Plunges to Lowest Level Ever
Flash Update December, 18th, 2007 • Actual 2007 U.S. Federal Deficit at $1.2 Trillion, $5-Plus Trillion on Consistent Basis
Flash Update December, 15th, 2007 • Annual CPI Inflation at 4.3% (SGS-Alternate CPI 11.7%), PPI at 7.2%
• Industrial Production Suggests Fourth-Quarter Contraction
Flash Update December, 13th, 2007 • November “Core” Retail Sales Gained 0.78% versus 1.22% Non-Core
• Prior Food and Energy Inflation Revised Higher
Flash Update December, 7th, 2007 • Gimmicks Mask November Payroll Contraction
• SGS-Ongoing M3 Annual Growth Rises Again in November
• Official CPI Annual Inflation Could Break 4% Next Week
• Fed’s Quandary Remains
Flash Update December, 2nd, 2007 • What Is Scaring The Fed?
• GDP Numbers Are Utter Nonsense
• Other Data Show Tumbling Economy
November 2007 Edition November, 26th, 2007 • Inflation Surges as Economic Activity Plunges
• System Nears Abyss and Fed Moves to Sit on Its Hands Again
• Dollar and Gold Movements Are Just Beginning
• Wall Street Pushes Hard for Interest Rate Fix That Cannot Work and May Not Happen
• In fairness, there is little that Federal Reserve Chairman Ben Bernanke can do, except to play out a losing hand. It was a hand laid off on him by Alan Greenspan, aided and abetted by the U.S. Congress and recent Administrations. As dependent as a drug addict on his next fix, the U.S. stock market is addicted to interest rate cuts, and the pressures on the Fed for another fix are tremendous. Yet, the Fed continues to signal, as clearly as it signals such things, that there is no rate cut coming.
Flash Update November, 19th, 2007 • Annual Inflation Surge Should Continue
• Inflation-Adjusted (SGS)Peak Gold Price Is $6,030
Flash Update November, 14th, 2007 • October "Core" Retail Sales Unchanged
• Data Massaging Gets Worse as Energy Prices Collapse(?)
Flash Update November, 9th, 2007 • October M3 Growth Breaks to New 36-year High
• Trade Numbers Again Appear Massaged
• Beware Next Week's Surge in Annual Inflation!
• The System Begins to Crack
Flash Update November, 2nd, 2007 • Data Appear Massaged as Market Manipulation Tool
• October Payrolls Fortuitously Show No Need for Further Easing
• Household Employment Plunges by 250,000
Flash Update October, 31st, 2007 • Fed Action Likely Foreshadows Jobs Report
• GDP Report Fundamentally Was Nonsense
October 2007 Edition October, 29th, 2007 • Inflation Indicators Surge While Recession Signals Mount
• Anticipated Fed Easing Pummels Real-World Markets
• Dollar Tanks, Oil and Gold Soar and Funding Crisis Continues
• Wall Street's Pollyannas Ignore Darkening Fundamentals
• With all-time high oil prices topping $90 per barrel, with the U.S. dollar indices at record lows and under selling pressure, and with the SGS-Ongoing M3 annual growth at a 36-year high of 14.7%, the near-term inflation outlook is turning about as bleak as it gets. On the economic front, annual growth in new orders for durable goods, housing and employment all are generating new, or confirming prior, recession signals. This is despite overstatement of some recent economic activity in the employment data apparently aimed at removing some pressures on the Fed to ease. Nevertheless, the markets are expecting a quarter-point fed funds rate cut on Wednesday. The Federal Open Market Committee (FOMC) most likely will follow market expectations, in that it has had some hand in setting the consensus outlook, and the U.S. central bank likely will look to be as non-disruptive to the markets as possible. Even so, current expectations already are roiling the currency markets. Any rate cut beyond consensus could prove particularly disruptive for the U.S. dollar. At some point — and that point may have been reached — Fed easing will become counterproductive, pummeling domestic U.S. liquidity. Where Wall Street, Administration and Fed efforts appear to be concentrated on continued artificial propping of equity prices, a dollar-induced liquidity crunch would hit both the equity markets and the credit markets hard. Despite increasing volatility in this unsettled environment, the stock market has held up remarkably well, so far. Gold and dollar prices already are at levels that risk inviting short-lived central bank interventions.
Flash Update October, 21st, 2007 • Watch the Greenback!
Flash Update October, 17th, 2007 • Annual CPI Jumps to 2.8% in September
Flash Update October, 14th, 2007 • Gimmicked Data Appear Aimed at Reducing Pressures on Fed for Another Easing
• September M3 Annual Growth Hit 14.7%
•
Watch Out for CPI Annual Inflation Surge!
• Twenty years ago this coming week, a new Federal Reserve Chairman faced a financial panic that included the worst one-day stock market crash ever seen in the U.S. markets. Alan Greenspan had become the U.S. central banker in August of 1987, raised rates in September in an effort to bolster the flailing U.S. dollar, and the markets crashed in October. The crash was due to an extraordinary confluence of factors, some of which were of Mr. Greenspan's making, some of which were of Treasury Secretary James Baker's making, and some of which came to a head after festering for decades. Whatever one may think of the former Fed chairman, his actions following the panic did help to contain it and likely side-stepped a total financial-market meltdown, at that time. As will be discussed in greater detail in the upcoming October SGS, those same actions, however, also underlie and ultimately set-up the even greater crisis faced by current Fed Chairman Ben Bernanke. The roiling of the U.S. dollar market following the Fed's recent easing is why the Fed now likely will try to avoid further interest rate cuts. At risk is the financial-market meltdown that Alan Greenspan carried for so long in his nightmares. The liquidity crisis still is unfolding, the economy remains in a deteriorating inflationary recession, and the Fed has few if any viable options open to it. One tool remaining in the Fed's and Administration's arsenal of financial market manipulating gadgets, however, is the rigging of key economic reporting. It was used back in 1987; it appears to be in play, today.
Flash Update October, 7th, 2007 • Market Mania Fueled by Data Touts
• M3 Annual Growth Highest Since November 1971
Flash Update October, 5th, 2007 • September Jobs Data Cannot Be Believed
• September M3 Annual Growth Likely to Top 14.5%
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Special Issue - Hyperinflation April, 8th, 2008 • Banking Solvency Crisis Has Opened First Phase of Monetary Inflation
• Hyperinflationary Depression Remains Likely As Early As 2010
CNN Money Interview February, 28th, 2008  John Williams is interviewed on CNN by Greg Hunter. The record growth in M3 is discussed and its implications for future inflation. Click here or on the image to view the interview.
September 2007 Edition September, 23rd, 2007 • |Bernanke's Tap Dancing on the Dollar Landmine Triggers Detonation
• The Dollar Matters, and Its Sell-Off Is Just Beginning
• It's Inflation and Recession, Not Inflation or Recession
• Manic Stocks Ignore Dollar, Oil and Gold
• Key Economic Reporting Massaged as Liquidity Crisis Deepens
• An old-fashioned bank run in the U.K.? The U.S. and Canadian dollars at parity? Saudi Arabia considering a break with the U.S. Dollar? If you tap dance on a land mine long enough, odds favor an unhappy ending. A good dancer can buy time, and Federal Reserve Chairman Ben Bernanke bought about as much time as he could, having been set up by his predecessor with irreconcilable economic and financial problems. Bernanke might have forestalled the unfolding dollar crisis a bit further with just a 25 basis point cut in the fed funds target, but the 50 basis point move opened Bernanke's Box of U.S. Dollar and inflation unthinkables. The reality is ugly, and like Pandora — who opened a jar unleashing a variety of evils upon the world — Mr. Bernanke will find it very difficult, if not impossible, to push his newly activated nightmares back into the box. With both recession and inflation woes in place for some time, the inflationary recession is deteriorating at an accelerating pace, exacerbated, not triggered, by the still unfolding systemic liquidity crisis.
Flash Update September, 17th, 2007 • Inflationary Recession Deepens
• System is as Vulnerable as at Any Time Since 1929 to 1933
Flash Update September, 9th, 2007 • Consistently-Adjusted August Payrolls Plunged 82,000
• Annual M3 Growth Hit 14% in August
• Inflationary Recession Still Befuddles a Fed Set to Ease
• Recession Recognition Gains Political Correctness
• When the popular media and consensus economists start talking recession, usually an economic downturn already has been underway for a year or so. The 2000 recession gained rapid recognition following 9-11, but the terrorist attacks did not trigger the downturn. The recession had been in place for over a year; the attacks only deepened an ongoing contraction. In like manner, the current recession has been underway for well over a year, but it was not triggered by the liquidity crisis that erupted in August, only intensified by it. The impact of the liquidity problems still will not show up in most economic data until next month. The exceedingly weak August payroll survey was conducted before the crisis had much impact. What appears to have happened was that someone in the Administration decided to recognize the recession and released weak numbers either to force or to help accommodate the Fed in justifying an imminent easing. Yet, there also is a worsening inflation problem, with high oil and food prices, a weakening U.S. dollar and exploding money supply growth. And, then, there also is the threat of U.S. dollar dumping with the U.S. financial markets dependent on foreign capital for liquidity.
Alert September, 6th, 2007 • Money Supply Growth Explodes
Flash Update September, 2nd, 2007 • Systemic Liquefaction Boosts M3 Growth to 34-Year High
• Ongoing Extreme Income Variance Reported for 2006
• Financial System Remains Highly Unstable
• Chairman Bernanke Keeps Tap Dancing on That (Dollar) Landmine
• The liquidity crisis continues, and the financial system is groaning under the strain. In the weeks ended August 15th, 22nd and 29th, respectively, seasonally-adjusted (unadjusted is little different) commercial paper outstanding plunged by $91 billion, $90 billion and $63 billion. As other Federal Reserve reporting starts covering the crisis period, key data are showing some impact of Fed actions. For example, seasonally-unadjusted discount window borrowings by banks, following the Fed's heavily touted discount window actions, jumped from a daily average of $6 million in the two weeks ended August 15th, to $1.301 billion in the two weeks ended August 29th. M2 jumped a seasonally-adjusted $43.6 billion in first reporting of the week ended August 20th, up at an annualized growth rate of 36.4%. That, combined with sharp increases in non-M2 components of M3, indicates a spike in annual growth for the SGS-Ongoing M3 August measure, discussed below. Also, the Fed still seems to be enforcing an informal 25-basis-point cut in the fed funds rate, per the accompanying graph. On the recession front, the phony 4.0% GDP growth was reported as expected. At the same time, help-wanted advertising — a much more reliable economic indicator — plunged to a 49-year low. Through all this, the U.S. dollar remained relatively stable last week. Such tranquility should prove short-lived.
Alert August, 26th, 2007 • Effective Fed Funds Target is 4.75%
•5.00%
• Bernanke's Tactics Not Working Well
• Financial Tempest's Eye Wall Stalls Temporarily Shy of Landfall
• Rigged Data Provide Inexpensive Market Intervention
• Fed Chairman Bernanke's efforts to stabilize the U.S. financial system have met with minimal success that should prove short-lived. On the plus side has been temporary relative stability in the equity market, aided by extraordinary jawboning and data manipulation, along with market manipulations of the Working Group on Financial Markets (a.k.a. the Plunge Protection Team) as indicated by Treasury Secretary Paulson. On the downside, the liquidity crisis appears not to be contained. Obviously planted stories in the
financial media have touted the Fed's "clever" new approach to liquidity
crisis management and how it addresses "moral hazard." Having the Fed
address moral hazard in the financial markets is like having a whorehouse
madam lecture her girls on the virtues of virginity. Moral hazard is not a
primary concern to the Fed when the system is at risk. The planted stories
also explain how there is no need to cut the targeted Fed Funds rate. While
there are good reasons not to cut the Fed Funds rate, suggesting it will not
happen is ludicrous when the Fed already has done it, as shown below. The
Fed Funds shell game is aimed at balancing the needs of short-term Wall
Street hype, deemed necessary to goose the stock market, against an
extremely serious need to prevent a massive U.S. dollar sell-off. With the
economy in an inflationary recession, with the greenback showing new cracks
in the last several days, and with the stock market just a month away from
squirrelly season, the negative turmoil in the financial markets hardly has
begun.
August 2007 Edition August, 19th, 2007 • Terrible Financial Tempest Nears Landfall
• Fear of Bank Runs Appeared to Force Bernanke into His Tap-Dancing-on-the-Dollar-Landmine Routine
• Deteriorating Inflationary Recession Promises Greater Liquidity Woes
• Key Reporting Appears Shifted to "Let's Not Hurt the Markets" Mode
• The systemic liquidity crisis began running out of control last week, with stories of a run on a major bank. Keep in mind that there is not enough physical cash in the system to handle a major bank run in the traditional sense (see March 2007 SGS). Circumstances became dire enough to force Federal Reserve Chairman Ben Bernanke into publicly visible actions, announcing a 50-basis-point cut in the discount rate and starting to play a three-card monte game with the federal funds rate. Stocks rallied Friday in response, but the Fed's actions have set the stage for a massive dollar sell-off, which can frustrate lower market rates. With the economy in a deepening, inflationary recession, and with the first major Atlantic hurricane of the season within striking range of Gulf of Mexico energy infrastructure, financial-market turmoil likely has only just begun to unfold.
Alert August, 12th, 2007 • Systemic Liquidity Problems Turn Ugly
• Communist China Fires First Dollar Salvo
• Given Deepening Recession, Financial Market Woes Are Just Beginning
• July M3 Growth Holds at 13%
• Last week saw extraordinary developments, with a widening systemic liquidity crisis forcing central banks to reaffirm their statuses as lenders of last resort. At the same time, Communist China fired its first serious salvo against U.S. financial market dependence on foreign capital, and Washington appears to have capitulated to early demands. With the U.S. economy in a deteriorating, inflationary recession, and with Mr. Bernanke possibly facing his two other worst nightmares at the same time, one can make the case that the negative turmoil in the U.S. financial markets and for the U.S. dollar are just beginning.
Flash Update August, 5th, 2007 • July Jobs Report Shows Managed Numbers
• July Annual M3 Growth Notches Lower to 12.8%
• July Financial-Weighted Dollar at All-Time Low
• Systemic Problems Begin to Surface
• Last week saw mounting financial-market stress as an increasing number of firms indicated losses from or difficulties with mortgage- and asset-backed securities and collateralized-debt obligations. Circumstances are exacerbated by an intensifying inflationary recession, and market disorders should get much worse. It would not be surprising if the Fed found itself being called upon, or felt the need, to provide some systemic liquefaction. Still missing from the unfolding crisis, however, remains heavy flight from the U.S. dollar, which will come sooner rather than later. So far, flight to safety and quality has been into the dollar and into Treasury securities, but that will become a flight out of the greenback, particularly if the Fed moves to liquefy the system. Then, pressures on the U.S. central bank will shift heavily in favor of raising interest rates to defend the dollar. On the economic front, last week's data showed not only weakening business conditions, but also indications of data manipulation in the payroll survey.
Alert July, 29th, 2007 • Reported GDP Rebound was Politically Convenient
• 2nd-Quarter GDP Contracted 0.9% Net of Revisions
• Signs of Imploding Economy Mount
• Oil Price a Penny Shy of Record
• Stock Market Swoon Foreshadows Much Worse
• The U.S. financial markets will face massive and possibly panicked sell-offs in stocks, bonds and the U.S dollar, along with an explosive rally in the price of gold. Timing remains the issue, but this week's break in stock-market psychology has moved the odds strongly and solidly in favor of looming market meltdowns within a six-to-nine month horizon. Circumstances remain fluid enough, though, that given the right confluence of negative factors — as discussed below — the markets could spiral into the abyss at anytime, including within the next week or so. Faced with short-term financial-market and political pummeling, President George Bush sought a breather with the second-quarter GDP numbers. He and his spinmeisters boasted of U.S. economic growth rebounding to 3.4%, from the first quarter's 0.6%, but the improved numbers were just figments of the imaginations of officials at the Bureau of Economic Analysis. Other reporting showed rapidly deteriorating business activity, while inflation prospects took a new blow.
June / July 2007 Edition July, 23rd, 2007 • U.S. Dollar Woes Broaden Rapidly
• Systemic Liquidity Shows Some Cracks
• Bernanke Makes Case For Fudging Inflation Data as Fed Fumbles Its Figures
• Oil Pushes Record Highs as Economy Continues Tanking
• Stock Market Turmoil, Dollar Sell-Off and Gold Boom Move Ever Closer
• Against the backdrop of intensifying inflationary recession, the dollar has started taking some early and heavy blows. The sub-prime mortgage difficulties have gained media prominence, but they are just the beginning of difficulties for mortgage and other asset-backed securities. Meanwhile, the Fed keeps sitting on its hands, whistling a tune that inflation is not a problem so long as the public does not see it. At the same time, the U.S. central bank appears to be having trouble tracking the balance sheets of commercial banks. With ongoing annual M3 growth at 13%, alternate CPI at 10.3% and alternate GDP down about 2.2%, apparent complacency by the Fed and euphoria in the record-topping and increasingly volatile equity markets are surreal. Growing recognition of the disconnection between government numbers and economic reality should have even the Wall Street Pollyannas a little bit on edge, as heavy dollar selling and a booming gold market begin moving perhaps a little too close for comfort.
Flash Update July, 11th, 2007 • Revision and Seasonal-Adjustment Games Help Obfuscate Employment Reality
• Consistent Seasonals Suggest 107,000 June Jobs Gain (Not 132,000)
• To maintain the reported 2,000,000 (exact) annual jobs growth in place for revised seasonally-adjusted May 2007 payrolls, monthly jobs gain reporting needs to be targeted by the Bush Administration at 167,000 per month. In contrast, the Clinton Administration targeted 250,000 per month (3,000,000 per year) for an extended period of time. Perhaps for fear of rattling the credit markets, however, initial monthly reporting typically has been
"understated" over the last year or so, followed in subsequent months by major upward revisions to prior reporting. If this pattern is not a machination of the Bureau of Labor Statistics (BLS), and if the later numbers are accurate, not fabrications, the BLS would do well to suspend its initial reporting of these numbers, rather than to continue misleading the public and the markets with such poor quality reporting.
Flash Update July, 1st, 2007 • Recession Signals Deepen as Inflation Pressures Mount
• Help-Wanted Advertising Falls to New Cycle and 50-Year Lows
• May's help-wanted advertising index plummeted to 27, from 29 in April, hitting new cycle and 50-year lows. After allowing for the Internet's siphoning meaningful volume away from the print media, the renewed plunge in the current data still signals a sharp weakening in current economic activity and could be a
harbinger of weaker-than-expected June employment data due for release on July 6th. There were no happy surprises in other economic releases last week. On the price front, ongoing M3 annual growth for June looks like it was close to matching May's pace, while oil prices moved higher, again, and the Fed fretted a little more openly about its inflation worries.
Flash Update June, 26th, 2007 • Last Month's Unusual Housing "Surge" Evaporates
• Fed Remains Hamstrung Despite Mounting Dollar and Systemic Liquidity Risks
• Sporadic and irregular "positive" economic reports of the last month are proving fleeting, as I suggested, with some numbers revising sharply to the weak side. The housing numbers, for example, look again like they are in the middle of deepening recession.
Flash Update June, 17th, 2007 • Alternate CPI Notches up to 10.3% Annual Inflation
• May M3 Annual Growth at 13.3%
• Industrial Production Falters, Retail Sales Get Seasonal-Factor Boost
• Inflationary Recession Deteriorates Anew
• With May CPI and PPI topping expectations, and with industrial production faltering, the combination of inflation and recession — a disquieting concept for the financial markets — is not about to disappear. Inflation factors appear to have been rattling the credit markets recently, but the rise in long-term U.S. rates likely reflects more of a waning foreign enthusiasm for buying U.S. Treasuries, than it does expectations of a pending U.S. economic boom. Any such expectations should disappear with economic reporting in the month
or two ahead.
May 2007 Edition June, 6th, 2007 • GDP Contracted Net of Nonsensical Personal Consumption Surge
• Seasonal Factor Distortions Boosted Payrolls Again
• M3 Growth at 33-Year High
• Fed Remains Impotent
• Stock Market Turmoil, Dollar Sell-Off and Gold Boom Just Matter of Time
• Last month's key data generally showed a worsening inflationary recession. Relative monthly strength, reported for several indicators of business activity, were not too meaningful. Where the affected
numbers are highly volatile, of suspect quality or subject to unusual seasonal factors, countertrend reporting usually is just a one-month aberration. Changes in economic direction are foreshadowed by shifts in leading indicators, not by shifts in coincident or lagging indicators, and most of the better indicators continue to confirm a deepening economic contraction. On the inflation front, annualized CPI inflation, year-to-date
April, is running 4.8% to 7.4% (seasonally adjusted or unadjusted). Annual growth in the SGS Ongoing M3 has broken above 13%, rivaling levels seen before the severe 1973 - 1975 inflationary recession.
Flash Update May, 28th, 2007 • Housing and Durable Goods Consistent with Faltering Economy
• Downside Data Likely in Week Ahead
• Wall Street Hypesters Fan False Hopes of Economic Turn
• On Thursday, regularly-volatile new home sales were reported up 16.2% for the month of April, and Wall Street’s spinmeisters went to town. The hypesters who tried to weave that isolated and volatile number into a housing recovery story would be comfortable working for the propaganda ministry of the average totalitarian state.
Flash Update May, 20th, 2007 • Alternate CPI Holds at 10.2% Annual Inflation
• Industrial Production and Housing Data Show Faltering Economy
• Annualized Year-to-Date CPI Shows Serious Inflation
• There was little startling in last week's economic reporting, net of some major revisions and usual seasonal-factor distortions. The inflationary recession continues, and data in the weeks ahead should confirm ongoing deterioration.
Flash Update May, 12th, 2007 • Annual M3 Growth Accelerates to 12.8%
• Retail Sales and Trade Deficit Take Hits, as PPI Booms
• Fed Hints at Inflationary Recession
• Comments from the U.S. central bank usually are couched in such cautious and careful language
as to make a Wall Street attorney blush. Removing the regular platitudes as to likely economic expansion and inflation moderation in the coming quarters, the crux of the May 9th FOMC statement went: "Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. … the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected." That is as close as the Fed will get to acknowledging a recessionary inflation, until well
after the fact of broad market recognition. Last week's economic reporting further moved market expectations towards the unthinkable combination of a contracting economy beset by high inflation.
April 2007 Edition May, 7th, 2007 • April Payroll Contraction Appears to Have Been Masked
• M3 Growth Surges to 9-11 Liquefaction Levels and Worse
• Mounting Inflationary Recession Has Hobbled Fed
• Intensifying Dollar Sell-Off and Gold Boom Loom
• Knees would be knocking audibly in the credit markets, if the Fed still reported M3 growth. Annual growth (SGS Ongoing M3 series) accelerated sharply in April to 12.9%, from 11.7% in March. The last time annual M3 growth approached 13%, the Fed was liquefying the financial system in the wake of the 9-11 terrorist attacks. Before that, the year was 1981 and official annual CPI inflation was running about 10%. If 10% inflation sounds familiar, that is roughly the level of annual CPI inflation that would be reported today using the CPI methodologies of 1980. Exacerbating the financial catastrophe that slowly is unfolding for the U.S. markets, the economy is in a deepening recession and the U.S. dollar has begun suffering nascent selling pressures. In terms of monthly averages, gold already is at an all-time high, and the trade-weighted dollar is at an all-time low. Out of touch with reality, the Dow Jones Industrial Average keeps bouncing to new highs.
Flash Update April, 29th, 2007 • Key Dollar Measure Hits All-Time Low
• First-Quarter GDP Growth of 1.26%, GDP Deflator at 3.97%
• Business Activity Tumbles as M3 Growth and Inflation Fears Soar
• Inflationary Recession Can Trigger Massive Dollar Selling
• The trade-weighted U.S. dollar hit a record low last week, as the markets increasingly recognized the downturn in economic activity, in conjunction with rising inflation that the Fed seems to be "fighting" with accelerating broad money growth. The faltering fundamentals for the greenback included the ongoing bottom-bouncing of the President's approval rating. The U.S. currency is at the precipice and shortly could come under massive selling pressure. Dollar dumping would create turmoil in the domestic U.S. markets, pressuring long-term interest rates to the upside and equity prices to the downside. Never before have the U.S. markets faced an economic crisis while being so heavily dependent on foreign capital for liquidity.
Flash Update April, 22nd, 2007 • Annual Inflation Soars as Economic Indicators Continue to Tank
• With Deepening Inflationary Recession, Weakening Dollar and Strengthening Gold, Equities Boom?
• Leave it to Wall Street's perverted spinmeistering to hype a 0.4% surge in annual CPI inflation as good news. The hype, of course, surrounded a reported 0.2% decline in so-called "core" inflation, which is relevant only to those poor souls living in the gray twilight of existence, where they consume neither food nor energy. Nonetheless, combined with ongoing weak economic data, general selling pressure against the U.S. dollar and upside movement in the price of gold, the happy inflation hype has been enough to push the Dow Jones Industrial Average to new highs. While the trends in weakening data and U.S. dollar and strengthening gold will tend to intensify, mounting irrationality in equities trading has set up stocks to be turned on their heads.
March 2007 Edition April, 9th, 2007 • Inflationary Recession Deepens as Markets Sense a Problem
• March Annual M3 Growth Jumps to 11.6%
• Foreign Investors Shunning Treasuries?
• Handling Hyperinflation in a Near-Cashless Society
• Dollar Sell-Off and Gold Boom Still Lie in Offing
• Despite continued rapid deterioration in the current inflationary recession, and despite growing market recognition of the intractable difficulties with both inflation and business activity, there are those on Wall Street who just seem unable to accept the concept of inflation without a strong economy. Give the markets a
stronger-than-expected employment report, and rumblings start of "full employment" triggering a round of wage inflation and Fed tightenings. Inflation is a problem — due to oil, dollar and monetary issues — but not due to strong economic demand. With consumer liquidity squeezed dry, there is no risk of the economy overheating. With actual unemployment around 12%, there is no risk of inflation pressures from the economy being at full employment.
Flash Alert April, 3rd, 2007 • Inflationary Recession Continues to Deepen
• Retail Sales Running About 0.8% Lower in Revision
• Negligible "Final" GDP Revision Indicates Pending Major Downside Annual Revision
• March Jobs Data Should be Soft
• The inflationary
recession continues to deepen, with economic reporting generally surprising markets on the downside of expectations and inflation surprising markets on the upside. Last week, Fed Chairman Bernanke felt it necessary to clarify that the Fed still has a problem with inflation, despite slowing business
activity. Inflation concerns have not been helped by mounting tensions in
the Middle East or by rising oil and gasoline prices.
Flash Update March, 27th, 2007 • Major Revisions to Housing, Retail Sales and Production Promise Lower GDP Growth
• Where the annualized quarterly fourth-quarter GDP inflation-adjusted growth rate revised from 3.5% in its "advance" reporting, to 2.2% in its
"preliminary" reporting, further downward revision is likely in Thursday's "final" reporting, due to significant revisions in underlying economic series.
Flash Update March, 18th, 2007 • Resurging Inflation Again Sinks Real Retail Sales
• Inflationary Recession Intensifies
• Last week's CPI, PPI, retail sales and industrial production releases added some new detail to the continuing deterioration in current economic and inflation conditions. Indeed, as the markets may be beginning to understand, a weak economy and rising inflation can happen together.
Flash Update March, 11th, 2007 • Likely Reality in Troubled Economic Data: February Payrolls Contracted; January Trade Deficit Did Not Shrink
• February M3 Annual Growth at 10.9%
• Data-Quality Deterioration Deepens
• With financial-market speculation moving back to a "recession or growth" focus, poor-quality reporting of
heavily followed economic data does a disservice to the investing public. This is particularly true when Wall Street hypesters weave related stories that have little relationship to reality, but that happen to help sell
certain financial products. The government would do well to delay its publication schedule by a full month for key economic data that usually suffer heavy revision. In the trade-off between quality and timeliness of reporting, little would be lost, since first estimates of the payroll and GDP data, for example, usually are worthless.
Flash Update March, 4th, 2007 • Recession Continues to Barrel Along
• Market Disquiet Mounts As "Nesting Season" Nears
• Deepening Recession Helps Trigger Greenspan Waffle and Market Wobble
• When consensus economic forecasters start to talk of recession, usually a downturn has become a certainty, with economic activity already having contracted for at least six-months to a year. Wall Street economists, and Administration and Federal Reserve officials, typically are the last to talk of the politically unthinkable, for fear of negative reactions they might trigger in the financial markets. The game is afoot.
January/February 2007 Edition February, 20th, 2007 • Economic Activity in Rapid Decline as Miracle Recovery Fades
• Central Bank Dollar Holdings Exacerbate Hyperinflation Risk
• Stock Market Euphoria Misses Economic and Political Realities
• Dollar Sell-Off, Gold Boom Lie Ahead
• An upside blip in economic reporting from unseasonably good weather spiked some December economic data, and market expectations for the economy soared. The U.S. economy, however, does not turn quickly without warning, and early January data showed the recession not only to be very much in place, but also to be deepening rapidly. Although inflation will continue to rise without a further oil price spike, sudden indications of renewed possible terrorist attacks and rumblings of a possible U.S. attack on Iran hold the potential for a rekindled surge in oil prices. Under these circumstances, the U.S. financial markets remain in peril, with higher interest rates, lower equity prices, heavy dollar selling and significant
gold buying on the horizon.
Flash Update February, 14th, 2007 • Retail Sales Annual Growth Nears Zero
• Newsletter Update
Flash Update February, 4th, 2007 • M3 Growth Hits 11%, December Jobs Revised Upward by 933,000
• The SGS Alternate Data pages have been updated for M3, GDP and the U.S. Dollar. Based on three weeks of reporting through January 22nd, annual M3 growth hit 11.0% in January, helped by rising M2 growth.
Flash Update January, 31st, 2007 • GDP overstated by bogus trade reporting
• Upside risk to Janurary jobs report
• Details on upcoming Newsletter.
Flash Update January, 21st, 2007 • Weather Distorts Data
• 4th-Quarter Production Contracts
• Annual Alternate Inflation at 25-Year High
• M3 Growth Continues to Accelerate
• December’s unusual weather patterns appear to have distorted monthly growth to the upside not only for payrolls — touched upon in the prior Flash Update — but also for retail sales, industrial production and housing starts. Actual economic activity does not turn quickly or sharply without advance
indications. Continued distortions are likely, with the data swinging back the other way in the next couple of months. That said, the inflationary
recession has continued to deteriorate.
Flash Update January, 7th, 2007 • December Payroll Growth Understated But Not Credible
• Unusual Weather Patterns Promise Major Data Distortions
• Is Bureau of Labor Statistics Playing Games with the Credit Market?
• Highly unusual reporting and revision patterns for the jobs data were seen again, for December. Employment conditions are close to showing a recession, but each month the Bureau of Labor Statistics keeps filling in prior periods with levels of upside revisions that are unprecedented outside of the annual benchmark revisions. The revisions are unusual enough for the BLS to have published a statement last month proclaiming that the changes were not unprecedented. Something very strange is going on in the reporting.
December 2006 Newsletter January, 2nd, 2007 • Recession Recognition Likely in 2007
• Dollar Poised for 30% Plunge
• Dollar, Debt Monetization and Oil Prices Boost Inflation Outlook
• Gold Easily Could Top $1,000
• Fed to Tighten in Dollar Defense?
• Equities and Bonds to Suffer
• Hyperinflationary Depression Likely by 2010
• The U.S. economy and financial markets face significant peril in 2007, with the dollar sitting on the brink of a major collapse. The positive 2006 U.S equity markets and reasonably tranquil credit markets belie the pending turmoil that already has been set in motion by a rapidly deepening inflationary recession and exacerbated by the de facto long-term insolvency of the U.S. government.
Flash Update December, 30th, 2006 • New Year Faces Financial Peril
•Year-End Newsletter by January 2nd
•Accelerating growth in the formerly broadest of U.S. monetary aggregates (M3) offers a hint of what will be one of the major, ongoing market concerns in 2007: inflation. The other key economic features of the year ahead will be a deepening, structural recession, and a U.S. government fiscal disaster careening out of control. Where 2006 closed out the year with higher equity prices and somewhat higher interest rates, it also saw a significant surge in the price of gold and the early stages of a major weakening of U.S. dollar. The U.S. equity and credit face bleak prospects in 2007, with strong upside potential for gold and a massive downside potential for the U.S. dollar.
Alert December, 16th, 2006 • 2006 GAAP-Based Federal Deficit Jumps to $4.6 Trillion
• Total Federal Obligations at $54.6 Trillion
• Energy Pricing Gimmicks Distort CPI and Trade Deficit
• Last week’s U.S. Treasury’s 2006 GAAP-based federal deficit deteriorated sharply, well beyond any possible chance of containment. Other government reports showed curious understatements of both the CPI and trade deficit, as the ongoing inflationary recession continued to unfold.
Flash Update December, 11th, 2006 • M3 Growth Tops 10%
• Inflation Signals Turn Higher Again
• First Post-Election Jobs Data Show Slowing Economy
• Economic releases of the last week or so continued showing a rapidly deepening recession, along with early confirmation of inflation resuming its upward trend. Beyond ongoing softness in the dollar and some upside movement in oil prices threatening inflation, broad money supply growth is accelerating to the upside.
November 2006 Newsletter November, 29th, 2006 • Dollar Selling Will Threaten Credit and Equity Markets
• Economic Activity Continues to Crumble
• Distorted Inflation Plunge Bottoms Out
• Gold Prices to Rebound Further
• The broad outlook for a deepening inflationary recession continued to intensify last month, at the same time that domestic and global political tensions increased sharply. Main Street U.S.A. dumped the Republican controlled Congress for a variety of reasons, not least of which were rapidly deteriorating pocketbook issues. Reflecting a growing market awareness of these problems, the U.S. dollar has come under some selling pressure. When the current minor selling turns massive, the foreign-capital-dependent domestic markets will face a terrible liquidity squeeze, with resulting interest rate spikes and equity selling. Gold should do well under the circumstances.
Flash Update November, 20th, 2006 • Exaggerated Gas Price Drop Pushes Inflation Reporting to Nadir
• M3 Growth Hits Four-Year High
• Economic Activity Continues to Crumble
• Post-Election Environment Set for Rebounding Inflation and Deepening Recession
• The inflationary recession is picking up momentum. The various special factors that have depressed near-term inflation reporting have run their course, while economic data ranging from retail sales to housing continue to signal plummeting economic activity. Such is not a happy environment for the traditional financial markets.
Flash Update November, 6th, 2006 • October Jobs Data Appear Rigged
• Unemployment Drop Statistically Indistinguishable from Increase
• Jobs Gain Statistically Indistinguishable from Decline
• With continued Republican control of both the House and the Senate at risk, the Bush Administration had both the motive and the opportunity to manipulate the October labor report in its favor. Beyond the reported gain in jobs and drop in unemployment being statistically indistinguishable from a drop in jobs and a gain in unemployment, were the data rigged? While there is no smoking gun, a strong odor of cordite permeates the air. The level of pre-orchestrated hype and a wide variety of unusual reporting characteristics in the October labor data argue strongly in favor of manipulation.
October 2006 Newsletter October, 30th, 2006 • Collapsing Economic Activity Shows Accelerating Recession
• Twisted Inflation Plunge Will Reverse Post-Election
• Is Fed Controlling Manipulations?
• U.S. Productivity Has Been Falling Since NAFTA
• The broad outlook for a deepening inflationary recession remains in place. The drop-off in economic activity indicated by recent reporting is nothing short of extraordinary. Recession speculation should increase markedly. Also, the plunge in CPI inflation was to be expected, given the recent drop in energy prices and year-ago comparisons with hurricane effects. While the inflation downturn will be very short-lived, economic activity is going to get a great deal worse.
Flash Update October, 16th, 2006 • Observations on Trade, Budget and Retail Sales Data — Un-hyped
• Give Wall Street a bad number, and a positive spin will be generated. Contrary to the popular financial-media hype last week, the news on the trade deficit, the budget deficit and retail sales could not have been much worse. If you like the "core inflation concept," you will love the "core trade deficit" and "core retail sales."
Flash Update October, 9th, 2006 • Political Manipulation of Labor Data Kicks into High Gear
•September Payrolls Fell 40,000 Using Consistent Seasonal Adjustments
• The broad outlook for a deepening inflationary recession remains in place. The September employment report showed severe deterioration, despite a number of reporting gimmicks. Faced with an electorate that is in economic pain, the Bush Administration has tried to make the bad numbers disappear for a while, but results have been mixed. This is despite the comparative annual boosts starting to show up in data from the effects of last year’s terrible hurricane season. The heavily touted annual gain in September retail stores sales is a prime example of such an effect.
September 2006 Newsletter September, 25th, 2006 • Upsides for Inflation and Gold Have Not Yet Been Touched
• Business Downturn Accelerates
• Poverty Report Suggests GDP Reporting Fraud
• Katrina and Pre-Election Manipulations Distort Current Numbers
• Dollar Selling and Higher Interest Rates in Offing
• The economy’s crash landing was evident in most economic reporting of the last month. On the plus side, volatile oil and gasoline prices have enjoyed a short-term decline — just in time for the election — but inflation problems are only beginning. Despite unusual reporting distortions that will surface in the next two months, the broad outlook for a deepening inflationary recession continues. While these conditions remain bearish long-term for the U.S. equity and credit markets and for the U.S. dollar, they remain extremely bullish for gold.
Flash Update September, 5th, 2006 • Recession Surfaces Despite Manipulation of GDP Data
• Help-Wanted Advertising and Consumer Confidence Plunge Anew
• Poverty Survey Suggests the 2001 Recession Never Ended
• While Wall Street tries to spin a soft-landing tale for the economy — thanking Mr. Bernanke’s genius — a number of reports already are showing scattered wreckage from the crash landing.
August 2006 Newsletter August, 21st, 2006 • Inflationary Recession Deteriorated Sharply in Second Quarter
• Alternate Measures: Consumer Inflation Hits 11% with Annual GDP Growth Down 0.8%
• July M3 Annual Growth at 9.1%. The Federal Reserve’s Open Market Committee "paused" in its string of rate hikes, citing moderating economic growth and hopes for moderating inflation. With the economy in a deepening inflationary recession, the Fed once more is feeding pabulum to the financial markets in an effort to fend off disorderly declines in the U.S. dollar and in the equity and credit markets. Inflation is far from peaking, and interest rates are going to spike sharply. In a related manner, the run-up in oil prices is not over, and the price of gold has a tremendous upside move ahead of it.
Employment Growth Remains Indistinguishable from Contraction; Federal Deficit Reality Surfaces in Popular Media August, 7th, 2006 • The employment data arebeginning to act recession-like, and that normally would put the Fed into aneasing mode. Yet, as evidence grows of slowing
•falling economic activity,evidence of accelerating inflation is mounting, too. There is little thecentral bank can do to contain inflation or to stimulate the economy.Accordingly, Fed considerations and activity will be dominated by efforts tomaintain stability in the financial markets and the U.S. dollar.
GDP Manipulation July, 28th, 2006 • GDP Manipulation Uncovered — Instead of the 2.5% growth reported for second-quarter 2006 GDP, the economy contracted. Growth fell by more than 0.5% when corrected for unusual inflation gimmicks used to understate GDP deflation. Previously reported GDP growth underwent meaningful downward revisions.
Flash Update July, 24th, 2006 • Housing, Retail and CPI Data Confirm Recession Signals.Two key series — Retail Sales and Housing Starts — have generated solid recession warning signals, based on reports published last week. This is as anticipated in the July 17th newsletter. Once generated, such signals always have been followed by the signaled contracting or booming economy.
July 2006 Newsletter July, 17th, 2006 • Second-Quarter Real Retail Sales Contract 1.3%;Employment Indicators Plunge As Inflation Soars; Fed President Suspects CPI Understatement. Collapsing economic activity and mounting inflation dominated last month’s economic reporting. An inflationary recession is in play, and there is little the Administration or the Fed can do about it. This has created a nightmarish scenario for the financial markets.At the same time, international tensions have escalated to the point where risk of a conventional world war is the highest it has been in 61 years.With U.S. economic and global political conditions unraveling so rapidly, underlying fundamentals do not get much worse for the equity and credit markets, nor much better for gold. Circumstances are fluid and disorderly markets are possible with little or no warning. The U.S. dollar faces severe selling pressure in the near future, although political flight-to-safety effects are providing the greenback with temporary, albeit short-lived, support. The timing of the dollar’s demise ultimately will determine the timing of the fate of the other markets.
Trade Manipulation Uncovered (in Commerce Department Release of June 9, 2006) June, 12th, 2006 • The reporting of March’s sharp trade improvement appears to have been a deliberate fabrication, aimed at salving the troubled financial markets of the time! Benchmark revisions released along with the monthly April trade data show that the sharp "improvement" in the March trade deficit — reported at a time of high U.S. dollar and political stress — was rigged. While it is standard practice by the statistical agencies to adjust pre-benchmark revision reporting to coincide with the benchmarks, such adjustments are made to month-to-month or quarter-to-quarter changes, not to the absolute level. To my knowledge, pre-adjusting the level of a series such as the trade deficit is unprecedented. The Bureau of Economic Analysis (BEA) is more politicized than the Census Bureau. The BEA now "participates" in the trade release with Census, which once handled the monthly number exclusively. Violating common reporting principles with the trade data, the BEA likely repeated the process in the GDP reporting.
June 2006 Edition June, 7th, 2006 • In general, the broad economic outlook has not changed, but the financial markets are beginning to catch up with underlying reality. Faltering economic activity and mounting inflation have created a nightmarish conundrum for the political operatives both in the Bush Administration and at the Federal Reserve. Soft economic numbers and high inflation are being nonsensically spun as "conflicting data." An inflationary recession is in play, and there is little the Administration or the Fed can do about it. The pabulum fed to the investing public — that a weak economy means low inflation and interest rates — cannot work in the current environment. Any conflicts that arise are not in the economic data but in simplistic views on economic activity espoused by Wall Street, or in the statistical manipulation goals of the politicians. Those latter issues explain recent Administration and Fed activities — ranging from Fed Chairman Bernanke’s tap dancing on the inflation outlook to the appointment of a new Treasury Secretary — all anchored in putting a positive spin on an impossible situation and avoiding a financial-market meltdown before November 7th. The markets are not cooperating. Dollar selling and gold buying have just begun, and so have the negative reactions in the credit and equity markets.
May 2006 Edition May, 17th, 2006 • The 2005 to 2007 inflationary recession has moved well beyond stagflation. Circumstances deteriorated markedly in the last month, and market perceptions of same have begun to surface, as exhibited by strong gold and a weak dollar. In addition, the trouble is not confined to a weak economy and higher inflation. It also includes a foundering administration and increasing odds of a shift of power coming out of November’s election. Although purposely suppressed in the "official" data (PPI and CPI), there is an inflation problem. It is driven by oil, and increasingly, it also is being driven by dollar woes. These are factors separate from strong economic activity that commonly is viewed as the source of inflation. Fed tightening — designed in theory to slow the economy in order to slow inflation — will do little to cool the current problem. Moreover, current Fed activity has been the reverse of the jawboned inflation fighting, aimed at stimulating liquidity, not killing it. While short-term interest rates have been increased, broad money growth also has been soaring, at least prior to its reporting cut-off. Excessive money growth tends to be an inflation stimulant, not a retardant.
April 2006 Edition April, 12th, 2006 • There are two broad types of political manipulation of economic data, systematic and current-event, and both are at work distorting economic reports. The current-event manipulation, however, is what will dominate key economic figures out through the mid-term election. It involves direct political intervention in the reporting process in order to enhance the reported results. Indeed, the relatively happy news from the employment
•unemployment front in March appears to have been carefully crafted by Administration manipulators. Similar efforts are likely to generate a reported surge in first-quarter GDP growth, as well as ongoing "strong" jobs data.Nonetheless, continued negative inflation-adjusted growth in money supply (M2), monthly declines in key components of the purchasing managers surveys, sharp downturns in annual change for housing starts and help-wanted advertising, flat to negative annual change in consumer confidence and real earnings, and a record trade deficit all continue to show faltering economic activity. In addition, the price of gold has more than doubled in the last four years, to what is now $600 per ounce. Bullion is sending out a warning of extreme danger facing the U.S. dollar and of rapidly increasing risk of severe global instability. Meanwhile, the political geniuses running Washington continue to fret over the latest polling numbers, while ignoring the fiscal and structural economic crises unfolding around them.
March 2006 Edition March, 15th, 2006 • In general, the broad economic outlook has not changed. Since the beginning of 2005 a number of key indicators have been nearing or at their fail-safe points, with four indicators moving beyond those levels, signaling a recession. Once beyond their fail-safe points, these indicators have never sent out false alarms, either for an economic boom or bust. The 2005 to 2007 inflationary recession showed signs of deepening in the latest reporting. Monthly data show plunging new orders for durable goods and contracting industrial production, retail sales, help-wanted advertising, real average weekly earnings and consumer confidence. Consumer credit growth also remained sub-par. As to inflation, both the CPI and PPI topped expectations, and oil prices have remained strong. Also published recently were the full trade data for 2005. Based on fourth-quarter GDP, net exports and employment data, the U.S. trade deficit has cost 8.8 million jobs over time, with 800,000 jobs lost in 2005, alone. The current edition of "SGS" will examine how these numbers were estimated.
February 2006 Edition February, 9th, 2006 • The 2005 to 2007 recession almost broke to the surface recently, with the Commerce Department’s "advance" estimate of fourth-quarter 2005 GDP. The report was about as honest a one as Commerce has published in a number of years. Somehow, though, considering the Labor Department’s increasing reporting shenanigans last month, the chances of the dawning of a new era of straight-forward economic reports at this time are nil. It is beyond common sense that the current political hacks will allow recession reporting to surface prior to the November election. What almost broke to the surface in the recent GDP reporting most certainly will be beaten back with a club in the months ahead. In general, our broad economic outlook has not changed. The 2005 to 2007 inflationary recession continues to deepen, and the approaching recession, inflation and risks of heavy dollar selling will offer a nightmarish environment for the still Pollyannaish financial markets. However, negative GDP growth is not likely to surface in regular government reporting until after the November 2006 election, given the rampant political manipulation of most key government numbers.
January 2006 Edition January, 11th, 2006 • As the administration hypes the economic boom shown in its manipulated data, less popularly followed numbers continue to show an inflationary recession. The Shadow Government Statistics’ Early Warning System (EWS) was activated in May and signaled the onset of a formal recession early in July 2005. However, negative GDP growth is not likely to surface in regular government reporting until after the November election, given the rampant political manipulation of the GDP, employment and CPI. The National Bureau of Economic Research (NBER) should time the downturn to mid-2005 and announce same also sometime after the election, so as not to be deemed politically motivated in its timing. Further, thanks to the largely ignored federal budget and trade deficits that now are spiraling out of control, the current downturn is at high risk of deepening into a hyperinflationary recession. Mounting concerns outside the political arena have been one factor behind the ongoing strength in gold prices. The growing awareness of the insurmountable problems associated with these deficits will add significant downside risk to the financial markets as 2006 progresses.
December 2005 Edition Supplement (Re: FY2005 Treasury GAAP Accounting) December, 19th, 2005 • The "2005 Financial Report of the United States Government," published December 15th by the U.S. Treasury, reported a $760.0 billion net deficit in U.S. government operations for fiscal 2005, based on generally accepted accounting principles (GAAP), but excluding ongoing liabilities to Social Security, Medicare and similar programs. The $760.0 billion was up 23.2% from 2004’s $615.6 billion GAAP-based deficit, while the official, accounting-gimmicked 2005 deficit of $318.5 declined by 22.8% from $412.3 billion in 2004. However, net of all accounting gimmicks, the actual federal budget deficit is running at an unsustainable, system-dooming pace of $3.5 trillion per year, roughly 11 times the size of the $318.5 billion accounting-gimmicked official deficit for 2005. The U.S. Government’s negative net worth widened to $49.4 trillion in 2005, with total government liabilities topping $50 trillion for the first time.
December 2005 Edition December, 7th, 2005 • In general, the broad economic outlook has not changed. The 2005 to 2007 inflationary recession continues to deepen. This outlook is predicated on economic activity that already has taken place and does not consider any additional risks from exogenous factors. Most economic data already are softening, and the trend will accelerate sharply. Since the beginning of 2005 a number of key indicators have been nearing or are at their fail-safe points. Once beyond their fail-safe points, these indicators have never sent out false alarms, either for an economic boom or bust. Lower tax receipts will combine with disaster recovery spending and the ongoing war in Iraq to accelerate deterioration in the federal deficit. Negative GDP growth will not surface in regular government reporting until at least next year, now that it is clear that Katrina’s impact has been neutralized in official reporting, and that political manipulation of the GDP, employment and CPI is rampant.
November 2005 Edition - Supplement (Re: M3) November, 23rd, 2005 • Unilaterally and without reasonable explanation, the Fed has decided to stop reporting monetary aggregate M3, the broadest of the money-supply measures and probably the most important statistic published by the U.S. central bank. Of the liquidity measures, inflation-adjusted M3 is the best leading indicator of economic activity. Despite its strong growth in nominal terms, net of inflation (calculated on a pre-Clinton Era basis), M3 generated a reliable recession signal several months back. What game the Federal Reserve is playing will become clear soon enough. However, the chances that M3 is being eliminated because it merely duplicates M2 are nil. The cost factor the Fed cited in its announcement also is a canard.
November 2005 Edition November, 21st, 2005 • Indeed, it is the best of times and the worst of times, depending on which economic releases one reads. Unfortunately, underlying economic reality continues to support the latter outlook. Weighed historically against the various political games played with economic reporting, the present state of affairs is without domestic precedent. In the practiced propaganda of totalitarian states, the lack of alternative information makes it difficult to quantify the manipulations. In contrast, what is happening with the US statistics can be demonstrated with alternate data sources — often from within the government itself. The phony numbers appear to have broad public acceptance within the financial community, despite occasional questions being raised in the free press. Regrettably, the financial community’s acceptance of the data is far more related to business self-interest than to an honest public assessment of economic conditions.
October 2005 Edition October, 12th, 2005 • Economic numbers of the last month broadly confirmed an intensifying inflationary recession. The effects of the devastation in New Orleans and along much of the Louisiana, Mississippi and Alabama Gulf Coast have intensified the negative national economic trends but were not the root cause. Nonetheless, hurricane effects will dominate headline-grabbing economic reports of the next month or two, and Katrina likely will take much of the blame for a recession that has been in development for over a year and underway since July.
JWSGS - SEPTEMBER 2005 EDITION September, 7th, 2005 • The impact of Hurricane Katrina now becomes the convenient excuse for an inflationary recession, the ingredients and manifestations of which were falling neatly into place long before this catastrophic event came along. Make no mistake about it, however — Katrina’s influence, if it is "permitted" to find its way into government economic releases, will be very harsh. A sampling of some of the likely storm-enhanced data swings: An addition of 1% to the September CPI, third-quarter GDP that shows no growth in real terms, and a decline in September payrolls of 300,000 accompanied by a 0.4% increase in the unemployment rate. These outcomes would have serious shock value, but from a purely political perspective, it might be advisable to report them anyway, while Katrina remains fresh in everyone’s mind to assume the blame.
August 2005 Edition August, 10th, 2005 • A number of key economic indicators ran counter to our forecasts last month, particularly July employment. Government calculations of seasonal factors can occasionally suffer an across-the-board major distortion that will throw off monthly results for a month or two. Such appeared to be the case in April, and it remains a possibility for June, too. Seasonal-factor rigging also has been used historically as a tool for near-term political manipulation of data. Given flagging presidential ratings, it’s possible the Bush administration has moved into a political-manipulation mode. Nonetheless, the broad economic outlook has not changed, and the 2005-2007 inflationary recession continues to unfold.
June CPI Hanky-Panky (Re: Labor Department Release of July 14, 2005) July, 15th, 2005 • Yesterday morning’s report of 0.0% consumer price inflation (both seasonally adjusted and unadjusted) during June appears to have been a political fabrication. It was accomplished through the manipulation of reported energy prices. As a result of no reported inflation for the month, "official" annual CPI inflation dipped from 2.8% in May, to 2.5% in June.
JWSGS - JULY 2005 EDITION July, 13th, 2005 • The 2005-2007 inflationary recession continues to unfold and appears ready to offer up its first real data shocks of the cycle: an outright contraction in July payrolls combined with a meaningful jump in the unemployment rate. Upcoming trade deficits should widen sharply, and industrial production is soon due for monthly contractions. Augmenting SGS recession warning signals already in place (money supply, purchasing managers new orders index, real average weekly earnings), help-wanted advertising and housing starts had their three-month moving averages turn negative on a year-to-year basis in last month’s reporting.
Federal Deficit Reality: An Update July, 7th, 2005 • From time to time, the U.S. financial markets manifest some concern about the nation’s twin deficits — the federal budget and the current account shortfalls. These episodes have been short-lived, however. Generally, the markets have been very sanguine about these problems — much too sanguine, in our view! We believe there is a great deal about which to be concerned in both areas, and that longer run, the U.S. markets will indeed reflect it — negatively, of course. This article updates our thoughts, etc. on the federal budget deficit.
JWSGS - JUNE 2005 EDITION June, 8th, 2005 • The Shadow Government Statistics’ Early Warning System was activated last month and continues to signal the onset of a formal recession this month (June) or early in third-quarter 2005. Since the beginning of 2005, a number of key indicators have been nearing or at their fail-safe points. In the last month or two, several indicators moved below those levels, signaling an imminent recession. Once beyond their fail-safe points, these indicators have not sent out false alarms, either for an economic boom or bust. ALSO THIS MONTH: SGS announces the introduction of its own consumer price index!
JWSGS - MAY 2005 EDITION May, 11th, 2005 • The Shadow Government Statistics’ Early Warning System (SGS-EWS) has been activated, signaling the onset of a formal recession in the later part of the current quarter or early part of third-quarter 2005. Sporadic, negative GDP growth likely will not surface in government reporting until later in 2005 or 2006, and the National Bureau of Economic Research will likely time the downturn to mid-2005 and announce same sometime in early-to-mid 2006.
JWSGS - APRIL 2005 EDITION April, 5th, 2005 • Contrary to conventional Wall Street wisdom, high inflation and recession can co-exist in a very uncomfortable and financially debilitating environment. Inflationary recession is about to replace the stagflation of the last couple quarters. Slowly increasing weakness has been evident in many economic indicators, and the first formal recession signal from the SGS early warning system appears ready to kick in within the next couple weeks.
JWSGS - MARCH 2005 EDITION March, 9th, 2005 • Stagnation and inflation remain the words for describing the current economic environment in the United States. Reporting distortions overstated February employment and understated the January Consumer Price Index. Meanwhile, the deterioration in the 2004 trade deficit cost 1.4 million American jobs.
JWSGS - FEBRUARY 2005 EDITION February, 9th, 2005 • The current economic picture remains one of stagflation. The view for later in the year, however, increasingly looks like recession, as key indicators keep flirting with generating a recession warning. No solid warning, however, is in place, yet. ALSO THIS MONTH: Thoughts about how the Social Security crisis threatens US financial stability.
January 2005 Edition January, 12th, 2005 • Recession signals remain borderline as stagflation intensifies. Meanwhile, U.S. obligations exploded by 31% during 2004, to 409% of GDP. And if you were invested outside the dollar last year, it is probable you comfortably outperformed the Dow Jones industrials!
"Financial Report of the United States Government" (Fiscal Year 2004) December, 16th, 2004 • Treasury reports $11.1 trillion 2004 GAAP-basis deficit, which was equal to 96% of GDP; inflation pressures will intensify.
JWSGS - DECEMBER 2004 EDITION December, 8th, 2004 • Stagflation signals intensify, a recession warning is possible in the next two months, and the dual deficits and the dollar do matter!
JWSGS - NOVEMBER 2004 EDITION November, 18th, 2004 • Stagflation or worse signaled by key indicators; payrolls boosted by unusual seasonal adjustment.
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