The Market Ticker

So Revised 2Q GDP comes out and results in a big spike in the S&P 500 futures, followed by the second half of two-day rally.

Now I (and many others) have always expected that the "deflater", that is, the inflation index (which must be taken off GDP because you're interested in real growth, adjusted for inflation) will be understated.

But what nobody expected was that we would see outright, blatant lies.

That's what we got.

A research note from David Rosenburg (sorry, no link) at Merrill Lynch categorized reality.

Here's what the BEA said:

"The acceleration in real GDP growth in the second quarter primarily reflected a larger decrease in imports, an acceleration in exports, an acceleration in PCE, a smaller decrease in residential fixed investment, and an upturn in state and local government spending that were partly offset by a larger decrease in inventory investment."

If only this was the truth.

Let's dig in.

Buried in that release is the real outrage:

"Domestic profits of financial corporations increased $24.7 billion in the second quarter, compared with an increase of $37.3 billion in the first.  Domestic profits of non-financial corporations decreased $46.9 billion in the second quarter, compared with a decrease of $32.1 billion in the first."

Excuse me?

Do you actually expect me to believe that profits of financial corporations increased by $24.7 billion (or that they did so in the first quarter either)? 

Am I smoking something or did not the financial sector report decreasing profits in the second quarter, and in fact, many reported absolutely stunning losses?

An increase on-balance?  You expect me to believe that?

You must be joking.

Oh, they told the truth on the decrease in earnings from the rest of the business world in America:

Domestic profits of non-financial corporations decreased $46.9 billion in the second quarter, compared with a decrease of $32.1 billion in the first.

So we have a totally bogus "financial service profits" number which of course pumps reported GDP substantially.

If you're interested in how Americans are doing, try this:

"Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 0.2 percent in the second quarter, compared with an increase of 0.1 percent in the first."

Right.  Including $160 billion in stimulus checks, which incidentally, is about 1% of GDP.  So how much would it have fallen without spending $160 billion that we don't have?

I'll answer that, since the same page gives me a metric to use.  1.4 GDP points (percent) is $39.7 billion (so the BEA says); that is a 5.6% annualized "run rate" on GDP.

So GDP actually fell (using the cooked numbers) by 1.4% on an annualized basis in the second quarter, since taking $160 billion out of one hand and placing it into another didn't actually change a thing (the government doesn't have any money; they get it from you, so the "stimulus" should in fact be subtracted back out from any claimed "GDP" - but isn't), and this assumes you believe the BEA's "deflater" (inflation) number which is vastly different than the CPI reported elsewhere and that financial firms increased their profits in the second quarter!

One final note.  If you find and read Rosenberg's research report (its worth looking for; try a search on the forum) you'll find that the non-financial corporate deflater came in at negative 3.8%.

For the uninitiated, positive numbers indicate inflation (in prices), while negative ones indicate "that which Bernanke claims cannot happen here with The Fed on watch" - that nasty "D" phrase, otherwise known as a "deflationary collapse."

Let me put this in plain terms:

If you believe this "report" from the BEA your IQ must be smaller than your shoe size.

If you bought stocks today based in part on the strength of this report, you need to see a psychiatrist.

If you are a "hyperinflationist", you need to check your thesis at the door; the evidence says that exactly the opposite is in process right now.

If you believe the current administration and BEA employees are producing honest reports on the economic circumstances in America, given this "in your face" sort of nonsense, you must be a regular reader - and believer - of Pravda.

Extracted from this morning's Ticker and reposted....

This morning Harvey Rosenblum of the Dallas Fed (Executive VP) said something on CNBC that truly astounded me - The Federal Reserve is in business to create Moral Hazard. (watch his comments)

Now let's think about this for a minute, and go back to a relatively simple example - a lender makes a mortgage loan to a person who is unqualified, on an objective basis, to pay that mortgage down to completion and take clean title to the house.

Ok.

Now realize that when a bad loan is made the loss happens at that point in time.  Just like a stock you buy that immediately implodes the indisputable fact is that loss has occurred, and we are reduced to arguing over who gets to eat it and when we admit to it.

So if The Fed is in fact "in the business of moral hazard", then we have just had The Dallas Fed admit a truth that is in fact quite uncomfortable for anyone who has a brain and is willing to use it - The Federal Reserve, as a consequence of how its mission is defined and how it chooses to discharge that mission, shifts costs and losses away from those people responsible for them and onto those people who have been and are prudent - that is, the American Public at large.

In short, what Rosenblum admitted - on national television - is that The Fed as currently constituted and operated exists to rob the public to cover the losses of wealthy investment and commercial bankers, thereby allowing them to take risks that they would never take in a market where idiocy (or even outright fraud) was punished by bankruptcy.

You were just told that this private group of banks, operating under Federal charter by our government, has as its mission in life robbing the public whenever and wherever necessary so that its clients are not forced to act in a prudent fashion.  You also now know that The Fed has extended that list of "clients" to cover investment banks along with Fannie and Freddie.

I do not want to hear any more complaints about how our government or The Fed (and its monetary policy) are "screwing" you until and unless you, as citizens, act to stop this nonsense.  I am not asking you to accept on faith that The Fed's actions are not to your benefit any longer, as I have since The Market Ticker began publication.

You have been told in plain English what The Fed's primary mission is, on national television, by a Vice-President of The Fed itself.

Wake up America.

Each day that you have a cup of coffee instead of deciding that you will not pay one more credit card or mortgage bill, or that you will trudge off to work and put in your eight hours instead of throwing down your tools and keyboards and march on Washington, is a day that you give your willing consent to this outright, admitted robbery.

Labor Day approaches. 

Who are you working for, and why are you consenting, each and every day, to this blatant and admitted theft?