Posts filed under “Mathematics”
The GDP report last Friday evinces the folly of US government economic statistics and Wall Street consensus analysis.
Most of the Street heralded the 1% decline in Q2 GDP because it was 0.5 better than consensus – even though the US government admitted in the release that its GDP estimates over the past several years were consistently wrong! So why should the latest report be any more accurate?!?!
We feel compelled to address the scheme of ‘past month lower revisions producing better than expected m/m or q/q results’ even though the aggregate metric is worse than expected. We have incessantly noted and commented on this scam but most of the trading & investing universe elides it.
We will again utilize basic math to illustrate the scam. If Q4 08 GDP was 100 units, and Q1 09 was reported at -5.5% and Q2 09 GDP was expected to be -1.5%, the expectation was for GDP of 100 units minus 5.5% or 94.5 units, minus 1.5% or 93.08 units.
With the revision of Q1 09 GDP to -6.4% the Q1 GDP units become 100 minus 6.4% or 93.6 units. So Q2 is minus 1% or 92.664. Ergo aggregate GDP was worse than expected!!!!
As we warned, lower imports, a sign of economic weakness, contributed a net 1.4% to GDP.
Once again beancounters ‘fooled’ with inflation to produce higher GDP than warranted.
John Williams: The relatively narrower quarterly contraction in the second quarter reflected the impact of greater weakness being thrown back into the first quarter, in revision, and the use of artificially reduced inflation. The implicit price deflator for the second quarter was 0.2% versus a revised 1.9% (was 2.8%) in the first quarter.
Last week we complained that despite records in fiscal stimulus, Fed largesse, nationalization and rigging of markets the best that can be said is the pace of economic decline is slowing.
Despite a 10.9% surge in federal government spending and virtually no inflation adjustment all that beancounters could fabricate (June data is still incomplete) is a 1% ‘official’ decline in GDP.
David Rosenberg echoes our observation: Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms?…In the absence of the fiscal largesse, it is quite conceivable that consumer spending would have shrunk at a 10% annual rate last quarter!”
And, it is not just labour income that is still in deflation mode. Practically all forms of income are deflating from a year ago — interest income is down 4.5%, dividend income is down 23.0% and proprietary income is down 8.0%. The only income that is really going up is the income from Uncle Sam, which is up more than 10.0% and we have reached a point where a record of nearly one-fifth of personal income is being accounted for by paychecks out of Washington…
Even with decades of understated inflation and overstated of GDP, the current economic contraction is the worse since the Great Depression.
The GDP report also shatters the notion that the stock market is omniscient and demonstrates that Wall Street analysis could not discern the worst economic and financial collapse since the Great Recession.
While the US was in recession since at least Q4 2007, most of the Street did not forecast recession. Stocks, most notably the DJTA, missed the worst economic downturn since the Great Depression. As we keep averring, record funny money, lax regulation and smiley-faced fascism has transformed the stock market from a gauge of economic activity into a generator of economic activity.
I notice that Jim Cramer is yowling on TheStreet.com today, pounding the table on US Bancorp (NYSE:USB) and Webster Savings Bank (NYSE:WBS). Jim, how much you want to buy? These institutions are going to be shoveling money into the furnace for another 3-4 quarters. We’ll have a post up on TBP tomorrow on our view…Read More
Make that belatedly. America’s previously neutered accountants — traditionally, green-visored chickenshit-cowards who have rolled over for their belly rubs from America’s CEOs and CFOs, giving them all of the bullshit they asked for over the past 2 decades — seem to be developing a spine of sorts. Recall that in the midst of the credit…Read More
“The total potential federal government support could reach up to $23.7 trillion.” -Neil Barofsky > Yesterday, we noted that the 23 Trillion dollar bailout was a “WTF number.” The statement above really turns on your definition of the word “Support” — this is not the actual costs, but more of a measure of the total…Read More
No, Michael Jackson did not sell 750 million albums. A funny thing happened to Michael Jackson’s sales figures over the past few years: They seemed to have more than tripled: “In the last three years of his life, long after the release of his final original album, Michael Jackson’s career album sales took a curious…Read More
Encouraging comments from SEC chair Mary Schapiro: “The Securities and Exchange Commission has created a new group of examiners to oversee credit rating agencies, which came under sharp criticism for their role during the financial crisis. The SEC has already adopted a number of measures to increase transparency at credit rating agencies, which are paid…Read More
Look, let’s not beat around the bush: Wall Street economists, as a group, well, they suck. Most of them did not see the crisis coming; many were deep in denial about the recession long after it started. They missed the housing boom and bust, the credit crisis. They continued to see phantom bottoms and false…Read More
There has been a lot of recent chatter along the lines of Bill Miller is back in the WSJ, Investor’s Business Daily, Bloomberg, etc. This turns out to be a simple case of bad mathematical analysis — like declaring Fannie Mae (FNM), AIG or Citibank (C) buy & hold owners were back because they were…Read More
Michael (Jeff Goldblum): I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex. Sam (Tom Berenger): Ah, come on. Nothing’s more important than sex. Michael: Oh yeah? Ever gone a week without a rationalization? -The Big Chill > You can never underestimate the absurdity…Read More