“A fake Libor rate, the scandal involving global benchmark interest rates that has raised the level of distrust in major banks and markets, is nothing compared to the damage that could be done if China’s true economic growth figures were revealed, according to Larry McDonald’s newsletter.
“Is Chinese GDP the new Libor? …More and more investors are starting to question the Chinese math on GDP.
“Annual gross domestic product came in at 7.6 percent in the second quarter, according to China’s government on July 13th. The report was better than investors expected…
“But slowing imports and industrial production, as well as harder-to-fudge electricity usage data, points to much slower growth, according to McDonald and other investors. Barclays believes the number should have been more like 7.15 percent.
“What worries McDonald… is that lying by governments and banks — be it Libor rates or GDP statistics — raises the systemic risk to the markets, which is much worse than just economic risk.”
“Lying Libor Is Nothing Compared to China’s Fake GDP: Report”
John Melloy, CNBC, 7/22/2012
Indeed, if one considers all the salient Chinese data together, one concludes that the Barclays estimate of Chinese GDP at 7.15% is still high.
In order to obtain a realistic view of economic performance it is necessary to look beyond the Official Data to data that are more difficult to manipulate. For China, for example, consider:
China’s shipbuilding industry has suffered a 60% decline in gross tonnage of orders; some builders may go bankrupt. China has vast stockpiles of as-of-yet-unused coal, iron ore, and copper. In the first half of 2012, Shanghai land sales fell close to 60%. The June 2012 Chinese electrical grid usage was flat. Prices in some Asian sectors sank an incredible 25% in June because of collapsing demand. China’s neighbor Singapore reported that its GDP growth fell 1.1% during the second quarter of 2012 following a 9.4% gain during the first quarter.
Australia is losing jobs – Australian employers surprised the market after reporting payrolls were trimmed by 27,000 in June; pushing the unemployment rate up to 5.2% from 5.1% in May, due primarily to redirection in growth of Chinese demand. And the two major customers of China’s exports – the Eurozone and the US continue to weaken.
Switching focus to the U.S. we recently see that some Mainstream Media are claiming that the Housing Market has bottomed and is recovering. It is not.
“Some upside bottom-bouncing was seen with June 2012 housing starts, with the level of activity 67% below the 2006 series high. Although the headline month-to-month gain of 6.9% was not statistically-significant, the level of reported activity was at its the highest since October 2008, in the midst of the ongoing economic crash.
“Protracted stagnation in housing starts at historically-low levels of activity has continued well into its fourth year of activity, averaging 74% below 2006’s record-high construction level. Within the normal scope of volatility for the series in the last four years, a slightly higher plateau of activity appears to have developed in the eight months through June that is 68% below the 2006 high. Given the underlying economic fundamentals, there still is no recovery or relief in sight.” (emphasis added)
“June Housing Starts, Economic Review, #457”
John Williams, shadowstats.com, 7/18/2012
And most important, consider Williams on Real Current U.S. Inflation.
“Headline CPI inflation was unchanged in June, despite the sharp decline in gasoline prices last month. Seasonal-adjustment factors that had depressed reported gasoline prices in the first part of year, shifted so as to inflate gasoline-price reporting in June. Those same upside pressures will continue in place for the next several months, boosting headline CPI inflation, even when gasoline prices are falling. Yet, for the moment, gasoline prices appear to have bottomed out.
“The June 2012 CPI-U was unchanged for the month, with year-to-year inflation holding at 1.7%. …The SGS-Alternate inflation measures for June showed a 5.0% annual inflation rate (1990-based) and a 9.3% annual inflation rate (1980-based).” (emphasis added)
“June CPI and Industrial Production, #456”
John Williams, shadowstats.com, 7/17/2012
9.3% Real U.S. Inflation is (already!) Threshold Hyperinflationary and reflects the effects of excessive Fed and ECB Fiat Money and Credit Creation. Indeed, Bogus Official Statistics mask a wide variety of Negative Effects of ongoing Q.E. and related Actions. Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported July 17, 2012
1.70% / 9.26%
U.S. Unemployment reported July 6, 2012
8.2% / 22.8%
U.S. GDP Annual Growth/Decline reported June 28, 2012
1.99% / -2.17%
U.S. M3 reported July 13, 2012 (Month of June, Y.O.Y.)
No Official Report / 2.82%
Shadowstats Forecast of Impending Hyperinflation beginning no later than the end of 2014, is quite significant.
“I have been warning of a hyperinflation for at least seven years, but those warnings have been about a hyperinflation that was sometime in the future, generally in 2018 or 2014 timeframes mentioned above. Now, however, along with the passage of time, circumstances have evolved and are aligned for the hyperinflation to develop in the near future, specifically, within the next two years or so, by the end of 2014. Key developments, such as global loss of confidence in the U.S. dollar, and the dollar losing its safe-haven status, fell into place during 2011.
“Why 2014? While inflation is far from being out of control at the moment, the U.S. dollar is relatively strong, due to the euro crisis, that can change rapidly as global markets and domestic holders of the U.S. currency begin to flee the dollar, along with dumping dollar-denominated assets. Fiscal, systemic-solvency and economic conditions are deteriorating markedly, with a confluence of unstable circumstances likely to come to a head within the next year or so, placing extremely heavy selling pressure on the U.S. dollar and, before 2014, setting the stage for hyperinflation.
“The damage to the U.S. financial system and to U.S. dollar credibility have been so severe in recent years…
“The U.S. economy is far weaker than commonly viewed—it never recovered from the 2006/2007-to-2009 plunge in activity—and* has begun to show renewed deterioration in terms of already moribund consumer income growth.
“Fundamental effects of the crises already have been seen in deteriorating funding conditions for Social Security and the annual budget deficit in general.
“Reflecting the impact of the recession, Social Security cash flows began turning negative in 2010, seven or eight years ahead of schedule. Also reflecting the effects of the recession and the crises responses of the Fed and federal government, the annual cash-based federal deficit exploded, hitting $1.3 trillion or above for each of the last three years, with annual GAAP-based deficits running at $5 trillion or more.
“Pending the results of court challenges, the Affordable Care Act (ACA) healthcare legislation likely will add more than $10 trillion in unfunded liabilities (net present value) to the government’s 2012 GAAP-based accounting, due for release in December 2012. That, plus consideration of accounting for Freddie Mac and Fannie Mae and otherwise normal annual transactions, could push the reporting of total GAAP-Based U.S. obligations—including gross federal debt and net present value of unfunded liabilities—from $80 trillion in 2011, into the $120 trillion range for 2012, or roughly eight-times the level of U.S. GDP.”
“Review of Economic, Systemic-Solvency, Inflation, U.S. Dollar and Gold Circumstances, #445”
John Williams, shadowstats.com, 7/17/2012
Of Great Significance is the fact that degradation of the U.S. Dollar’s status as World Reserve Currency is already well under way.
China has already entered into bilateral Currency Deals with several nations including Russia, Iran, Brazil, and (soon to be former) financial allies Japan and Australia. Consequently the Purchasing Power of the $US will suffer a huge hit in the next very few years. Given the Real Numbers (per Shadowstats and Deepcaster, et al.) it is no wonder Economist Nouriel Roubini characterizes U.S. Recovery as a “Fairy Tale.”
“…the first-half growth rate looks set to come in closer to 1.5 percent at best, even below 2011’s dismal 1.7 percent. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices and a resurgence of U.S. manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.
“…the gravity of weaker growth will most likely overcome the levitational effect on equity prices from more quantitative easing, particularly given that equity valuations today are not as depressed as they were in 2009 or 2010. Indeed, growth in earnings and profits is now running out of steam…”
“We’re Not Even Close to a Robust Recovery”
Nouriel Roubini, Project Syndicate, 7/22/2012
And it is not just Doctor Doom Roubini who sees beyond the Bogus Official Data. Former Reagan Budget Director, David Stockman sees the Real Data, the Consequences, and the Challenges clearly.
“I don't think we are at the beginning of the recovery. I think we are at the end of a disastrous debt supercycle that has gone on for the last thirty or forty years, really. It started when Nixon defaulted on our obligations under Bretton Woods and closed the gold window. Incrementally, year after year since then, we have been going in a direction of extremely unsound money, of massive borrowing in both the private and the public sector. We now have an economy that is saturated with debt: $54 trillion or $53 trillion – 3.5 times the GDP – way off the charts from where it was for a hundred years prior to the beginning of this. The idea that somehow all of that debt is irrelevant, as the Keynesians would tell us, is fundamentally wrong – and the reason why the economy can't get up off the mat.
“We're doing all the wrong things. We're adding to the problem, not subtracting. We are not allowing the debt to be worked down and liquidated. We're not asking people to save more and consume less, which is what we really need to do. And so therefore I think policy is just making it worse, and any day now we will have another recurrence of the kind of economic crisis we had a few years ago.”
“Austerity Is Not Discretionary,” Interviewed by Alex Daley, Casey Research
David Stockman, Congressman and former Reagan Budget Director, 7/20/2012
Official data sources have powerful interests to protect and Truth is often sacrificed. Thus it is essential to rely on other entities and persons such as Shadowstats, Deepcaster, Stockman, and Roubini for Genuine Data and Honest Analyses. For Deepcaster’s specific recommendations aimed at Profit and Protection despite Bogus Official data see Notes 2 and 3 below.
Necessary also, is having Courage to see the Truth, because the Truth is not always Pretty.
Finally, important to note is the fact that, absent manipulation, Gold and Silver would be the monetary “Canaries” of the Financial World, whose prices would warn of Excessive Monetary and Credit Creation. Well, in the past decade their price appreciation certainly has “warned” of that, but not in the past few months. Gold and Silver prices are subject of ongoing Price Suppression by a Fed-led Cartel as described in Note 1 below. But Gold and Silver Price Suppression, cannot last forever.
July 26, 2012
Note 1: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
Note 2: We have described Crude Oil as the “Truth Teller” because it is an Essential Commodity that gets used up. Thus its Price is very difficult to manipulate over the mid to long term, and it therefore serves as a fairly reliable Real Inflation indicator.
So, it is very significant, that in spite of recent US$ strength, Crude Prices have begun to move up off of $80/bbl resistance and have been trading around $90. Indeed, anticipating this move UP we recommended a Long Energy Play in early June, which is up nicely since then.
Looking at the Real Inflation Numbers (e.g. 9.3% U.S. Inflation per shadowstats.com) allowed us to make this Call.
Considering the Real Inflation Numbers leads us to recommend another stock in our recent Alert with a Recent Yield of 10.7%. And it is selling at under $10.50/share. Our High Yield Portfolio is aimed at achieving a Total Return well in excess of Real Inflation.
Considering Inflation and other Real Numbers, plus Fundamentals, Technicals, and Interventionals leads us to conclude that certain other Key Sectors are about to begin Major Price Moves.
Our recent recommendations Position our Portfolios well for these Moves.
To consider them, read our Alert, “10.7% Yield Buy Reco; Mega-Moves Impending; Forecasts: Key Commodities incl Gold, Silver, Crude Oil; Equities, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates,” recently posted in the ‘Alerts Cache’ at deepcaster.com.
Note 3: Amid all the uncertainty in the Markets and Economy there are three “Fortress Asset” Sectors which will likely return profits regardless of Boom or Bust, Inflation or Deflation. To understand why we select just these three Sectors first consider
“The Bureau of Labor statistics reported the increase/decrease in non-farm payrolls and the unemployment rate for June 2012 on Friday, July 6th. Stocks plunged on the news. Why? The BLS reported that non-farm payrolls increased by 80,000 new jobs in June. Isn’t that good? Well first of all, it is a false figure. The true figure is there was a net loss of 44,000 jobs in June. The BLS decided in their infinite wisdom that they think, they guess, they pretended that new businesses that started up in June created 126,000 new jobs. They have no idea what new businesses started, nor did they count new jobs in these phantom new businesses. This 126,000 phony figure was added to the loss of 44,000 jobs to fudge a positive number for the release of the June jobs report. This phony figure is called the CESBD adjustment, or the Birth/Death adjustment. Birth/Death refers to businesses, not people. The truth is the economy lost 44,000 jobs in June. This is abysmal. This is recession. This is an indictment of government fiscal policy, of Fed monetary policy, of tax policy and regulation of businesses. We need a true increase of 150,000 new jobs each month just to break even with population growth, and need millions more to put displaced workers back in a job.
“The truth is, the economy is falling off a cliff, housing transactions are essentially non-existent, jobs are declining, growth is shrinking.”
“Current Weekend Report”
Robert McHugh, Main Line Investors, 7/7/12
There is a War going on between the forces of Inflation (e.g. Central Bank Money Printing) and the forces of Deflation (e.g. several contracting Economies around the world resulting in increasing Unemployment and a slowing Velocity of Money). That war is disguised by Bogus Official Numbers which conceal, for example, the USA’s 9.3% Real Inflation rate and 22.8% Unemployment rate.
The Central banks will ultimately “Win” via QE-to-Infinity but that “Win” will be a Pyrrhic victory because it will bring Hyperinflation. But the Real Numbers are being Masked by the Bogus Official Ones.
Consider Adrian Douglas’ point:
“There are frequent claims that the U.S. economy has entered a period of “deflation.” These claims are totally unfounded and are false. Deflation can only be a persistent state of general price decline. In fact, in examining price trends, the U.S. is experiencing shocking price increases of over 15% per annum. To illustrate this, …the Continuous Commodities Index, CCI over the past ten years.
“Deflation – Nowhere to be Seen”
Adrian Douglas, Market Force Analysis, 7/7/12
Fortunately there are three “Fortress Profit Sectors” which should suffice to Protect and Profit. We identify these, including a Mini-Sector with Spectacular Profit Potential.
One other category can serve to Protect Against Inflation – To consider our High-Yield Stocks Portfolio with Recent Yields of 18.5%, 8.6%, 10.6%, 26%, 6.7%, 8%, 10.6%, 14.9%, 10% and 15.6% when added to the portfolio; go to www.deepcaster.com and click on ‘High Yield Portfolio’.
For this and more, read Deepcaster’s August Letter, “3 Fortress Profit Sectors & 1 Not; Forecasts: Key Commodities: Gold, Silver, Equities, Crude Oil, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates; August Letter”, posted in ‘Latest Letter’, at deepcaster.com.