Wednesday, December 15, 2010

Oh, The Games People Play

"It's the US Government Rigged Economic Data News Hour. Everyday, at 8:30AM est, the US Government shovels another spoonful of bullshit into the mouths of the talking heads on financial TV. Join us as we point out the obvious fallacies embedded in their BS."

Oh look, this morning we get our hedonically contrived Consumer Price Index. And wonder of wonders, consumer prices rose 0.8% [ex Food and Energy which nobody uses] last month. How convenient, yesterday the US Government reported that retail sales were up [are you sitting down?] 0.8%! Ding-ding! We have a match...and PROOF that retail sales increases are brought to you by higher prices in care of inflation. Wondrous isn't it?

Not to beat a dead horse this early in the morning, but I'd like to share with you Dave Kranzler's commentary on yesterdays Retail Sales fantasy that every financial media talking head and scribe touted as "signs of an economic recovery".

Inflation And The Retail Sales Fantasy...
The Golden Truth
Once again this morning the markets were greeted by the bubblehead's in the media victoriously announcing that November's retail sales were better than expected and October's were revised higher.

And once again, we have to look behind the Government wizard's curtain to see the golden truth about what is really going on with the numbers. If you dissect the numbers today, you'll find the biggest boost came from gasoline sales. Within a certain range of tolerance, I consider gasoline to be of inelastic demand, which means people will consume at least a constant amount until the price goes over a certain price level, of which we are not there yet. We know the price of gasoline rose in November, which means that a big portion of the retail sales increase from October to November was from gasoline inflation.

My point is that most of the gleefully reported retail sales increase in November was derived from price increases - retail sales includes food and Walmart is a big componenent as it sells food and gas but does not break out gas sales on a monthly basis. Specifically, in November, gasoline prices were the primary stimulant for the better sales reported.

Make no mistake, there's no question that the Black Friday weekend sales were much better than expected. However, I have been of the view that the extreme discounting, especially at places like Macy's, essentially "pulled forward" a substantial amount of future retail sales, as polls indicated that shoppers took advantage of pricing deals to purchase both discretionary holiday items PLUS necessities.

If you think I'm off base, you can read about Best Buy's earnings report for its quarter ending Nov 30, which was released, ironically, just before the retail sales report. Best Buy stock is down 15% right now because its sales came in well below expectations and the company reduced its full-year forecast for sales and profits. Even more stunning, its U.S. same-store-sales fell 5% in the quarter. In retail that kind of number is an unequivocal disaster. Here's a summary:
Best Buy Link

The moral of the story is that the economy is much weaker than the highly manipulated Government reported numbers would have you believe. With true unemployment continuing to increase and price inflation starting to rear its ugly head, we can expect a further deterioration in the condition of the real economy.

The good news is that gold and silver are still inexpensive relative to the dollar-price levels to which they are headed.

I love the smell of honesty in the morning!

But apparently the CRIMEX goons do not care much for the smell of honesty. Look, the price of the Precious Metals have been hit at the knees on the report that prices are rising despite the Fed claims that "measures of underlying inflation are somewhat low". Or is it because this news will incur more loses in the bond market and higher interest rates? OR is it because the ratings agency Moody's warned that it may lower Spain's credit rating. Probably all of the above, in particular the Precious Metals disposition to herald the TRUTH.

TREASURIES-Bonds trim gains after CPI, N.Y. Fed data at Reuters

Moody’s Warns on Spanish Rating at New York Times

And if it's in the New York Times, it is gospel!

Funny how the Euro can tank on news that a US debt ratings agency [an organization that rated US mortgage debt derivatives as AAA by the way] says that it MAY downgrade Spanish Debt. How shocking! Who knew spain had a debt problem? LOOOOOOOOOOOL!

What's really funny is how just two days ago Moody's warned that it may lower the US' credit rating if the new tax package is passed into law, and the reaction in the US Dollar was a cliff dive. And then miraculously, on the fantasy of "sales growth" the Dollar turned on a dime the next day. Oh, the games people play...

Senate set to pass $858 bln tax cut measure- Bloomberg

Speaking of games, this morning I came across this headline and story of pure BS from the mouthpiece of misinformation and blatant lies, Bloomberg.

Gold Declines as Stronger Dollar Curbs Demand for Alternative Investments
By Nicholas Larkin and Sungwoo Park
Gold declined for the first time in three days in London as a stronger dollar curbed demand for the metal as an alternative investment.

The dollar gained against the euro after Moody’s Investors Service said Spain’s debt rating is on review for a possible downgrade, and before data forecast to show growth in U.S. industrial production, backing Federal Reserve comments that the world’s largest economy is recovering. Gold, which usually moves inversely to the greenback, reached a record $1,431.25 an ounce on Dec. 7.

“Bullion prices have been under pressure this morning as a result of the stronger dollar,” James Moore, an analyst at in London, said in a report. Still, “ongoing uncertainties surrounding euro-zone debt, inflation and the effects of quantitative easing will continue to prompt pockets of diversification towards the safe-haven asset types.”

Where and when did the Fed say that the US Economy is recovering? Below is the first paragraph of the FOMC statement yesterday:

Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

There are a lot of "buts" in the Fed's statement as they continue to hedge their bets on an otherwise nonexistent economic recovery here in the US. Yet Bloomberg would have you believe that the US is "on the road to recovery" and owning Gold is just foolish. They do give the gold bulls a nod, but only as lip service.

The Fed goes on to say in their statement that:

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

And the price of the Precious Metals goes down? $75 BILLION a month of US Treasury purchases is proclaimed, and the price of Precious Metals drops and investors buy the Dollar because Spanish debt "may" get downgraded? The Fed completely ignores the $300 BILLION of rollover money they previously promised to spend buying up debt. Add that tiny sum into the game, and the Fed will be spending $125 BILLION a month buying up US debt because nobody else will. How much more are they going to have to spend to pick up all the US debt now being unloaded onto the bond market forcing interest rates higher by leaps and bounds? What will it take in monopoly money to halt the 10 year Treasury's rise above 4% to save JP Morgan and the Fed?

What FOMC Statement Didn't Say‎ - Seeking Alpha

European Fears Weigh on Wall St.- AP
Renewed worries about Europe's debt problems set a grim tone for Wall Street on Wednesday, even as investors were getting fresh reports on the U.S. economy.

Where are the fears regarding the debt problems in the USA? The US' debt problems are far, far, FAR worse than all of Europe's combined, yet we are continually force fed bad news regarding European debt while the problems with US debt are continually ignored by the financial media.

Oh, the games people play.

Moody's: U.S. Credit Rating Outlook Could Be Affected By Tax Package
Moody's warned on Monday that it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama's tax and unemployment benefit package becomes law.

The plan agreed to by President Barack Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.

A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.

After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.

If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.

But hey, the US Government says that Industrial Production was up last month...

Gold is now rebounding from the hit at the open of the CRIMEX this morning, and the realization that yesterday's "sales growth" was a fantasy made possible only by rising prices.

U.S. Retailers Canary in the Coal Mine
By: James_Quinn
Some people have contested my statement that there are thousands more retail stores in the US today than there were in 2007. Yes, many mom and pop stores have gone out of business, but the big boys continued to expand in the face of reality. The mall based mega-retailers dominate the retail landscape in this country.

Just these nine well known retailers alone, have added 6,435 stores since 2007. Some of the stores were international, but the vast majority were opened in the U.S. This increase in store counts in the face of reality is the ultimate in CEO hubris. Inflation adjusted retail sales since 2007 in the U.S. are down 19%. This is a recipe for disaster. Americans must deleverage over the next decade. They have no choice. Their retirement savings levels are pitiful. They will be forced to stop buying crap. The boomers are leaving their high spending years and entering the forced saving phase of their lives, whether they like it or not. Every retail CEO in the country should recognize these facts. But still, they relentlessly expand. A fool and his company are soon parted.

The lifeblood of retail expansion is same store sales. If same store sales do not increase, any store count expansion becomes a death march.

Now for the kicker. Inflation since 2006 according to the BLS has been 10%. Therefore, on an inflation adjusted basis, sales for these retailers since 2006 are down by 7% to 17%.

Today, Best Buy reported atrocious 3rd quarter sales figures. Best Buy is rightly considered one of the best run retailers in America. The Apple iPad is a mass sensation. Consumers are supposedly spending again. The age of austerity is over according to the mainstream media. Best Buy's biggest competitor, Circuit City, went out of business two years ago. The world was its oyster. But somehow, the yellow brick road turned from gold to piss.

In the U.S., Best Buy’s same-store sales dropped 5%, while total sales fell 3% to $8.7 billion. The company estimated that its market share declined 1.1 percentage points, losing traction in TVs and gaming software, and it also expects its share for the year to decline. By categories, U.S. sales of consumer electronics, which make up more than a third of Best Buy’s total domestic business, fell 11%, while entertainment software sales, which make up 15% of the total, slid 14%.

It seems that the storyline being sold to the American public by the media is a load of bull. Best Buy is the first of many retailers to be blindsided by reality. Americans are running out of money. They've used up all the equity in their houses. The credit cards are maxed out. Wages are stagnant. Retirement years in a brown cardboard box awaits delusional Boomers unless they stop spending and start saving.

Economic Recovery Nonsense Continues
By: Moses Kim
For the duration of what I estimate to be a 10 year economic slowdown (we are entering year 4), you will hear countless experts proclaim that the economy has recovered. Economic recovery evangelists were temporarily silenced earlier in the year, but they have now come out in force. In today’s FOMC statement, the Fed actually had the chutzpah to say: “The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment”. That the Fed can continually get away with saying such asinine comments this far into the recession is very surprising.

The economic recovery crowd will no doubt point you to the rise in retail sales. However, they will probably leave out a couple of key points. They probably won’t tell you that wholesale prices rose 0.8% in November, the most in 8 months. They also won’t tell you that the rise in retail sales was driven largely by the rise in food and energy costs. I keep hearing that oil prices are rising show that the economy is recovering. In that case, would $10 gasoline evidence an economic recovery for the ages? Is the weak dollar, not demand, not driving wholesale prices higher?

Retail sales are denominated in dollars, so you would expect a rise in sales year after year on a nominal basis. Also, core inflation has been relatively stable compared to headline inflation, which includes the price of the goods that retailers are selling. Given the relatively muted inflation figures of our government, this implies some core prices are falling.

Retailers announced a “surprising ” jump in apparel sales. Well let me tell you that this shouldn’t be so surprising since apparel was one of the few items in the CPI that went down year-over-year. Revenues (sales) may be up, but margins are down. Discounts started earlier this holiday season and lasted longer. Please see Best Buy, which was down 15% this morning on weak earnings figures. So all in all, let’s not get too bent out of shape about buoyant retail sales.

The government will never tell you that it is inflation that is driving economic statistics higher. The strong rise in commodities reflect an undercurrent of inflation that is eased away via government statistics. People will consistently be puzzled by the phenomenon of high unemployment and supposedly rosy economic statistics because the data has becomes so skewed at this point. This is why I always say to focus on the gold, dollar. and bond markets. Focus on gold first and foremost, since it is a globally traded asset that is not easily manipulated by central banks, especially since they have drained there reserves over the years. Government statistics are just noise in this ongoing economic drama.

I encourage everyone to watch this interview with John Williams from Shadow Stats below. Watch it not so much for his insightful commentary on the possibility of hyperinflation roaring to life in the next 6-9 months here in the US as he predicts, but watch it to hear those interviewing him laugh off the hyperinflation prospects in disbelief that anything as absurd as he predicts could EVER happen here in the US. A doomsday scenario is just too much for these talking heads to grasp within their closed minds I guess...

John Williams calls for the “Great Collapse” in 2011[VIDEO]
Blaming decades of fiscal abuse, John Williams of Shadow Stats calls for hyperinflation in the U.S. in 2011, starting with gasoline and food prices.“great-collapse”-in-2011/

The Precious Metals remain under pressure at 10:20AM as the value of US Government and financial news media misinformation flogs the TRUTH. This pressure will only set the stage for the coming explosion in prices as the TRUTH trumps lies everytime.

Oh, the games peole play.

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