Friday, April 27, 2012

GDP Takes a Big Hit

The false paradigm is slowly stripped away -
Instead of printing at the expected number of +2.5%, the first preliminary GDP data point (two more revisions pending) came out at 2.2%, a big disappointment for a quarter which had a substantial boost from the weather. And while of the 2.2%, Personal Consumption came in strong - as expected, as it was precisely the factor most impacted by pulling in demand forward courtesy of "April in February", 0.59% of the 2.2% was an increase in inventories, something which was not supposed to happen as it means that the quality of the economic growth in Q1 was far worse than expected. Cementing the ugly composition of Q1 GDP was fixed investment which added just a paltry 0.18% - this is the number which is critical for ongoing cashflow generation and unfortunately, the very low print means that growth outlook for Q2 is now even worse than before and we expect economists will promptly trim their already bearish predictions for Q2 GDP. Finally, government "consumption" subtracted just 0.6% from the total number, a decrease from the 0.84% in Q4, which means that once again the government is starting to become less of a detractor to growth - a dagger in the heart to anyone who claims there is "quality" in GDP growth. And the number you have all been waiting for: At March 31, US Debt/GDP was 100.8%.
Denninger is quick to point out -
That's a negative GDP folks when one looks at per-capita and inflation, as opposed to a positive real one last quarter.  This is both bad news and handcuffs The Fed on more QE, as more "easy money" into a negative real GDP print simply makes for a higher number and higher inflation, and thus is self-defeating.
The Real Effect
Contrary to popular opinion and as I am quick to point out, RIGGING THE NUMBERS DOES NOT FIX THE PROBLEM!!! See folks, we are in a 'wealth extraction' cycle here. The banksters (Note - NOT bankers) have
  1. Created the problem
  2. Understand the problem
  3. Want the problem to continue
Now, doesn't common sense tell you that such a paradigm is not only interested in but devoted to extracting wealth out of your hide!?! Let's review such a concept -
More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.

That figure, provided to Reuters by tracking firm CoreLogic, represents about one out of 10 home loans made during that period.

It is a sobering indication the U.S. housing market remains deeply troubled, with home values still falling in many parts of the country, and raises the question of whether low-down payment loans backed by the FHA are putting another generation of buyers at risk.
Half the issue here is that these concepts are being viewed improperly. Price is a necessity of trade as it indicates the relative value at which one entity will pay another for something based on circumstances. For instance, what is the relative value of a glass of water? $1.00 at McDonalds? How about in the Saharan desert? For a man that has no water? That is about to die? 

The truth is, the value of that glass of water goes up or down depending on the needed criteria being met. Part of this price discovery mechanism is the price being able to go down! We count on this every day when we buy everything from TV's to cars. We even have whole stores, like Wal-Mart and McDonald's dedicated to finding the lowest price. Yet when it comes to housing, we view sinking prices as being a crisis?

Is it any wonder that things are upside down?

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