Friday, January 29, 2010

Fake GDP numbers, Fake Consumer Sentiment numbers

And the market must have figured it out.

Today started off with a great GDP number. However, 2/3rd of the GDP number was due to inventory changes. If you look at the bond interest rate before the number was released and after the number was released, the interest rates didn't change. The pop the futures market was due to the strength in the dollar and nothing else. Then, later in the morning, the consumer sentiment number came out greater than expected.

Now let's examine this number. We know that for the last reporting period, the amount of money people spent on credit decreased for the first time in history! Now, how the heck is consumer sentiment going up when people's credit lines are being slashed and people are holding back on purchases. Add to that, gas prices increasing, and I'm sure most Americans have received their power bills and gas bills from last month and figuring out how to work those numbers in the old spending plan (i.e. budget). A clear example of how climate change can affect the economy, but we will save that argument for another day.

Starting in 1943 the Federal Government started tracking how much borrowing we do as consumers and from 1943 until now we have NEVER EVER cut back on the amount of debt we carry like we have in the most recent reporting period which is November 2009. We are getting healty piece by piece step by step in our own lives. Some of this is due to being forced to by a bank that has cut credit to us, but most is where you have made a decision not to live a debt based existence anymore. Americans of late have had debt of 126% to 138% of annual income! We have been carrying debt greater than what we make. Historically, Americans have carried 60% debt. However, we have doubled that amount.