Today's Bizarro Economic World

By Tom Henderson, Strategist JBH Capital.

First let me define Bizarro World for those out there not familiar with the Superman analogy. Bizarro World (paraphrasing from Wikipedia) is a fictional planet where duplicates of Superman and his compatriots lived. But these Bizarro duplicates have characteristics that are different than the normal Superman and Lois Lane. These Bizarro duplicates do the opposite of what normal Superman characters do. Bizarro World nurtures the Bizarro characters with the motto, “do the opposite of what the normal world does.”

So now you are caught up to speed with the Bizarro definition. What are the ways that the financial world has turned into the Bizarro World? Let me offer three examples for you now with commentary.

1. Joseph Stiglitz’s new way to measure GDP. (I got this idea from Joe Kernen, CNBC. So I salute Joe Kernen for alerting me to this!) Stiglitz, the Nobel Prize winning economist, takes first prize in the Bizarro World because of his thoughts on how GDP is measured in the regular world and how it should be measured in Bizarro World. It is measured in the real world as an economic output of a society. In this world, the larger the GDP gets and the faster it gets there, society will benefit. In the Bizarro World, measuring the growth in GDP is not the way to go. In the Bizarro World, other undefined measures should be used. Well, you might ask, what is the problem with this? I would respond by saying that growth in GDP has been a pretty good yard stick for how things are going in this country. If you surveyed Americans about when they thought times were bad and when they thought times were good, I would hazard a guess that the surveys when things were good coincided with good economic times and vice versa when things were bad. How can all of these people be wrong?
2. The recession is over. This is definitely Bizarro World. The recession isn’t over when unemployment is showing no signs of stabilizing. None, I repeat. Only in the Bizarro World would people go around declaring that the recession is over. Well, wait a second, don’t changes in employment lag changes in GDP? I know that is conventional economic thinking but I don’t buy it. Changes in GDP occur in coincidence with changes in employment. Also, did I miss a positive GDP number? Where is this growth coming from? The U.S. consumer? The only parts of the economy growing are exports, maybe inventory and definitely Federal government spending. Even an inventory build is questionable. I am not so sure though about that inventory buildup that is to lead us out of the recession. I did a study on this and from where I sit, inventories are still declining. China is booming but can they grow infinitely at 15%?
3. The Australia central bank raising interest rates. The Bizarro World hits the central banks. I get it. Australia is geographically close to China. It is rich in natural resources and with China pumping so much liquidity into their financial system, the economic boom in China is spilling over into Australia. But in my view, the US consumer is still the world driver. And even though China can increase their economic output as they are a command economy, the US consumer will ultimately purchase Chinese goods. And currently the US consumer is under massive financial stress and due to that stress, a massive U.S. consumer retrenchment is taking place. With that retrenchment still ongoing, China’s export economy is going to have a problem. If China’s growth slows, whatever inflationary pressures the Aussie Central Bank used to justify the rate increase will vanish. In my view, although this might be debatable, the Aussie central bank is way too early to be increasing rates.

There are plenty of other examples of the Bizarro World but I just wanted to start with three for now. As others occur, I will write additional articles.

There are no disclosures to make.

Comments

[Papaswamp:]

China is making a conscious to increase domestic consumption and move away from export dependent economy.
chinanewswrap.com/2009.../

With the US continuing down the path of massive debt, increasing unemployment and soon to be realized economically stifling taxes, and more social programs, the US will lag substantially behind the rest of the world. I don't think we will the big consumers everyone hopes we will be.

Oct 07 08:02 AM

[The Inflect...:]

Thanks Papaswamp,

You have a very good point about the American consumer playing a decreasing role in the economy. Also a very good point with the Chinese consumer playing an increasing role.

I guess the big quesiton is when will this happen? I would think that this process will take many years to occur.

I will take a look at the link you provided as well.

Thanks

Tom Henderson


On Oct 07 08:02 AM Papaswamp wrote:

> China is making a conscious to increase domestic consumption and
> move away from export dependent economy.
> chinanewswrap.com/2009.../
>
>
> With the US continuing down the path of massive debt, increasing
> unemployment and soon to be realized economically stifling taxes,
> and more social programs, the US will lag substantially behind the
> rest of the world. I don't think we will the big consumers everyone
> hopes we will be.

Oct 07 09:35 AM

[Wildebeest:]

At the moment imports from China for 2009 are looking like coming in somewhere between 2005 and 2006 numbers. So while I share your belief that a recovery depends on the US consumer, at the moment China hasn't taken much of a hit. Imports from other countries are down more than from China.

re: China wanting to increase domestic consumption. As I understand it this requires cultural change for the result to be significant, therefore it is unlikely to occur immediately (even in a totalitarian regime).

re: Australia. I've commented on other instablogs yesterday on why it is an atypical case so won't rehash.

Oct 07 09:52 AM

[JAMES CARLINI:]

I agree the recession is NOT over.

And - it's not just unemployment we should be concerned with, it's underemployment.

You don't get Superman by paying Jimmy Olson wages.

Oct 07 09:59 AM

[User 353732:]

In today's USA,
Bizzaro World: the domain of WashDc, Wall St, Hollywood, Academia, MSM

Normal World: the domicile of Ordinary Americans

In 2009, Bizzaro world has succesfuuly occupied Normal world and those in the Normal world it cannot covert to Bizzaro world it will seek to pursue, subjugate and torment. Two opposing worlds cannot coexist. Either reality and being will prevail and Ordinary Americans will regain freedom, security and prosperity or.......Bizzaro world will consume the American Experiment.

Oct 07 10:08 AM

[max12345:]

Thank you very much for bringing up and also for defining for us reasonably well "Bizzarro World" and what it is. Recently I often had found myself asking myself exactly what kind of a World I was living in, (and in particular when reading certain Seeking Alpha articles) and now you have at last answered this key question for me. Or at least you have done so in part. So many thanks.

The only problem I see with your otherwise impeccable argument is the fact that there there may be several Bizzarro Worlds which all exist in parallel, and not only one. (much as in the concept of Parallel Universes or Parallel Worlds in modern physics)

And just as in relativistic physics each of these Worlds appear to be real (and in a sense ARE real) to observers (and participants) from those Worlds and in particular if such observer-participants are moving (and investing money) at much less than the speed of light.

So this might exclude the ten trades per second crowd... -which I am just assuming is rather thin anyway, outside of Goldman Sachs- since those guys will presumably gain no matter what world we may all happen to be living in;....(except an honest one of course)

So what to do to guide one's trading strategy going forward? Does one "sum over many paths" (and many worlds) and try to take the average of the various Bizzarro Worlds as being "the real reality"...(or could the real reality simply just stand up for us instead) or does one select one weird world over another? And if so, how and by what specific criteria?

In other words (and in other worlds too) should one believe Dr. Doom and Dr. Stiglitz or should one instead believe one or another of the roaring Bulls or the roaring bull-artists?

Moreover since the World of Planet Earth is also divided into many Regions and Countries, what if one Bizzarro World is found to apply to one region but not to others? (where other Bizzarros may instead be reigning supreme -or trying to- from their own commanding heights of their "socialist-market" economy)

Rest assured that I do NOT expect an answer to the preceding question (or to the several Bizzarro Questions all simultaneously inherent in the above) but I did think that my questioning could provide "food for further thought". Either by the Bizzarros themselves, or by some of the more normal folks trying to figure out what the heck might be "really" going on. (besides the "many worlds" interpretation of quantum physics)

Oct 07 12:59 PM

[max12345:]

...and please do excuse the double z (in my various bizzarros) instead of the single z (as in bizarre, spelled correctly) which was just an innocent mistake or a repeated typo...and was not at all meant to make the whole thing any more bizarre than it already is.....

Oct 07 01:09 PM

[The Inflect...:]

Thanks for the comments!

Re: Good to note that exports from China to the US are down less than other countries exports to the US. I did not know that China exports to the US are back to 2005 and 2006 numbers though, I wonder what percentage change that is from 2009 or 2008?

Agree with the statement about cultural changes in China will take some time before the Chinese consumer can really step it up.

For your Australian Central Bank thoughts, I will look at your article.

Thanks

Tom Henderson, Strategist JBH Capital


On Oct 07 09:52 AM Wildebeest wrote:

> At the moment imports from China for 2009 are looking like coming
> in somewhere between 2005 and 2006 numbers. So while I share your
> belief that a recovery depends on the US consumer, at the moment
> China hasn't taken much of a hit. Imports from other countries are
> down more than from China.
>
> re: China wanting to increase domestic consumption. As I understand
> it this requires cultural change for the result to be significant,
> therefore it is unlikely to occur immediately (even in a totalitarian
> regime).
>
> re: Australia. I've commented on other instablogs yesterday on why
> it is an atypical case so won't rehash.

Oct 07 01:11 PM

[The Inflect...:]

Hi James,

Thanks for the comment. I agree under employment is very important as the regular unemployment excludes this gauge. There are quite a number of people under employed. I think the number being bandied about is around 16% when you combine the unemployment and under employment.

Thanks

Tom Henderson, Strategist JBH Capital


On Oct 07 09:59 AM JAMES CARLINI wrote:

> I agree the recession is NOT over.
>
> And - it's not just unemployment we should be concerned with, it's
> underemployment.
>
> You don't get Superman by paying Jimmy Olson wages.

Oct 07 01:17 PM

[The Inflect...:]

Wow USA Today went with a Bizarro world view point too.

I guess there are many strange things happening out there in the economy, politics etc. so it makes sense that some would use the analogy as well.

Thanks for the comment.

Tom Henderson, Strategist JBH Capital


On Oct 07 10:08 AM User 353732 wrote:

> In today's USA,
> Bizzaro World: the domain of WashDc, Wall St, Hollywood, Academia,
> MSM
>
> Normal World: the domicile of Ordinary Americans
>
> In 2009, Bizzaro world has succesfuuly occupied Normal world and
> those in the Normal world it cannot covert to Bizzaro world it will
> seek to pursue, subjugate and torment. Two opposing worlds cannot
> coexist. Either reality and being will prevail and Ordinary Americans
> will regain freedom, security and prosperity or.......Bizzaro world
> will consume the American Experiment.

Oct 07 01:20 PM

[Wildebeest:]

I just made a quick instablog with a plot of the trade data:

seekingalpha.com/insta...


On Oct 07 01:11 PM The Inflection Point wrote:

> Thanks for the comments!
>
> Re: Good to note that exports from China to the US are down less
> than other countries exports to the US. I did not know that China
> exports to the US are back to 2005 and 2006 numbers though, I wonder
> what percentage change that is from 2009 or 2008?
>
> Agree with the statement about cultural changes in China will take
> some time before the Chinese consumer can really step it up.
>
> For your Australian Central Bank thoughts, I will look at your article.
>
>
> Thanks
>
> Tom Henderson, Strategist JBH Capital

Oct 07 01:35 PM

[The Inflect...:]

Thank you for the message. I think that you did leave "food for thought" in the detailed message.

There very well may be various bizarro worlds out there. How a serious trader navigates thse worlds is an important question. I think that awareness is a good start.

I am glad you brought physics up. I took 3 classes in college Physics 1, 2 and 3. That was many moons ago though. Thanks for bringing back the memories! f=m*a

Tom Henderson, Strategist JBH Capital.

Oct 07 12:59 PM max12345 wrote:

> Thank you very much for bringing up and also for defining for us
> reasonably well "Bizzarro World" and what it is. Recently I often
> had found myself asking myself exactly what kind of a World I was
> living in, (and in particular when reading certain Seeking Alpha
> articles) and now you have at last answered this key question for
> me. Or at least you have done so in part. So many thanks.
>
> The only problem I see with your otherwise impeccable argument is
> the fact that there there may be several Bizzarro Worlds which all
> exist in parallel, and not only one. (much as in the concept of Parallel
> Universes or Parallel Worlds in modern physics)
>
> And just as in relativistic physics each of these Worlds appear to
> be real (and in a sense ARE real) to observers (and participants)
> from those Worlds and in particular if such observer-participants
> are moving (and investing money) at much less than the speed of light.
>
>
> So this might exclude the ten trades per second crowd... -which I
> am just assuming is rather thin anyway, outside of Goldman Sachs-
> since those guys will presumably gain no matter what world we may
> all happen to be living in;....(except an honest one of course)
>
>
> So what to do to guide one's trading strategy going forward? Does
> one "sum over many paths" (and many worlds) and try to take the average
> of the various Bizzarro Worlds as being "the real reality"...(or
> could the real reality simply just stand up for us instead) or does
> one select one weird world over another? And if so, how and by what
> specific criteria?
>
> In other words (and in other worlds too) should one believe Dr. Doom
> and Dr. Stiglitz or should one instead believe one or another of
> the roaring Bulls or the roaring bull-artists?
>
> Moreover since the World of Planet Earth is also divided into many
> Regions and Countries, what if one Bizzarro World is found to apply
> to one region but not to others? (where other Bizzarros may instead
> be reigning supreme -or trying to- from their own commanding heights
> of their "socialist-market" economy)
>
> Rest assured that I do NOT expect an answer to the preceding question
> (or to the several Bizzarro Questions all simultaneously inherent
> in the above) but I did think that my questioning could provide "food
> for further thought". Either by the Bizzarros themselves, or by some
> of the more normal folks trying to figure out what the heck might
> be "really" going on. (besides the "many worlds" interpretation of
> quantum physics)

Oct 07 01:38 PM

[The Inflect...:]

Ok no problem. Thanks for the comment.

Tom Henderson, Strategist, JBH Capital.


On Oct 07 01:09 PM max12345 wrote:

> ...and please do excuse the double z (in my various bizzarros) instead
> of the single z (as in bizarre, spelled correctly) which was just
> an innocent mistake or a repeated typo...and was not at all meant
> to make the whole thing any more bizarre than it already is.....

Oct 07 01:39 PM

[The Inflect...:]

Thanks for the chart. Excellent. Amazing how large that drop has been.

Tom Henderson, Strategist JBH Capital


On Oct 07 01:35 PM Wildebeest wrote:

> I just made a quick instablog with a plot of the trade data:
>
> seekingalpha.com/insta...
>

Oct 07 01:45 PM

[joebaggadonuts:]

"How can all of these people be wrong?"

Jeez. Let me count the ways. You don't expect a reply to that question do you? Read Taleb if you really want an answer.

Oct 07 04:19 PM

[j-dub:]

Bizzaro logic at it's finest


beginning of month = rally
end of month = rally hard
end of quarter = rallying too hard for words
California BK = fiscal rejiggering
Michigan next in line = never mentioned
CRE depression = REIT's explode higher
Housing sales edge higher = housing is rebounding(again)
GS front running trades = liquidity preservation
Banks own congress and the Fed = bank rally
consumer is insolvent = consumer is saving
mass layoffs = across the board earnings' improvement
earnings are not improving = earnings are beating street's expectations
STILL no jobs created= the consumer is temporarilly retrenching
deflation = bull rally
people stop looking for work = unemployment is abating OR
contracting(either will do just fine)
Isn't our economy consumer based? = don't ask, don't tell consumer IS 70% of economy = rebound will be business based
low interest rates = good for stocks
high interest rates = great for stocks
collapsing dollar = buy stocks
rising dollar = not gonna happen
$10 frozen dinner = sure sign of recovery
CIT BK = HUUUUUUUUGE RALLY
CIT not yet BK = reason to be bullish
Bank failure Friday = stabilization
oil @ 50 = recovery is close
oil at $70 = recovery is incredibly close
oil at $90 = starting to recover
oil @ $110 = sign of increased consumer spending
oil @ $5 = boon for Joe Consumer
Gas @ $2 = tax break
gas @ $3 = mustard seeds for economic recovery
gas @ $4 = depression :)
Gas @ $1 = not in our lifetime
employment @ 10 % = better than expected
employment @ 11% = as expected
employment @ 12% = not unexpected
employment @ 13% = could have been expected
real unemployment right now @ 17% = never discussed
real unemployment @ 25% = market could correct from here
stealing from our grandchildren = stimulus
stealing from our great grandchildren = "cash for clunkers is a huge
success"
government buying people cars = economy showing signs of life
economy is already dead = S+P 1000, DOW 10k
bear market rally = NEW bull market rally
no basis for NEW bull market rally = dis-included in pumper's handbook

10% unemployment
effects of socialism
depressionary states
higher taxes = THE NEW NORMAL
oppressive government
social unrest
decending to mediocrity


AND IF ALL ELSE FAILS(which probably will):

WWIII = TANGIBLE MANUFACTURING GREEN SHOOT

Oct 07 07:39 PM

[untrusting ...:]

HeHeHe .... we already have a bunch of Supermen. They are called politicans, lobbyists, Wall Street and public company executives. They pay themselves plenty to masquarade as Supermen. Unfortunately they can't leap tall buildings, nor even create a speeding bullet. But they can leap small lego toy buildings and do understand how to reap hugh profits from sending speeding bullets to Iraq and Afghanistan and other countries.

We also have a hugh number of Jimmy Olson's called the average American who get to pay for our fake Supermen and watch them make off with the majority of the nation's wealth. But there is hope, as one of these Jimmy Olson's will discover kryptonite and then the fake Supermen will be in mortal danger. Kryptonite actually already exits and it's called the RICO laws and the Foreign Corrupt Practices Act. We just need to get quite a few of our fake Supermen exposed to it.


On Oct 07 09:59 AM JAMES CARLINI wrote:

> I agree the recession is NOT over.
>
> And - it's not just unemployment we should be concerned with, it's
> underemployment.
>
> You don't get Superman by paying Jimmy Olson wages.

Oct 07 09:02 PM

[ryanclarke:]

U.S. GDP doesn't measure infrastructure investment properly. For example, if I operate a GREEN colored casino in Las Vegas and choose to blow it up, dump the bits in the desert, and then pay a new construction crew to build the SAME casino except this time I've chosen the color of the building walls to be RED ... congrats ... I've just more than doubled my GDP .... even though I could have created the same trash heap with a few gallons of latex paint ... which wouldn't be nearly as GDP productive !!!!!

Oct 08 12:30 AM