Dave Kranzler's  Instablog

Dave Kranzler
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I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance. Currently I co-manage a precious metals and mining stock... More
My company:
Golden Returns Capital
My blog:
Investment Research Dynamics
  • The Economy Is Weaker Than Government Reports Show 0 comments
    Dec 4, 2012 1:25 PM

    Someone is going find out sooner or later that what they thought they were going to get, they're not going to get - Eric Sprott in reference to the massive and accelerating deficit in U.S. Government entitlement promises.

    It's interesting to note that the above quote from Eric Sprott can also be applied to everyone invested in the various forms of paper gold/silver and who tragically believe that the custodian of the trusts and exchanges (Comex, LBMA) actually have the gold/silver in the amounts represented by the paper securities outstanding.

    In fact, to tie that into my subject title, one could say that Americans are not getting the economy that the Government, and the Wall Street charlatans who own the Government, is representing through fraudulent, Orwellian data reporting. But let's take a look under the hood...

    I want to start off with a study reported yesterday that showed the net worth of American households hit a 43-year low: "The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969" washington.cbslocal.com/2012/11/30/study-american-households-hit-43-year-low-in-net-worth/ You can read through the details and needless to say - so I'll say it anyway - I'm sure that news report failed to make most mainstream media outlets.

    I'm sorry, but there's just no way in hell that the housing market can possibly recover with that fact about household net worth being the case. I've been threatening a big update post on the housing market, and it will happen soon, but not only does that net worth report contradict the view popularly promoted by the mainstream that housing values are climbing again, but if the average American household net worth is declining, it would be impossible to forecast anything but a lot more downside for the housing market. More later on that topic...

    Yesterday the ISM manufacturing report was released. It came in at 49.5, well below the 51.4 reading expected and the 51.7 reading and was the lowest reading since July 2009. Note that when the index is below 50 it indicates economic contraction. The actual production aspect of that number is skewed higher by the prices subcomponent, which was 55.

    On Friday the Chicago Purchasing Managers index came in at 50.4, a slight miss of the expected 50.5. HOWEVER, to sub-component readings make this report somewhat disastrous. The prices paid index jumped up to 65 and the new orders index plunged to 45.3, the lowest reading since June 2009. Both the ISM and the Chicago PMI reports reinforce the view that the economy is slipping into an inflationary recession mode.

    Last week also the Government released its durable goods order report for October. While it showed that the September to October level was flat (unchanged), the revision for the September report was revised lower. If you look at the numbers on a quarterly basis for 2012, they show quarter-to-quarter contraction for the first three quarters of 2012, before and after inflation is factored in. This means that unit orders have been in decline for all of 2012, despite the bright picture of the economy being promoted in the mainstream media.

    Please note that durable goods are the "stuff" people buy to use in their homes that are supposed to last a long time. If housing really is what it is supposed to be then the durable goods order metric should be increasing, not in decline.

    One last note, the Treasury will hit the debt ceiling limit at it's bi-monthly bond auction next week. Even assuming that Geithner once again taps into the various custodial pools of capital like Federal pension money and social security in order to keep the Government funded until Congress gets around to raising the debt ceiling limit again, it's very safe to assume that the Fed will have to significantly expand its money printing program in order to help fund the new flood of Government debt without driving up interest rates.

    Higher interest rates would be the final death nail in our system at this point...Needless to say, so once again I'll say it, this current manipulated price correction in the precious metals market is purely a paper-driven wash, rinse, repeat event. Everyone who "gets it" should not be intimidated by price action and should take advantage of accumulating this with both hands.

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