It seems that in an election year, all analysis goes out the window. In speaking with someone the other day, he noted that the current market is volatile but “should calm down after the election.” Apparently, he wasn’t looking at the same fundamentals that I’m looking at, and they aren’t pretty. The constant chatter from the talking heads that we’re at the housing market bottom and things will go up from here seems more promotional than honest. Sadly, crude oil isn’t going down anytime soon (or at least not by a large amount) and where we are at in the recessional cycle is anyone’s guess, and seems to change daily. Stock market goes down: egad! Recession is here, we could see a depression. Stock market goes up: ahhh. Banks are feeling better, the Fed is keeping the lending window open so of course, all is well. That is until you look inside the numbers.
Managing Editor Dan Collins spoke at length to economist John Williams (see It’s all about the numbers), who described some of the major problems with the economy right now, and how the government reported numbers are skewed. We’re in trouble by the looks of it. As he says “The [gross domestic product] numbers in the first quarter...were an absolute rig job aimed at helping George Bush and Ben Bernanke. Bernanke wanted to pull back on the easing so he put out the story that the economy was getting better so we don’t have to cut as much. This is nonsense.”
He goes on to say not only are the numbers skewed, but the logic is flawed. “When you have inflation being driven by commodity prices, a weak dollar and a money supply spike because of a banking crisis, those are not factors that are going to be improved by short-term policy. The GDP is the most heavily biased and most easily rigged number that they have.”
The problem is, do we really know how healthy (or sick) our economy is, or will we continue to live in the day-to-day state of how well the stock market performed, which seems to be what the talking heads follow? Sadly, according to Williams, those who watch the talking heads seem to take their cue from them. “The people who tend to believe in the number are in the financial markets, or at least they trade off of it.”
He says that “most of my clients had been business economists, people who had to make a forecast that people used to make money as opposed to reports put out to the public as pablum to make them feel better about buying stocks or bonds.” It appears for the most part, the public is being rolled.
When Dan first proposed the interview with Williams, I admit to not being convinced, thinking it was one extremist’s view. And though Williams could be Cassandra in economist clothing, what he says clarifies why there are so many different interpretations today of the various government reports. And frankly, he states his case well, with points especially apropos for today’s markets.
Perhaps the irony of this is in our mid-year economic outlook (Recession hurts, by Senior Associate Editor Chris McMahon), the expert analysts interviewed don’t see the depression coming up that Williams has forecasted. Some may see an uptick to the current mess, others remain in the recession mode. And despite the talk of Fed intervention and its new move into the U.S. dollar discussion, the truth is, this economy is being driven by a wild commodities market, higher unemployment, huge government debt, a banking crisis in flux and a populace that wants a silver lining soon.
Perhaps my friend is right; after the election things should turn around or at least will calm down. But that depends on one thing: we elect an administration that is more concerned about the United States and its citizens than itself.