But Wait, The Economy Is 'Growing'?
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2022-04-29 07:00 by Karl Denninger
in Macro Factors , 524 references Ignore this thread
But Wait, The Economy Is 'Growing'?
[Comments enabled]

So he has said - it's "the best gwowth eeevaaaahhhh."

Oops.

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased (table 2).

That one's bad.

In addition decreases in exports of non-durable goods are not positive either.

The increase in PCE, on the other hand, was led by bad spending, specifically health care, which while additive to GDP is subtractive from productivity generally, since at best it maintains someone's productive output.

The real problem was inflation; the deflator showed that price indices were up 7.8% and the very bad news is that it was not food and energy either; the "all items ex food and energy" was up 5.2% or more than double the alleged "neutral" 2.0% the Fed likes, and accelerating from the last quarter's 5.0%.

People love to say that "well it's Putin's war and the impact on gas" but that's simply not true since the ex food-and-energy number was up wildly as well.

The very bad in this report is that disposable personal income was up 4.8% while total-market inflation was up 7.8%, so the actual net-net loss in spending power in real terms of what you can buy was -3.0%.

This is and will hit discretionary spending.

I have said for the last couple of months that we are entering into a recession now, and that it is likely to be a pretty nasty one in terms of both breadth and depth.  This report shows exactly that; negative 3.0% is a pretty ugly number, and that, net-net, is what you're seeing.  When one considers increases in health spend its even worse of course since while health care spending comes out of allegedly "disposable personal income" most people would not consider what they spend on health care "discretionary."

This is not a good report and more "blow money" games from Washington DC, including "debt forgiveness" for those who went to college (incidentally where's the Congressional authorization for that?) and other forms of handout, no matter what they are, will make it worse.

The four decades of trade sequestering on emitted credit and ever-declining interest rates are over folks.  Further credit emission will only make the inflation problem worse and the "growth" that was fueled by the last 40 years of this nonsense is going to largely come back off as well.

The market seemed to think that the GDP report was "bullish", likely because they think The Fed won't raise rates.

Wrong.

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Twainfan2
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I read that in Feb, consumer credit card debt was up 40 billion for the month alone. It was up something like 75 billion all of last year over 2020. People living on credit cards won't last long.
Dingleberry
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It's going to be interesting watching the dollar rise against other currencies, but inflation still go ballistic, and our interest rates still rise, as they are and must. Will the fed stop buying MBS and such? Will they actually taper? Inquiring minds want to know.

As for student loan forgiveness, I too wondered on what legal basis Brandon can just write off the debt and obligate us all for those millennial idiots who paid for years of partying, getting stoned and boned, and leftist brainwashing? What about the next crop of fools, the zoomers? Will they eventually get a forbearance too? The educational system is nothing but a communist cabal backstopped by you, the taxpayer. BTW, the student loan "crisis" is not a crisis for all, but it is concentrated specifically amongst certain genders and races who have a tendency to choose lazy and economically meaningless fields of "study". You can look those up if you want. Let's just say it's a payoff to the democrap base.

But when you bail out thieving banksters at the top.....the thieves at the bottom will want their cut, too.





Whitehat
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The thing that is interesting to me is that when inflation gets to a certain point with the consumer shutting down and economic activity dropping the logical conclusion is deflation.

One wonders if this war spending is a way of trying to kick the can and drive the economy. Regan essentially created fed.gov on the massive "out spend the Soviets" concept. This created the modern federal employee who lived high through some gray times for the average American. This drove consumer spending to an unparalleled degree for this segment. Honestly, even the admins prior started this. So much of the tech industry follows military and fed.gov.

Could this also be something which Russia "needs". Simply speculation, however that much emission of federal money does eventually go to the employed classes.

I am getting all sorts of 0 APR offers from existing and new consumer credit sources. This tells me where the hedging finds its logic.

It might end, but just not yet. I would watch things very carefully this summer for indications of the fall, but they could pull it into next year.

Use this time to get healthy and get liquid.

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Krzelune
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Countries living on credit cards. It is like a large slow example of people juggling those 6 month zero percent credit card offers for years and then the offers quit coming in the mail... and you lost your job.

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Winesorbet
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I'm still taking the under on rate increases. I'm sure they will raise in the next meeting but it ends there if the market continues downward. The wild card in my mind is the job market. It's white hot so consumer cash flow can keep this ship afloat even with raising prices. Granted this is deteriorating rapidly with decreasing real income but it will not be a sudden kaboom like 2008.

My bet is that they would rather inflate than deflate and let the economy normalize.

Oh and funny how congress declares war on the same day as a negative GDP print. Just sayin....
Tickerguy
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Nope.... deflator 8%. Rates are going up -- and not just once.

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Katniss99
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My house is going on the market in June. After it sells, I'll have 0 debt. One less thing to worry about, especially if I lose my job. Buckle up.
Jesjohn94
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Current Fed interest rate is 0.25% to 0.5%. Why should we take talk of rates increasing seriously? Maybe we will get to 2.5% by end of year but what difference will that make given how high inflation is? They will drop rates back under 1% first chance they get. Official Fed policy is clearly to create bubbles in all asset classes and to support congress having massive deficits. I don't understand how things like pensions, insurance and the like have been able to operate so long with effectively zero interest rates. There must be so much money invested in risky assets that is going to destroy people who don't have enough money to see those balances drop. I think pretty much all the investment funds targeting a specific retirement date have skewed much heavier into equities because stock values only ever increase. Are any of the crypto's not a Ponzi scheme? To me they are worse than any Ponzi scheme as what intrinsic value do any of them have? The whole global economy is madness. What is funny is that everyone's favorite lunatic/madman Putin has got Russia's finances in great shape. Even with sanctions their economy is going to be on much sounder foundation than any western country. I'm starting to think Putin is dying and he's decided to have his war figuring that once he's gone most sanctions will be removed without Russia having to give up whatever they gain during the war.
Tickerguy
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Ok @Jesjohn94, keep believing it.

It's all you got, right?

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Franco
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Quote:
Maybe we will get to 2.5% by end of year

We won't. I'll buy you 2.5 beers if the "fed funds" rate is above 2.5% by the end of the year.
Tickerguy
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The TNX is 2.92% as of this morning.

Short of going entirely-Japanese (which won't happen as it can't without a change to the law, and if they do THAT in Congress the result will be an immediate flush of all international trade currently denominated in dollars as it all instantly switches to the source nation's currency) The Fed simply does not have a choice.

They either stop the inversion of wage/price that has occurred and is continuing to get worse or you have literal riots and perhaps even a Civil War within the next year or two.

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Zappafan
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I think folks ignore Tickerguy at their own peril.

I doubted the Fed would raise too, but came around when I realized that they follow the bond market, not lead.

The three month bill is at 1% as I type, which means the Fed is 75 bps behind the curve. They cannot go Japanese (yet) for the reason TG described. Even Japan is going to have a day of reckoning- by the looks of the JPY it may be soon.

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Flappingeagle
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Quote:
The whole global economy is madness.
You will not get much argument on with that statement on these forums. This part either
Quote:
Official Fed policy is clearly to create bubbles in all asset classes and to support congress having massive deficits. I don't understand how things like pensions, insurance and the like have been able to operate so long with effectively zero interest rates. There must be so much money invested in risky assets that is going to destroy people who don't have enough money to see those balances drop.


The real question is: what are they going to do when it cracks? I believe that the answer lies within the following question: what best positions the clepto/congressional/billionaire class for the next go-around? I am putting my money on: having a believable US Dollar. By preserving the "sanctity" of the dollar the clepto/congressional/billionaire class can use the existing stock/bond/real estate/international trade system and just keep going. It is a system they and the other 99.9% are already familiar with so will readily use.

How do you keep a believable dollar? Raise rates as much as you need to.

My $0.02,

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
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Rickyd
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If you look at the following link...

https://www.gzeromedia.com/the-graphic-t....

...you will see that before the Great Financial Crisis, the Federal Funds Rate(FFR) was at or above inflation rates. FFR was WELL above the inflation rate for the better part of the 80's(and a bit in the 90s) to ring out inflation. If that is any indication, they are going to hike. As well, they had to do it for YEARS.
Jesjohn94
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I don't know what believe. Personally I'd love to see interest rates back in a 4% to 6% range. The global economy is built on scams. Every time we get some bad economic news the markets go up as they assume the Fed will step in to avoid anything bad happening. It feels like we are in a plane heading straight towards a mountain and there is no pilot in the cockpit.
3dogs
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I don't know where they get their numbers from, must be pulled out of their ass, because the dog food i buy has gone up close to 40% in the last year.

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Dxd1200
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A certain big company is getting monkey hammered this morning, down 12.4% as of right now and heading into a 20-1 stock split next month. Really interested in hearing the @tickerguy take on their earnings and guidance. This company was also in the news this week for all the wrong reasons when video of employees was leaked. They are facing strong head winds from supply chain deterioration, inflation, and a work force that is becoming increasingly vocal about working conditions (and at corporate increasingly woke), but a kids book is what they are worried about.
Tdurden
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@Dingleberry: I'd rather they just make student loans dischargeable in bankruptcy and take the money that can't (and isn't going to) be paid by the students from where it ended up: the university endowments. Seize ALL of those to claw back the money the universities were complicit in burning for masters degrees in women's studies (laughably enough, my ex-wife "earned" one of those LOL!) and basket weaving. Fixes two problems: gets rid of the unpayable debt and lances the boil the fetid institution of the college racket.

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Tickerguy
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@Dxd1200 - They're ****ed.

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Bodhi
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Tickerguy wrote..
This is and will hit discretionary spending.


It appears it's already hit Amazon as they reported a $3.8 billion loss for the first quarter. AMZN is currently -353.

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It is easier to build strong children than to repair broken men. ― Frederick Douglass
Greenacr
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Regarding Student Loan Forgiveness.

The Xiden Admin is pursuing this as they think it will help them with the Millennials in the coming mid terms. I am not so sure. Both my sons and their wives (Millennials) have all paid back their student loans. They are PISSED that they did the right thing and those that have not are going to get this benefit. They say that many in their social circles feel the same.

Barack was right. Everything Xiden touches turns to $#!^.
Greenacr
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Another comment about Student Loan forgiveness. If Xiden forgives this amount is not that a taxable event due to the benefit received?
Tickerguy
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@Greenacr - Yes. Loan forgiveness is taxable in the tax year it happens exactly as if you had earned the income to pay it off.

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Civil Society requires 99%+ consent.
Stop consenting and it is forced to stop. Always.
No violence required.

Dxd1200
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@tdurden I used to scoff at some of the degrees people were pursuing a few years back...French 'Queer' literature, history of hip hop...thinking 'they'll never get a job outside of being a barista or working at Kinkos'. Joke was on me - those people get jobs everyday in HR departments and the growing DEI/DIE departments of large companies - most of them are ineffectual and emotionally stunted...and lazy. So they work in areas where there are no metrics that can be used to evaluate performance. Like bigfoot hunters and paranormal investigators, DEI/DIE departments can produce zero results, a literal 100% fail rate to produce ANYTHING, and be considered successful. It's disgusting.
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