GDP and Velocity Redux

First and threemost, the new Gross Domestic Product figures are out from the Bureau of Economic Analysis today.  So let’s start with the press release:

“Real gross domestic product — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased at an annual rate of 1.0 percent in the fourth quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis.

In the third quarter, real GDP increased 2.0 percent. The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 0.7 percent.

With this second estimate for the fourth quarter, the general picture of economic growth remains the same; private inventory investment decreased less than previously estimated (see “Revisions” on page 2).

The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from exports, nonresidential fixed investment, state and local government spending, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The deceleration in real GDP in the fourth quarter primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in state and local government spending, and in exports that were partly offset by a smaller decrease in private inventory investment, a downturn in imports, and an acceleration in federal government spending.

Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 1.2 percent in the fourth quarter, compared with an increase of 2.2 percent in the third.

Real gross domestic product — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased at an annual rate of 1.0 percent in the fourth quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis.

In the third quarter, real GDP increased 2.0 percent. The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 0.7 percent.

With this second estimate for the fourth quarter, the general picture of economic growth remains the same; private inventory investment decreased less than previously estimated (see “Revisions” on page 2). The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from exports, nonresidential fixed investment, state and local government spending, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The deceleration in real GDP in the fourth quarter primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in state and local government spending, and in exports that were partly offset by a smaller decrease in private inventory investment, a downturn in imports, and an acceleration in federal government spending. Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 1.2 percent in the fourth quarter, compared with an increase of 2.2 percent in the third.

The real deal is GDP is running $18.1484 trillion for 2015.  Current Public Debt to the Penny is $19.04 trillion…so yeah, still going down the Greek Road, so to speak.,

This warms me to one of the huge problems I have been writing about since we turned over the first electrons here in late ‘96:  We have an economy which is careening toward a collapse, likely in the 2017-2018 period.  And is should be a doozey.

When people are expecting inflation, like I was in the early 1970’s, the smartest thing you could do was to run out and buy all the house you could reasonably afford.  For me, at the time, it was about a $7,500 down payment (going from memory) and that got a $43,950 house which was being financed at 7 3/4%. 

That is so much higher than today’s situation as to be unthinkable.  But check this out:  I had been around the new business long enough to be talking to really smart people a lot (like the late Dr. Paul Erdman) and I’d figured that because interest rates were on the way up (to pay for the Vietnam War and all the social program expansions) that inflation would overtake the underlying home rate.  Which it did.

This did one other thing:  It forced money that was laying around in passive savings to flee the bank’s clutches because it was losing at one point in 1981 almost 7% a year compared with real estate or other simple investments.  You just couldn’t go wrong.

Since the interest rate peak in 1981, though, things have been going the other way.  Presently, home prices are only just back to 2005 levels and – making it worse – the numbers used in the Case-Shiller/S&P/Dow Jones/Core Logic reports – like the one out on Tuesday and pure apples to apples which in the case of home purchases is only somewhat useful.

The reason is this:  there are selling costs (paint, carpet, repairs, commissions, points, possibly inspections and, if going VA perhaps appliances or whatever is required).  While owning a home since 2009 has been grand, after we get one more run-up in the markets, it may be time to think about doing something else…like renting for a while.

Elaine and I are so serious about this that we are actually thinking about moving into a rental and unloading the ultimate prepper’s hideout in the woods.  If we could get say $250K for it next year, and then we see a huge return of deflation…we MIGHT be able to buy back something much nicer for perhaps $100K.

Problem is, it becomes a fine judgment call whether government will actually decide to let deflation work its way through the system, or not.  The case for deflation is that it will clean up all the malinvestment.  The case for hyperinflation is that we’re all saved, but no one can afford to live.

A while back, I told our Peoplenomics readers that whereas the big monetary problem of the last Depression was to get rid of convertibility of paper into gold or silver (hence, the reaon for the calling of private gold (April ‘33) and private silver (August ‘34) was to make government money the only game in town.

I said – and I will tell you the same thing – that the government this time around will most likely go with inflation AND STAMPEDING EVERYONE INTO ELECTRONIC MONEY where it can be used for all kinds of Kafka-like purposes.  Can you imagine having a government “money account” and having to do your income taxes to match what went through any of your accounts?  One little error and Bang!  You would be in hot water.

OR, even worse:  Government giving you money every month if you’re retired – but then turning around in the same month and taking a big chunk back out of “your account” because they reckon you owe them income taxes.  Oh boy!  End of “tax float” huh?

Where are we, I mean REALLY in the great scheme of things?  Well, we use this indicator called the Velocity of Money.

It is the ratio between Federal Reserve M2 and the GDP.  Even though Janet Yellen and the Fed claim to have raised rates, they have pushed more out the back door to the bankers and as you can see in the (prior to this morning’s data) M2 Velocity chart, we have NEVER SEEN SO MUCH MONEY ON THE SIDELINES IN OUR LIFETIMES.

When it gets scared out of the banks (shortly) and out of bonds (shortly) we will have one gigantuan (feel free to use it) explosion to the UPSIDE.  Housing will snap back and the market will soar to unbelievable levels – way past old “new highs” – I mean this will be amazing.

The problem – as in 1929-1933 is that when it lets go, there will be more financial crap around that even Charmin could handle.

So here’s the chart:

The interesting thing is that our “back of the envelope” puts year end Velocity at 1.4755.  The more of less official Federal Reserve data is showing 1.48 for Q4, but that may be revised, or not, based on this morning’s data.

All of this is like having a personal roadmap to when to invest in real estate.  When Velocity is peaking, owning is great.  When Velocity is bottoming, not so much.  When it looks like there’s no where to go but turn up, then housing becomes an interesting wager again.

Well, whatever… the market loves what’s going on and the futures are up again this morning and we are looking to move smartly up a bunch more in the leg 1 up of five (likely) to finish my long awaited blow-off top.

Not saying world governments can’t steal defeat from the jaws of victory, of course.  Their track records aren’t particularly impressive.  But global, synchronized INFLATION in here is the point…and while the money supply soars, sooner or later it will come out of the closet and starting buying anything that moves including stocks and homes.

So to a certain degree, we can all sit back and watch and the powder keg loads if you know where to look.  That would be the Fed H.6 report.  And this is what we call the “money out the back door” indicator:

How to read this?  Simple:  If the 3-month is higher than the 12-month, they are stepping on the gas and prices will head higher.  When the 3 month is lower than the 12 month, they are stepping on the brakes and markets might go down.  It’s so stupidly simple, I sometimes can’t figure how people manage to lose money investing in the medium term. But patience isn’t for everyone, I suppose.  If you want to make big money, you need to think in the old fashioned ways.

Black Lives Matter Costs

Thought you would find this interesting: 4 Black Lives Matter protests in St. Paul cost $250,000.

Meantime, in my old stomping grounds (Seattle) the Seattle Times report that “‘Black Lives Matter’ protesters demand firing of police chief after fatal shooting.”

Interesting though that when you read the story, the report is the vic was a 46 year old man who made a move for the gun he was carrying when an arrest was attempted and he was in possession of crack and some black tar heroin, and he was not legally allowed to carry a gun (past convictions) and so we’re not exactly talking about the pure and righteous according to the case background. 

Fire the police chief over it?  Hmmm…

Another Mass Shooting

Four dead and fourteen wounded in Hesston, Kansas overnight.

Troubles in DC, Too

Turns out another Marine was been attacked and left for dead in DC.  Doesn’t do much for tourism, you know.

How About that “Transparency?”

In tooling around this morning, on the Eric Holder email deal (more in the Coping section to follow), I couldn’t help but notice this on the Freedom of Information Act Advisor site:

FOIA News: The TSA Releases Data on Air Marshal Misconduct, 7 Years After We Asked.

Yes sir, no problem with the transparency, but if you’d stand in this line over here till you’re dead, that’d be juss fine…