Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20
Global "Debt Mountain": Beware of This "New Peak" - 13th Nov 20
Overclocking Zen 3 Ryzen 5600x, 5800x, 5900x and 5950x to 4.7ghz All Cores Cinebench R20 Scores - 13th Nov 20
Is Silver Leading Bitcoin or is Bitcoin Leading Silver? - 13th Nov 20
How Elliott Waves Simplify Your Technical Analysis - 13th Nov 20
How to buy Bitcoins using debit/credit card? - 13th Nov 20
Will COVID Vaccine Kill Gold and Silver? - 12th Nov 20
Access to Critical Market Reports - 12th Nov 20
Stock Market Dow Futures Reach 30,000 on News of COVID-19 Vaccine Trials Success - 12th Nov 20
8 Terms & Conditions You Must Know Before Asking For Life Insurance Policy Quotes - 12th Nov 20
Gold Stocks Post 2020 US Election Outlook - 11th Nov 20
Champions’ League Group Stage Draw: All You Need To Know - 11th Nov 20
Stock Market Secular Trend - 11th Nov 20
Stock Market Correction Curtailed by US Election - 11th Nov 20
What Causes a Financial Bubble? - 11th Nov 20
Ryzen 9 5900X RTX 3080 - vs UK Custom PC System Builder Review - 10th Nov 20
Killing Driveway Weeds FAST with a Pressure Washer - Saving Block Paving from LOTS of WEEDs - 10th Nov 20
Trump Fired, Biden Hired, What Next?  - 10th Nov 20
Looking for a Personal Loan? Here Is What You Have To Know  - 10th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Lies, Damn Lies, and Government Statistics

Economics / Recession Jun 04, 2008 - 10:14 AM GMT

By: Dr_William_R_Swagell


Best Financial Markets Analysis Article“Every single release of late has afforded both bulls and bears the chance to grab onto data to support their view of the economy, but it does not do a whole lot for those in search of clarity.”

To those words by Richard Moody (chief economist Mission Residential) may we all say “Amen”.

New Boom or Bear Market Rally? 

The Dow has bounced back 12 percent over the past two months since the Fed's historic and unprecedented rescue of collapsing investment bank Bear Sterns, but looks to be faltering and still remains down some 11 percent from its October 2007 high of 14,164.

The more bullish analysts take the view that the February shake-out/ crashette/ mini-recession...whatever it was... is all over and that now it's “up, up and away”. They “anticipate that the Dow and S&P 500 finally will break out of their current trading ranges...This view is reinforced by the action of the Dow Transportation Average which, despite the cost of fuel (oil recently surged over US$135 a barrel) is pushing towards its all-time high with good underlying near-term momentum.” Gregory Drahuschak, analyst Janney Montgomery Scott. 

The optimists are adamant that the amazing strength of the Transports in the face of soaring fuel costs and a faltering consumer, and a once-again resurgent DJIA signal a Dow Theory Confirmation has given the green light to lift off for these markets.

Others like Tim Wood and Robert Prechter read things differently. They believe we are still under the influence of a Dow Theory Non-Confirmation and that we're merely experiencing a bear market rally before plunging into the next, more vicious “wave 3” phase down. They see the Transports as more likely to finally break down and follow the DJIA as they both roll over together. 

“Our forecast for the balance of 2008 remains simple but profound. The stock market should fall in Cycle wave c and, as it does, it should draw down everything from the economy and gold, silver to the price of rice in China with it. Meltdowns in the housing and the financial sector are not aberrations but the wave of the future, one that is closer than ever to hitting the broadest range of financial markets.” Elliott Wave Financial Forecast, April 2008.

“We are surprised by the rebound and see this as a bear-market rally, not the beginning of another bull market...If anything, the earnings risk is increasing for stocks as the macro environment is slowing.” Chris Pidcock, Goldman Sachs JB Were equity strategist.

The Worst is Over...Or is it?

“The end of the credit crunch is in sight and losses will be less than forecast...(says ) the chairman and chief executive of the second-largest bond insurer in the United States (Ambac Financial), Michael Callen.” Jane Searle, Financial Review Weekly, 22 May 2008.

*P.S. Ambac's investors, who have seen this stock's price vaporize over the past 12 months from $96 to $3.90 must be praying he's right this time!

“There's no doubt that things feel better today, by a lot, than they did in March.” U.S. Treasury Secretary Henry Paulson.

“It may be a sucker's rally...Investors want to believe. But if I'm right, then there's truth to the argument that this is the worst financial crisis since the end of World War II.” Jean-Marie Eveillard, First Eagle Global Fund.

“Battlestations! S&P in Topping Mode...instead of the ‘worst being already over,' we lean heavily toward the idea that the ‘worst is still ahead'. The price action of stocks like Fannie Mae, Lehman Brothers, and Citicorp is enough to give us bad indigestion...huge degrees of financial leverage are in play... ‘Run, don't walk for the exits' would be our best advice.” Frank Barbera, The Gold Stock Technician.

U.S. consumers, still reeling from the wealth destruction being inflicted upon them by an ongoing slide in house prices, are now also being squeezed by a relentless rise in cost-of-living items, soaring energy prices, as well as a sharp tightening of credit card lending standards. According to Joseph La Vorgna (chief economist Deutsche Bank) the buying power of U.S. households has plummeted from a peak of $1.5 trillion in 2004 to $688 billion in 2006 and a measly $225 billion in 2007. And Lehman mortgage strategists are still factoring in a further 12 to 20 percent fall in house prices through to end of 2009. 

“US SPOOKED BY UFO RECESSION...Consumers in the United States believe their economy is in a recession that won't end for some time and fear inflation will soon rise to levels not seen in a generation...just as economists were trying to predict whether the economy would produce a V, U or W shaped recovery, some investors were now referring to the country's predicament as the “UFO” recession... “We will never be sure if we really saw it, or just imagined it,” said Dr Yardeni (Yardeni Research).” Anthony Hughes, New York, F.R.W. 19 May 2008.

Meanwhile, corporate defaults are also escalating. Last year 22 of the world's larger companies declared bankruptcy or defaulted on $8.1 billion of debt. In the first five months of this year alone a further 28 companies (almost all in the U.S.) have defaulted on $18.4 billion.

“When will it (real estate) get better is the million-dollar question. It's not going to get better for a while. I think 2009 will be worse, and there might be some more banks that go down.” David Osborn, Keller Williams Realty, 13 May 2008.

Anatole Kaletsky, a leading economic commentator for U.K.'s The Times, was until recently rather optimistic that America's sub-prime crisis would not drag the world down into a serious recession. Now, however, he is suddenly very concerned indeed... “Just as the credit crunch seemed to be passing...another and much more ominous financial crisis has broken out. The escalation of oil prices, which this week reached a previously unthinkable US$135 a barrel (with predictions of $150 and $200 soon to come), threatens to do far more damage to the world economy than the credit crunch...This would be a disaster far more momentous than the repossession of a few million homes or collapse of a couple of encourages ...developing countries to turn their backs on global markets, resorting instead to price controls, trade restrictions and currency manipulations from the rising costs of energy and food.... (it) could reverse the globalisation process that has delivered 20 years of almost uninterrupted growth to America and Europe and rescued billions of people from extreme poverty in China, India, Brazil and many other countries.”

The Economist backs up Kaletsky's fears by pointing out that China, India, Saudi Arabia and Indonesia all suffered inflation rates of 8 to 10 percent the past year (forget the bogus “official figures” being bandied about); Russia was over 14 percent, Argentina 23 percent and Venezuela hit 29 percent... “If you measure the numbers correctly, two-thirds of the world's population will probably suffer double-digit rates of inflation this summer.”

Lies, Damn Lies, & (Government) Statistics.

As the cost of everyday items like food, education, medical expenses, energy, gasoline etc continues to rise rapidly, more and more citizens on Main Street are beginning to question the Government's sanitized, massaged statistics for CPI, GDP and unemployment.

Casting aside the illusion created by Washington's smoke-and-mirrors numbers crunchers, a few analysts have applied the criteria that were used some twenty years ago to uncover a different story.

Kevin Phillips, author of “Bad Money: Reckless Finance, Failed Politics and the Crisis of American Capitalism”, contends there is “rampant data distortion” and the real current unemployment rate is somewhere between 9 and 12 percent rather than Washington's 5 percent; that the true inflation rate is somewhere between 7 to 11 percent rather than around the 2 to 3 percent suggested; and the GDP is closer to 1 percent (John Williams at claims it's actually negative 2 percent) rather than the mooted 3 to 4 percent.

Little wonder that CNN Money's recently reintroduced “Misery Index” paints a different picture of what's really happening out on Main Street, or should that read Mean Street?

As Joseph Russo (Elliott Wave Technology) said... “One last thing to remember, never fight the Fed nor trust them either.”

Enough is Never Enough.

“There is anger about a system that permits bankers to earn huge bonuses when finance booms while taxpayers pick up the bill when banks fail.” The Financial Times.

“Now is the time to admit that for the rich, for the mega-rich of this country, that enough is never enough, and that it is therefore incumbent upon government to rectify today's imbalances.” Warren Buffett (world's richest man).

“I paid a $5 million bonus to a 29-year-old punk who was so insulted he walked across the street because he could get $7 million to $8 million.” Michael Callen (CEO Ambac Financial) talking about attitudes at the peak of financial markets euphoria.

Asia not Decoupling.

Investors in Vietnam's stocks (Asia's worst performer to date), which are down 63 percent from their peak in March 2007, aren't getting much joy as they desperately beg for government assistance in any form to try and fix the plunging stock market. With inflation running at 22 percent Vietnam's Communist Party officials are focused more on the tens of millions of rural and village poor who will be devastated if the cost of life's necessities continues to soar than on bailing out capitalistic investors.

Many investors in China's stocks also are far from happy. One angry Chinese investor is quoted (Andrew Burrell, Australian Financial Review, 7 May 2008)... “China's government is nothing but a thief and a liar...They cheated us to put money into the stockmarket and then took all our money away.” Another was quoted as complaining “The only function of the market is to take money from the masses, to suck our blood.”

Smarting from unexpected heavy losses, some Chinese investor's first taste of stock markets and investing sees them less than impressed. Meanwhile, Kazuo Momma (Chief economist Bank of Japan) has “big concerns” about his nation (the world's second largest economy) on account of inflation and a global slowdown... “It's like a tiger is waiting at the front of the gate and a wolf is at the back...We need to be very careful not to be eaten by them”. Australian Financial Review, 27 May 2008.

“Globalisation was not meant to be like this – a frantic race to the bottom where the devil takes the hindmost.” Carl Mortished, The Times, 15 May 2008.

All the best, Joe.

Copyright © 2008 Dr William R Swagell
: This newsletter is written for educational purposes only. It should not be construed as advice to buy, hold or sell any financial instrument whatsoever. The author is merely expressing his own personal opinion and will not assume any responsibility whatsoever for the actions of the reader. Always consult a licensed investment professional before making any investment decision.

Dr William R Swagell Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules