2010: A Continuation of the Naughts

By MICHAEL GRAY

Many economists are looking at 2010 and seeing the glass is half full. The data they use to forecast how the US economy is improving has been corrupted to such an extent that the time-honored formulas used to determine future growth are fraudulent.

The disconnect occurs when government statistics are skewed with assumptions that can only be described as lies if you and I stated them. The major culprit in this regard is the Bureau of Labor Statistics’ weekly and monthly employment numbers.

Between seasonally adjusting the jobs numbers using the birth/death model as well as looking historically for the assumption of how many jobs were created is more voodoo than sound economics.

Inflation numbers also seem to be devoid from reality even when you take out food and energy. This number has been so politically charged for so long that to look at it as a true barometer of economic activity is moot. My best guess would say that inflation is probably running at 8 percent right now and will climb much higher by the second half of this year as the dollar index slides into the low 70s.

Equity markets are skewed to the upside since becoming awash with cheap cash last spring. The high-frequency trading employed by Goldman Sachs and other government proxies do not create wealth or growth for companies but rather a quick profit for the firm’s prop desk.

This is the main driver for the indices to be closing almost flat. The lack of conviction to buy or sell are the hallmarks of HFT. If you are in and out of a stock after a two-cent gain, you will not see 100-point moves on the Dow very much.

I am also very suspicious of pre-market activity. I have seen at least 10 days in the last two months were there have been 100-point swings in the futures market on very little news. Perhaps the Plunge Protection Team is in the market or one of its proxies propping up equities before the markets open in the west.

The take away on all this is that economists — even if they had good data — are guessing on the direction of the economy. So if you give them flawed data they will never see a collapse until it hits — perhaps.

My biggest concern is to get past the first quarter. I believe with a very disappointing jobs number for January — because the BLS typically does not add bogus jobs into that month’s number — it will usher in a wave of sell offs in equities, bonds and the dollar. Commodities may sell off, except gold and silver which will benefit as another flight to hard currency will ignite.

For more on Wall and Washington and the economy see: https://mgray12.wordpress.com

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