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Friday, March 2, 2012

Economy: Super to Stinky--how quick it changes

At the beginning of the week, the economic news was quite rosy.

Here's a sampling from Tuesday, Feb. 28th:

* "Confidence among U.S. consumers climbed to a 12-month high in February, signaling household spending will help sustain the expansion." -- Bloomberg

* "Steady declines in applications for unemployment aid are pointing to another strong month of hiring in February." -- AP

* "The U.S. economic recovery is gathering strength as cheaper natural gas drives business investment and boosts exports" -- BusinessWeek

* "Consumers earned a little more in January and spent most of the extra money.  The modest gains should keep the economy growing slowly." -- AP

Jeepers! No wonder the market went up and crossed over the 13,000 mark.. All that positive news is just super.. hmm, super... really.. super.. super duper..
But then by Wednesday, March 1, something happened:  Bernanke in his semi-annual Q&A before Congress said there's be no QE3 (yet)..  And because the corporate whore media did such a good job manipulating an optimistic picture of the health of the US economy (complete untruth), the banks, financials, traders, investors, and Bernanke himself thought, 'well all this super news is not so 'super' after all..

And we said what the economic power elites are going to need to do is to start being negative and dour in their economic assessments, have the media cover some economic reality (within the narrative of 'recovery' of course) and the market will need to start dropping..

When the common know-nothing woman and man on the street who only bases the economy on the Dow and headlines believes things are getting worse, then will come the political cover to push QE3.

So what happened since?

*  Goldman Sachs cut their tracking forecast for 2012 Q1 GDP twice in one day on Thursday, dropping its projections from 2.3% growth to 2.0% to 1.9%.  Its basis?  Weaker consumer spending data; "The new orders index—the most forward looking component—fell to 54.9 from 57.6 previously, returning close to its level in December... the production index slipped to 55.3 from 55.7... Construction spending declined by 0.1%..."
*  Bank of America has followed Goldman's lead today by downward projecting 1Q GDP; "On the back of a very weak consumption report, we have lowered Q1 GDP growth from 2.2% to 1.8%... -weather induced bump up in the data should fade. Gasoline prices are up roughly 50 cents from their December lows... The Attorney General Agreement in February paves the way for a ramp up in foreclosures over the next several months, dampening home prices and potentially construction... we expect the data surprises to turn negative over the course of this spring."

And understand this-- GDP growth, year-over-year, peaked in the third quarter of 2010 at 3.5%. By the second quarter of 2011, it had fallen to 1.5% and it’s basically flat-lined from there.  So it is impossible to have a growing economy or a sustainable recovery when the assumption will be that GDP for first quarter of 2012 will be 50% of what it was 21 months ago.

Gee, I thought consumer confidence/sentiment was on the rise?

What happened to all those rosy news blurbs on Mon. & Tues??

And what about Bernanke's testimony to Congress?  Certainly everything must be peaches & creme since as the media tells us, unemployment is down, consumer optimism is rising, and its basically 'Morning in America" again..  Right?
* "Federal Reserve Chairman Ben Bernanke on Wednesday offered a tempered view of the U.S. economy, pouring cold water on the notion recent upbeat signs herald a stronger recovery. Bernanke told Congress that unless growth accelerated, the unacceptably high U.S. unemployment rate would not keep dropping" -- AP

* "In Congressional testimony, Fed Chairman Ben Bernanke told legislators the Fed “can’t do much about the price of gas,” after lashing out at those that criticize him for “hurting” the dollar... While he recognized rising gas prices are a concern, as they erode purchasing power and put a strain on consumers, he told legislators to chill out about higher gas prices." -- Forbes  (Yes, Forbes Magazine used the phrase, 'chill out'.. just shows how far the decline of print journalism as fallen)

So much pessimism suddenly...
And that's just 2 business days after no QE3 announcement.. Imagine the hard-press to scare the American people into supporting QE3 after 4-8 weeks of this?

March and April are going to be rough months, folks.  And you should expect far more negative headlines, commentaries and op-ed pieces from mainstream media as well as a declining stock market.  Its not so much that the 'sky' will suddenly be falling, but that its been continually falling for years, but now you will get a couple months of semi-honest news reporting on the state of things (within framework of 'recovery'), until political cover has been obtained for Fed to launch another Trillion dollars or so of asset purchases and backdoor bank bailouts known as Quantitative Easing.

Its easy to see why so many in the world of finance, banking and investment make constant assumptions about where things are headed.  It really is quite a predictable game if you understand it well enough.