EC The 30-Years Bubble – Why America Ain’t That Rich

The entire financial and economic narrative in today’s Bubble Finance world is virtually context- and history-free; it’s all about the short-term deltas and therefore exceedingly misleading and dangerous.

So when a big trend or condition is negative and unsustainable, you generally can’t even get a glimpse of it from the so-called “high-frequency” weekly, monthly and even quarterly data on which the financial press and its casino patrons thrive. And that’s not merely because most of the data from the government statistical mills is heavily massaged and modeled and often “adjusted” beyond recognition over 3-5 year intervals of statistical revision.

Beyond that, however, even medium term trends get largely ignored. That’s because the purpose of economic and financial data today is to facilitate daily (and hourly) trading in the casino—not inform long-term investors about underlying trends, conditions, and prospects.

The investor class of yore, in fact, has largely been destroyed by the last 30-years of monetary central planning and the Wall Street deformations it has fostered—-meaning that, increasingly, headline reading algo-traders and trend-following speculators are the main consumers of the “incoming data”.

For instance, scratch a talking head today and you get the “strong economy” meme as purportedly reflected in two back-to-back quarters of 3% real GDP growth. Yet there is absolutely nothing “strong” about the picture below or compelling about the last two quarters.

After all, during Q2 and Q3 2014, there were back-to-back growth quarters of 4.6% and 5.2%, respectively. But that didn’t last long—-nor did the 3.1% and 4.0% growth rates of Q3 and Q4 of 2013 or the three-quarter average of 3.0% in Q2-Q4 of 2010.

All of those “strong” quarters seem to have disappeared from the groupthink narrative, as well as the punk quarters strewn in-between. In part, that’s because most of them were reported at far lower or higher levels at the time, meaning that the underlying trend has simply disappeared from the high-frequency narrative about good deltas and excuses for ones which are not.

Still, the heart of the problem is the foolishness of annualizing 90 days worth of preliminary data with seasonal adjustment factors that are rarely up to the task.

Moreover, the large aggregates like GDP are inherently buffeted by short-term shocks ( e.g. severe hurricanes not embedded in the seasonals), inventory stocking and destocking mini-cycles and the ebb and flow of global trade, exchange rates, and credit impulses. These, in turn, reflect the machinations of what has now become a worldwide convoy of hyper-interventionist Keynesian central banks.

Even modest adjustments to deal with some of these disabilities give a starkly different picture. For example, consider what happens when you remove the inventory contribution to quarterly GDP—-which washes to essentially zero over time—and also set aside the highly volatile impact of net import/export trade, which has actually averaged a -0.28% contribution to GDP growth over the last 11 quarters.

What remains might be termed “core GDP” and includes consumer spending, fixed investment, and government output. On that basis, growth was 2.4% in Q4 2016; 2.4% and 2.8% in Q1 and Q2 2017, respectively; and just 2.0% in Q3 2017. That is, the latest quarter showed the weakest annualized expansion rate in the last year and there was no “3” in it or any of the previous three periods.