So you might ask why the economy is “off-subject” for an investing service. That would be because the economy has not mattered to the markets since the Great Recession. And when it does, bad news usually propels the market higher on hopes of more financial stimulus – the real driver.

I could not help myself, our economic policy is too important to screw up again. I keep waiting for some economist to point out how the -33% GDP overstates how well the economy did.

Overstates?

Yes. But first, the number is annualized which is misleading. If we compare the economy to the 2nd quarter of 2019 the economy is about 10% lower which is a better way of thinking about it. But still beyond ugly.

Now for the overstating.

The GDP model has to use a lot of trend data since they can not collect real data that fast. That is why it will be revised many times as the real data comes in. And the one component I keep expecting analyst to talk about is the housing services data.

Why?

Because it *posted* positive growth in the 2nd quarter. We are talking about rent here folks. If anything screams trend data this does. But I also know how they model rent and housing with imputed data.

So let’s look at how the GDP model captured 1/3 of all rents in the US not being paid.

A positive 0.61% contribution to the -33% contraction (cough, cough).

Above is the BEA table and I eliminated most lines to call out the biggies. And these numbers represent the contribution to the decline meaning that of the -33 GDP print only -2.12 of that was goods (meaning about 7%).

Healthcare was -9.50 or about 30% of the loss in GDP model.

Private Domestic Investments was 30% of the loss – the future economy.

While exports data was offset by imports, I think it is important to realize this means we exported less but reduced imports – meaning less global trade.

Back to the housing component.

I have to think the real economic impact is massive. And remember that rent payments are someone else’s income. And that means personal income was overstated which is why everyone thinks personal income went up with stimulus checks and the average saving rate surged. It’s all BS.

It did not. Why?

1. They did not take out missed rent from income.
2. Savings is calculated as income minus expenditures and not by looking in everyone’s savings accounts.

Again, none of this matters to the stock market in the short run.

In the long run, it will matter.

Bankrupt companies wipe out stock prices even if they are flying high prior to declaring bankruptcy. And they default on debt payments. All the Fed is doing now is feeding the zombies a little longer. Feeding them retail investors via passive bond funds and Robinhooders in the stock market.

And look at the outcome of how “they” handled the last crisis (recently reminded by Charles Hugh Smith).

That is 96% of all wealth gains went to the top 10%. To break into the top 10% your net worth has to be over $2.2 million dollars.

And my point here is this trend is not getting better, it got worse after the last financial crisis. And so, I expect this time the effort will be on maintaining the wealth of the top 10% at bubble levels while the 90% get hammered without knowing it.

And no, it has not always been this way. It was by design.

At least we have the greatest healthcare system in the world…by design.

It’s going to take a lot of money printing to keep this going for the top 10%…

If you are under 45 and thinking you have been screwed by the boomers, besides being right, remember the gains went to the top 1% who are older. Many boomers have been screwed today and they do not know it.

They soon will.

TSP Smart & Vanguard Smart Investor serves serious and reluctant investors & anyone else we can wake up

Categories: Perspectives