The Next Major Bull Market Will Be In…

Economic nonsense.

I am not trying to be flippant, nor humorous. Indeed, we in the US will very likely see a massive escalation of propaganda, phony economic data, massaged labor statistics, and the like in 2011.

I’ve been railing against “massaged” government data for years. Whether it’s GDP numbers, housing data, unemployment claims, or retail numbers, virtually every economic metric the Government or state department publishes these days is massaged or adjusted to paint a picture that is far rosier that the real economic realities facing the US.

Let’s take US GDP Growth numbers, for instance. The most common manipulations used to overstate this number are:

1)    Understating inflation

2)    Overstating production of various segments of the economy

3)    “After the fact” revisions lower

Regarding #1, virtually every one on the planet realizes that the Fed’s CPI (measure of inflation) is a joke.  For those who are new to this little game, first off you need to know is that the Government has altered its measure of inflation several times in the last 100 years.

The original measure was to simply keep track of how much it costs to buy a particular basket of goods (say meat, milk, eggs, gasoline, etc). However, the problem with using this measure is that it quickly demonstrates that the cost of living has gone up in the US dramatically as a result of US Dollar devaluation. 

Indeed, if you’re trying to pump an economy higher on credit to cover up the fact that incomes have fallen 40% or so in 30 years (while simultaneously forcing consumers into financial speculation in order to maintain the illusion of wealth), the last thing you want is for Joe America to realize “hey, wait a minute, back in the ‘60s or early ‘70s only one parent worked and people were able to get by… why are both parents now working and still in debt up to their eyeballs?”

Consequently, the Feds changed their inflation measure to remove the costs of food and energy (after all, how many consumers actually need to buy items from those sectors?). The beauty of this is that it not only hides the fact that a gallon of milk now costs $4 or so vs. $1.15 in 1970 (and milk is DEFINITELY not three times as awesome now as then) but it also allows GDP to appear larger.

In order to illustrate this last point, think of a company that produces staples. Let’s say that in 1970 this company produced $1 million worth of staples. Today, this company produces $5 million in staples. So the company has grown five times larger right?

Not if inflation has risen five fold over the same time period. Instead, all you’ve done is shrink the value of the currency in which sales are denominated (in this case Dollars). Put another way, your company has NOT grown, it’s just that the currency it sells Staples in has lost a HUGE amount of value.

However, if you CLAIMED that inflation only rose three times as high (rather than five) then your company APPEARS to have grown a lot more. In simple terms, by changing the measure used to account for inflation, the Feds are able to make GDP growth appear larger than it really is.

Other GDP accounting gimmicks include overstating various economic segments and posting a higher growth number that is then revised much lower in the future. The Government also uses this on unemployment claims and numerous other statistics.

The above examples only pertain to GDP growth. Virtually EVERY economic metric published these days (whether it’s retail numbers, housing numbers, unemployment claims, inflation, etc) has similarly glaring defects/ issues that cover up just how bad things have gotten in the US.

Indeed, the worse the US economy has gotten, the poorer the economic accounting has become. Consider the following:

§  The US was only officially declared to be in a recession on December 1, 2008: right AFTER the ENTIRE financial system nearly imploded.

§  At that time, the recession was claimed to have begun in December 2007 (so it took a full YEAR before the Feds announced the obvious).

§  The recession was declared “over” by Ben Bernanke and pals in August 2009: a time when one in US eight mortgages were in arrears or foreclosure and one in eight US citizens were un/ underemployed or on food stamps.

§  The Financial Crisis is largely thought to be over (or at least the worst is over) despite the fact that NONE of the real issues plaguing the system have been fixed (not to mention the ongoing problems in the derivatives, commercial real estate, and debt markets).

With a Presidential election coming up in 2012, I believe we are at the beginning of a REAL bull market in economic/ political nonsense. The massaged data, nonsensical proclamations, and other shenanigans we’ve seen over the last decade are JUST the beginning.

After all, no one is going to run on a “we’re in a Depression, not just a Recession, and we’ve spent several trillions of dollars without fixing anything just so Wall Street can get record bonuses again” platform. 

Instead, we’re going to see economic data become even MORE divorced from reality, assertions that the economy is back on track, and that at worst there is the specter of a “double-dip” recession looming. Heck, even these fears are sugar-coated… literally (making an economic nightmare sound like an ice-cream sundae is a GENIUS marketing move).

So, I for one, am mega-bullish on economic/ political nonsense for 2011.  Put another way, I believe that the worse things get, the better they will sound coming from our nation’s leaders/ pundits (we’ve already revised 3Q10 and 4Q10 GDP numbers higher).

After all, with a Nobel Peace Prize winner upping troop numbers in a never-ending war, an economist who failed to see two bubbles until AFTER the destroyed more than $11 trillion in wealth winning Time’s Man of the Year, and a CEO who somehow managed to convinced the government to give his firm $13 billion in bailout funds despite allegedly having hedged all its exposure on the very investment that it claimed it needed bailouts for named Person of the Year by The Financial Times, why couldn’t you spin record food stamp usage as a “consumption miracle” or one in eight mortgages being in foreclosure as “careful inventory  accumulation” or a Depression as a “jobless recovery”?

We all know how this situation will turn out (HORRIBLY). The Fed lost control of everything in 2008. It will lose control again in the future. Only this time it will be out of bullets. And judging from what’s going on in the world right now, we can’t be far off.

On that note, if you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

Prepare Now!

Graham Summers

PS. We ALSO publish a FREE Special Report on Inflation detailing three investments that have all already SOARED as a result of the Fed’s monetary policy.

You can access this Report at the link above.

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