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Posted by on Aug 1, 2013 in At TMV, Banks, Business, Economy, Finance, Miscellaneous, Politics | 6 comments

More Notes From The Alice In Wonderland Stock Market

Yesterday the Commerce Department reported some statistics about the economy. The markets responded very favorable. The Dow made another record before declining slightly. News headlines were positive. All of officialdom and reporterdom seemed pleased with this newest sign that things are finally improving on the economic front.

I will make my own observations about about these numbers at the end of this post. Before doing so, however, let’s view these numbers the way people who deem them favorable view them. Readers here must prepare themselves for this excursion into the Alice In Wonderland realm of present day economic interpretation by doing the following:

Close your eyes real tight. Clear your mind. Repeat over and over the following mantra: Up is down. In is out. Black is white. Round is square. Now let your lips go loose and wet, open your eyes slowly, pant happily. You may now proceed to learn why these new numbers from the government are viewed so positively by market watchers and officialdom.

The 2012 gross domestic product (GDP) increase reported by the Commerce Department was 2.8 percent. Not a great number. Not something that lifted the economic well being of anyone not in the top one percent, but a number that by itself was modestly not all that bad.

Yesterday’s second quarter annualized reported GDP growth from the Commerce Department was only 1.7 percent. Less than 2.8 percent by quite a lot, but at least better that the 1.1 percent annualized growth reported in the first quarter of this year. Hence the positive market and media reaction.

But wait, you say. The Commerce Department reported annualized growth of 1.8 percent in the first quarter. The second quarter’s number of 1.7 percent was therefore worse, and not a sign of the “upward economic momentum” reported in the press.

Ah, I reply, but the Commerce Department has now revised its first quarter number to 1.1 percent, which means that the 1.7 percent in the second quarter, while actually a lousy number, was an improvement over the previous quarter.

You mean to tell me, you now cry aloud, that in order for things to appear to be getting better, all the government has to do is change past numbers that show they used to be even worse? That’s crazy, That’s…

Shhh. Back to sleep. Close your eyes real tight. Clear your mind. Repeat over and over the following mantra: Up is down. In is out. Black is white. Round is square. Let your lips go loose and wet, open your eyes slowly. And back we go to contemporary economic thinking.

It wasn’t just a Commerce Department first quarter revision that made the new second quarter number seem rather good. No, sir. It was analyst expectations. When a number beats analyst expectations these days, whether that number is a company’s quarterly earnings or an entire economy’s quarterly growth, markets cheer and the media follow suit.

Temporarily aroused from your stupor, you cry out again. That’s crazy. Crazy! Just because some news organization polls a few economists and averages their guesses to come up with an “expectation,” what kind of reason for that to move markets? Reality is reality. A bad number is a bad number even if some experts guessed a worst number. If I’m feeling crappy but a dozen doctors guess I might be feeling worse, what has that got to do with my real feelings?

Analyst expectations as market movers is a stupid gimmick (you’re almost hysterical now). It’s madness, its, it’s…

Shhh. Back to sleep. Close your eyes real tight. Clear your mind. Repeat over and over the following mantra: Up is down. In is out. Black is white. Round is square. Let your lips go loose and wet, open your eyes slowly. Don’t worry about a thing. The Authorities know what they’re doing.

Now here’s my personal observation about present day market behavior. Markets, in cahoots with government, have for years been changing official economic numbers on things like inflation, GDP growth, etc. to jolly people up and hide the terribly worrisome fact that our economy is a house of cards. Having fudged official numbers so blatantly and so much and so often that even the most gullible have spotted the game, a new approach is being employed. It is to make even terrible numbers seem like good ones.

The bigger, the more elaborate, the more widespread the con, the bigger the ultimate fall out. No. Up is not down. In is not out. Black is not white. Round is not square. These shenanigans are going to end very, very badly.

(Now available from Amazon in print and ebook formats β€” Michael Silverstein’s The Devil’s Dictionary Of Wall Street.)

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  • dduck

    MS, we’ve been warned about “phoney scandal” mongerers, so be warned. Next thing you’ll be saying that the government, ahem, fudges other things that they tell us. For shame, it is these kind of obstructions, of course with the biggest ones the Reps, that make it harder for those in the government to concentrate on their main goal, which I forgot what it is, but I’m sure it will be pointed out in the next daily speech from our frustrated president.

  • dduck

    All is not lost, the Bureau of Economic Analysis (BEA) just announced an early Festivus gift. Ready: “we are all about $1800 richer on a per-capita basis………
    http://www.nytimes.com/2013/08/01/opinion/what-is-seinfeld-worth.html

    As MS has pointed out the government loves the down is an up numbers and these BEA numbers sure compliment the Commerce Dept’s rosy predictions and Wall Street’s cheery forecasts. Feeling better?

  • sheknows

    The NY Times economic section from July 31 explains everything. πŸ™‚ Apparently the government often “recalibrates” it’s tools for measuring the economy. They have employed a new method also that goes back all the way to 1929 and have found in doing so that our recession 2007-9 wasn’t as bad as we really thought.

  • MICHAEL SILVERSTEIN, Wall Street Columnist

    Hi SheKnows,

    Thanks for reminding about that that 2007-2009 recession. The economy has been so good since it ended in 2009 (as measured by the stock market and big bank profits) I’d forgotten we had a recession.

    This recalibration stuff, by the way, it really great. By simply recalibrating the number of days it takes for the earth to go around the sun and thereby lengthening years, I am now 26. And by using a new measure of worth the government uses, intellectual property worth, my book worth makes me rich as Bill Gates.

    Adam Smith thought consistency was more important than accuracy when measuring economic numbers because you change the measuring sticks and you don’t really know where you’re at. But that is so, so early capitalism thinking. In this present stage of capitalism we recalibrate and things get better and better and….

  • sheknows

    Much like our unemployment figures. Why just by adding 16 year olds who work at least one month out of the year part time, or eliminating those who are no longer on unemployment because it RAN OUT, we can have a whole new set of numbers for people. Our government….gotta love em. πŸ™‚

  • slamfu

    “For example, it appeared from The Times of the seventeenth of March that Big Brother, in his speech of the previous day, had predicted that the South Indian front would remain quiet but that a Eurasian offensive would shortly be launched in North Africa. As it happened, the Eurasian Higher Command had launched its offensive in South India and left North Africa alone. It was therefore necessary to rewrite a paragraph of Big Brother’s speech, in such a way as to make him predict the thing that had actually happened. Or again, The Times of the nineteenth of December had published the official forecasts of the output of various classes of consumption goods in the fourth quarter of 1983, which was also the sixth quarter of the Ninth Three-Year Plan. Today’s issue contained a statement of the actual output, from which it appeared that the forecasts were in every instance grossly wrong. Winston’s job was to rectify the original figures by making them agree with the later ones. As for the third message, it referred to a very simple error which could be set right in a couple of minutes. As short a time ago as February, the Ministry of Plenty had issued a promise (a ‘categorical pledge’ were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grammes to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April.”

    Don’t you just love fiction?(1984 by Orwell in case anyone is wondering where that’s from)

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