The US Bureau of Economic Analysis at bea.gov has put out its latest report of
gross domestic product (GDP), and it was, as you would expect from the steady
drumbeat of gloomy economic news, down.
The reason is exactly what you would think: "The decrease in real GDP in the
second quarter primarily reflected negative contributions from private
inventory investment, nonresidential fixed investment, personal consumption
expenditures (PCE), residential fixed investment, and exports", which is where
I ran out of breath, mostly because my heart was pounding in fear and my
muscles were twitching as that old familiar "fight-or-flight" rush of raw
adrenaline squished into my bloodstream.
For some reason, I think that we are supposed to be calmed that
these losses "were partly offset by positive contributions from federal
government spending and state and local government spending." Gaaaaaahhhh!
Since I find it hard to express the horror I feel as a result of GDP falling
while government spending is increasing, I will not try, and instead focus on
the arcane handling of imports which, of course, seems perverse, in that
imports are a subtraction in the calculation of GDP, so that when imports
increase, GDP decreases.
Not this time, though! You can tell by the way the birds have stopped singing
and the world seems to have caught its collective breath that GDP went down
even more than you think because imports decreased, too, which means that,
again seemingly perversely, GDP was registered as having an increase as a
result, when, in fact, everyone has been laid off and bankrupted as we die a
horrible economic death, screaming in financial pain from letting the filthy
Federal Reserve create so much money and credit all those years so that the
corrupt Congress could borrow and spend us into the calamity of US$12 trillion
of federal government debt in a $14 trillion economy, and a system of
governments and public sector agencies that spends, collectively, half of GDP,
supports almost half of the population, and employs directly and indirectly
about one-out-of-three workers! Hahaha! We're idiots! We doofus Americans are
bona fide idiots! Hahaha!
Oddly enough, apparently puncturing my "we're idiots" stance, we know how to
make a profit even as the economy collapses, and "Profits from current
production (corporate profits with inventory valuation and capital consumption
adjustments) increased $67.6 billion in the second quarter, compared with an
increase of $59.1 billion in the first quarter."
I say "oddly enough" because I figured that with sales falling and tax revenues
falling, profits would be down. I was wrong!
Admittedly, accounting was never my long suit, especially the new kind of
accounting where all kinds of strange, bizarre accounting-type things can
happen, like how I end up owning myself and having to sue myself because I
won't pay myself some money I loaned myself against the equity of some money
that I had previously borrowed from myself, which I can't do because of the
unrealized tax consequences of accrued future off-balance sheet liabilities of
deferred contingent options and warrants collateralized into derivatives and
related offsets, a condition which my computer model said could not happen in a
million years.
Like I said, I am no expert on why businesses are making money, and I am
certainly not sure why "Taxes on corporate income increased $40.8 billion in
the second quarter, compared with an increase of $47.0 billion in the first",
which seems at odds with Barron's reporting that the per-share earnings of the
500 largest companies in America (S&P 500) are, as of Right Freaking Now
(RFN), a miniscule $7.90, while a share of the index sells for the laughable
price of $1,029, meaning that the P/E ratio is a preposterous 130! Hahaha!
I laugh nervously because I am lost and scared, as I am not sure that Toto and
I have ever been in this part of the enchanted forest before, because everybody
seems to be insane enough to buy a stock at 130 times earnings, they seem to be
stupid enough to accept record-high prices (and thus record-low yields) on
bonds, even as a massive, multi-year, globally-coordinated "stimulus" of
staggering amounts of money via "quantitative easing" gets into gear, but yet
these strange people are not buying gold, silver and oil to capitalize on the
blistering inflation in consumer prices this will surely cause!
But as astonishing as this corporate profitability is, for reasons I do not
understand, I do know that the monetary base went to $1.733 trillion from
$1.647 trillion the week before, which means that $86 billion of new money was
created in One Freaking Week (OFW), and that is, fortunately, all you need to
know to buy gold, silver and oil, which is what makes it so easy that you
rejoice aloud, saying, "Whee! This investing stuff is easy!"
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2009, The Daily Reckoning.)
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