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Sit down before you read this.
It's going to make your head spin and, worse, change the way you think about what's real in America.
Christmas came early this year, for the market that is, by way of a gift from the U.S. Bureau of Economic Analysis.
However, this branch of the U.S. Department of Commerce didn't put its gift under anybody's tree. They put it over all of us.
The gift was headline news that the "third revision" of the third-quarter gross domestic product (GDP) number showed the U.S. economy grew at a whopping 5% annualized rate, not the 3.9% rate posted in the "second revision."
That sounds like good news, right?
Well, here's what's scary…
The Bureau of Economic Analysis Is the "Bad Santa"
"Ho! Ho! Ho!" said the stock market. Good news is now good news on top of bad news being good news for stocks.
And so, with just enough time before Christmas for the stock markets to react, we got a 5% "print" from the BEA, which pushed the Dow Jones Industrial Average above 18,000 while the S&P 500 made yet another all-time high.
Too bad the BEA is lying. The latest revision was a "put-on." The folks at the BEA put it over on all of us.
What they did to get to that 5% number – to make us all feel gifted by a robustly recovering economy, to get us to go out and spend spend spend, to get stocks to soar – was pure prestidigitation. It was pure legerdemain.
It was pure BS.
I'll prove it to you. Here's what the BEA posted on its own website:
"The GDP estimate released today is based on more complete source data than were available for the 'second' estimate issued last month. In the second estimate, the increase in real GDP was 3.9 percent. With the third estimate for the third quarter, both personal consumption expenditures (PCE) and nonresidential fixed investment increased more than previously estimated (see 'Revisions' on page 3).
"The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
"The acceleration in the percent change in real GDP reflected a downturn in imports, an upturn in federal government spending, and an acceleration in PCE that were partly offset by a downturn in private inventory investment and decelerations in exports, in state and local government spending, in residential fixed investment, and in nonresidential fixed investment."
In the second paragraph, the BEA says the increase "primarily reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, state and local government spending, and residential fixed investment." Then in the very next paragraph, it says that "an upturn in federal government spending, and an acceleration in PCE that were partly offset by a downturn in private inventory investment and decelerations in exports, in state and local government spending, in residential fixed investment, and in nonresidential fixed investment."
What?
How can you have an increase in PCE and the other stuff that was "partly offset by a downturn" in the same stuff the BEA said had increased?
I'll tell you what's going on.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.
Great article on the GDP number. It confirms what I suspected and clearly makes the point, the whole system SUCKS.
Exactly, the same old same old, fudge the numbers to manipulate the results, just as with unemployment numbers, inflation and now GDP, nothing but smoke and mirrors with this house of cards about to collapse.
Interesting points. It is a fact that the way GDP is officially calculated has been changed several times over the last three decades. Lower fuel and energy prices have put some extra spending dollars in the American consumers' pockets, but longer term, these falling oil prices are bad news. The stock market is propped up by quantitative easing and corporations buying back their own stock. Greenspan has said " buy gold ".. he should know, he helped start this fire. Interest rates cannot be allowed to rise because the government debt is so enormous it cant afford the increased rates. We are in a bad spot that has no pretty way out.