Today’s GDP numbers have confirmed our previous forecast of a real continued contraction in the economy and second wave in this downturn. First off, any numbers reported by the government should always be taken with heavy skepticism. Let’s remember the government applies hedonics and an artificially low inflation rate to this number, so what could look like growth is often time price inflation. We should also note that there is a lot of economic activity from people not paying their mortgages from strategic defaults. Obviously, if you don’t have a mortgage payment, you will have a little more spending money to go out to eat, shop, and enjoy the finer things in life.

Low interest rates and government spending also has a lot to do with our current positive GDP. With that said, let’s look at the components of the latest official number announced this morning. Three components caught our eyes, 1. Personal expenditures were 21% below expectations, a 2.8% number was forecast and it officially printed at 2.2%. 2. Fixed Investments fell from 0.93% to just 0.26% and 3. a build up of inventories which added 1.19% to growth, which was actually revised up from 0.09%. This build up in inventory means that growth was actually less than 1%. If you account for all the fraud in the way they calculate the number, plus the easy money going into the economy from additional fraud, the real economy is already seeing a contraction. As far as the official number, GDP increased at an annual rate of 1.8% in the first quarter of 2011. The last official GDP number from the last quarter of 2010 was 3.1%. expects even the shady government numbers to have trouble from this point on, especially if the FED is going to hold off on more quantitative easing for a bit. Looking at the macro-economic picture, we also have an acceleration of people dropping off the extended unemployment benefits. In addition to macro-data, floods and major tornadoes in the U.S. will also have long-term effects in our economy. The farmland that was devastated will have enormous effects on overall food price inflation for the entire world. Of course, as most of you know natural disasters are a Keynesian dream, since we now have to spend money to rebuild.

America Entering The Summer Driving Season With $100 Oil

This should be interesting, extreme monetary inflation vs. demand deterioration from high prices vs. the summer driving season vs. the head fake from the FED that they will end quantitative easing. Oh and throw in a debt ceiling debate in Washington D.C. and more end of the world talk from the media if the U.S. restores fiscal sanity. Plus, the never ending middle east process and instability. Well at least it’s not an election year, that’s still 6 months away, phew. is currently doing a lot of research in the energy market, including interviewing some of the world’s top energy experts. We believe energy will be a big story over the coming years and we want to stay in front of this trend as much as possible.

Foreclosures ‘Astronomically High’

Foreclosure sales accounted for 28% of ALL HOME SALES in the first quarter of 2011. According to RealtyTrac Inc, this number is 600% higher than it would be in a normal market. Rick Sharga, senior vice president of RealtyTrac, put it this way, “it’s an astronomically high number.” Even though we have seen new foreclosures slow due to lender and court delays, the shadow inventory and build up of foreclosures is starting to come onto the market. Currently bank owned properties stand at a 2 year supply! Even as ugly as this seems, we have to keep in mind that interest rates are artificially low and the government (taxpayers) are currently funding 90% of mortgages! This is why in our article two weeks ago we made the case that housing needs to crash in order to recover.

Government At Work

Oklahoma Sen. Tom Coburn recently released some examples of absolute government waste. Anyone who has the time to read his report, or if you are just in the need to get your blood boiling, it’s a must read.  Just in case you thought you could spend your money better than the government, here are a few examples of where your money is going.

  • $1 million for an analysis of how quickly parents respond to trendy baby names
  •     $2 million to figure out that people who often post pictures on the internet form the same location at the same time are usually friends
  •     $3 million in excessive travel funds
  •     $80,000 study on why the same teams always dominate March Madness
  •     $315,000 study suggesting playing Farmville on Facebook helps adults develop and maintain relationships
  •     $518,000 on whether online dating site users are racist

The report also found that there is some inappropriate staff behavior from the people at the NSF. What is defined as inappropriate behavior, how about taxpayer funded jello wrestling!