Says Most Politically Manipulated of All U.S. Economic Numbers Reported
Washington, DC -- (SBWIRE) -- 10/07/2014 -- The GDP report is the most good-for-nothing and the most massaged and politically manipulated of all U.S. economic numbers reported says Dawn Bennett, CEO of Bennett Group Financial Services in her latest missive to investors.
Investors need to look at economic reality in a different way, in particular, the GDP distortion. When human beings are faced with a problem, in order to be able to deal with this issue, they change the perception of the problem. In other words, they begin to distort reality and become creative and use that as a license to look at reality in a different way. This way usually gives them more peace and contentment than the real truth would make them feel. However this means that the new truth that they've created in their mind, the new perception, is often inaccurate she says.
I applaud creativity, especially when it comes in the form of technological advances or research that develops and pioneers new drugs to cure diseases. Apple Computer's advancements, as an example, continues to push the limits of what used to be fantasy and turning that into reality. Or innovative research at pharmaceutical companies that very quickly now try to accelerate the use of a range of potential treatments to fight diseases like Ebola. In these two areas, looking at reality in a different way benefits mankind.
However, Ms. Bennett says, when it comes to economic numbers, creativity can hurt investors because it misleads them in making a decision that may not be right for the environment we are in. For example, the creative license the Bureau of Economic Analysis (BEA), a U.S. government commerce department, takes when measuring the the Gross Domestic Product (GDP).
Now this measurement comes out every three months and measures the amount of money spent by consumers and the government. The amount of money invested in imports and exports as well as the production of widgets and gadgets. This adds up the value of all work done in the United States economy in a three-month time period. This type of national accounting should give the investing public a more accurate picture of the United States economic health. Sadly it doesn't. Instead, it keeps all American investors in the dark about the truth of our economic health.
The week of September 22, 2014, the BEA reported that the U.S. second quarter GDP surged a positive 4.6 percent, which was the biggest quarter jump since fourth quarter of 2011. Should investors be jumping up and down and cheering because that's good news? If correct, then yes! However this GDP report has very little relationship to real world activities. As a matter of fact, it's more likely the GDP release was massaged to help generate the happiest investment and political story that could be put out there says Ms. Bennett.
The latest GDP report simply is the most worthless and the most massaged and politically manipulated of all US economic numbers reported. It does not even reflect properly, or even accurately, the negative changes to the underlying U.S. economic fundamentals that drive the economy.
A hundred percent of the GDP report was happy hype and fluff because all the BEA did was make the GDP appear better by changing the definition of how to calculate profit. That's what the U.S. government did in order to show this fake rebound from the negative 2.1 percent GDP drop in first quarter of 2014.
This was the third estimate of the second revision to the second-quarter 2014 GDP, which showed a statistically significant unreal gain. The truth is that the broad U.S. economy is turning down, and that the real second quarter GDP is probably closer to a negative 1.7 percent rather than the fake positive 4.6 percent. This means the BEA actually needs to start telling the truth so that any new changes in any economic definition won't mislead Investors again.
That’s not the only area of what I call information distrust. Another area of distrust is that corporate insiders are selling shares at a pace not seen since the year 2000. Corporate leaders who know more about their companies and future growth prospects than anybody in the world, even market analysts. They're unloading their company stock as quickly as possible.
According to Bloom berg, a total of 7,181 insiders bought their own stock this year, 2014, through September 12th, but 23,323 sold their shares. That ratio of buys to sells is near the lowest since 2000. At the same time, corporate repurchases reached $275 billion in the first half of the year. This is what is called leveraging up. It is particularly telling that companies are doing this to boost stock prices at a time when they are not expanding hiring or expanding payroll or expanding CAPEX. No one has seen this pace of share repurchase since 2007.
This is the type of corporate buy back craze, on debt , that helped create the 2008 crash. My guess is it's going to be the same this time around too. In other words, corporate insiders are selling when it comes to their own money, but at the same time, spending corporate money madly to buy back their own company stock, which clearly tells investors much about their negative mindset regarding the U.S. economy.
This is why this reported GDP is distorted and not really the truth. I don't think that the BEA should be taking creative license to change it, just to make investors feel better for the moment. I think it's important that we always deal with the truth.
All market data references are sourced to Bloomberg terminal database.
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational t opics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN as well as take podcasts on the road and forums for interaction.
The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses investing.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or email@example.com