In this week’s Off the Cuff with Mish & Chris podcast, Mish and Chris tackle:
US GDP
- With only a little inspection, the reasons for optimism behind the latest rosy US GDP numbers wither quickly
- Europe
- The flood of free money continues. Too bad it’s going into the banks vs. the European economies that need it
- Threats from the East
- While all eyes are looking towards Europe, larger risks to the global economy are appearing in Japan and China
This week’s podcast was recorded on the road (with apologies for not having the usual crystal clarity). But that didn’t slow Mish and Chris down in identifying the growing risks behind the otherwise positive announcements released this week. More than ever, keep an eye to the data — not the cheerleading — as it is proving critical in making decisions to preserve one’s wealth.
US GDP
A robust revised 3% GDP growth for Q4 2011 was recently reported by the BEA. Woohoo! The recovery’s finally gaining steam, right?
Not so fast, say Mish and Chris. There’s a lot of funny math going on here.
The majority of that “growth” was due to inventory rebuilding, meaning that barely 1% was represented by actual retail sales. Pretty anemic.
Plus, both Chris and Mish think that inflation is substantially understated, which if truly higher, quickly turns this nominal growth into a real decline. The takeaway here? The US economy is pretty much at stall speed, and the European economy is performing inarguably worse.
Europe
The situation remains the same, only it’s getting progressively worse. In a week where the interest on Greek 1-yr bonds is approaching 1,000%(!), it seems that Portugal is sliding towards a similar fate, with Spain the next likely victim after that.
The key thing to be aware of here is that the hundreds of billions of Euros in additional liquidity provided by the ECB is not being used for its publicly-stated purpose of boosting Europe’s weakened economies. Instead, it is a direct bailout of the banks. Very little of that new money is entering the actual economy; most of it is simply being used by the banks to slowly repair their balance sheets.
by wayne-grow-2