- Unpacking GDP: Jim Rickards reads the fine print
- A headline number that’s less than meets the eye
- Crypto and page 2,433 of the 2,702-page infrastructure proposal
- CEO sides with Big Government on “meat tax” (because of course)
- (Huh?) Keep gubment out of Medicare!
- A reader’s ground-truth perspective on trucker and gas shortages… Jaded Gen Xers on drained SS benefits… And more!
OK, let’s see if we’ve got this straight…
We’re told the COVID recession lasted all of two months. That’s what the National Bureau of Economic Research concluded last month. The economy bottomed in April 2020.
But it wasn’t until June 2021 that the economy recovered to its pre-pandemic 2019 size. That’s what the Commerce Department told us last week in its quarterly report on gross domestic product.
Yes, both can be true. There’s no contradiction here. Point is, “that’s a pathetic rebound,” says our macroeconomic maven Jim Rickards, “and it’s getting weaker.”
Jim joins us today to unpack the GDP figures in more depth than we gave them last week. For the moment, we’ll set aside our objection that GDP is mostly a statistical abstraction with little relevance to your life or your standard of living.
The point is that even if you take the numbers at face value, there’s less than meets the eye.
“First,” says Jim, “the number was projected by most analysts and media to be 7.5% or 8.0%, so it fell below expectations” at an annualized 6.5%.
Second, consider the “GDPNow” figure from the Federal Reserve Bank of Atlanta. Every few days, the Atlanta Fed takes scads of economic indicators and uses them to project what quarterly GDP growth will be.
In April, the GDPNow tracker projected 13% annualized growth for the second quarter. In May, that was dialed down to 10%. And in June, it was scaled back further to 7.5%
“With allowance for noise, what this means is that growth weakened considerably over the course of the quarter,” says Jim. “It also means if growth was stronger in April and May, and the full quarter was 6.5%, then June must have been well below 6.5%. It’s simple math.
“That means Q3 is off to a weak start. With the Delta virus, the situation is even worse.”
Nor is that the end of the story. “There was some highly troubling data in the fine print that comes along with the headline number,” Jim says.
“Imports were healthy because Americans have been on a bit of a buying binge, using government handout checks. But exports were awful; a reflection of the fact that the rest of the world is not doing nearly as well as the U.S. Simply put, foreigners are not buying our goods because they’re in bad shape themselves.”
But the most dramatic number, according to Jim, is this: “Personal income fell 30% on an annualized basis.
“This is a measure of private income that does not include government handouts. Most of this 30% drop was based on revisions to prior data that had been updated by the Commerce Department using more reliable surveys. Statistical adjustments aside, the bottom line is that private income (both wages and proprietor allocations) has been flat for eight months going back to October 2020.
“That’s not a recovery, that’s a disaster.”
Looking ahead to the current quarter, “It makes the forecast more dire, because one by one the government subsidies are running out,” Jim warns.
“Expanded unemployment benefits are mostly done. The rent eviction moratorium is over. The Paycheck Protection Program loans are over.”
And while the new child tax credit payments have kicked in, widespread “stimmies” are also over. “No additional checks are going to be mass-mailed as happened last February and December.
“With government handouts mostly over, private income stagnant and exports falling, it’s not clear what will drive GDP growth at all in the second half of 2021.”
[Ed. note: As mentioned here a few days ago, it doesn’t help matters right now that the dollar is fairly strong relative to the globe’s other major currencies.
But Jim is convinced the Biden administration, with an eye toward the 2022 midterm elections, will move to weaken the dollar starting later this year: It’s the quickest, surest way to goose those moribund U.S. exports.
Subscribers to Jim’s Tactical Currency Profits will be perfectly positioned to take advantage. And they’re not doing risky forex trades, either: Jim introduces you to his one-of-a-kind COBRA trading system at this link.]
In the meantime, a new week begins with the major U.S. stock indexes back in spitting distance of their record closes notched last Monday.
At last check, the Dow is back above 35,000 and the S&P 500 is back above 4,400. The Nasdaq is looking perkiest, up nearly two-thirds of a percent at 14,764.
For our floor-trading veteran Alan Knuckman, those records last week reinforce his thesis: Hot money will continue flowing into stocks as long as bond yields remain low; sure enough, the 10-year Treasury is below 1.18% this morning, close to a six-month low. Alan’s near- to medium-term target for the S&P 500 is 4,500… and for the Nasdaq, 15,500.
Gold is holding steady from last week at $1,815. Likewise for silver at $25.42.
The big economic number of the day is the July ISM Manufacturing Index — which notched its first sub-60 reading in six months at 59.5. Anything above 50 indicates growth, so the number is still very strong. And the survey indicates the relentless rise in manufacturers’ costs is starting to ease — affirmation of Jim Rickards’ forecast that inflation will cool in the second half of this year.
Bitcoin is hanging tough, still just below $40,000, even as more details dribble out about the cryptocurrency provisions tacked onto the “infrastructure” bill in the Senate.
It’s right there on Page 2,433 of the 2,702-page proposal: The good news is that if you hold crypto, you won’t have to do anything different.
The bad news is that crypto exchanges and brokers would face new reporting requirements. Anything you sell would get reported to the IRS.
“There’s a lot to be sorted out,” writes tax lawyer Guinevere Moore at Forbes — especially the treatment of crypto held not on an exchange but rather in a cold-storage wallet — or, to use the trendy term, self-custody.
“The proposed legislation does not address this ‘self-custody’ cryptocurrency, because it is analogous to cash under a mattress. It is difficult to trace and even more difficult to devise an information reporting scheme that would encompass such an asset. Individual cryptocurrency owners and investors must still pay attention, however, because it is even more likely that the IRS will be made aware of their transactions and expect them to be reported on a tax return.”
Oy. It’s not as if this provision would even generate that much revenue. Over 10 years, it’s a measly $28 billion out of $550 billion in proposed new spending.
Anyway, nothing will happen now until the House comes back into session in mid-September. We’ll keep you posted.
Usually, CEOs aren’t this brazen about trying to use Big Government to give themselves a competitive advantage…
Beyond Meat is the outfit that takes legumes like mung beans and colors them with stuff like beetroot juice and apple extract to make fake meat that’s — well, it’s more convincing than the putrid soy-based “veggie burgers” of days gone by, anyway.
Founder Ethan Brown tells the BBC he favors a tax on meat consumption — not because it would feather his nest — that’s the furthest thing from his mind and how dare you be so cynical — but because it would discourage the consumption of “unhealthy” and bad-for-the-planet animal protein.
Well, depending on the level of the tax, it would certainly help equalize the price differential between the real stuff and Mr. Brown’s goods. A recent survey by Citi finds 32% of people surveyed are turned off of plant-based meat by the cost.
OK, we’re a few days late, but we can’t let this pass unnoticed…
You couldn’t hear it, but your editor’s jaw made an audible “clunk” as it hit the floor.
Really now, we thought it was mildly amusing in 2009 — during the Obamacare debate — when a constituent warned Rep. Bob Inglis (R-South Carolina) to “keep your government hands off my Medicare.”
But here we are 12 years later and now it’s the No. 3 Republican in the U.S. House parroting the same line!
There’s nothing else we could possibly add. On to the mailbag…
“The shortage of CDL hazmat-endorsed drivers is much, much more than aviation fuel,” a reader writes, following up from an item we shared last week.
“On recent trips in and around the Black Hills, Wyoming and Colorado, we have found numerous convenience stores — including those of major regional and national chains (Circle K/Holiday, United Pacific, Loaf ‘N Jug and others) who have run out of gasoline and/or diesel. Sometimes on several days in the same week.
“Since we do some work for the fuel retailers (UST certification training, environmental site assessments, etc.) we always ask why and the answer from the dozen or so has been the same: No tanker truck drivers to haul from the pipeline head or refinery to the location, including cities like Aurora, Colorado, and Cheyenne, Wyoming — very close to refineries.
“For tourist economies and other commercial activities, this is a killer.”
The 5: Yep, we took note of spot shortages in Florida, Arizona and Missouri nearly three months ago — again, thanks to the driver shortage. Clearly it hasn’t let up.
Thanks for the ground-truth perspective — always valuable.
“Just read the issue from the 29th and had to comment on the idea of having to get the COVID vaccine to get government benefits,” a reader writes.
“I am game with forgoing my Social Security payments if I can opt out of paying in. If it’s such a drain on the system since I opt not to get jabbed, then it should be fine if I don’t pay in anymore. Right?
“I am a 40-year-old veteran and am not holding my breath that I will see much benefit of SS anyway. I would gladly keep my money and plan on paying for needed health care costs after I retire rather than use the VA system (which I am doing anyway).
“Guess you can say I don’t have much faith in our ‘elites’’ ability to keep the wheels on the system to begin with.
“Keep up the good work! I’ve been reading since 2007 and look forward to every issue.”
The 5: Thanks for the kind words. But you’ve been reading us since you were in your mid-20s?
Nothing wrong with that, of course. It’s just not the usual “demo” for newsletter readers…
On the same topic: “I am a Gen X’er, which means unlikely to receive Social Security or Medicare because the ’rents (parents), aka the boomers/Silver Tsunami, have ‘spent the farm.’
“Since I refuse to be vaccinated due to the lack of benefit to my cohort, will the government refuse my SSI claim or application for Medicare benefits?
“Taking care of the Silver Tsunami will require that I work into my 80s. Oh yes, my colleagues can keep most boomers alive into their 100s provided they smoke/vape CBD-enhanced marijuana (Ayr Wellness) and shop at Whole Foods.
“If this is the case, can I opt out of the 15% tax since I am self-employed?”
The 5: Ouch. So not only do you pay self-employment tax, you’re probably also on an Obamacare plan and you go through the rigamarole of quarterly estimated taxes. Our sympathies…
The 5 Min. Forecast
P.S. Remember the skeptic of mRNA vaccines who wrote in last week and said our Ray Blanco had shot his credibility all to hell?
Ray’s remarks came during an interview with 5 founder Addison Wiggin… and Addison heard it from the other side.
“Your vaccine discussion with Ray is interesting,” wrote a subscriber, “but unfortunately likely will contribute to vaccine hesitancy that is and will be devastating to our country.”
Sheesh, anymore people only hear what they want to hear.
Obviously, though, it was a thought-provoking discussion. Addison has talks like these every week with experts both inside and outside our stable as part of an interview series we’re calling The Wiggin Sessions.
For the past 16 months, these interviews were available only to members of our Financial Reserve VIP service. But we have plans in the works to introduce them soon to a wider audience. Stay tuned!