|Dow||-26.99 to 18,285.40|
|S&P 500||-1.98 to 2,125.85|
|Nasdaq||+1.71 to 5,071.74|
|10-YR Yield||-0.011 to 2.251%|
|Gold||+$3.10 to $1,209.70|
|Crude Oil||+$0.77 to $58.76|
Don’t like the economic data? Then just adjust the numbers again!
That seems to be the Federal Reserve’s latest plan in the wake of awful first-quarter GDP figures. You see, the gubmint numbers showed our economy expanded by a pathetic 0.2 percent in the first quarter. That was down from 2.2 percent a quarter earlier and the weakest in a year. Consumer spending, investment in nonresidential structures, trade and other industries and sectors all came in weaker than expected.
But rather than accept the figures at face value, the San Francisco Fed just cooked up a new explanation. The culprit: “Residual seasonality.”
The government already tries to adjust for seasonality in the data. There’s only one holiday shopping season, for instance, so retail sales are always stronger in November than January whether the overall economy is booming or shrinking. That needs to be accounted for in the figures reported every year.
|Retail sales numbers are just one item that is tweaked by government accountants. They are adjusted based on the season.|
But the Bureau of Economic Analysis takes a bottoms-up approach when putting together the GDP report. The Fed decided to take the BEA figures and apply a second seasonality adjustment, something called the “X12-ARIMA statistical filter.”
When you do that, miraculously, you find that GDP would’ve grown 1.8 percent! That’s nine times faster in case you don’t have your calculator handy.
Do the same thing for the last several years and guess what? Growth turns out to actually be about a percentage point and a half stronger in every single first quarter.
Me? I think I’m going to drive over to the bank and ask them to apply the X12 adjustment to my checking account. Voila! I’d have nine times more money in there!
Or how about zapping my back yard with the X12 magic blaster? Suddenly I’d have much more room for a pool, hot tub and maybe even an entire half court for my stepson to shoot hoops on! The possibilities are endless.
|“When you do that, miraculously, you find that GDP would’ve grown 1.8 percent!”|
The truth is, it’s almost impossible to estimate down to a tenth of a percentage point how much a $17.7 trillion economy grew or shrank in any given three-month period. I’m sure the civil servants in Washington do the best they can. But when you have the Fed trying to explain away lousy numbers just because they don’t fit the narrative of policymakers, it really does border on the absurd!
Am I off-base here? Does this make you question the numbers coming out of Washington even more? Do you think the economy essentially flat-lined in the first quarter, or did it really grow nine times as fast? What are the implications for policy and stocks? Throw your hat into the ring at the Money and Markets website when you have time!
|Our Readers Speak|
The lively discussions are continuing over at the website, by the way, so I do hope you chime in.
Reader Chuck B. shared some thoughts on energy stocks, and who else may be getting on board with them at these beaten-down levels. His take:
“I saw elsewhere that some big names agree with you about oil, Mike. Warren Buffett now owns 14% of Phillips 66. T. Boone Pickens is in oil in a big way also with Helmerich & Paine, Parsley Energy, Eclipse Resources and Range Resources.
“PSX, of course, is in refining and distribution. HP is a contract driller, and the others own drilling rights, some in oil, some in gas. Pickens seems to me to be more out on a limb than Buffett, but if he’s right, he should make a ton.”
Thanks for sharing, Chuck. I’ve definitely seen more “smart money” buying into energy stocks and bonds over the past several months, and that’s one of many reasons I believe this is the best buying opportunity in energy stocks in three decades.
Reader Jack H. added: “As a subscriber to Safe Money for many years, I wonder what I can expect when your new interest is creating a subscription service dealing with petroleum opportunities. Please advise.”
Thanks for the question, Jack. Safe Money is a longer-term, investment-oriented newsletter that invests in stable, safe, highly rated stocks with longer holding periods – often paying well-above-market dividend yields.
There’s nothing wrong with that approach for your core, conservative funds – and I’m happy with the gains we’ve been spinning off on many positions. I include some energy positions in the letter, as you know.
But some of our investors are more aggressive. They’re willing to peel off a portion of their funds to invest in shorter-term trading opportunities, including in stocks that have a higher level of risk, but that could multiply their capital many times over. That’s what my Energy Stock Alert service specializes in. I hope that clears things up.
Finally, Reader John weighed in on the rail safety issue by saying:
“This is a great time to discuss whether or not Amtrak should be privatized. The Federal government does not need to run a train service. The money generated from the sale of Amtrak, NPR, public television, and the post office could be used to decrease federal spending and help save the dollar. Also, if a flat tax was implemented, the IRS could be severely downsized.”
So what do you think of John’s suggestions? Or Chuck’s? Should more of the government’s operations be privatized? Should you follow the big money, and add more funds to energy investments? Use this link to the website to add your thoughts.
|Other Developments of the Day|
Why do accidents like the Philadelphia Amtrak crash happen? The New York Times suggests it’s because we spend a lot less than other countries on rail safety and modernization.
The U.S. spends less than 0.1 percent of GDP on railroad systems, only one-fourth what they spend in the U.K. and one-sixth what countries like France and Australia shell out. The numbers look equally dismal on a per capita basis, with countries like Japan that have high-profile, advanced rail systems spending almost triple that amount.
Several U.S. and international banks are going to cough up billions more for manipulating foreign-exchange markets. They agreed to pay more than $5 billion in combined penalties to resolve a U.S. antitrust investigation into whether traders at the banks colluded to move foreign-currency rates in directions to benefit their own positions, authorities said today.
J.P. Morgan Chase, Barclays PLC, Royal Bank of Scotland Group PLC, and Citigroup Inc. will plead guilty to criminal charges of conspiring to manipulate the price of U.S. dollars and euros, the Wall Street Journal reported.
Meanwhile, UBS AG, which received immunity in the antitrust case, will plead guilty to manipulating the Libor benchmark after prosecutors said the bank violated an earlier agreement meant to resolve those allegations of misconduct. UBS will also pay an additional Libor-related fine.
These fines and charges are above and beyond the other settlements and agreements related to manipulating interest rates, commodities, mortgage markets, and baseball and apple pie (I’m kidding about the last one … I think).
Lowe’s (LOW, Weiss Ratings: B+) apparently can’t keep up with rival Home Depot (HD, Weiss Ratings: A). The home improvement retailer said same-store sales rose only 5.2 percent in the first quarter, below estimates, while earnings also missed targets. LOW lost 4.6 percent on the day as a result.
The French are invading! Or at least, French telecommunications firm Altice SA is. The company run by billionaire Patrick Drahi is buying 70 percent of U.S. cable company Suddenlink Communications for $9.1 billion. Privately held Suddenlink is the seventh-largest U.S. cable company, with 1.5 million customers in the Midwest and Midatlantic.
Any of these stories get your blood boiling? Then let me hear about it at the website.
Until next time,