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Regardless of Which Way Bernanke Panics Next, The Ending Won’t Be Happy

This report is a copy of the updated Industrial Production permanent chart page, which is updated regularly when the latest data is released. Bookmark that page for future reference.

First, the boilerplate on why seasonally adjusted (SA) data sucks and I don’t use it.

Industrial Production

Updated June 15, 2012

Once again the mainstream media boohooed over a false and misleading seasonally falsified industrial production number, bemoaning that the SA number was down 0.4% month to month in May. They are playing into the Wall Street mob’s desire for manna from Ben next week. It’s totally bogus, supported only by false and misleading SA data, not the real activity.

The actual, not seasonally adjusted number was up 0.8%, which is absolutely typical for May. In fact it was identical to May 2011’s 0.8% and a hair above the previous 10 years’ average of 0.74%. True, it wasn’t as good as the sharp 2.1% rebound in 2010, but neither was any other year in the 2002-2011 period. That was an anomaly, a bungee recoil from an extreme panic.

This year was smack on trend. Somehow the Adjustment for Annual Simulated Seasonality (ASS adjustment) took a perfectly normal (for May) 0.8% gain and turned into a decline. While the conomists are busy pulling numbers out of the ASS, we will stick to the facts. The fact is that month’s number was completely unremarkable trend wise, and certainly should not have been a surprise or disappointment given the current context.

In fact, with Europe in a monster meltdown and China slowing, this number was damn good. That’s because the US, as the Last Ponzi Game economy standing, is benefiting for all the turmoil in, and capital flight from, Europe. Panicked wealthy European individuals and institutions buy US Treasuries. The following week the Treasury spends that money, and voila, the result is industrial production! It just doesn’t get any more complicated than that!

The Fed, Industrial Production and Stock Prices - Click to enlarge
The Fed, Industrial Production and Stock Prices  – Click to enlarge

On the other hand, from the perspective of the stock market, there’s reason for concern. The ratio of the S&P 500 to the Industrial Production Index has turned down in response to the Fed holding the SOMA flat for the past year. Stocks are getting cheaper relative to economic activity, but that’s not good news. In the past, downturns of this nature have begun bear markets lasting 18 months or more. Stocks may be getting cheaper, but their not cheap on absolute basis by this measure.

If the Fed does not take more aggressive action next week, a downturn in the economy is probably only a matter of months, if not weeks, away. Bernanke is a  volatile reactor, not a man gifted vision, calm foresight, or prudent decision making powers. It is shocking to me that more commentators do not make not of Bernanke’s wild, willy nilly, ad hoc responses to crisis after crisis. Unlike Paul Volcker, this is a man without a plan, devoid of conviction or courage. Instead, Bernanke is cut right from the Greenspan mold, capable only of moving in response to crisis, and virtually always doing the wrong thing, because his previous ad hoc responses have created conditions that have  left no reasonable prudent alternatives.

Given the turmoil in the world, and particularly in view of the negative drumbeat that the Wall Street propaganda establishment is giving the economic data, I am beginning to think that Bernanke may be panicked enough to react with more than just an extension of the MBS purchase program that has been cashing out the Primary Dealers and keeping a bid under stock prices. If he does do more, that should goose both the market and the US economy for a little while, but the unintended negative consequences won’t be long to follow.

On the other hand, if he freezes in the headlights and does less, then the die has been cast toward the return of the depression sooner, rather than later.

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The Conomy Game- The Legend of Bennie The Beard, Henry the Hitman, and the Gangbankster Dealers

Electric Power Generation and Distribution

Electric Power Generation - Click to enlarge
Electric Power Generation – Click to enlarge

I like this indicator because it measures everything, not just manufacturing. I can’t think of too many businesses that don’t need electricity to run. When business is bad, electricity consumption falls and vice versa. In addition, when times are bad, people at home turn the lights out and turn the air conditioning thermostat up a degree or two.  When people feel good about their economic prospects, what the hell, leave the lights on and turn the a/c down full blast.

The long term view of this indicator says that the economy has done nothing, but the year to year data shows a surge of 2.5% from last May coming off a very weak comparison at the beginning of the year. This suggests a modest, but halting economic expansion that’s very sensitive to energy prices, which were high in January, lower now. When prices at the pump come down, people feel a little better and spend a bit more (also confirmed by retail sales). Right now, with gas prices on the way down, the economy is getting a boost, although you would never know from the way Wall Street media is reporting the data. If the Fed prints, the boost it gives won’t last long because energy and commodity prices will respond to the upside, and that will tax it away any economic gain in a flash.

Whatever deer in the headlight reaction Bernanke has, freeze or charge, the outcome will not be a happy one for long.

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