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Stock Ideas Investors Daily Edge Are we in the "R" Word or the "D" Word?
Stock Ideas Investors Daily Edge Are we in the "R" Word or the "D" Word? 
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By Matt Badiali "I just sold all my shares of Goldcorp," the speaker leaned conspiratorially in toward me. Meanwhile, the price of gold has increased by "only" 87% over the last four years. |
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| Are we in the "R" Word or the "D" Word? |
| Wednesday, 27 February 2008 | ||||||||
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Dear Reader, It’s best not to mention this particular word in politically correct company. The “R” word is just now being whispered here and there (no, I’m not talking about the Democrats or the Republicans - aka Demopublicans). Just in case, you should be prepared ahead of time should the “R” word morph into the “D” word. For those of you wondering what in the world I’m talking about, here’s a commonly accepted definition of an economic Depression, the “D” word: “A sustained economic recession in which a nation's Gross National Product (GNP) is falling and marked by low production and sales and a high rate of business failures and unemployment” I am a student of economics, money, and history. There is no doubt in my mind we are in perilous times per all three of these categories. You can let Washington and New York tell you what to think, or you can think for yourself. Are we even in a recession now? That’s the current debate, but it’s not exactly timely. More like yesterday’s news. It all boils down to exactly whose statistics you trust. The majority of the U.S. investing public lives and dies by the daily and weekly economic pronouncements coming from the NY/DC axis of weasels. Pavlov’s dogs were untrained compared to this gang of groupies. Let’s parse the recession/depression scenario and you can be the judge of exactly where we now stand. The following chart is from John Williams’ Shadow Statistics website and newsletter. The Feds are rigging all our economic numbers and Williams is simply going back to older and more reliable accounting standards to portray a more accurate picture. The red line is the officially stated figures for U.S. Gross Domestic Product. The blue line reports GDP according to previously accepted accounting practices (pre-1985). Please decide for yourself which numbers apply to your personal life experiences. The 1991 economic downturn is apparent with both of these accounting techniques as well as historic reporting. There was also a downturn in 2001 as anyone living on the planet at that time well remembers. Either occurrence would rightfully be labeled as ”recession.” Where we go from there is now the key question.
Per Williams’ calculations, we entered into recession territory, once again, in early 2004 (“a decline in GDP for two or more consecutive quarters”). You can trust the CNBC crowd or you can trust historic and reliable accounting methodology. Garbage in, garbage out. I’m not much of a fan of being lied to. Per the earlier definition of depression, you will look for a falling GDP. A declining GDP since 2004 is obvious per the blue line on the above graph. That is recession. At what point does “recession” become “sustained recession” and thereby a depression? Hmmm. The blue line on the above chart shows a “falling GDP” for predominately four years now. Is that a “sustained economic recession” for those who think historical accounting methods are more honest? I think so. Four years is a very long time. Heck, some industrious souls even finished college in that time frame. Let’s, at the minimum, call it a recession since early 2004. What it takes to be an “officially recognized” recession is something entirely different. According to Williams’ proper accounting methodology, we achieved positive growth briefly in early 2004. Otherwise, it’s been one nasty economic decade. What has been your personal experience? Which line have you been riding? If you accept Williams’ accounting, you’ll see that we are now in or are really close to a “sustained recession,” meaning a falling GDP over a long period of time. My eyes tell me it’s already a sustained recession. The “D” word is on the radar screen for those living outside DC, NY, or Hollywood. There is no economic bed of roses on the near-term horizon. In fact, things couldn’t look much worse (for an example, click here). The Fed is praying and printing for inflation; otherwise their elitist arses will get the boot. Printing gobs of money is their only way out. You are going to absolutely require a keen eye to discern their activities and avoid being their victim. We will continue this recession/depression conversation next week. Invest Resourcefully, Rusty P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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