Friday, September 30, 2011


In the August 2011 issue of The Seven signs of a changing economy, What to look for, Where to find it and what to do when you see trends changing, I wrote that "WE ARE ALREADY IN A RECSEEION"!!  The definition of a recession is two consecutive down quarters of Gross Domestic Product (GDP).  If you look at "real" annualized GDP growth rates (meaning adjusted for inflation) for the last two quarters, they are 1Q11 +.36% and 2Q11 +.98%.  However, the inflation rate used to adjust the real growth was 2.51% for 1Q11 and  2.72% for 2Q11. The key here is the "assumed" inflation rate!  As the BLS does not calculate food or energy in to the inflation rate, but they do include housing via the owners' equivalent rent, it skews the inflation rate lower!!  Real inflation is running at 6%!  Thus, if you recalculate the GDP year to date using 6% inflation you would have GDP for 1Q11 at -2.92% and 2Q11 at -2.51%.  That, by definition, is a recession!!  If you need more proof just look at the price history of the widely accepted indicator of future economic growth, copper.  Since May 2011 copper is down 40%.  Yes, there could be a bounce up in market values as we have had a big sell off, but the data is the data and it does not lie.  WE ARE ALREADY IN A RECESSION.  Know that and use it to your best advantage!! 

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