Truth In Reporting: Government Spending, Lost Jobs, Gold and Silver

By now everyone has seen the reports of the unexpected decline in Q4 GDP reported yesterday. Of course, the decline was blamed by the White House and the media on a decline in Government spending. But I wanted to bring to everyone's attention the truth about this. The Government actually spent about $98 billion more in Q4 than in Q3. In addition, the Government rang up a $292.2 billion spending deficit. So I wonder what the real culprit was for the Q4 GDP contraction. Pretty much has to be autos and housing. You can do the Government spending numbers yourself here.

Tomorrow we have the Government's non-farm payroll report for January. Quite honestly I haven't paid much attention to this number for the past few years other than to dissect out where the inconsistencies are with the report and the real world. One of the primary numbers I look at is the labor force participation rate, which is the percentage of the population that is "eligible" to participate in the Government defined labor pool as a percent of the total working age population. This metric is currently about as low as it was back in the early 1980's, meaning that the number of people working and paying taxes is significantly lower as a percent of the total population now than back then. The significance of that metric and the ramifications for further Government deficit spending and Treasury debt issuance to fund that spending are pretty obvious.

That aside, I saw an article about which of the big box retailers would be closing the most stores this year. Barnes and Noble, Office Depot, JC Penny, Sears and Best Buy are closing anywhere from 10-20% of their store base. That's quite a bit of lost jobs to start the year:

Again, regardless of what the Government shows for jobs added tomorrow, keep in mind that as big retailers close stores, they cut their workforce. And this list is just the top-5 expected closings. I expect we'll see a lot more over the course of the next few months. When retail sales are slow, it means the consumers are tapped out - or maxed out on debt - and the economy is weak or in a state of general decline.

And of course, when big box retailers close down a lot of stores, it adds to the growing glut of commercial real estate.

Just a little truth tidbit if you're worried about the latest sell-off in the price of gold/silver. There's a lot of misinformation, disinformation and absurd ideas about what's going in the market. The truth is that the eastern hemisphere countries are vacuuming up physical gold and silver that they are having delivered domestically as quickly as the London/New York dealers are printing paper gold and silver contracts. You can see this in any given 24 hour trading period, where the price of the metals rises overnight until Hong Kong closes and London opens. Then the price sells off as the London/NYC bullion banks print up more paper contracts and dump them on the market.

In fact, per today's Comex open interest report, currently there are about 13,900 contracts February open and potentially standing for delivery. This represents 63% of the gold listed as available for delivery on the Comex. This is an extraordinarily high amount in relation to the historical context at this point in any given delivery month cycle (first notice day). We'll see how this unfolds, but I doubt Marketwatch, Bloomberg News and CNBC are reporting this information.

One more point of thought regarding yesterday's GDP report: The Government used a .6% inflation assumption (that's point six percent, annualized) in calculating Q4 GDP. Anyone out experience only a .6% increase in their necessities last year? Imagine how negative the GDP report would have been if the Government used a realistic inflation index...