Spinning Economic Data: The Obama-conomy and Wall Street

Business.com / Finances / Last Modified: February 22, 2017

Are you asking yourself why a simple interest rate hike brought so much attention to the economy? Here's the answer.

The White House and Wall Street make strange bedfellows. Both have made it very clear that spin, misdirection and outright lying is how you keep the masses engaged, whether it’s getting your vote, or more importantly, your money.

From opaque Obamacare statistics, to job market health and local impacts of the global economy, no one on Main Street has a clue as to the true state of “things."

We would believe all is well with an unprecedented bull market and a “complete” recovery from the Great Recession, but the cracks are beginning to show and excuses at the ready. Of course, The White House and Wall Street are simply victims of a negative turn in world events and, worse, our very own Federal Reserve Bank.

The truth is we have been inundated with data and media coverage that are engineered to deceive our view of economic health. Earnings per share, sales per share, the unemployment rate, initial claims, and the GDP have all lost their meaning as quantitative easing and a structural shift in our workforce warps our financial markets like a fun house mirror.

Earnings have been down for the S&P 500 for almost 18 months now, while the unemployment rate has dropped because of dwindling workforce participation.

So, why did the market continue to soar in this environment and why has a simple interest rate hike brought so much attention to the economy and financial markets? The answer is that the economy had a not-so-great recovery since the Great Recession (White House) and the markets continue to behave like a casino (Wall Street).

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How to Inflate a Bubble with Media Distractions

Greece the Skids

This little country was solely responsible for all kinds of market turbulence—what a great smoke screen for local systemic problems. We need about $500B to clear Greece’s debt. If industrialized nations would just throw in $10B each, this country could no longer be an excuse for wild market swings—it is a small potato.

Why has Greece been such a market mover? Euro contagion, currency destabilization, the breakup of the European Union—poppycock! The fact is that Italy, Spain, Greece and Portugal have all been in the crapper for years.

Its great back pocket news that distracts from negative US earnings and flat sales on the S&P for the last 18 months. Greece is only a problem if you are Germany.

China Doll (A Fragile Economy)

Did you hear China is slowing down? 

Have we believed the economic data coming out of China over the past several years?

This Communist nation that has ruled and lived on propaganda and lying for decades is all of a sudden reporting reliable economic statistics?

The fact is that China has little impact on the US economy and accounts for only 7% of our total exports (13% of GDP), so it makes you wonder why it is so important at .91% of GDP—a McDonalds closing would hurt more.

With oil consumption decreasing in the wake of a Chinese downturn, depressed energy costs go right into Main Street USA’s pockets. However, problems in China are bad if you are invested in China. If you have been betting hard at this craps table you are in big trouble.

Oil (Slick Dealings)

Oil is crashing! Was this an orchestrated conspiracy to put cash back into US consumers’ pockets or are we really duking it out with OPEC? Well, either way the outcome is the same.

Now we are signaling a collapse in commodities, which is really a collapse in demand for commodities because global economic health isn’t “that great.” In my opinion, we should have figured this out 18 months ago when global economic health wasn’t “that great."

Low crude prices are bad if you are invested in oil or work as a roughneck. For those of us who drive our cars and heat our homes, yay!

Down, Set, Hike

With a Fed rate hike looming, it calls to mind some serious questions as to why our financial markets are so worried. Wall Street doesn’t seem to care too much about earnings and revenue, but a quarter-point rate hike, now, that’s bad news!

While easy money probably kept us from further economic destruction in 2009, the long-term negative effects of a zero-interest environment are starting to show up. The Fed is going to raise interest rates, not because of inflation, but as a shot over the bow to deflate our financial markets.

There is risk, but now that the markets have let go of about 12% on the news (which, BTW, has been around for a long time) the risk is smaller—the Fed is willing to take the chance. A quarter percent rate hike should be built into the S&P now, maybe even giving investors some confidence.

Related Article: Real Talk: The Potential Impact of a $15 Minimum Wage

Where Are the Fundamentals? Where Are the Jobs?

As everyday media addicts, we read the high-level roll-up of our business and economic health. Price-earnings ratios, revenue, GDP numbers, job creation, unemployment and the list goes on.

News of the fundamental health of our corporate footprint would appear to be good; we hear either muted or positive results every quarter, with lots of “post-humus adjustments."

How could we have possibly driven a stock market up 17% over the same time period (18 months) where corporate earnings decreased 1.89%, yes decreased, and revenues have been lethargic at about 2% or worse?

Note: the charts below show an uptick for June, an estimate, it is now September and 2nd quarter results are, as of yet, incomplete.

S&P Dow Jones Indices

Image via Data S&P Dow Jones Indices (McGraw Hill Financial)

S&P Dow Jones Indices

Image via Data S&P Dow Jones Indices (McGraw Hill Financial)

While these numbers don’t look very good, take into account the surge in corporate stock buybacks and per share data has about a 4% tailwind on it. And yes, many of those buybacks are funded with the Fed's easy money. The charts above reflect a substantial reduction in available shares of the S&P 500.

In addition, stocks are added and removed from the S&P 500 all of the time, which could be a little window dressing, or cutting away of some dead wood to keep that price nice and fat—just something to think about.

Beats and misses are also big news and followed very closely. When quarterly results are announced, we usually see roll-ups like 70% beat, 5% earnings surprise etc. Just like per share data and buybacks, there is a missing variable—estimate revisions. What was estimated last quarter is a different number than the “beat”, and not in a good way.

It’s a lot like public education; if you constantly lower the bar then you are always ahead of the game—SAT scores are down, but SATs shouldn’t matter because they don’t reflect our diversity, it’s different now—unless you are an expert in market forensics, by the time you read this rosy news, the bar has already been lowered.

Q2 results look pretty good:

Q2 Results

Image via Data S&P Dow Jones Indices (McGraw Hill Financial)

Finally, Employment

Unemployment, continuing claims, U3, U6, U2 (wait, that’s a band), underemployed, over employed, yikes! We are all now desensitized to the various employment reports and numbers, but the markets still appear to react to this nonsensical data.

However, this is very easy to summarize; 6-7 million fewer workers are counted in the numbers, so as a relative measure to 2006 our unemployment rate, the U3, is much higher than 5.1 percent—about 3-4% higher. High participation and low unemployment is good, but the chart does not reflect that sentiment.


Image via Data Bureau of Labor Statistics, or Lies and Spins

In the End

We pump up the financial markets and economy with fake statistics to draw in the crowds, and when we get antsy that the curtain is falling, we pull out the smoke machine and some funhouse mirrors: Greece, China, Oil, Fed. Teflon!

The Fed will take the fall if anything bad happens when they tighten, but tighten they will and Wall Street and the White House won’t have to worry about explaining their twists on data that has not been very good for—six years.

It’s not the fault of the Bureau of Lies and Spins, but our readiness to believe the administration and its media agents in their upbeat interpretation of these already faulty statistics.

A monetary tightening, no matter how small, will make it infinitely more difficult to massage the numbers that are used to instill confidence in the progress our government is making in regards to the economic goodwill of the people.

It will pop the propaganda bubble the Obama administration has so meticulously inflated, where what seems contradictory and confusing now will become clearly negative in the months to come. Wall Street has joined in, since our liberal administration likes to spin things, so shall our conservative friends. It’s an epidemic.

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