Business

Can Truth Prevail?

Paul Craig Roberts

According to official US economic data, the US Gross Domestic Product (GDP) has expanded for 22 quarters, raising real GDP 12.1% above its high prior to the 2008-09 economic contraction. Yet, US manufacturing output and US industrial production have not recovered to their pre-contraction high.

So what is driving the real GDP growth? In my opinion, the rise in real GDP is an illusion produced by the under-measurement of inflation.

With the US stock market likely to continue its levitation today, it means that by close of trading, the S&P500 will be above 2,400, the same as Goldman's year end price target, and 100 points away from Bank of America's "euphoric blow off top" destination, which is also known as Michael Hartnett's Icarus Trade. In a note released overnight, Hartnett confirms that he is "sticking with our “Icarus Trade” targets: SPX 2500, GT30 3.5%, DXY 110, oil $70/b", even as he admits that the euphoria level in stocks is unprecedented:

Crude Oil is now entering a positive seasonal time of year, with the average gain over the next 6-months being around 10%. Will it keep pushing higher, like it has the past 12-months? Will it push higher, due to seasonal strength? Below looks at Crude Oil over the past 30-years.

The currency markets are signalling that a massive shift might be about to happen.

According to a Bank of America/ Merrill Lynch fund manager survey, the US Dollar ($USD) is the single most crowded trade on the planet.

In a fiat world, the value of a given currency is based on where it trades relative to other currencies. In the case of the $USD, the Euro comprises 56% of the basket of currencies against which the $USD is valued.

Put another way, whatever happens to the Euro will effectively trigger an inverse reaction in the $USD.

If yesterday's exuberant spike in stocks (surging Dow above 21,000), on a day when economic growth expectations were crushed, was not enough to scare you about the ebulient animal spirits in the markets, then perhaps this will. The largest S&P 500 ETF (SPY) was inflows of $8.2bn - the biggest daily inflow since Dec 2014 (and second largest in 6 years).

In the past, these massive floods of retail panic-buying flows have stalled the rallies (and not ended well).