Dec. 19, 2021

This Week: Real US Economic Growth Goes Negative, Australia's Winter.

Now, before we begin our story, let's get a little refresher from that old Econ 101 Text Book. The real rate of growth for an economy is the rate of growth MINUS the rate of inflation.

We haven't been using that calculation for a very long time, because inflation has been so low, for so long. But it's important to know this week. With inflation roaring ahead at over 6% currently.

Now back to our story,

It's going to be a data blizzard this week, particularly on Wednesday and Thursday as every government reporting agency tries to get all of their year-end reports out of the way.

To me, the number one report will be the third and final report on Q3's GDP growth. It's liable to get buried in the flurry of data thrown at us. But don't lose track of this one.

If Wall Street projections are anywhere near the mark here we're going to see that our economy is NOT growing at the 6%+ plus rate that we've been told up to now. But that it's really growing, if you can call it that, at an extremely tepid 2%.

That in itself is shocking.

But making matters even worse, we will at the same time get two measures of inflation: the GDP Deflator, and the Fed's favorite measure of inflation the Personal Consumption Price Index. Both are expected to be in the 6% range. 400 basis points higher than growth.

This isn't just stagflation, it's STAGFLATION in all capital letters. So this is all morphing over into not just the first time in over 40 years that we've had stagflation, the combination of weak economic growth, and high inflation.

But we're now going for the record books. Getting close, if we're not there already to the weakest economic growth combined with the highest inflation EVER. In the nation's history.

So what this really means, is the country's economy is not growing at all. Not in a real sense. After you account for inflation that economy is really shrinking.

That supposed economic growth you see is really just reflecting the higher prices caused by inflation. Take away the inflation factor, and the economy is actually shrinking.

The worst economic decline we've seen since we emerged from the Pandemic lockdown. This doesn't look good.

So stand by Wednesday morning at 8:30, when it will all be revealed.

Grab a cup of coffee, and join me as we talk about it.

#1

Your reaction may have been like mine when first I heard that they were building quarantine camps in Australia, and other places like the USA.

I didn't believe it. It must have been one of those internet conspiracy theories. Even when photos began to appear. I thought they must really be some other type of facility. Surely they can't be a quarantine camp.

But then a couple of weeks ago, the escape from Camp Howard in Australia, made international headlines. When it was reported that three teenage boys, escaped from what was indeed a quarantine containment camp.

I was shocked. In my wildest dreams, I could not imagine that any country, much less a western democracy would sink so low as to imprison their own citizens.

But perhaps I shouldn't have been. After all, didn't the US exercise home incarceration last year when we instituted self-quarantine. A process that was nothing less than requiring US citizens to remain incarcerated in their homes.

Indeed Australia has now clearly taken all this to the next step. And while you and I may have slightly different takes on the politics of all this. There can be little question about the financial and economic implications.

That brutal second quarter of 2020, here in the US saw the economy shrink by over 9%. And that was just for a quarter. It was without a doubt the most dramatic economic contraction since the great depression of the 1920s and 30s. Nearly a hundred years ago.

It should be clear by now, that this economic lockdown, self-quarantine, or now in Australia forced quarantine, is an economic blunt instrument. The use of which can absolutely devastate and economy. And that any political leaders who will use this device, are risking the health of their nation's financial well-being.

So today, I'm beginning a Fire Watch list of countries that are likely to find themselves in real difficulty over the coming year. Other countries on this list include China, with the growing Evergrande debacle, and Turkey which has a completely out-of-control central government.

These are countries that every investor need's to keep a sharp eye out for, because of our globally connected financial system. The failure of one country can indeed create a domino effect. Witness the troubles US Fund companies are now experiencing with Evergrande bonds.

Overall in looking at Australia, many of their economic measures remain positive: consumer confidence is high, and retail sales, for instance, took a big jump up last month. But this week begins the Australian winter, they're in the southern hemisphere.

A prime-time for viruses of all types, including Covid-19 or variant. And we're starting to see some real deterioration in some of the indicators. Notably a 1.9% drop in the nation's GDP last quarter. And a very significant drop in business confidence last month.

So we add Australia to our fire list of countries to watch over the next few months.