Thursday's Thrust: Why Are They Partying Like It's 1999?
by: Philip Davis January 14, 2010

Great news, kids!

Gang of 12 member Deutsche Bank (DB) says "The U.S. economy may grow as much as 6 percent this year, helped by sales of consumer durables and increases in inventories." This forecast is up 50% since last month and double the 2.60 median forecast of the Bloomberg survey. You have to forgive Deutsche Bank, they are not that stupid -- it was just their turn to make a moronic bullish statement just like fellow Gang of 12 member Morgan Stanley (MS) made the outrageous forecast that "Metals may gain 32% in 2010" yesterday - these are the kind of things that "THEY" must do to goose the markets over critical levels.

It is an interesting quirk of GDP that inventory builds are counted as a positive, based on the assumption that businesses aren’t stupid and they are only building inventory to satifsy coming demand trends. This is how all this G12 cheerleading can become a self-fulfilling prophecy as business owners are convinced to stock up for demand that never actually materializes. We already know that China has stockpiled an entire year’s consumption of copper and investors and ETFs are stockpiling more copper, as well as gold and platinum at record levels, all in anticipation of the RETURN of demand, and now DB tells us that the US will grow almost as fast as China this year (and we all know that China is the Holy Grail of growth).

Of course a 6% jump in the $14Tn US GDP would be $840Bn while China’s projected 9% growth of their $5Tn GDP is "only" $450Bn, so IN YOUR FACE CHINA - Deutsche Bank says we’re going to grow our economy at 17% of your puny economy - and don’t even get me started on India, we could have a sale at Sears that would top their GDP!

Of course the holy grail of foolish inventory-building is our petroleum industry and we added a whopping 8.85 Million barrels to our already record stockpiles yesterday as demand for crude -- just like the actual demand for everything else -- fell off a cliff (a huge win for the USO puts I’ve been advocating for a week, by the way). Of course, like many things about this economy, it is worse -- far worse -- than "THEY" would have you believe. A reading of the actual EIA Weekly Petroleum Status Report shows us that refineries are still operating below their post Katrina/Rita levels (85%) at 81.3% of capacity, Nonetheless, despite producing the lowest amount of product since the turn of the century - they still managed to have 1.25Mb per day too much.

But that isn’t the big deal. The big deal is much less obvious and is never mentioned by Criminal Narrators Boosting Crude - we also imported 2,041,000 barrels PER DAY LESS than we did last year! What? You may say, how can it be possible that we imported 14.3M barrels less crude for the week and still had an 8.85M barrel build? Wouldn’t that mean that demand is down over 23M barrels a week? Why yes, it would. But never fear, it won’t hurt our inventory numbers and sully our GDP because the 109.7M barrels of fuel that we did use this week were inventoried in at $9.1Bn (average of $82.74 per barrel), while last year’s 133.9M barrels that were used only counted as $5.4Bn worth of "economic activity" because we were only paying $40.69 at the time.

See, this solves everything! By paying double for crude and other commodities we can have a "recovery" even if those damn poor people refuse to buy because there are plenty of things they HAVE to buy and we, my fellow top 10%’ers, can MAKE THEM PAY! Do you care that a 20-gallon tank of gas went from $35 last year to $55 last week - of course not, we spend that at Whole Foods (WFMI) on peanut butter…

The magic of commodity inflation, especially on the essential commodites like food and energy (which are not counted as inflation by the Fed since it’s "non-core") is that the average people cannot cut back. Sure they may put off buying new sneakers or a new shirt or replacing the stove but THEY’VE GOTTA EAT and they NEED to drive their cars (unless, of course, they have [snicker] public transportation) so let them desperately try to cut back their consumption by 17% -- WE’LL JUST CHARGE THEM DOUBLE!

That is how we are "fixing" the economy. It turns out you may not be able to get blood from a stone but we sure can bleed US and global consumers dry through commodity speculation that completely ignores the fundamentals of supply and demand in order to dig into consumers’ pockets and pull out that last dollar. This is a mainstay of the "Dooh Nibor Economy" and is, of course, great for us top 10% club members as we already know the bottom 90% are tapped out.

By getting that extra $20 for gas each week from 165M drivers, WE make sure that $3.3Bn goes to people who will actually spend it on stuff - further boosting the GDP. Add another $5Bn in mandatory grocery spending (becaues EVERYONE needs to eat - muhaha) and we’re getting $431Bn from those poor cheapskates, who would only save it or pay off some debt if left to their own devices (and we don’t need them to pay off their loans - that’s the government’s job!).

So maybe DB is onto something -- sure, "the people" lost another 444,000 jobs last week and sure, Retail Sales actually declined 0.2% in December (yes, not at all what the MSM was telling us to rally the markets all month), but, if not for fuel prices leading 2.6% inflation - sales could have been off 3% and THAT would have looked bad! We’ll get our CPI report tomorrow and, again, inflation is what the "little people" worry about as it’s our assets that inflate in value and only those without assets (or jobs) worry about rising prices. This is exactly what we expected would happen in December, when I gave my 2010 outlook in "A Tale of Two Economies."

The rich get richer and that’s GOOD for the markets, as the poor people weren’t going to be buying IPhones or shopping at Tiffany's (TIF) anyway and we can continue charging them ridiculously high prices for commodities because clearly Obama and Congress have their collective heads up their asses (as evidenced by the toothless Congressional hearings going on this week) and tomorrow JPMorgan (JPM) is likely to stun us with about $2.5Bn in quarterly earnings, about triple what they made last year. Ah, it’s good to be the king!

So don’t let poor Retail Sales or massive jobs losses fool you - we’re going to party like it’s 1999 - or 1929...

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