A few days ago Bonddad basically did a call-out diary to all skeptics on the economy. He called everyone who doubted the strength of the recovery a "Zombie Bear" (i.e. unthinking pessimist).
He then went on to unload nearly three dozen charts.
The one thing I could never accuse Bonddad of is an inability to read a chart. He's got that down. My criticism of Bonddad has always been something else - he never asks "Why?"
Since Bonddad would count me as a skeptic, and since Bonddad felt it necessary to call me out, I feel obligated to respond in kind.
First of all, not all of us skeptics are unthinking zombies. For example, its been obvious since the middle of 2009 that manufacturing had hit bottom. While capacity utilization is still at recessionary levels, it's been slowly growing for over a year.
The question is: Why?
It's not enough to just point to a series of charts, not if you want to actually understand the world around you.
The reason for the modest rebound in the manufacturing sector is because of exports.
Well, what's wrong with that? Nothing is wrong with it at face value, but some of us want to dig deeper.
Why are exports surging? Because emerging markets are booming. In fact, most of those enormous corporate profit numbers you read about are from overseas sales. Why are emerging markets booming? Well, that's where you find a huge problem.
Emerging markets are booming because we are flooding them with currency in an effort to devalue the dollar. Even in the face of a sovereign debt crisis in Europe, the dollar has weakened because we've printed so many.
So much money is flowing into emerging markets that many countries, such as Brazil are taxing capital inflows in order to discourage foreign speculators. Can you imagine a third-world country discouraging wealthy people from investing in their country? Why would they do that? Because they are fully aware that a bubble is forming. China has called us out on our increasing money printing and the problems it is causing.
You have to wonder what is going to happen to the speculative edge in emerging markets if things continue to deteriorate in Europe.
All of our money printing has a multiplier effect on the rest of the world.
So what? All that money has to go somewhere, and that somewhere happens to be in things that get traded in devalued dollars.
Food price inflation is a reality, and it strikes the poorest the hardest.
For example, prices for feedgrains like corn, wheat and soybeans are up anywhere from 20-65% (not annualized) over the past six months, while prices for imported foods like coffee and sugar have jumped by 60% over the same period. Those increases are only beginning to show up in the popular price gauges.
To put it simply, printing money is a zero-sum game. Some will win and some will lose. The manufacturers are winning, although manufacturing is less than 15% of the economy.
The losers are a) everyone getting paid wages or saving in dollars, and b) the lower class who spends most of their income on food and energy.
There is another winner to all this money printing, and those are the people who are closest to the source of the printing - Wall Street.
As you well know, the Federal Reserve's Quantitative Easing (aka money printing) involves the purchase of trillions of dollars worth of securities. Who do they purchase all those securities from? Mostly from big Wall Street banks and financial institutions. That's why those Wall Street bonuses are so high - because taxpayers are subsidizing them.
Now it would be a mistake to think that Wall Street banks own all those securities they sell to the Fed. Most of the time they just trade them. The top 20% of society, and mostly the elite 1%, are the ones who actually own the securities.
And let me tell you, they are doing great!
So when I say that I am skeptical of how the economy is functioning, don't mistake me for saying that some segments of society aren't doing spectacular. Their wealth is increasing immensely, mostly because taxpayers are making sure that financial asset prices, the vast majority of which are owned by the wealthy elite, are propped up at the expense of the working class.
So with all that extra money, the wealthy are going to spend.
We're already seeing hugely positive results out of luxury brands like Coach (NYSE: COH), which reported sales growth of 20% this quarter, and high-end department stores like Nordstrom (NYSE: JWN) and Saks (NYSE: SKS), which reported same-store sales of 5.8% and 5.7%, respectively...
High-end jeweler Tiffany alone saw earnings jump 27% this past quarter.
While the wealthy are shopping until they drop, sales at working-class retailers like Walmart are disappointing.
So when you see a modest (and below historical average) bounce in real final sales, you might want to ask the question - who is doing the buying and why?
One other thing on that call-out diary that I couldn't help notice was missing - the real estate market. You might remember it. It's considered a leading indicator by the experts, and was responsible for crashing the financial system, leading to a worldwide recession.
Oh, yeah! That real estate market.
Things aren't doing so well there.
Despite whatever you may have heard, there has been no rebound in the housing market. The government wasted hundreds of billions of dollars getting temporary (and false) bounces.
Well, I shouldn't say "wasted". The Fed has purchased more than a trillion dollars worth of questionable mortgage-backed securities from Wall Street banks at face value. So I guess that the wealthy don't consider the spending to be "wasted".
Now I'm sure that some bullish economist out there can produce a chart that shows that we are at the bottom in the real estate market right now, but it won't look like this.
The amount of housing inventory on the market is in the double-digits of months. The shadow inventory is even more.
Like a real estate agent who will always tell you that "now is a good time to buy", its not hard to find an economist to tell you that the economy is improving. Anyone who saw Inside Job knows the scam.
However, there are people who's job depends on making a correct call on the economy, and they aren't very optimistic.
Certain sectors of the economy are doing very, very good right now. Those people don't read blogs like these. They are busy living large and voting Republican because they want more tax cuts.
Working class people read blogs like these, and they aren't living large. They are struggling to get by.
So when someone comes by and basically says that if you were smarter that you would see the economy is doing much better, its not really a surprise that some people would resent it. Maybe even get nasty.
They have a right to be nasty. All it takes is for one person, like me, to break down those charts to show that they are being screwed in order for the rich to get richer. Then those people who resent you telling them that they aren't very smart will realize that what those charts are actually showing is theft on a massive scale, and they are the marks.
[Update: Some people were asking for a more complete breakdown of the upside-down pyramid chart. Here's another chart that might help.