Political Cortex: Brain Food for the Body Politic

There are lies, damned lies, and statistics -- and among the most damnable lies may be the way economic statistics are manipulated to give the impression the media and the pro-corporate lobby wants to project.  For example, just this morning the Bush administration was trumpeting the drop of the jobless rate to a five year low, while ignoring the real message of weakness behind those numbers.  

The US economy added 51,000 jobs last month, far below analyst expectations, in another signal of slowing growth.  The rise in non-farm payrolls was the weakest monthly increase since October 2005, which followed Hurricane Katrina.  The US economy has slowed markedly in the second half of the year, and the once red-hot housing market has cooled.

The next time the Fed meets to set interest rates, you may well see them decide to reduce interest rates.  This is because they now regard a recession (or worse) as a much greater threat than inflation.  Don't worry, the media will make it look like a good thing.

In the same way, the high numbers on the Dow are providing opportunities for the right to crow "hey, stock you invested in 1999 under Clinton is now worth just as much as it was back then!  Well, okay, it's value is really down about 20% from inflation, maybe another 20% from the time value of money... but big numbers are good!  This is good!"  That top 1%, which has absorbed almost all of the wealth created in the last five years, is making really happy noises.

What they're not saying is that the high Dow numbers themselves aren't always a good thing, and in fact, when they show up as they have now, they're very probably a bad thing.  To see why, you need to look at other indicators.  Other market indices, like the NASDAQ, aren't up nearly so sharply as the Dow, and are far away from their previous records.  The broad-based S&P has recently charted some highs for the Bush period, but that rise is less steep than the Dow.  When the Dow charges off faster than other indicators, this is called "leading the market."  It's what happens when the Dow, which consists of only 30 large, relatively stable corporations, becomes a "safe haven" from money running from other areas of investment that suddenly appear shaky.  In this case, there are at least two other areas for the rich were stashing funds that have now become unfashionable.

• The housing market is collapsing.  Investors who had been counting on "flipping" yet another house to give them double digit returns are noting the sharp drops and getting out as fast as they can.  Those who can escape with gains are now looking for somewhere else to drop their funds, and the Dow's big blue-chips seem like a decent bet to hold their value.  In a very real way, the collapse of house is fueling the Dow.

• Gold, which has enjoyed a steep run up on the basis of unrest and distrust in the markets over the last five years (in other words, Enron and Iraq), has lost steam.  Those who were in gold as a hedge against economic collapse are staying put, but those who hoped to profit from a run up to $2000 an ounce are running, and again they need somewhere to drop their former bullion.  Note that this can be seen as a good thing, as large numbers of international investors are no longer betting that America is about to start World War III (which only shows they're not paying attention).

Overall, what the stock market numbers shows investors that are still very nervous about where the economy is heading.  There's an infectious sort of "positive feeling" that comes from the high Dow numbers and the run up in the S&P, but there's also recognition that this is just air drained off from other bubbles, not an indicator of real strength in the economy.  If the market starts to look the least bit shaky, investors stand ready to bolt again, seeking out some other place to hide the huge fortunes that the top 1% have accumulated.  Right now, the high market stands on pretty shaky ground.

The latest leg of the rally has been sparked by bets that the economy is slowing, but not heading for a recession, that inflation is under control and that the Federal Reserve can start cutting interest rates early next year.

Want to join them in that bet?