(10/03/13) The True State of the Economy

Mark Leibovit discusses the disconnect between the public view of the economy and the government's numbers and the real story.

SPEAKER: Hi, my guest today is Mark Lebovit. Mark thank you so much for joining me.

MARK: Thank you for having me. Really appreciate it.

SPEAKER: You know we were talking a little earlier about the economic data, and you know the economy looks like it’s maybe recovering someday in my lifetime. How does the average person actually interpret the economic data? There’re a lot of stories around what you’re getting is really not what you’re getting.

MARK: This is true. It’s a big bone that I’ve been picking when writing about in my newsletter for quite some time. The bottom line is I think that the average person, if they’re invested in the market or if they have 401(k)s and they see the stock market going up, they think everything is okay and they just sort of ignore it. If the market was crashing and things were getting worse and worse economically in real terms I think then you would see more of an uprising and more concern. I think the government’s been successful in masking it because they come out with numbers which I don’t think are legitimate and fortunately or unfortunately, I guess fortunately for those who have money driving the stock market higher. I think the role of journalism, and I come from a journalistic background, is to question the government and to question the numbers that they’re to state is our role. Unfortunately the media in this country is a lap dog to the White House and to Wall Street, and they won’t challenge the numbers. For example, unemployment numbers are not seven and a half percent; they’re really closer to 14 to 15%. Government changed the rules on how they calculate the number. The banks are a classic example here in the crash in 2008, 2009. Banks are bankrupt across the country.

SPEAKER: Yes.

MARK: Okay, so what’d the government do? They changed the accounting rules that suddenly all the assets were losses for the bank are now treated, I believe, as a mark to cost, not mark to market. They changed the rules, like this is how you’re going to count. Overnight. I mean, you and I do that and we’re out of business, we’re sued, we’re bankrupt, whatever.

SPEAKER: Right.

MARK: So, the banks are living a fictitious existence that the bank stocks are going up, they’re making money. The truth is though the top ten banks are bankrupt.

SPEAKER: Um hmm.

MARK: Government has supported them. These kinds of lies are perpetuated, but as long as the market goes up people think everything is okay. It’s really a problem in terms of how do you evaluate the reality.

SPEAKER: Inaudible.

MARK: So we know the reality isn’t true.

SPEAKER: Um hmm.

MARK: But we know it’s being manipulated, so we rationalize, gee we’re making some money.

SPEAKER: Yeah.

MARK: You know I guess the fear we have is one day is that money going to be worth anything?

SPEAKER: Right.

MARK: And then we have made all this money, and it just blows up on us. Look at Cypress. People in Cypress overnight lost 10% in their accounts.

SPEAKER: Exactly.

MARK: And how do we know that can’t happen here in the US? We have a President in the White House who’s signed more executive orders than any President in history. How do we know overnight he doesn’t sign some executive order, all the government’s bankrupt, we’re taking 50% of your checking accounts or your savings accounts because it’s a national emergency? Anything could happen. I mean, really we do have to challenge the numbers in the government and see what’s going on and whether it’s going to make any big difference over time. Maybe I’m just a lone voice in the wilderness.

SPEAKER: I hope not. So how do you get to the real numbers then? I mean if you’re looking at unemployment data. You know, last week as we saw that continuing claims and initial claims both supposedly decreased by better than what was expected. So, how does the average person interpret that?

MARK: Well, the average person’s got to understand the number is not real, that they filtered out the fact that some people have stopped working that are no longer in the numbers.

SPEAKER: No longer looking for a job.

MARK: Right, but they’re still unemployed.

SPEAKER: Um hmm.

MARK: Previously they were counted in the calculations.

SPEAKER: Right.

MARK: So you know when government comes out with a report like that why isn’t Jim Cramer on CNBC or any of the vocal people saying, “Hey, I don’t believe those numbers. Here’s what we really think the numbers are.” The closest person on the networks that challenges this kind of stuff is Rick Santelli on CNBC,

SPEAKER: Um hmm, exactly.

MARK: And he actually does challenge it, and you know I guess they just feel he’s a little bit of an eccentric,

SPEAKER: Um hmm.

MARK: And you know it doesn’t really change anything, but you don’t the officials or the government or the officials on Wall Street backing him up and coming out and saying anything. Why? Because I guess they don’t want to kill the golden goose.

SPEAKER: Right. It’s all headline driven, and you know whatever creates ratings.

MARK: And you know the stock market’s the same thing. Why is the stock market up? Well we know a lot of reasons why it’s up. One of the reasons it’s up is because Bernanke’s been buying back all these bonds.

SPEAKER: Sure.

MARK: It’s been providing more liquidity to the street. We also know a lot of companies are buying back their own shares, so the float is less, and that’s driving prices up. So there’s stuff going on in the background that, you know, makes things look a lot better than they really are. Another big trick on Wall Street is they low-ball estimates of company earnings.

SPEAKER: Oh yeah.

MARK: And then suddenly they,

SPEAKER: Inaudible.

MARK: Beat the earnings.

SPEAKER: Yes, exactly, so 72% of people can beat. Yeah.

MARK: Then suddenly the stock opens up big, and oh gee everything is fine.

SPEAKER: Um hmm.

MARK: But you know if you’ve been in the business as long as I have you know it’s all a charade. You know they’re playing a game.

SPEAKER: Exactly.

MARK: They’re just trying to move stocks and prices.

SPEAKER: Yeah.

MARK: I mean, what does this all mean? I guess if you’ve got a portfolio, a retirement plan, whatever it is, or you’re in the market, you’re fully invested, and it’s going up. You sit back and say gee, I’m making money, why rock the boat?

SPEAKER: Right.

MARK: I mean, I think that’s what’s really happening, and Bernanke’s been smart in this regard in getting the market up because if the top people weren’t making money,

SPEAKER: Right.

MARK: And the market was crashing, then he would have problems. Then all the things I’m saying about misreporting of numbers would really mean something.

SPEAKER: Um hmm.

MARK: But he’s masking it. As long as they can mask the reality, I mean they may mask the reality to $35,000 in the Dow in the next 10 or 15 years.

SPEAKER: Yeah, exactly.

MARK: And we just live in this never-never land.

SPEAKER: In a bubble, yeah.

MARK: A big bubble of numbers.

SPEAKER: Yeah.

MARK: But what is your dollar going to be worth? What’s your buying power going to be? We know that inflation is there.

SPEAKER: Um hmm.

MARK: They tell us it’s not there. I mean everything I buy goes up every day.

SPEAKER: Right.

MARK: I mean just this hotel room here at the hotel,