A different way of looking at the GDP numbers.
Thanks to DSHORT.com for the chart and John Mauldins The Transparency  Trap for the insight.

When calculating real GDP, one subtracts inflation. The Fed prefers an inflation measure called PCE (Personal Consumption Expenditures). It is essentially a measure of goods and services targeted toward individuals and consumed by individuals. The number you read in the various media is the CPI or Consumer Price Index. The CPI is inflexible, in that it’s always the same basket of goods. PCE on the other hand, is supposed to take into consideration the notion that if steak is too costly, we’ll eat hamburger. The CPI is typically 0.3-0.5% higher than the PCE, which is convenient if you want the GDP number to look better.

The Fed changed to PCE in February of 2000. The change was buried in the footnotes of the annual Humphrey-Hawkins testimony by then-Fed Chairman Greenspan. So the anemic growth of 1.9% for the last decade would have been even worse if we had used the previous measurement of inflation (CPI). Understand, there is an argument in favor of using PCE, as many academics argue that CPI actually overstates inflation. But there is also an argument to use CPI. It somewhat depends on what you want the final numbers to be.

Fast forward to today, and the year-over-year change of CPI was 2.5%, with the PCE only rising 1.7%. And last quarter was down sharply, to +0.04% on an annual basis. An anomaly of lower energy and commodity costs? Partially, for sure. So if their target rate of inflation is 2%, using PCE gives the Fed grounds for a looser monetary policy.

“When/If these central banks go too far, as was eventually the case with home prices, expanding balance sheets will no longer be looked upon in a positive light. Instead they will be viewed in the same light as CDOs backed by sub-prime mortgages were when home prices were falling. The heads of these central banks will no longer be put on a pedestal but looked upon as eight Alan Greenspan’s that caused a financial crisis.

“The tipping point between balance sheet expansion being bullish for risk assets versus bearish is impossible to know. Given the growth rate of central bank balance sheets around the world over the past few years, we might not have to wait too long to find out. Enjoy it while it is still bullish.”

“Greece plans an orderly exit out of the Eurozone according to two sources close to Mr. Papademos, Greek Prime Minister, who spoke on condition of anonymity earlier today.

The sources confirmed that plans are ready to return to a legacy currency given the current circumstances and that such exit would be dealt with, quote ‘in as orderly a fashion as possible’ unquote….

“A Greek exit strategy will probably not be announced officially until early March when the EU finance ministers meet.”

Well then, we shall see.

Here is achart from streettalklive.com that shows consumer sentiment. So you see a pattern. We may be peeking and when that happens the market is usually at the top

Well housing came in a lot worse than expected and you can see what that has done to the rally after good earning from some of the SP 500 company's-even if they were on lower guidance and lower expectations- and better than expected consumer spending. The rally hit my high point in the charts as I see it. The 1331 level is where my charts say's we should be bumping up on resistance over the 5 year chart I have been following. I wish I knew how to input it into the blog, maybe one day I will.

Here is the two latest charts i can show in reference to the housing market. Thanks to  streettalklive.com  and Doug Short for these two. It helps to illustrate my point. Until the job market improves and the FED stops the easy low interest rate environment, this market has a long way to go before it heals itself.

And while Government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief.

That’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.

Let’s never forget: Millions of Americans who work hard and play by the rules every day deserve a Government and a financial system that do the same. It’s time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.

Top to Bottom: More Bailouts, More Handouts, More Copouts

While reading the first paragraph above I knew without a doubt a huge bailout proposal was coming up.

Sure enough, the very next paragraph contained a massive bailout proposal and in more ways than is readily apparent at first glance. For starters "responsible homeowners" don't need mortgage relief. Secondly, $300 a month is a lot of dough so I would like to see an accounting.

Finally, and most importantly, every loan that is refinanced will be paid off in full. Thus, any bank, hedge fund, mortgage provider, or GSE that is paid off on a nonperforming loan will be immediately made whole.

This is a massive backdoor bailout of banks, mortgage companies, hedge funds, foreign banks, and anyone else holding mortgage related garbage.

In case you were wondering about the big rally in bank shares this year, this proposal just might have something to do with it. 

The Orwellian irony of it all comes in the third paragraph with Obama's bald-faced lie "It’s time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts."

How the Taxpayer Ripoff Works 

The New York Times explains the ripoff in President to Offer Way for Easing Home Debt

For those of you who don't get Mike "Mish" Shedlocks blog from Sitka Capital Management  here is a good explanation to last nights State  of the Union Address. Somehow the Presidents new idea is going to solve this chart's fundamental problem. By putting more debt on the governments books, NOT.

The White House plans to propose legislation that could allow a few million homeowners to reduce monthly mortgage payments by refinancing their current loans into new ones guaranteed by the Federal Housing Administration.

The program would broaden the availability of government-backed mortgages to include many borrowers whose loans are held by private companies and who have been unable to persuade those lenders to reduce their interest rates. Existing federal programs focus mostly on borrowers whose loans are owned by the government.

The new program will be directed at people whose mortgage debts exceed the value of their homes, according to a senior administration official who spoke on the condition of anonymity because the details have not yet been finalized. The official estimated that the program could benefit two million to three million homeowners who have loans that are not guaranteed by the government, and that the program’s cost would not exceed $10 billion.

$10 Billion?! Really?

The proposal as outlined rates to take every "responsible" underwater mortgage held by banks, Fannie Mae, Freddie Mac, hedge funds, foreign banks, and pension plans, and transfer all of them to the FHA. The idea this will only cost $10 billion is absurd.

The "small fees on the largest financial institutions" are absolutely guaranteed to not cover the cost of this monstrous proposal. Indeed there is something in Obama's proposal for everyone except "responsible citizens".

"Let’s never forget: Millions of Americans who work hard and play by the rules every day" will be royally screwed by Obama's proposition in the form of higher taxes down the road.

Mike "Mish" Shedlock

The markets are up the earnings are coming in a little under normal even after the downward revisions and earnings pre announcements have been made to the downside. We are at , what I call , a NOW WHAT MOMENT. Where do we go from here. If the past is any judge for the future I believe we are near a yearly top-maybe another 2 percent-and it all begins the long slow painful death. The VIX is at a yearly low and everyone thinks the world is a better place to be. Europe finally has their act together (do they) and Portugal is back in the news, whats next.

Let's take a look at the long term bias of the American consumer. DSHORT.COM had a good chart on this morning showing miles driven over the past 40 years by Americans. Adjusted for population growth we are nowhere near a all time high as you would expect-given the great things you hear from the media and the FED, yet, we are still paying more for petrol and our utility bill keeps increasing and we are using less fuel per person as compared to 1998. HUM, seems we might not be getting pertinent information from the media. Yes, I know cars get better gas mileage today than 40 years ago that is one reason. Yet every October you here heating oil is going up because of cold winters approaching and even when that does not occur prices go up. In April the summer drive season is coming and more fuel will be needed prices go up. Any reason that fuel consumption has gone down over the last 5 years yet prices at the pump have gone up proportionally. Yes, QE1, QE2 and eventually QE3. We pay more because our dollar is worth less. The dollar exchange rate has gone from 85-76 in the same time.  A stronger dollar brings down the price of commodities.This means the big multi-national company's can stay competitive in the world market by cheaper exports to counties that need our goods. Great it creates jobs, NOT. Most of the expansion for these company's has been to hire overseas and still make the profits. Net, we are down 120,000 jobs from these same company's over the past 6 years. The world market is slowing and it's just a matter of time 1-2 years or so before it all takes hold. Sorry to keep sounding so dour but most people don't take that much time( for a blue collar guy) reading and studying as I do. You only hear what they want you to hear.

What's wrong with this picture.

 

It seems as the market goes up the street and the media says all's well and good. But really what doe's this say. When everyone is on the same side of the trade something is a foot. Check out the tops of market sentiment and the lows and how they very closely correlate to the tops and bottoms of markets. Where do we go from here no one knows, my guess is down at least for the short term with a moderate upswing after UNCLE BEN calls QE3 sometime in March but an inevitable leg down after May 15th or so. Lets take a look at another chart to better dramatize the effect.

 Thanks to streettalklive.com and dshort .com for the charts and help in making my predictions.

Today we mourn the passing of a beloved old friend, Common Sense, who has
been with us for many years. No one knows for sure how old he was, since his 

birth records were long ago lost in bureaucratic red tape. He will be remembered

as having cultivated such valuable lessons as:

 - Knowing when to come in out of the rain;
 - Why the early bird gets the worm;
 - Life isn't always fair;
 - and maybe it was my fault.

Common Sense lived by simple, sound financial policies such as don't spend more

than you can earn and use reliable budgetary strategies like save some of what

you earn, and adults, not children, are in charge.

His health began to deteriorate rapidly when well intentioned, but
overbearing regulations were set in place.

Reports like that of a 6-year-old boy charged with sexual harassment for kissing

a classmate; teens suspended from school for using mouthwash after lunch; and

a teacher fired for reprimanding an unruly student, only worsened his condition.

Common Sense lost ground when parents attacked teachers for doing the job
that they themselves had failed to do in disciplining their unruly children.

 It declined even further when schools were required to get parental
consent to administer sun lotion or an aspirin to a student; but could not
inform parents when a student became pregnant and wanted to have an abortion.

Common Sense lost the will to live as the churches became businesses; and
criminals received better treatment than their victims.

Common Sense took a beating when you couldn't defend yourself from a
burglar in your own home and the burglar could sue you for assault.

Common Sense finally gave up the will to live, after a woman failed to

realize that a steaming cup of coffee was hot. She spilled a little in her lap,
and was promptly awarded a huge settlement.

Common Sense was preceded in death, by his parents, Truth and Trust, by 

his wife, Discretion, by his daughter, Responsibility, and by his son, Reason.

He is survived by his 4 stepbrothers;
I Know My Rights

I Want It Now
Someone Else Is To Blame

I'm A Victim

Not many attended his funeral because so few realized he was gone. 

So what do we do from here. If as I believe the market is going down how do we invest. The safest way is do buy good dividend paying stocks that have increased their dividend over time. As mentioned in a prior post JNJ would have netted you over a thousand percent during the last 11 years. What other stocks are out there, well in the US.Thanks to dividend.com for the chart.

Stock Symbol	Company Name	DARS™ Rating [?]	No. of Years	Dividend Yield**	Current Price*	Annual Dividend
DBD	Diebold	Login/Signup for Ratings	58	3.64%	30.74	1.12
AWR	American States Water	Login/Signup for Ratings	57	3.18%	35.26	1.12
DOV	Dover Corp.	Login/Signup for Ratings	56	2.09%	60.25	1.26
NWN	Northwest Natural Gas	Login/Signup for Ratings	56	3.77%	47.17	1.78
PG	Procter & Gamble	Login/Signup for Ratings	55	3.17%	66.26	2.10
EMR	Emerson Electric	Login/Signup for Ratings	55	3.26%	49.05	1.60
GPC	Genuine Parts	Login/Signup for Ratings	55	2.86%	62.90	1.80
MMM	3M	Login/Signup for Ratings	53	2.61%	84.23	2.20
PH	Parker Hannifin Corporation	Login/Signup for Ratings	52	1.77%	83.47	1.48
VVC	Vectren Corp	Login/Signup for Ratings	52	4.81%	29.10	1.40
CINF	Cincinnati Financial	Login/Signup for Ratings	51	5.14%	31.32	1.61
KO	Coca-Cola Co.	Login/Signup for Ratings	49	2.79%	67.35	1.88
JNJ	Johnson & Johnson	Login/Signup for Ratings	49	3.50%	65.12	2.28
LOW	Lowe's	Login/Signup for Ratings	49	2.09%	26.80	0.56
LANC	Lancaster Colony Corp.	Login/Signup for Ratings	49	2.08%	69.32	1.44
ITW	Illinois Tool Works	Login/Signup for Ratings	48	2.83%	50.96	1.44
CL	Colgate-Palmolive	Login/Signup for Ratings	48	2.59%	89.73	2.32
NDSN	Nordson Corp	Login/Signup for Ratings	48	1.17%	42.86	0.50
CLC	Clarcor Inc.	Login/Signup for Ratings	47	0.93%	51.38	0.48
CB	Chubb Corp	Login/Signup for Ratings	46	2.23%	69.80	1.56
TR	Tootsie Roll	Login/Signup for Ratings	46	1.36%	23.60	0.32
HRL	Hormel Foods	Login/Signup for Ratings	45	2.05%	29.24	0.60
SWK	Stanley Black & Decker, Inc.	Login/Signup for Ratings	44	2.30%	71.21	1.64
FRT	Federal Realty Investment Trust	Login/Signup for Ratings	44	3.04%	90.75	2.76
TGT	Target	Login/Signup for Ratings	44	2.41%	49.88	1.20
ABM	ABM Industries	Login/Signup for Ratings	44	2.84%	20.43	0.58
CWT	California Water Services Group	Login/Signup for Ratings	44	3.40%	18.09	0.62
SJW	SJW Corp	Login/Signup for Ratings	44	2.99%	23.08	0.69
SCL	Stepan Co.	Login/Signup for Ratings	44	1.40%	80.21	1.12
CBSH	Commerce Bankshares	Login/Signup for Ratings	43	2.30%	40.01	0.92
MO	Altria Group	Login/Signup for Ratings	42	5.67%	28.90	1.64
BKH	Black Hills Corp	Login/Signup for Ratings	42	4.41%	33.08	1.46
FUL	H.B. Fuller Co.	Login/Signup for Ratings	42	1.18%	25.46	0.30