The Gross Domestic Report (GDP) report is, unfortunately, an inaccurate and potentially dangerous number for economic investors. It is the biggest politically manipulated and most massaged of the U.S. economic numbers. In theory it should accurately report the amount of activity occurring in the U.S. economy, but due to a number of flaws with it, it obscures many problems. The formula for it measures the amount of money spent by consumers and the government, the amount of money invested in imports and exports, and the production of widgets and gadgets. This report adds up the value of all work done in the U.S. economy in a three-month time period.
For investors it is vitally important to look at the economic reality of the U.S. in order to make sound and smart investments. This is what the GDP was supposed to do, help investors tackle this challenge; however the GDP distortion creates a false perception of the real economic truth. The Bureau of Economic Analysis (BEA), a U.S. government commerce department, has been taking a creative approach to how it works with the economic numbers it uses in the GDP. Creativity is important, Dawn Bennett isn’t against it, it does great things when it comes to companies like Apple Computers which keep pushing the boundary on technology, but regarding economic numbers it is duplicitous and wrong.
For example, the week of September 22, 2014, the BEA reported that the U.S. second quarter GDP increased by 4.6%, if this report were accurate investors should be ecstatic. Unfortunately, the report has very little bearing on real world activities. As proof of damaging real world activities, the amount of corporate insiders that are selling shares and having their company rebuy them is at a high not seen since 2000. According to Bloomberg, a total of 7,181 insiders bought their own stock in 2014, but 23,323 sold their shares. These kinds of ratios have not been seen since 2000, and this is what is called leveraging up when a company purchases their own stock. What all of this does is boost stock prices of companies, even when they aren’t expanding, hiring, expanding their payroll or expanding CAPEX (capital expenditure).
This style of corporate buy back, on debt, is what helped create the crash of 2008. Along with the misleading numbers by the BEA on the GDP, it is important that we return to dealing with the truth, and not be creative with the numbers just to make investors feel momentarily good.
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org