THE BASIS POINT

Fundamentals 8/10: What If Bernanke Was A CFO?

MBA Mortgage Applications for week ending 8/5
-Purchase Index Week/Week: -0.9%
-Refinance Index Week/Week: +30.4%
-Composite Index Week/Week: +21.7
-Refinance index driven up by very low rates.
-Purchase index indicates that housing is still quite soft.

Yesterday’s FOMC statement that interest rates would remain low for the next two years was a reaction to the horrible GDP report of July 29. Lest than one month before this report, Bernanke had described the 1Q2011 “final” GDP increase of 1.92% as “relatively slow.” On 7/29, 81% of what was relatively slow growth simply disappeared. There are two questions to be asked 1) just how bad is GDP? and 2) why does anyone believe BEA (the government entity which produces the GDP report) when they are making such large changes to data already termed “final.” What would the media and politicians say about a CFO who, one month after his company’s quarterly P&L was issued, announced that earnings were really 81% less? The fact is that monetary and fiscal policy are being based on very inaccurate data produced by a government agency. This should be of concern.

Wholesale Inventories
-Growth in wholesale inventories slowed to +0.6% last month.
-This is from producers getting too far ahead of consumers.