Some folks are wondering if we are headed for a double-dip recession. Others suspect that we are already there.

You have of course heard of the "Great Recession." But have you heard of "The Great Revision?"

One of the "Axis of Error's" favorite tricks when faced with a barrage of bad tidings is to float some whopping big "preliminary" statistic. Better yet, annualize it if it's not impressive enough to wow the rubes.

Later, when precious few investors are paying attention anymore, they can always come back and revise downward, usually in two or three non-annualized steps, so it's almost impossible for busy folks to recognize or associate with the original tease.


For example, for several weeks now on most any day that the market has been falling, we have heard a "reiteration" of the U.S. economy's first-quarter 5.6% annualized growth rate. This was proof, hard and fast, that Washington's stimulus efforts had paid off in spades.

So we could forgive all those bonus checks that the big banks took home that were pretty much paid straight out of the public till.

And we ought to turn a blind eye to all those folks who have been lining up at soup kitchens for more than a year now. Or the fresh spike (30-day high actually) in newly fired workers who have just joined them out on the corner.

(Funny how they don't annualize the ugly numbers like unemployment. Rather they quickly shift attention toward whichever rolling average best diminishes this sort of stat.)

And that lifetime of debt that we saddled our kids and grandkids?

Fageddaboud all dat, fellas! It's all worth it 'cause the stimulus is working!

The Growth That Never Happened

But is it actually working anymore? Indeed, did it truly ever work in the first place, or was it the equivalent of stuffing toilet paper in a hole in a leaking dam: pretty much a waste of time, opportunity - and toilet paper.

Our examination of this issue should start with the Axis' latest great revision: the stealth downgrade of the second quarter's GDP.

Back in May, Washington informed us that the economy was still rolling along at a wonderful 3% growth rate. Granted, this wasn't anything like some BRIC nation's double-digit growth.

In fact, it was substantially slower than the previous quarter's 5.6% growth. But still, this was pretty darned good, considering the valley of death we had just escaped from.

Zero Growth?

Now let's attempt to tease that knotted clue a bit.

First off, we did not grow 3%, or 5.6% in the first quarter for that matter. BRIC countries do that. We do not. Rather, this is yet another an annualized figure.

Actual growth in the first quarter may have been 1.4% (pending further revision, of course), and was supposedly half that - some 0.74% - in the second. However, as of this week, we already know that even this latter figure was a tad "optimistic," and has been whittled down to 0.67% growth.

Any further revisions will grind it down to well within many such studies' margin of error. For weeks now, we all read of the threat of a double-dip recession. But I am starting to see some wags pondering if we are already at zero growth.

The Housing Bubble Pops (Again)

Look a little deeper, and you can actually see each individual leg of the whole "stimulus worked" premise crumbling before your very eyes.

Let's start with the housing bubble.

No, I don't mean the great bubble engendered primarily by squandered public funds, criminally low interest rates, malfeasant bankers, and blindfolded regulators that popped back in 2007.

Rather I am referring to the sad little "bubblette" engendered entirely by the White House's stimulus efforts and criminally low interest rates that is in the process of popping as we speak.

It appears that May sales of new houses (that is to say, the kind that workers might be employed building) fell some 33% to their lowest level on record. The cause of this crash has been laid entirely on the final end of the White House's $8,000 tax credit program for new buyers.

Fed Speak for "Screwed"?

Fed Chairman Ben Bernanke spoke to this collapse among other troubles in his recent post-FOMC meeting press conference, noting that the economy's recovery was no longer "strengthening," but rather was now simply "proceeding."

Some who make a habit of parsing "Fed speak" have taken this change in language as a strong suggestion that they stock up on gold coins, canned goods and bottled water - but that might be an extreme reaction.

To bring this whole discussion back toward stocks, investors have also been noticing that the good times seem to have ground to a halt.

The Self-Propelled Stock Market Runs Out of Steam

Washington has crowed to no end as to how "personal wealth" has grown for five straight quarters. However, most of that newfound "wealth" stemmed from a 75% increase in U.S. share prices.

Strangely enough, most of that increase in share prices was supposedly powered by an increase in wealth. And yes, I am completely aware of how perversely recursive and self-referential those two statements are.

Sadly, this looping little bubble is also starting to deflate. According to the fund trackers at Lipper Inc. (progenitors of the famed "Lipper Average" that mutual funds brag about beating when they can't actually make folks any money), those aforementioned mutual funds are indeed losing money again.

What Value?

April through June, S&P 500 Index funds (including dividends!) lost some 7.8%. The supposed safer large-cap value funds actually topped that with a loss of 8.7% on the quarter.

This is not some categorical rotation either. Even small-cap funds and small-cap value funds (an appellation that always makes me snicker just a little) lost 5.9% and 6.4% respectively.

I must confess that I am taking a page out of Washington's book, and reporting numbers that are some four days shy of the actual end of the quarter. However, when I take a gander at my stock tickers, I note that at least one of those missing days was a sizable red candlestick, so while these figures are, after all, subject to revision, I feel relatively sure of my conclusions here.

Besides, we can triangulate our data so many different ways. For example, another of my sources tells me that investors withdrew $1.8 billion from stock funds in just one week in mid-June.

Where's the Money Going?

And if you are curious as to where the money went, I would point out that U.S. government bond funds grew some 3% to 4%, depending on maturity dates. And gold futures have picked up over 13% over the same stretch.

Let's tot it all up: GDP a mere a pip above flat, stocks down for the year, real estate "popping," unemployment spiking, the Fed downgrading, and speaking of holding rates at zero for the foreseeable future, the president going begging to Congress and the G-20 for more borrowing and more stimulus...


What recovery?