Friday, February 25, 2011

GDP Miss...."The New Normal"

Here is a shocker(NOT!):

"WASHINGTON (Reuters) - The economy grew slower than initially estimated in the fourth quarter as government spending contracted more sharply and consumer spending was less robust, a government report showed on Friday.

Gross domestic product grew at annualized rate of 2.8 percent, the Commerce Department said in its second estimate, marking a downward revision from its initial 3.2 percent estimate.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 3.3 percent pace. The economy expanded at a 2.6 percent rate in the third quarter. For the whole of 2010, the economy grew 2.8 percent instead of 2.9 percent.

The pace of growth was too slow to do much to lower the unemployment rate, which fell during the quarter from 9.6 percent to 9.4 percent. It fell again in January to reach 9 percent."

My Take:

Stocks are up on the news which isn't a surprise because we were due for a bounce after 3 days of nasty selling.

I just love these economists and their "misses".  Let me share a funny story here from "the credit trader".  He loves to tell this story about a large banking customer that he traded treasuries for back in the 1970's and '80's.

His client would ask "the credit trader" what his firm's economist was advising when it came to where the 10 year bond was going to trade.  If the economist said that he expected bonds to sell off then his client would immediately take the other side of the trade for shits and giggles and go long.  "The credit trader" told me that his client won way more times than he lost when he took these bets.

They both would share a nice chuckle when his client would make money on these trades.

My point here is economists are pretty much worthless.  There are a few who have a clue, but for the most part they are shills that are bought and paid for by the people they work for on Wall St. 

The Bottom Line

The market is pretty quiet.  The DOW is up around 60 points.  IMO, Stocks going to trade on oil in the near future so if the Middle East stays quiet and oil prices remain steady then I wouldn't be surprised to see us move higher.

The longer term fundamentals however remain weak.  GDP growth below 3% means ZERO job growth folks which is not good when you consider 1/5th of this country is unemployed.

No jobs means that housing will remain weak and continue to deteriorate.  It also means that the consumer cannot recover and start buying the millions of I-phones that Apple needs in order to keep up it's amazing growth.

The stock market has not accepted our "new normal" growth rate of 2-3%.  Stocks are priced for perfection.  We need a robust recovery in order to create the earnings growth needed to sustain these prices.  Folks...I hate to say it but it "ain't gonna happen"!

If QE stops in June(which I am starting to doubt after seeing the bad GDP print), then I expect to see negative growth by Q4 of this year which means we will likely dip back into a recession.  We could possibly even see it in Q3 but I think that might be a tad too early.

If QE does not end and #3 is announced then inflation is going to continue to be a problem.  It's going to destroy profits as input costs continue to rise.  We are seeing signs of this already.

Can you imagine what the dollar is going to look like if QE3 is announced?  It's not going to be pretty.  You can be assured that the bond market won't be too happy either.

The bulls are still loaded with lots of profits so don't be surprised if this POMO market rises from here for a tad.

I stick hold firm on my prediction of a sell off as the ending of QE approaches in the March to May time frame. 


getyourselfconnected said...

I agree on the sell off time frame, but then the QE3 talk will start in earnest and away we go again probably. Ugh. Have a great weekend.

Jeff said...


Don't think so...Maybe at first following the announcement.

A lot will depend on how the currency and bond markets react.

It's going to be interesting to say the least.

What a comeback in silver today. Wild price action the past few days.

Herb said...

I read somewhere once, that the only reason economist make predictions is to give weatherman someone to laugh at.

Jeff said...

LOL Herb!

Love it!