| GDP 4TH QUARTER GROWTH
“Mind–numbing”; “shocking”; “stunning” (all quotes from news reports)
I saw a report today that said only 20% of economists thought there
was a chance of recession in the near future.
Today’s GDP numbers indicate there may be a recession underway
now! These are preliminary numbers –
so perhaps revisions will be to the good?
Also, as noted below, the “behind-the-scenes” numbers didn’t paint a
bleak picture – so say the economists – but I am not sure about that.
GDP
SHOWS SURPRISE DROP (CNBC)
“The U.S. economy posted a stunning drop of 0.1 percent in the fourth
quarter, defying expectations for slow growth ....The economy shrank from
October through December for the first time since the recession ended, hurt
by the biggest cut in defense spending in 40 years, fewer exports and sluggish
growth in company stockpiles....That's a sharp slowdown from the 3.1 percent
growth rate in the July-September quarter.”
Full story at...
Wow! A contraction in GDP should change some minds about the ECRI
Recession call. Overall though,
economists pretty much agreed, “No big deal.”
But before we hear from the economists, let’s review the definition of
an economist:
ECONOMIST: “One who, starting from a position of over-educated
and under-informed logical supposition, commences making erroneous and
devastating judgments about the functioning of the world, and then formally
codifies their misunderstanding in dogmatic and arrogant absurdity.”
From...
Here are typical views of the economists:
ECONOMISTS REACT TO THE GDP
“Stripping out defense and
inventories, GDP growth accelerated to 2.6%, from 1.8%. Admittedly, if you
strip out enough of the falling components, then obviously what’s left went
up. But in this case these are one-offs. If this really was the start of a
new recession, like the ones in 2001 and 2008, then we would expect to see GDP
excluding defense and inventories falling too. Instead, the growth rate is
accelerating. –Paul Ashworth, Capital Economics
… The economy is
not exactly robust, but it is certainly not contracting as today’s data would
otherwise suggest.” --Michelle Meyer,
Bank of America Merrill Lynch Global Research
Full story at...
MY PERSPECTIVE
BEA reported that GDP contracted 1.3% due to reduced Government
expenditures. While economists are
suggesting this is a one-time event, I am quite skeptical. If I were managing a Government program,
I’d be making cuts now to prepare for possible sequestration. In fact a number of cost reducing policies
are already in place within DOD. I
think that is why Government expenditures are down and I don’t expect them to
fully recover since sequestration (or other cuts in Government spending) look
likely. There’s more to the wall of
worry.
The export component of GDP fell by 0.81%. Most economists suggest this is due to the
drought and reduced grain exports.
Perhaps, but FactSet noted below that companies are reporting reduced
earnings due to recession in Europe.
So reduced exports could be a symptom of issues with the economy
rather than the weather.
As always, I’ll just say that I am not an Economist, so my opinions
must be considered un-informed. For
now, I am very concerned.
FACTSET
“Europe is reporting a decline in economic growth relative to last
year. According to FactSet Economics, the European Union recorded a decrease
in GDP of 0.4% in Q3 2012, compared to growth of 1.4% in Q3 2011. Companies
have continued to see weakness in Europe, based on comments made in their
earnings releases and conference calls.”
Full report at...
TRUCKING VS GDP
Then there is trucking. Overall
GDP growth is now estimated at 2.1% for 2012.
The American Trucking Association (ATA) reported their trucking index
increased 2.3% in 2012, pretty much in line with GDP. They did note that the index was down 2.3%
year over year for December. Whether
this reduction is indicating impacts of Hurricane Sandy, or real systemic reductions
in 4th quarter GDP is anybody’s guess. It is a concern though.
ATA news release at...
DURABLE GOODS ORDERS (from Doug
Short Advisor Perspectives)
“The latest new orders number
at 4.6 percent was dramatically above the Briefing.com consensus of 1.6
percent. Year-over-year new orders are up 5.3 percent. However, If we exclude both transportation
and defense, "core" durable goods orders declined 3.9 percent.
Year-over-year core goods are down a depressing 9.8 percent... In theory the
durable goods orders series should be one of the more important indicators of
the economy's health. But its susceptibility to major revisions of the
previous monthly data suggests caution in taking the data for any particular
month too seriously.” Full story at...
|
COMING RECESSION?
I look at the Morgan Stanley Cyclical Index compared to the S&P 500
as a gage of investor belief in recession.
The spread is an indication of recession concerns. Over the last 10-days the spread has reversed
and the Cyclical Index has slightly
underperformed the S&P 500. This may
be an early warning or simply an indication that investors want to own large-cap
stocks more than the cyclicals. The cyclicals have fallen a bit recently, but I won’t worry until the cyclical stocks drop
more.
MARKET RECAP
Wednesday, the
S&P 500 fell 0.4% to 1,502 (rounded).
VIX rose 7.6%, to 14.32.
Market internals
have flattened some, but have not turned down yet; so it’s just one more item
to watch.
NTSM
The NTSM analysis remained HOLD Wednesday.
Everyone’s a Bull
now. How else can we explain a horrible
GDP report that was ignored by investors, economists and pundits?
Most of my indicators
are neutral, but there is plenty to worry about: price action hit extreme levels
yesterday and that is a negative (up moves have been much bigger than down
moves). The fact that mutual funds are
seeing inflows is another negative. The charts look bad. (see http://navigatethestockmarket.blogspot.com/2013/01/rising-wedge-rising-concerns.html)
As of yesterday, there were 9 out of 10-days that were up on the S&P 500. That’s an indicator of too much bullishness, but not all news is bad.
As of yesterday, there were 9 out of 10-days that were up on the S&P 500. That’s an indicator of too much bullishness, but not all news is bad.
VIX is neutral
and leaning toward the positive so, the options crowd is apparently not
concerned about today’s GDP number. I’m
wary, but still long. I’ll be on alert
for clues about where we go from here.
MY INVESTED
POSITION
Based on a BUY
signal 7 of 9-days, and more importantly, consecutive closes above the prior
high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14
January. I am currently invested in a
range of near 50% invested in stocks. 
