You must think I got killed today with my short positions? Yes, but not really. Most of my puts were bought at much higher levels and I have a lot of time on my side. I did, however, get clobbered on an intraday bet on a turn around. I know, it was a 3.5% GDP print, am I nuts? Nope, because I looked at the numbers and did not like what I saw, did you look at the report or wait for Steve Leisman to read the selected items for you?
Yes, it is a very boring read, most important documents are, but that means you should really read it. The vast majority of the “growth” was government spending or incentive that is not good. Consider this, Cash for clunkers, the $4,500 credit, costs us $23,000 by the time we actually pay for it, nice. How about the $8,000 tax credit? That costs us $40,000 by the time we pay for it. By the way, when I say “we” pay for it I mean the taxpayer, you and I, because the government is broke and issuing debt to pay for all of this junk. Better yet, most of the mortgages written are FHA so it is a double whammy when those mortgages default, fantastic!
I know, don’t let the facts get in the way of a great story. How about that initial jobless claims report this AM? Wait, you did not hear about that because of the 3.5% GDP print? Funny, because the number was another 530K, that is not the sign of a healthy economy and the whole employment is a lagging indicator is a bunch of bull. Let me ask you this, what got us here, mortgage defaults right? They defaulted because they couldn’t afford the payments on the house, regardless of why, but now that problem is worse because folks are unemployed. This was a credit collapse, not an inventory recession, that is a huge difference, I know Michelle on CNBC doesn’t get it, I expect that from her, but not from you, you know better.
Dig deeper in the report, near the bottom and you will see data that is not friendly to the bull’s case. Did you here this at any point today:
“Disposable personal income decreased $20.4 billion (0.7 percent)in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent)in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.”
I did not think so, but that is bad, bad news. If disposable income is declining how will people buy their iPods and iPhones let alone buy those expensive Christmas gifts. Disposable income means excess spending which drives growth and if that is gone then the companies that will do well are those that sell toothpaste and toilet paper. The economy is turning to a needs based economy instead of a wants based economy, which is fine and where we should have been 8 years ago.
Then we have things like this that are in the final parts of the report:
“Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second.
Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second. The quarterly pattern of taxes reflected a much smaller decrease in federal
withheld income taxes in the third quarter, based on the quarterly pattern of wages and salaries and a leveling off of the effects on withholding rates from the Making Work Pay Credit provision of the American Recovery and Reinvestment Act of 2009.”
Personally, I do not see much of anything good here, do you? Income decreased which shows layoffs and people making less money, that’s great, I guess because stocks went up 200 points today. As a sign of a strong labor market, which will surely show monthly job losses of 200+ next Thursday, taxes increased a tiny little bit. This is the bulls signal for a recovery, right here, a $4.5B tax withholding increase in the 3Q09 preliminary GDP report. Let us not forget that GM and Chrysler brought back tons of workers, just in time for cash for clunkers, which probably is why this number went up.
Now, I also hear a lot about software and things of that nature were all positive and that had nothing to do with stimulus, wanna bet? My daughter, in 4th grade, has 6, count them, 6 new laptops in her class, in every class in her school. My kindergartner has 4 computers in her class, 4. All brand new IBM’s, sorry, Lenovo’s and all complements of President Obama. So, do you really want to tell me that all those numbers were not government induced because I am pretty sure they were.
I will not even comment on the Goldman last minute revision of their GDP estimate yesterday, but wow, I would love to see their long positions at the close yesterday. We also need to remember a couple of things. First, this is a preliminary number and will be revised, probably down. Second, the 4Q09 number will not be as good as you think because all the Beige Books so far look pretty bad, but the ISM on Monday, I think its Monday at least, will confirm this. Finally, valuation, the market is in the nose bleed section and it doesn’t matter if you believe me or not, but for the love of Pete do your homework before committing money to this thing.
Take notice of this downward revision, Goldman has a direct line to, well, the government. The last 2 employment reports that were released Goldman revised their numbers the day before and were within 5% of the actual number, go figure.
Goldman revised its 3Q09 GDP figure from 3% to 2.7%, which is in line with what I was thinking, not that my thoughts really matter, but still. This is a negative impact number on the markets and a sell sign as equities have a 3.5%+ GDP figure priced in. Take notice and take warning, buying on the dips could be considered suicidal at this stage of the game.
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