Bad combo: NYC faces “skyrocketing unemployment rate and the highest deficit in almost three decades,” mnaking this one of the most painful recession Gotham has seen in a long long time:
>
via NYT
>
Source:
Economists’ Forecast: Chance of Change 100%
DAVID W. CHEN
NYT, February 15, 2009
http://www.nytimes.com/2009/02/16/nyregion/16york.html
Here’s another brutal look at where P/E rations might end up going before this is all over, via Bob Bronson:
I am very skeptical of earnings forecasts, because they have been so terrible for most of my adult life. The conspiracy of optimists always seems to overestimate future earnings.
Trailing earnings are real data, not opinion of guesswork. They provide a factual basis for valuation, and not a wishful or theoretical version. Those who were claiming that there is no recession have now taken to saying we are at the worst levels of the recession. Often, we see forward earnings estimates at the heart of this faulty analysis.
Forward earnings guesswork are why the analyst community missed the credit crisis, why they could expected a 20% Q3, and 50% Q4 earnings rebound. Hence, the forward earnings consensus led to calls for 1350 and even 1550 on the S&P . . . Its now about half of that.
Rather than rely on Wall Street Analysts who are chock full of the conflicts, and seem structurally incapable of catching major economic turns, let’s revisit a long term look at P/E ratios, via historical cycles.
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click for ginormous chart
chart via Bob Bronson Capital Management
>
UPDATE February 16, 2009 11:58am
The key point of the chart is that earnings and P/Es are cyclical. Spare us the your slacker analysis, merely stating that “you can make any chart look however you want.” (At least this sarcasm is amusing).
Rather than merely dismiss this, I suggest you instead come up with something demonstrating stocks are cheap or even fairly priced. Or alternatively, due some work and prove the chart is wrong. But no more lazy junk science.
Ignore this chart if you want — but I think it suggest the market is still not “Very Cheap” based upon prior cycles.
>
Previously:
Bear Market Bottoms & P/E Ratios (January 15, 2009)
http://www.ritholtz.com/blog/2009/01/bear-market-bottoms-pe-ratios/
February 13, 2009
By John Mauldin
Time for a Reality Check
World Trade Is Falling Off a Cliff
European Bank Losses Dwarf Those in the US
Geithner: “You Can’t Handle the Truth”
Earnings Will Get Even Worse
Orlando, Colorado Springs, New York, and Las Vegas
~~~~
It is not just the US that is in recession. The world is slowing down, and rapidly. This week we quickly survey the rest of the world, and then come back to the US. We follow up with the implications for corporate earnings worldwide, and specifically address my speculations about earnings forecasts for 2009.
Let’s start with some charts from my friend Simon Hunt, out of London. The following chart shows World Merchandise Export Values and World Industrial Production falling off a cliff. This is the worst such period since the end of World War II. And as the data we will examine next indicates, it is likely to get worse. Simon notes that consumer spending is about 60% of world GDP, and it is not just in the US that spending is slowing down. Consumers all over the developed world are in shock, as assets such as stocks and houses, real estate, and commodities fall in value. Unemployment is rising.
We think that almost 2,000,000 lost jobs in the last three months in the US is a catastrophe. China lost a reported 20,000,000 jobs in the last quarter, and migrant workers came back to the cities after Chinese New Year to find factories and jobs simply gone. Unemployment is rising rapidly in Europe, as the demand for goods has clearly been falling since last October.
This means that inventories are too high, not just in the US but in factories all over the world, and that production is slowing down. Look at the recent US trade deficit. Many market analysts rejoiced that it dropped to a six-year low, just below $40 billion. But the internal numbers were not as positive. Exports are dropping faster than imports, as seen below. “After growing in every quarter during the last three years, real goods exports fell 34.9% at an annual rate, the worst performance in more than three decades.” (www.dismal.com) And a falling deficit means that US consumers have to save more to balance out less foreign buying of US debt. There is no free lunch.
Let’s look at a little bit of insider economics trivia. The US government first estimated that GDP last quarter was a negative 3.8%. I wrote when that number first came out that it would be revised downward.
When the government makes its initial forecast of GDP one month following the end of a quarter, it has to estimate what exports and imports were for the last month of the quarter. There is simply no
data. For the 4th quarter of 2008, they estimated that the trade deficit would be about $34.5 billion, in line with what most economists thought. As it turns out, each $1 billion represents about 0.1% of GDP. So being off about $5 billion from the actual total of $40 billion subtracts another 0.5% of GDP from the previous estimate of -3.8%, taking it to a -4.3%.
Further, the government makes estimates about inventories which also affect GDP. When final numbers on real inventories come in, it will also add to the negative GDP estimate. Expect GDP to be in the range of a negative 5% for the 4th quarter, and the current quarter is likely to be almost as weak.
In the US, the leading economic indicators (LEI) continued to decline, but the leading indicators in the rest of the world were often much worse. (The chart below is again from Simon Hunt.) These are results from the OECD’s analysis of the leading economic indicators for a variety of countries. Notice in particular how poorly Russia and China are doing! Also remember that the LEI is about how the economy is expected to be doing in six months, not what is going on right now. This argues that there is no real global turnaround in the picture before the end of the third quarter, at the earliest.
China has seen its year-over-year exports drop by 17.5% and imports by 43%. These are not signs of a healthy economy. That being said, China is massively increasing bank loans and other stimulus-type spending to try and offset the effects of the global downturn. But putting 20 million people back to work in a short time is a daunting task.
Japanese GDP was down by 9% (!) last quarter. Many of the largest corporations are seeing exports drop by 20-30% and are engaged in massive layoffs, larger proportionally than in the US. The euro area economy dropped by 6% in the 4th quarter, led by an 8.2% contraction in Germany (JP Morgan). I could go on and on, but the news is the same. The global economy is in a deep and worsening recession.
In a few paragraphs I am going to put up a chart from Nouriel Roubini’s RGE Monitor on the size of US bank losses, and in a few pages I’ll comment on the Geithner “plan” for rescuing US banks. We have indeed dug ourselves a very deep hole here in the US.
But European banks may be in far worse shape. Bruno Waterfield of the London Daily Telegraph reports to have seen an eyes-only document prepared by the European Commission for the finance ministers of the various EU member countries. The problem revealed in the report is an estimated write-down by European banks in the range of 16 trillion pounds, or about $25 trillion dollars! The concern is that bailing out the various national banks for such an unbelievable
amount would push the cost of government borrowing to much higher levels than we see today.
As my kids would say, “Really, Dad, you think so?” Europe is somewhat larger than the US, so think what my gold-bug friends would say if the US decided to borrow $25 trillion to bail out US banks. The dollar would be crucified! The euro is going to get a lot weaker if bank
problems are even half of what the report says they are. The British pound sterling is already off almost 30% and, depending on what the real damage is to their banking system, it could get worse.
Waterfield reports, “National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors — particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
“The Commission figure is significant because of the role EU officials will play in devising rules to evaluate ‘toxic’ bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.”
Part of the problem is that European banks were far more highly leveraged than US banks. Some banks were reportedly leveraged 50:1. And they lent money to Eastern European projects and businesses which are now facing severe financial strain and plummeting local currencies.
Let that number rattle around in your head for a moment: $25 trillion. Even $5 trillion would be daunting. But the problem is that Europe does not have a central bank that can step in and selectively save banks from one country without taking on all euro zone member-country
banks. Yet, as noted above, some countries may not have the wherewithal to save their own banks. It is reported that some Austrian banks are hoping that Germany will step in and help them. Given Germany’s problems, they may have a long wait.
Now, let’s look at what Nouriel Roubini (www.RGEmonitor.com and professor at NYU) estimates for US banks losses. He puts the figure at some $1.7-1.8 trillion out of a total of about $3 trillion (I think) in total financial system losses. And Nouriel’s base assumptions are not all that bearish, given what we know: a 5% GDP contraction and 9% unemployment, with housing prices down another 20%. All those estimates are quite plausible.
And a quick promotional plug: my next recorded “Conversation” will be with Nouriel and his staff in a few weeks. See the link at the end of the letter to make sure you get your copy. Geithner: “You Can’t Handle the Truth”
The critics were quick to pan Treasury Secretary Tim Geithner’s bank bailout plan as being weak on details. Which was true. There wasn’t much substance in his speech. But let me offer a contrarian view. Geithner and the team around him may not be entirely tone deaf. They are very smart people and are surely in contact with major Wall Street figures, and would know that the lack of detail would disappoint.
Pretty much everyone knows the scene from A Few Good Men, where Jack Nicholson tells Tom Cruise, “You can’t handle the truth!” (www.youtube.com/watch?v=8hGvQtumNAY)
What if the number that the Treasury and the Fed are looking at is a lot more than the remaining $350 billion in the TARP program? As in another $1 trillion more, or even the $1.5 trillion that Roubini
says may be out there (and other independent analysts, like David Rosenberg of Merrill, say there may be another $2 trillion in losses). Can you imagine what the market reaction would have been if they had announced that this week? The Dow down 400 points would have seemed like a Sunday walk in the park. Congress would be screaming, and the chances for the stimulus package to pass would have materially diminished.
I don’t think we know the real extent of what it is going to cost to shore up the banking system. But the consensus among the financial leadership is that we have to fix the credit system no matter what
the costs, or risk a repeat of the Great Depression. That is the essence of what Irving Fisher taught us some 75 years ago, when faced with a deflationary debt crisis.
Reality check: The “stimulus” that President Obama will sign Monday is a band-aid. If Irving Fisher, who by some accounts was our finest American economist, was right, such a stimulus is useful in that it
helps those who are unemployed and replaces some lost consumer spending; but the real work that must be done is to get the credit system flowing again. I don’t have the space to go into that economic debate tonight, but it is at the core of the problem. It is Keynes vs. Fisher, von Mises vs. Friedman. It is, as Lacy Hunt says, “The Grand Experiment.” After 70 years, we are going to see who is right. My money is on Fisher. It is not an experiment that is going to be fun to live through; but when we have the next debt deflation in 70 years or so,
our grandchildren may know what to do.
We will see another stimulus package, probably by the end of the year. This time it will hopefully provide real stimulus. Much of the current version is simply an increase in federal spending that will be hard
to rein in. And please, I am not being partisan. That is the analysis of many of Obama’s advisors. And it goes back to the debate I mentioned. Keynes would argue that it is in fact stimulus. The other three economists would have differing views. And like I said, in a few years we are going to know who was right.
But the heavy lifting is going to be done by the Fed. Watch their balance sheet expand. And watch Treasury and the FDIC come back and ask for massive amounts of money to take over very large insolvent banks. Stay tuned.
Last week I said that 2009 as-reported earnings estimates for the S&P 500 would be dropping. 2008 earnings had dropped to $29.57 as I wrote the letter. They are now down to $28.60. One of my favorite
analysts is David Rosenberg of Merrill Lynch. His forecast for reported earnings for 2009 is now down to $28. That puts the P/E for the S&P 500 at 30.
He also projects “operating” earnings to be $55 for 2010. And, as he writes today:
“For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate.”
That is a 20% drop from today’s close of 829. That is not what you will hear from “sell-side” managers who want you to invest in their mutual funds and long-only management programs.
I noted the problem with the rest of the world earlier. 40% of the earnings for the S&P 500 are from outside the US. It is hard to see how those earnings are not going to be deeply affected. Let me reiterate my continued warning: this is not a market you want to buy and hold from today’s level. This is just far too precarious an economic and earnings environment.
Given the probable ongoing bad news from financial and consumer stocks, plus the depressing news on bank losses coming down the road, why take the risk?
This Monday I fly out to Colorado Springs to look at a very intriguing high-tech start-up. As gloomy as this letter was, there are so many cool opportunities to get involved with new companies with truly world-changing technologies. Maybe it is just serendipitous, but I am seeing more exciting possibilities than I ever have.
On Friday I am off to Florida for a conference sponsored by Cain, Watters & Associates, and then back home for a few weeks (maybe) before I head to New York in mid-March and then to Las Vegas to be with Doug Casey and friends at his “Crisis & Opportunity Summit,” March 20-22. Doug and his associate David Galland have really put together a great line-up. If you are interested in gold and natural resources, this may be a conference you want to attend. I always enjoy being with Doug and David, as they are old friends. And it is interesting to be at a conference where I am the “bull.” Click to learn more about the Summit.
I mentioned the edition of “Conversations with John Mauldin” I will be doing with Nouriel Roubini. And the one I did with Lacy Hunt and Ed Easterling, where we talked about the economics “Great Experiment,”
is up! We recorded it two weeks ago, and I thought it went very well for an inaugural talk. The complete audio and transcript are already in the Membership Library. We are getting very favorable reviews. Multiple readers have let us know that the first Conversation was worth their entire year’s membership. I am quite pleased with the first transcript and the response to it. After the release of banking data in early March, I will do a Conversation with good buddy Chris Whalen and a few real banking experts, on where the US banking system really is. I will offer it as a bonus to those who have already subscribed, as it will be more me asking questions than a real Conversation. I expect it to be very informative.
The regular price for a yearly subscription is $199, but you can subscribe now for $109 and still get access to the timely
Conversation with Ed and Lacy. Don’t wait, as I am sure my staff will only keep raising the price. To find out more, just click on the link and put in code JM75, which will give you the discounted price. https://www.johnmauldin.com/newsletters2.html
And for organizations that would like to purchase a discounted multiple subscription for all their brokers or partners, just drop Tiffani a note at conversations@2000wave.com and she will get back to you.
It is late and time to hit the send button. Have a great week, and enjoy the holiday weekend in the US!
Your on the lookout for more opportunities analyst,
John Mauldin
~~~~~
Copyright 2009 John Mauldin. All Rights Reserved
If you would like to reproduce any of John Mauldin’s E-Letters you must include the source of your quote and an email address John@frontlinethoughts.com) Please write to Wave@frontlinethoughts.com and inform us of any reproductions. Please include where and when the copy will be reproduced.
John Mauldin is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.
Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above.
As we begin to address regulatory reform in the financial services industry there is a clear consensus view that the credit rating agencies played a role in fomenting the crisis environment.
In February 2007, Joe Mason and I presented a paper warning of the risks that CDO market problems would present in the capital markets and in the real economy. “How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions?” http://www.hudson.org/files/publications/Mason_RosnerFeb15Event.pdf
In May 2007, we presented a follow-up paper more specifically detailing the role the rating agencies played. “How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions”. http://www.hudson.org/files/publications/Hudson_Mortgage_Paper5_3_07.pdf
My recently authored “Toward an Understanding: NRSRO Failings in Structured Ratings and Discreet Recommendations to Address Agency Conflicts”
appears as the lead article in the current issue of the Journal of Structured Finance. In the article I detail the fundamental flaws in the NRSROs rating of structured securities, why those problems are unique to structured securities (as distinct from single issuer debt e.g. corporate, municipal, sovereign) and why the problem is not solved by changing the “issuer pays” model nor using “market based” ratings. Instead I present a series of non-invasive recommendations that would resolve most of the problems in the ratings of structured securities. Such a resolution is fundamental to a revival of the ABS market and resumption of securitization activity on a sustainable and responsible basis.
I urge you to read the paper and would be more than happy to discuss it or respond to any questions you may have.
>
Source:
NRSRO Failings in Structured Ratings and Discreet Recommendations to Address Agency Conflicts
Winter 2009 Volume14,Number 3
The Voices of Influence | iijournals.com
http://www.iinews.com/site/pdfs/JSF_Winter_2009_Rosner.pdf
Via NYT
>
Source:
A Year in Iraq and Afghanistan
ADRIANA LINS de ALBUQUERQUE, ALICIA CHENG AND SARAH GEPHART
NYT, February 14, 2009
http://www.nytimes.com/2009/02/15/opinion/15opchart.html
That’s the question Bob Cringely asks.
Bob points out what might be an embarrassing error in a chart (below) — on the Banks/Financials no less — prepared by a JP Morgan Analyst:
It’s a chart showing the deterioration of major bank market caps since 2007. Prepared by someone at JP Morgan based on data from Bloomberg, this chart flashed across Wall Street and the financial world a few days ago, filling thousands of e-mail in boxes. Putting a face on the current banking crisis it really brought home to many people on Wall Street the critical position the financial industry finds itself in.
Too bad the chart is wrong.
It’s a simple error, really. The bubbles are two-dimensional so they imply that the way to see change is by comparing AREAS of the bubbles. But if you look at the numbers themselves you can see that’s not the case.
Take CitiGroup, for example. The CITI market cap dropped from $255 billion to $19 billion — a difference of 13.4X. If we’re really comparing the areas of the bubbles, that means 13.4 of those tiny CitiGroup-of-today bubbles should precisely fill the big CitiGroup-of-the-good-old-days bubble. Only they won’t. As a matter of fact it would take about 13.4 times as many little bubbles to fill the big bubble as the chart preparer thought or 179.64 little bubbles. Pi r squared, remember? This is because the intended comparison wasn’t two-dimensional but one-dimensional — the chart maker was intending we compare the DIAMETERS of the bubbles, not their areas.
My first read of this is that comparing height (i.e., bars rather than circles) would be accurate. Circles won’t work due to the squaring (π R squared) , where as diameters do not bring in a factorial change. That’s what creates the exponential rather than arithmetic change in the circle’s area.
I don’t have the original data, and I am wondering if this might be a simple Excel charting error [Update: Excel gives you the option of selecting Area or Diameter when choosing the circle chart as an option. I suspect this was a simple spreadsheet graphing error -- not a mathematics error -- but its embarrassing nonetheless]
If anyone has either the Market cap data handy, or wants to pull the teeny data from the chart onto a spread sheet, please email it to me at thebigpicture-at-optonline.net. Alternatively, if you can design a more informative/accurate graphic, please send that along . . .
UPDATE: 2/15/09 5:52pm
Several corrected versions of the original chart (below) follow . . .
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click for ginormous chart
>
Words from the (investment) wise for the week that was (February 9 – 15, 2009)
“Words from the Wise” this week comes to you from my abode in a visibly depressed Europe, from where I am compiling this report as welcome relief from gloomy conversations with taxi drivers and cheerless meals in deserted eateries.
Events during the past few days were dominated by the announcement of US Treasury Secretary Timothy Geithner’s financial stability plan and a deal reached by Congress on the economic stimulus bill. However, the much-anticipated bailout bang soon whimpered as investors were disappointed about the lack of “beef”. Meanwhile, markets were also mired in uncertainty on the back of fresh evidence of headwinds facing the global economy – notably in major economies such as the UK, continental Europe and Japan.
Jim Rogers gave the bank rescue plan a big thumbs-down: “(Geithner) … has been dead wrong about everything for 15 years in a row … This (the rescue plan) is not going to solve the problem, it’s going to make it worse.”
Referring to the stimulus bill, Steve Forbes said: “It’s just a grab bag of every spending proposal that’s been banging around Congress for years.”
And Bill King (The King Report) commented as follows: “A cure should have something to do with the diagnosis. The classic argument for fiscal stimulus presumes that the central cause of our current economic problems is this: We, the people and our government, are not doing nearly enough borrowing and spending on consumer goods. The government must step in to force us all to borrow and spend more. This diagnosis is tragically comic once said aloud.”
Stock markets were on the receiving end as risk-averse investors sought out the safe havens of the US dollar (+0.8% in the case of the US Dollar Index), gold (+3.1%) and bonds (with the yields of 10-year Bunds and Gilts down by 21 and 17 basis points respectively).
The week’s movements of the MSCI Global Index (-3.9%, YTD -9.0%) and MSCI Emerging Markets Index (-0.6%, YTD -2.2%) reflect global investors’ skepticism about the rescue plans. Strong performances came from China (+6.4%) and Russia (+14.3%), but still left these markets in the red by 61.9% and 63.0% since their respective bull market highs. As mentioned before, the chart pattern of the Chinese Shanghai Composite Index shows arguably one of the most bullish formations of the major stock market indices.
The major US indices suffered their worst weekly losses this year (to record five losing weeks out of six): Dow Jones Industrial Index -5.2% (YTD -10.6%), S&P 500 Index -4.8% (YTD -8.5%), Nasdaq Composite Index -3.6% (YTD -2.7%) and Russell 2000 Index -4.7% (YTD -10.2%).
John Nyaradi (Wall Street Sector Selector) pointed out that among the exchange-traded funds (ETFs) none of the main economic sectors registered positive returns, as summarized in the chart below. Not shown, the KBW Bank Index ETF (KBE) lost 14.3% on the week, and the Dow Jones US Real Estate Index ETF (IYR) 12.0%. The ProShares Short Dow30 ETF (DOG) led the way among inverse funds with a gain of +5.3%.
Source: StockCharts.com
As investors became more fearful of the economic situation, gold bullion (+3.1%) assumed its traditional safe-haven role. “Inflows into gold-backed exchange-traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tons. Last month’s flows of 105 tons were above September’s previous record of 104 tons, and absorbed about half the world’s gold mine output for January,” said Barclays Capital, as reported by the Financial Times.
The chart below shows the long-term trend of the yellow metal (green line) together with a 14-month rate of change (ROC) indicator (red line). Monthly indicators come in handy for defining the primary trend. In this case the ROC line above zero depicts the bull market in bullion that commenced in 2001. And there is more to come: According to Gary Dugan, the chief investment officer of Merrill Lynch, gold prices may hit US$1,500 an ounce in the next 12 to 15 months.
Source: StockCharts.com
In addition to last week’s bailout actions, policymakers are also working on a housing subsidy plan that will use government money to help reduce interest rates for struggling borrowers. The details are to be announced by President Obama on Wednesday.
A classic cover indicator, now 9 years old, via Business Week.
Dated this February 14th 2000, it was a mere month from the ultimate top:
Time to celebrate. This month, the current economic expansion became the longest in U.S. history. The boom has done more than create millions of new jobholders and stock owners. It has also restored the public’s confidence and given more people than ever a shot at the American Dream. We tell the story
>
Sources:
How Prosperity Is Reshaping the American Economy
Rich Miller, Laura Cohn, Howard Gleckman, and Paula Dwyer
BUSINESSWEEK: FEBRUARY 14, 2000
http://www.businessweek.com/archives/2000/b3668001.arc.htm#B3668002
The Risk That Boom Will Turn to Bust
Michael J. Mandel
BUSINESSWEEK: FEBRUARY 14, 2000
http://www.businessweek.com/archives/2000/b3668001.arc.htm#B3668019
The Boom
BUSINESSWEEK: FEBRUARY 14, 2000
http://www.businessweek.com/archives/2000/b3668001.arc.htm
I have a few S&P500 earnings posts in the queue, but Bob Bronson’s chart was a good place to start. Bob notes that the S&P has finally updated their 4Q earnings, which (predictably) have collapsed.
If you recall my November Barron’s interview, the collapse of earnings was what prevented me from becoming too bullish then, even though we were expecting.
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click for ginormous chart
chart via Bob Bronson Capital Management
>
Previously:
The Barron’s Interview: A Leading Bear Turns Bullish, Sort of (December 7th, 2008)
http://www.ritholtz.com/blog/2008/12/the-barrons-interview/
(free version of full interview at Smart Money)
Related:
S&P heads to first quarter ever of negative earnings
Kate Gibson
MarketWatch, 4:29 p.m. EST Feb. 13, 2009
http://tinyurl.com/spxnegativeearns
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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