GDP Worse, Not Better,Than Expected
Bill King notes in the Think Tank that GDP was actually worse than consensus expected.
How is a minus 1% worse than a minus 1.5% ? He looks at the first half of 2009, and blames the Q1 revisions:
“We will again utilize basic math to illustrate the scam. If Q4 08 GDP was 100 units, and Q1 09 was reported at -5.5% and Q2 09 GDP was expected to be -1.5%, the expectation was for GDP of 100 units minus 5.5% or 94.5 units, minus 1.5% or 93.08 units.
With the revision of Q1 09 GDP to -6.4% the Q1 GDP units become 100 minus 6.4% or 93.6 units. So Q2 is minus 1% or 92.664. Ergo aggregate GDP was worse than expected!”
The 0.5% GDP beat comes on top of a 0.9% downward revision. Hence, the net surprise was a compounded negative 0.4%.
And that’s before the likely downward revisions to Q2 . . .
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August 3rd, 2009 at 7:20 am
Obviously, traders are emphasizing the most recent data (pre-revision)
August 3rd, 2009 at 9:30 am
So when does everyone show their cards and realize the house was bluffing?
I can’t believe this charade has gone on as long as it has.
August 3rd, 2009 at 9:39 am
Fake it until you make it, or fuck it and break it. The Emperor has no clothes, has no legs either. I do not understand the logic. Castles in the air are better than castles on the ground and if the castles tumble down, at least there would be work for the people. It is as if there trust is in the wrong places.
August 3rd, 2009 at 10:00 am
This is pretty illogical, Barry. King takes *a single* datapoint and compares it to another *single* datapoint, implying that the future will be the same as a *single* moment in the past. That’s not reasonable or logical. Why not compare multiple datapoints and determine whether a trend exists? IE compare preliminary vs final quarterly GDP numbers for the last 10 years to determine an average margin of error?
Here’s why:
1. By definition, cherry pickers only use single datapoints, and
2. Such an approach might not yield the bears’ desired outcome
~~~
BR: I think what Bill is saying is there was an exuberant response to Q2 data “beating” consensus, while the significant Q1 downward revision was ignored.
He is comparing the Q2 data against Q1 + Q2 data. It is neither cherry picking nor random.
As I noted, traders put more emphasis on the most recent news — but Bill still makes a good point . . .
August 3rd, 2009 at 10:09 am
Bottom line: All of the “official” (government and industry association) numbers are always wrong, and always skewed to the positive.
Always.
Other than their value as a study in propaganda and political control, I don’t know why we pay them any attention.
We are in an environment where “not as bad as expected” has come to mean “good” (overemphasizing projected decline lets you report ‘better than expected,’ every time). Accounting rules and reporting requirements have been redesigned for the sole purpose of obfuscation (as opposed to an honest reckoning of accounts and balances). There is an obvious disconnect between what we know or can observe vs. what we are told.
All things considered, it is reasonable to expect that US GDP will be flat or declining for quite some time. Who needs bad numbers?
August 3rd, 2009 at 10:10 am
GDP is off by at least 30% to begin with.
http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers
30% of 2008 about $14,200,000,000,000.00 is a 4.2 trillion dollar mistake.
A report that is off 30% to begin with should not even be looked at, yet it is a leading edge indicator.
You own a home? Great, the BEA figures what you would pay in rent and then adds the rent you don’t pay to GDP.
Enron would be jealous!
August 3rd, 2009 at 10:14 am
Whooooaaaaa dude, are we talk’n data points, way cool.
1) You know durning the summer I spend time picking cherries and we usually use ladders, but hey man if a data point can help with get’n the cherries off the trees all the better.
2) So it is ok for the goberment to use single data points but no one else, hey makes since to me.
Hey will someone pass me the bong.
August 3rd, 2009 at 10:15 am
@ Marcus:
>We are in an environment where “not as bad as expected” has come to mean “good” (overemphasizing projected decline lets you report ‘better than expected,’ every time).
Not only that, but there’s a pattern of the following:
1) When numbers come in “better than expected” -> Yay! Happy days are here again
2) When numbers (rarely) come in “worse than expected” ->
“Don’t worry, {fill in the stat} is a backwards looking indicator”
HCF
August 3rd, 2009 at 10:22 am
@Justin
>Castles in the air are better than castles on the ground and if the castles tumble down, at least there would be work for the people.
I think it’s more like Jimmy Hendrix said:
“And so castles made of sand fall into the sea, eventually.”
Short-minded politicos are looking for poll numbers and increased consumer spending. ‘Nuff said.
August 3rd, 2009 at 10:23 am
@Marcus
Well, if all the gov’t numbers are always wrong, and they’re always wrong to the upside, then what’s the difference between this GDP number and GDP numbers from last year or 10 years ago? IE, what is “normal?” Is there an objective measurement that is available and absolutely accurate, or are there assumptions that go into calculating even the final GDP number?
My point is that “normal” is what matters, not necessarily deadly accuracy. In a desert where the average daily temperature is 125 degrees, 105 is a cool day! If all the GDP numbers are always wrong, then we should look at the relative change rather than the headline number. So it doesn’t matter whether Q2 GDP was -1% or -2%. All that matters is that it was *orders of magnitude* better than the -6.4% in Q1.
Also, this is interesting. The GOP is trying to kill Cash for Clunkers as a “bailout.” It seems to me this is their greatest fear: an Obama program that is wildly and immediately successful. If I was a member of the GOP, I’d be terrified of the answer to “What if it works???”
http://www.nydailynews.com/news/politics/2009/08/03/2009-08-03_clunkers_deal_a_real_clinker_sez_irate_gop.html
August 3rd, 2009 at 10:25 am
Or you can look at it this way…
2007-Q1 = positive
2007-Q2 = positive
2007-Q3 = positive
2007-Q4 = positive
2008-Q1 = negative
2008-Q2 = positive
2008-Q3 = negative
2008-Q4 = negative
2009-Q1 = negative
2009-Q2 = negative
August 3rd, 2009 at 10:28 am
If I was a member of the GOP, I’d be terrified of the answer to “What if it works???”
It might work… seems to be popular. However, it is another example of picking tomorrow’s fruit today to avoid starvation. Works for today… but the stock market is supposed to be an investment in tomorrow. How will that work out, I wonder?
August 3rd, 2009 at 10:31 am
Yea Markus, what happens when the inventory of cars on the market gets bought up, then GM is going to start re-tooling it’s plants and start highering more unemployed. Give it 6-7 months you will see Cash for Clunker plus another 1.5 TRILLION dollars and everything will be perfect.
Well at least in my world it will be.
August 3rd, 2009 at 10:36 am
Let’s illustrate another “scam” which confirmed yet another one of my suspicions. The USG must think everyone other than themselves are idiots.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aucooSmI6UQQ&refer=us
So which is it? Was TARP designed to save the TBTF banks? Allow the banks to make more loans? Or to monetize the USG’s debt by providing banks with more capital to buy more Treasuries when indirect bidding waned, thereby keeping interest rates low in order to fund more consumer debt and to send a “clear” message to the rest of the world that everything in the U.S. is fine? Me thinks it was the latter.
No PPT??? What is this, creative accounting? I don’t remember that course…
August 3rd, 2009 at 10:37 am
The GDP-number-conspiracy theorists give comfort to the unfortunate investors who missed the rally after being convinced that “Obama’s a Socialist.”
From this weekend’s “Cash for Clunkers is actually a huge failure,” to Chris Walen’s “Citigroup’s bankruptcy is inevitable” re-distributed, of course, by productive conspiracy theoretician, “Zero Hedge”…
http://www.zerohedge.com/article/chris-whalen-bankruptcy-inevitable-end-game-citi
…to the daily unsigned, unattributed, large font emails they bombard their tin-foil folding constituents with; the party who’s main legislative initiative is a law to double check Presidential birth certificates has officially become the “Tabloid Party.”
August 3rd, 2009 at 10:37 am
I gotta believe they know the smarter players will see through the bs with the GDP estimates and revisions. In the bigger picture, as a broken healthcare system is fixed with more of what broke it in the first place, could the big change be justified this summer/fall if the tax increases needed were discussed honestly? Am I really off point? or does smearing GDP expectations make it harder to talk about what’s realistically coming in versus what is going out ?
How long before the Dem. brain-trust decides to go after “large bonuses” to pay for health care (using the emotional ax) and the conversation really makes no sense at all? It seems like every headline is evaluated to minimize emotional reaction…or maximize it. Everybody seems polarized with no agreement on where the middle really is…and that’s where and why honest data is so important right now. The masses read headlines, not these comments. How about creating a more reliable method since the government or the mainstream media will not?
August 3rd, 2009 at 10:37 am
Well gee…
On a day like this…don’t you imagine SOMEONE should probably get on the mike and talk up the dollar a little bit?
Franklin…did Timmy & your other pals in Washington just hit the ‘snooze’ button this morning?
August 3rd, 2009 at 10:42 am
Franklin:
You like the cash for clunkers idea? Well, let’s look at it….in order to qualify, the clunker must have had insurance for the previous 12 months continuously…what does that tell you? That if someone was driving this clunker, he/she couldn’t really have afforded to trade it in…even if they qualify for a government backed loan, the new car they purchase, they may not really be able to afford…
Are we asking people who really can’t afford to trade in their clunkers to go further in debt? Gonna get out of the recession on the backs of folks who really should be buying a better used car?
…Just asking you Frank………..
August 3rd, 2009 at 10:46 am
@Bruce in Tn
Wait until they roll out the “cash for clunker TV” program…That ought to be a big hit!
August 3rd, 2009 at 10:47 am
…and Bruce
Since people are probably going to end up SLEEPING in their new car, they might as well have a nice one huh?
August 3rd, 2009 at 10:49 am
@F411: The GOP is killing cash for clunkers? Mygoodness me. I must have missed somewhere that the GOP won control of Congress. I’d been told that the Democrats had a filibuster proof majority in the Senate. Those evil GOP’ers, trying to shoot something, and they don’t even have any bullets.
As for whether it matters that the GDP came in above or below expectations: It has only to do with psychology, meaning it has very little to do with reality. People will see what they want to see. About now, after the gloom of last fall, winter and spring has finally lifted, as people realized that “change we can believe in” really means just more of the same (people always fear the unkown, even if it may be good and necessary to try something unknown), the only way the numbers wouldn’t have been warmly received such that a positive spin was inevitable was if they had shown a massive decline, and everyone knew that wasn’t forthcoming. The world hasn’t ended! Hurray! It doesn’t mean things will ever get better, but that’s a reality that will take much longer to sink in.
Japan is still struggling with the idea that things might never get better–that they might never return to sustainable growth. They will continue to struggle with it until they either start producing more babies or they slowly fade away, but that’s another story.
August 3rd, 2009 at 10:50 am
I regret being a cheerleading beyatch in my misspent youth. If only I had listened to those grown-up folks on The Big Picture. I wouldn’t be an itinerant scholar teaching Kaplan SAT prep.
August 3rd, 2009 at 10:51 am
@cvienne:
Sometimes people, like Franklin, just look at the outside headline and don’t really think about what it means. I think I may rename him Lemming 411…..
August 3rd, 2009 at 10:52 am
Question: can anyone explain exactly why CIT Group is in trouble? Are CIT Group’s troubles (a) more of an aftershock related to the previous financial crisis or (b) a harbinger of some new future crisis, perhaps related to commercial RE or general business loans? I am trying to gauge whether CIT should be taken as a warning, much like Bear Stearns should have been a warning back in early 08. If something new is around the corner, is it big enough to destabilize the whole system again, just as residential RE did?
August 3rd, 2009 at 10:56 am
@TC
The GOP is *trying* to kill it. They won’t succeed–the program is too successful and too popular for that. If it was less popular, they could probably get some of the “Yellow-Belly” Senators such as Kent Conrad or Ben Nelson on their side. Thankfully, that is not the case.
And you can’t slice and dice your way around the fact that GDP has improved by several orders of magnitude under the President.
August 3rd, 2009 at 10:59 am
@cvienne “talk up the dollar a little bit?”
Now, that’s laughable. The boneheads on CNBC are asking why is oil at $71 a barrel when supply is much greater than demand? Now that the reflation trade is in full swing as the “all clear” has been given money is moving out of the USD and back into riskier assets. Now we’ll get a chance to see what the USD is really worth. Since 1913, about .05, last I checked. Hold on to your PMs and miners.
August 3rd, 2009 at 11:00 am
Just more negative talk Barry, using phony ideas like data and facts. You obviously don’t love your country enough to believe the “truthiness” that surrounds us. We don’t need real facts because we can “feel” the “truth.” If we allow this sort of analysis to creep into our minds, then the (economic) terrorists will win!
GDP is strong! GDP is strong! Just keep saying it to yourself over and over again. If something gets repeated enough, it will seem like the truth eventually.
August 3rd, 2009 at 11:17 am
@Barry Ritholtz
“With the revision of Q1 09 GDP to -6.4% the Q1 GDP units become 100 minus 6.4% or 93.6 units. So Q2 is minus 1% or 92.664. Ergo aggregate GDP was worse than expected!!!!”
Hence, the things are getting less worse at a faster rate than expected! Especially going from a -6.4% to -1 % rather than -5.5% to -1.5%. => we’ll reach the point of apparent GDP growth earlier than expected after Q1 was determined to be -6.4%. This is GREAT news for a depressed fellow.
August 3rd, 2009 at 11:23 am
Bill King has conveniently forgotten to mention that, in turn, the Q4 2008 GDP change was revised upward from -6.3% to -5.4%[*]. Thus taking the Q3 2008 GDP as reference instead would change the outcome of his calculation significantly. Of course, going back in time, successively from quarter to quarter would change it again and again, depending on whether the quarter has just been revised upward or downward. It doesn’t really fit into the explanation of things from the point of view of a conspiracy theorist, though. Unmasking alleged government scams and selling normal statistical revisions as “admission” of the government to have delivered wrong GDP data is much more fun. Mr. King has probably his paying audience who want to read things like this, like Bloomberg with its respective spin does too.
[*] http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm, Table 1A
rc
August 3rd, 2009 at 11:26 am
The way I look at it, eventually oil will get high enough in ANTICIPATION of recovery, that that itself will choke off the hopes of a recovery. I think Richard Bernstein on this morning’s Squawk Box was one of the few analysts who have seen this. Can anyone tell me how $70, $80, $90… oil is good for us in this environment? Unless you’re an energy trader at a subsidiary of Citibank…
HCF
August 3rd, 2009 at 11:31 am
@Bruce N Tennessee :
“That if someone was driving this clunker, he/she couldn’t really have afforded to trade it in…even if they qualify for a government backed loan, the new car they purchase, they may not really be able to afford…
Are we asking people who really can’t afford to trade in their clunkers to go further in debt?”
NO!
Maybe you’ve been missing the deals, Ford/Kia/GM/Chev match the Gov’ $4500 with $2500-4500.
http://www.fatwallet.com/forums/deal-discussion/942835
Would you say no to a Ford Focus for $8,535. Or…. a Kia Spectra for $5,550 (ok, maybe sucky car…)
If I had a qualifying clunker…… . I’ld be all over this. Added benefit you get rid of <20mpg cars and substituting them with 30mpg cars and you’re jump starting the car industry. Personally I think $4500 should have been $3000/ car. I rather see this program than a another bail out. The program worked well in Germany.
August 3rd, 2009 at 11:35 am
“And you can’t slice and dice your way around the fact that GDP has improved by several orders of magnitude under the President.”
Right. No slicing and dicing here. Less bad is good, even if revisions to the last quarter made the less bad that it was more bad. I keep a little bobble-headed Obama on the dash of my pick-up trick just so’s I can see my savior on a daily basis. I used to worship the environment. Now I got’s me a real God, in the flesh. He’s almost like Jesus, ‘cept with curlier hair.
I can drive a hunner’ miles an hour, ‘long as I got the holy power, up’ere on the dashboard of my car.
August 3rd, 2009 at 11:36 am
@ HCF time to trade oil in Euro, or some basket of international currency.
Dollar has been dropping ~10% against many currencies since early June.
August 3rd, 2009 at 11:38 am
How many more people are buying cars right now because of the clash for clunkers program? Simply arguing that it’s a “huge success” because all the money has been used up doesn’t necessarily mean every person taking advantage of the program wouldn’t have bought a car anyway. How MUCH are sales up since this program was instituted? Also, are we sure that we’re not just moving vehicle sales up a few months because of this program? What are sales going to look like in the fall and winter when this program ends? I would be more convinced that this program is a success if auto sales are not only greatly improved, but stay that way.
August 3rd, 2009 at 11:41 am
@super_trooper
I agree it’ll work well for a time…
Problem is, most with qualifying clunkers are now probably about to take on even more debt (albeit small)…
Many of THOSE will probably end up defaulting, it’ll crimp expenditures for other items, gas going back to $80 on speculation will negate the fuel efficiency differential…
And since there will be an artificial “spike” in new car purchases, there will likely be a “trough” going forward…
I wonder what miracle incentive we’ll come up with then?
August 3rd, 2009 at 11:43 am
Bill”s logic holds, but there’s a small glitch in his math. We’re dealing with annualized numbers. Actual GDP has only fallen 3.9% in absolute terms from Q2 of 2008 to Q2 of 2009. A 6.4% fall in GDP in a single quarter would result in riots on the streets. I think the only place where that has happened so far is Lithuania.
August 3rd, 2009 at 11:43 am
@Thor, 250000 cars sold in 3 days. Then ran out of money.
I would agree that the program should have lasted for maybe 3-6 months to make sure a sustainable growth would occur. Moreover, a subsidy of $3000 rather than $4500 would be enough incentive and last for more cars.
August 3rd, 2009 at 11:43 am
@super_trooper:
Agree that oil should be traded in a basket of currencies. Our nation has really abused the “reserve currency” status and the dollar seems to be trading more like a third world currency these days.
HCF
August 3rd, 2009 at 11:54 am
@cvienne, after the “spike”, the economy will magically be much better and we’ll be back to 16 million cars sold annually! If you just pray hard enough it’ll happen.
August 3rd, 2009 at 11:59 am
I pray to my little dashboard Obama every day, while his little head bobbles its way down the road.
August 3rd, 2009 at 11:59 am
THOR:
At $1B and assuming everyone gets the maximum rebate of $4500, it stimulate sales by 222,222 vehicles. Almost a rounding error compared to the 15-16 million run rate the industry was selling prior to the Lehman bankrutpcy.
The problem I hve with the program is it does not target the truly needy. Mike Jackson of Autonation said the average C4C customer has a FICO of over 700. Basically, they’re frugal misers who drive ‘em til the wheels fall off. If my tax dollars are going to help someone buy a car, I’d prefer those tax dollars go to the lower wrungs of society rather than some middle class or upper middle class tightwads who could easily finance a car without the tax assistance.
August 3rd, 2009 at 12:10 pm
My dad has been spending a lot of time at the golf course and he’s been talking to quite a few business owners.
All of them have agreed that times are tough but that despite revenue drops they have not cut their workforce too much because it’s too hard to find good people. Each one said that if they had to cut, they would not be able to golf as much because they would have to be at the office. The cuts would surely affect emplyee morale and they’d have to keep a better eye on their employees.
Last week Ubisoft announced a 50% drop in revenues, yet they are still going with no cuts in the budget for the rest of the year. I think a lot of companies are holding on but when reality sinks in, the cuts will sting.
August 3rd, 2009 at 12:17 pm
TC:
Believe me, it never gets old having Franklin and VennData highjack every thread into either a cheerleading Obama Lovefest or a conservative bashing session. And if we’re lucky, on special days, we get both.
August 3rd, 2009 at 12:31 pm
had to laugh a little at the wording…
NEW YORK, Aug 3 (Reuters) – U.S. stocks advanced on Monday, pushing the benchmark S&P 500 Index .SPX above the psychologically important 1,000 level, as investors welcomed fresh indications that the recession is abating…
http://www.reuters.com/article/marketsNews/idCAN0351318820090803?rpc=44
“psychologically important 1,000 level”
It’s just a number that was breached… so everyone invest, invest, invest!
“welcomed fresh indications”
a new twist on the “right now” data to make the future look good!?
disclosure: was short, got stopped out :(
jumped in to early, almost everyone agrees the recovery will be slow but the markets performance during the last 4 or so months have performed like nothing wrong. I guess don’t fight the trend!
August 3rd, 2009 at 12:37 pm
Hot off the wire.
SEC charges Bank of America with making materially falsely statements. There she goes down!
When is this ponzi scheme going to end?
August 3rd, 2009 at 12:41 pm
@supertrooper:
So, you think buying a new car for people who couldn’t before is wise? My point is that most of these people would have been better off buying a good used car, with say, another year of warranty, than buying a new car and having that instant depreciation.
Buying a new car is a thrill, but for people who don’t have money, it is usually a much worse idea than a good used car. Initial depreciation is a non-starter, no matter what the deal.
And I understand the deal looks attractive to you and me, but you can afford a new car, and haven’t been driving a dog for the last 12 months…in point of fact, most of us would be just as happy with a two year old car when we trade in if it were in good condition….
August 3rd, 2009 at 12:46 pm
A Ford Focus? Howaboutaskateboard?
How about a two year old Prius?
August 3rd, 2009 at 1:18 pm
I’ve seen some studies that suggest building a new car uses incrementally more energy and pollutes in a way that this CARS program doesn’t really do anything for the environment. Any one who talks about this helping the environment is spewing forth propaganda. I liked this program a year ago when I first heard Alan Blinder discuss it….it’s a decent way to clear a glut of cars AND if you don’t build any more cars, then it has some environmentally positive side affects. The problem is we needed to just clear out a glut cars and then just shut down the factories. This is all going to end badly if the carmakers take this as some sort of “turnaround.” They should just realize what it is….a one time boost to sales to help clear some of this shit out, help repair the balance sheets a little bit….
August 3rd, 2009 at 1:19 pm
CLUNKER-NOMICS
From David Kotok (Think Tank thread)
a must read
…excerpt
“Has anyone looked at what we have done in a macro sense? We will try.
The United States borrowed 1 billion dollars. It is unlikely to ever pay it back. The annual interest will add $50 million to the federal budget each and every year, forever. We are assuming it is financed today with 30-year Treasury bonds. The additional $2 billion of borrowed clunker money will add another $100 million in interest. So clunker-nomics has committed the nation to make this interest payment forever.
Practicing an industrial policy by inserting government into a mixed economy is the new America. No one measures the exchange of short-term gain being substituted for longer-term taxes or inflation or debt-burdened slower growth. Those economists who are full believers in expectations analysis argue that the market will immediately adjust prices to reflect this exchange. Maybe so in the mathematical models that they use to justify that argument.
We think this expectations analysis fails in the real world. Adam and Eve American are not economists. They make their decisions for their individual benefit and in terms they can understand and assess. They know what a $4500 free gift is. They understand it. They do not deal with trillions of dollars; they do not conduct ever-increasing auctions of Treasury notes and bonds; they do not deal in foreign exchange and reserve transfers. That is not their fault. The have daily lives to live and they are facing their own struggles.
So they delegate some of these borrowing and spending decisions to the Congress because they have no other choice. In the House the long term is limited to the two years until the next election cycle is faced. So the House will easily exchange $1 billion in spending for $50 million in added budget interest.
Thus we have an asymmetric exchange. We gratify now; we borrow to do it; we defer the day of reckoning; it grows bigger and bigger but seems to be perpetually deferred. Every once in a while a crisis unfolds and the system fails, as it did with Lehman Brothers last September. That triggers a new round of upward ratcheting of this asymmetric system.”
August 3rd, 2009 at 1:22 pm
can’t be a 2 year old prius , has to be new. my dad was thinking of trading in his old car to get a new pruis. and 3000-4500 would only be valuable for a truly old car or one in really bad shape. user car has been really hot of late. and considering the car demand destruction, doubt we are seeing much pull forward of that. is clunkers a good thing? not so sure. but it does seem to work for some. course its dead till Congress puts money into again. can some of the folks be getting them selves into trouble by buying a new car? sure. just like any thing else. but since most of the captives and banks too, are really stringent on loans, maybe not so much any more.
is a Focus a bad deal for those on a budget? probably not, lots cheaper than that Prius.
or a Cobalt, or many others.
August 3rd, 2009 at 1:24 pm
@Andy T
It looks like the dollar is on course to make a pretty classic “5″
August 3rd, 2009 at 1:25 pm
Definition of addiction-short term gain for long term pain
August 3rd, 2009 at 1:25 pm
… and it (market) climbs up and up and up…
August 3rd, 2009 at 1:29 pm
cvienne: Not sure about that clunker nomics thread in the Think Tank.
If the government kicks in 3BN to stimulate the sales of 750,000 cars (3bn/$4,000 per vehicle ave.), then you would have to assume sort of economic benefit to the car companies that sold the 750,000 autos as well as other people involved in the process….it sort of seems like a cheap way to get the real economy to do 150bn in sales (750,000*$20,000 average sales prices)….
I’m making up some roundish numbers, but I think you get my point….I would consider this programs sort of like “low hanging” fruit stuff in the sense there were probably people out there willing to buy (but scared) and there were car companies out there sitting with inventory. The problem is there aren’t that many people out there wanting/needing a car…so it’s a smallish program.
The next thing they should do is thinking about massive tax credits for businesses willing to buy a piece of machinery(or kit) or form new businesses….etc….they need to figure out ways to start giving these sorts of bigger carrots out to businesses who may be on the sidelines, but a little scared of making a purchase or expanding business….
August 3rd, 2009 at 1:30 pm
http://www.zerohedge.com/article/guest-post-grand-unified-theory-market-manipulation
This link from Zerohedge documents the Fed pump and provides some reasonable speculation of the future. It’s been going on since Late March and the documentation here goes through July 31. The best part is the paint the tape average graph that looks just like the S&P on pump days.
Perhaps it should be subtitled: Why Shorts Can’t Win.
August 3rd, 2009 at 1:30 pm
@willid:
That is my point..a Ford Focus? It is a rattle waiting to happen…..give me the Prius that is two years old, a much better value….why do you think Toyota has been beating the pants off of the big 3 the last decade or so? It is because they are building quality…I wouldn’t buy a Ford Focus even if it was Franklin’s money…
August 3rd, 2009 at 1:32 pm
In retrospect, I didn’t drink enough this weekend to get thru this day : (
Perhaps worse, i just let myself buy some FXP. I’m turning into a punishment glutton…
August 3rd, 2009 at 1:32 pm
cvienne Says:
August 3rd, 2009 at 1:24 pm
@Andy T
It looks like the dollar is on course to make a pretty classic “5″
~~~~~~~~~~~~~~~~~~~~~~~~~~
Yes, now the only dynamic is understanding from “where” did the fifth begin….that’s more of question for the folks looking to nail the absolute bottom, but the dollar is clearly trying to find a floor.
As a trader, I wouldn’t touch it yet until i see some sort of bottoming action….some sort of 30-60 min “five wave” off the floor….
August 3rd, 2009 at 1:34 pm
@Andy T
We’ll see, but as many have mentioned before, most likely $20,000 cars aren’t the ones going out the door (it’s the cheaper ones)…
2nd…It still robs from the future (unless someone REALLY thinks the economy is going to rebound in 24 months or so…
Worse, SUCCESS is kind of a scary thing…It basicallt makes it EASIER now for Congress to continue justifying this type of expenditure ad infinitum (because it may be popular)…All I can say is they’ve most likely locked up the Michigan vote forever…Good job!
August 3rd, 2009 at 1:36 pm
@Andy T
re: dollar
Well to me, June 15th looks like it may have started a 5 within a 5…
August 3rd, 2009 at 1:37 pm
http://www.usatoday.com/money/autos/2008-10-23-cr-reliability-ranking_N.htm
Asian brands dominate car quality rankings; Scion most reliable
“Japanese products held the top spots for predicted reliability of 2009 models in every vehicle category. Japanese or South Korean brands held the top 10 spots in the separate ranking of full brand lines. Toyota’s Scion scored a double: Best brand overall, and its xD model was the top small car.”
I just wouldn’t buy the Ford…cheap cars by the big 3 are usually more pain than they are worth…give me a Toyota with a few miles on it, and I can keep it another 8-10 years…in 8-10 years my Ford Focus will be seeing a new life as cutlery….
August 3rd, 2009 at 1:38 pm
RE the zerohedge pump article:
The Fed can’t maintain the pump forever. It looks ridiculous now. In another 200 S&P points it will look as phony as a $3 bill even to CNBC.
I suspect, and am probably being overly optimistic about the brains behind the pump, that a 20% correction is on the horizon. This will create room for another pacifying stock market ride. A fall of that magnitude won’t be too frightening, and. most importantly, it will create a flight to safety into US debt, lowering rates. Holding back a regular pump payment or two might be all that is required to push it off a cliff. Or maybe removing some liquidity temporarily from the iBank pool of funds.
August 3rd, 2009 at 1:45 pm
cv.
Right. Don’t get me wrong. I’m against almost all forms of government intrusions. I’d rather we just abolish the Fed and let the market place set the price of money/credit and just let the business cycles run–booms and busts are OK in my view of things. We need to kill the Dept.s of Education, Interior, Agriculture, Energy, HHS, Homeland Security and then resign our role as world super police as well. Then, at that point, we could just blow up our tax code and replace it with something efficient, sending millions of accountants and tax lawyers back to school to learn a new trade.
All these things I would like to see happen, but we’re in so deep at this point, there’s no way out. So, I guess I appreciate the government intervention that “sort of” makes sense.
August 3rd, 2009 at 1:48 pm
@dh
I hear a lot about what Hoover & the Fed “didn’t” do back in the 30′s…
But how many have any notions of what would have happened if they’d just tried to REFLATE everything and party like it was 1929? (basically what we’re doing now)…
Does anyone REALLY think the GD would have been averted?
I guess we’ll see, but it seems to me that perhaps the GD would simply started a few years later…as GD2 seems destined to be…
August 3rd, 2009 at 1:52 pm
cvienne Says:
re: dollar
Well to me, June 15th looks like it may have started a 5 within a 5…
I guess that’s possible, but it would mean a very unusual 1 of 5…
The classic interpretation would be it finished on 7/13-14 and it was a triangle fourth that concluded at an exat 23.6% retrace….if so, we’re in the middle of the 3rd of 5….so, a little more to go….the apex of the triangle on the Euro concludes around 8/10? so maybe next week we finish??
August 3rd, 2009 at 1:59 pm
cvienne Says:
August 3rd, 2009 at 1:48 pm
I guess we’ll see, but it seems to me that perhaps the GD would simply started a few years later…as GD2 seems destined to be…
reply:
—————–
A pump this aggressive makes Greenspan’s mess look like a little puddle of excess liquidity. All this cash has to go somewhere. Both stocks and commodities are the destination of choice.
Logically, the pump will raise commodity prices to bizarre levels and, consequently, make ordinary life unaffordable for those who no longer have benefits left. If cash goes out for required oil based products, it won’t go out for anything discretionary. Thus, the pump will have a long term effect that is just the opposite of what is probably hoped for.
People will feel better about their 401k accounts, but jobs will continue to disappear as a consequence of lowered discretionary spending . This will be a negative spiral.
I really think we are headed towards a theoretical impossibility … high asset prices and excess capacity. Unaffordable assets in a deflationary economy.
August 3rd, 2009 at 2:40 pm
Karl Denninger was on CNBC trying to explain this to Dennis Kneale. Along with the revision there are a bunch of other things not the least of which is big increase in government spending (on defense) which sounds good in theory until you realize each dollar of government propped up GDP has nowhere near the impact of a dollar of private GDP.
August 3rd, 2009 at 3:05 pm
@karen
“I’m turning into a punishment glutton…”
Welcome to the bear camp! LOL ;)
August 3rd, 2009 at 3:08 pm
On the dollar, I think a fifth wave started (4th wave triangle ended) on July 8th. Add there is, to me, a very clear 5 waves down since then. I usually only use waves where it’s easy to see. And I think I see it here.
Also, sterling nearly touched 1.70 today which is an historic level. I’ve taken a decent position again shorting sterling and also shorting silver. Hoping to add to it if it goes my way. Medium term trade.
I-man: I downloaded the Trader video from uTorrent. I’ve never used “torrents” before, but it was reasonably simple. 1) downloaded uTorrent from uTorrent.com. 2) googled for Trader video market folly, which had a link to the torrent. Took about 15 minutes. 3) ran it on Windows player, but I also had to download a codec for it so I could see the video (was only getting audio initially)
August 3rd, 2009 at 3:16 pm
@Andy T
quote: This is all going to end badly if the carmakers take this as some sort of “turnaround.”
That’s one (of many) of my problems with these friggen programs. When govt tinkers around and decides what we should be buying by throwing money at them like CFC, tax deductions (e.g. housing), etc., they distort the market and false signals get sent about what demand is and then capital gets misallocated. I think we’ve had enough of that already over the last decade or more.
Granted the auto makers should be smart enough to know that this is artificially pumping up demand, but even if they recognize that how do they actually know what normal demand really is in the market? So now they have to guess about that and hope they get it right. It’s always hard to do, but now it’s been made even harder.
The same goes with the housing market, of course. It just gets more and more distorted. Where does it end? It’s just soooo exasperating.
August 3rd, 2009 at 3:22 pm
The equity markets may have a case of extreme priapism, but at least I got a big laugh from the Big Picture this afternoon. My, we have a multiplicity of franklins these days. Well, if we’re going to print more dollars, we might as well print more franklins. I really like f411′s dopplegangers.
August 3rd, 2009 at 3:26 pm
Cursive. “priapism”….that was my word for the day…had to look it up again….wish I could paste the definition here but I’m pretty sure wordpress would swallow it….
August 3rd, 2009 at 3:33 pm
@karen. You probably drank enough this weekend for this sort of action. The issue is you probably need more to drink TODAY.
There was nothing about those daily candlesticks on Friday to suggest any kind of reversal today….the beatings for bears will continue until morale improves, or capitulation.
August 3rd, 2009 at 3:42 pm
Andy – you and me both! I’ll post it and see what happens -
Priapism (Ancient Greek: πριαπισμός) is a potentially harmful and painful medical condition in which the erect p***s does not return to its flaccid state, despite the absence of both physical and psychological stimulation, within four hours. Priapism is considered a medical emergency, which should receive proper treatment by a qualified medical practitioner.
August 3rd, 2009 at 3:46 pm
There is a difference between being a bear because of what you believe really exists and playing the direction of the market today. As we all should realize mr. market is not a logical creature; at best he is a random mess.
August 3rd, 2009 at 4:09 pm
priapism
Perfect metaphor for the markets right now! Genius Cursive (unless you stole it from elsewhere; in which case it’s just really good theft :) )
August 3rd, 2009 at 4:11 pm
The bears here seem to have given up. I follow this blog every day and it has be quite a while since I have encountered any good banter about corrections and re-tests. This 3-week rally has been so powerful that I have started to question the inevitability of any significant correction. There is clearly something supporting this market (and I am sure we all have our theories).
So does anyone here still expect a significant late summer/fall correction? Or are some of you (like me) starting to come around to the possibility that the 2009 crash is COMPLETELY over…despite all of the unfavorable data?
2010 or 2011 could be a different story, of course.
August 3rd, 2009 at 4:13 pm
The Priapism Chart Pattern: This is a technical pattern where prices move so quickly higher that the line on the chart will start to bend backward, thus altering space-time relationships.
August 3rd, 2009 at 5:08 pm
flounder Says:
August 3rd, 2009 at 4:11 pm
? Or are some of you (like me) starting to come around to the possibility that the 2009 crash is COMPLETELY over…despite all of the unfavorable data?
reply:
———-
Flounder, you are obviously uneducated in many areas or you are being sarcastic and it’s not translating well. Never confuse what is going on in the stock market, especially now, with the general economy. The stock market is not a barometer of financial health. It never has been, although it is often a coincident indicator. At this time, it is only a measure of liquidity and forming an asset bubble.
I have relatives who are out of work and have exhausted unemployment benefits. I would only speak of hope and optimism to them even though things are not well. Hopefully, you’re not a budding daytrader who thinks a 1000% percent gain is just around the corner. The television and much of the print media is a horrible place to learn about the current state of economics. Especially CNBC. If you listen to them, you will go broke.
August 3rd, 2009 at 5:29 pm
@DH
Nice response. The venom quotient is a little high.
Did I equate the market with the economy in my post? Did I promote the MSM’s vision of our economy? Didn’t think so.
My comments/questions are about the market…period. I am not interested in “going long” after a 50% rally. On the contrary, I am looking for a entry to short the market. I am concerned, however, that we are not going to see the correction that was so frequently discussed at TBP until this absurd moon shot over the last few weeks.
This is a smart crowd. I wanted to know what others might be thinking.
If you want, you could address the topic directly.
August 3rd, 2009 at 5:47 pm
flounder-
the USG is supporting the whole economy- with zero % rates- with FDIC insured corporate issuance of bonds- with TARP money for banks- with government ownership of C , GM and AIG, with expanded FHA loan limits that allow 3.5% down on a loan to $729,750 so that FHA now comprises most of the loans in the country (and with Fannie and Freddie) have taken over the mortgage markets completely-
so the question becomes- how long can the USG keep it up? The real economy has broken down- can the USG support everything indefinitely? Once the USG takes a tenative step away from full unconditional support- what will happen?
August 3rd, 2009 at 6:26 pm
I remember in ’96 thru ’00, every week Alan Abelson would castigate the Nasdaq. Well if you miss a 50% move you’re just wrong. You might not like them, but f411 and cnbc have been right for five months.
Future performance may not match past results. You can be right or be happy. Tight stops are a good thing.
August 3rd, 2009 at 6:28 pm
flounder Says:
August 3rd, 2009 at 5:29 pm
This is a smart crowd. I wanted to know what others might be thinking.
If you want, you could address the topic directly.
reply:
——–
My response matched your tone. No good deed goes unpunished. I felt a little sorry for you and tried a little tough love. Apparently, I wasted my time and effort on a smart guy like you. Put it all in. The market is going past the moon and on to Mars. It’s really all over. Time to jump in completely.
August 3rd, 2009 at 6:36 pm
call me ahab Says:
August 3rd, 2009 at 5:47 pm
the USG is supporting the whole economy ….
reply:
———
You forgot the Federal Reserve Bank of NY pumping the market using open market operations, or so says a report on Zero Hedge. Their UST purchases match pump days about 40 or 60 days going, I can’t remember which, starting late March through July 31.
August 3rd, 2009 at 6:57 pm
Thanks for the response, ahab. You seem to have a grip on basic etiquette, unlike DH.
I appreciate your point — there is a limit to the government’s financial support. But in the meantime, bubbles are reinflating in the equity and commodities markets…and the strength of that reinflation has been amazing. It really looks like it has much further to go.
Which takes me back to my original question — is it possibile that we may go “correctionless” for the remainder of the year?
August 3rd, 2009 at 7:10 pm
flounder-
well my gut says no- however I have been wrong more than right this year- so take that for what it’s worth-
also- nothing wrong with being long- just set stops you are comfortable with- trust me- that will save you boat loads and you can sleep at night
August 3rd, 2009 at 7:15 pm
DH-
I haven’t checked out the ZH article yet- but in the end- it’s desperation on the part of the USG to prop at up asset prices- nothing we here haven’t suspected for a while
August 3rd, 2009 at 7:21 pm
daffy-
you are right- much of the frustration here is that the apparent issues with the economy don’t jive with the market enthusiasm- but who knows- maybe there will be a disconnect for a while-
in the end the markets will reflect reality- but your right- why not make money in the mean time- much like BR has demonstrated
August 3rd, 2009 at 7:37 pm
Ahab,
Sensible advice. I’m in cash and sleeping…but could be sleeping better if I were profiting as well. I had been expecting a major correction during the spring or summer…but the sheer verticality of the last three weeks has brought me doubt. There is clearly a lot of support for the market, independent of the economic conditions.
August 3rd, 2009 at 8:00 pm
flounder says-
“There is clearly a lot of support for the market, independent of the economic conditions.”
that is the rub my friend- it would seem that reality would have to smack the markets across the head at some point- but-
we saw Dow 14,000 while all the dark clouds were circling in 2007 – so- who knows- markets could go higher irrespective of what the reality is-
but not forever- the real world will ultimately win that argument
August 3rd, 2009 at 8:24 pm
well, if short term inflation (in the Austrian sense) can take some hold, then why wouldn’t the markets rally?
not saying anything about the long term consequences, but…i’m just sayin’
if the Fed can create liquidity at a rate faster than the rate of the credit bubble collapse, its gotta go somewhere, no?
August 3rd, 2009 at 9:52 pm
@ ahab
Sorry for the big time gaps here….I’ve been juggling this exchange and an evening routine with little kids.
Even when the rally was up 30-40% back in May and June, I never really trusted it. Every week or two, there would be downdraft. It just felt like a correction could happen anytime…so being long didn’t really seem safe, if you know what I mean.
But the current move up from ~880 has had a completely different slope. Essentially straight up, with a few very brief pauses. The rally now feels almost completely unimpeded. Maybe its because most of the short interest has evaporated over the last week or two. Maybe longs just have too much money at their disposal. Maybe both.
As you say, reality will take hold eventually…but it may be much later than I thought. Better to have a plan B, even it seems absurd.
August 3rd, 2009 at 10:04 pm
flounder, daffy…et al.
Yes. All correct. The markets can often move in ways that are difficult to predict. This is the nature of bear market rallies. I was bearish the market in the 870s and 950s/960s, but we never got confirmed topping action into those levels so I had to lose short term bearish views. I’m pissed about missing the last 15-20% of this mofo for sure, but if you were a good trader and knew when you were wrong, then this market did allow you to exit gracefully. I hedged out my mom’s portfolio 6% ago, so I’m irritated about that. I’ve got friends who exited 10-15% ago and they’re not happy about it, until I remind them about the money they made in 2008 when everyone was getting murdered.
The credit contraction and flat economic activity will take place over a longer period of time and at a steady rate. The stimulus and money pumping is certainly overpowering it in the short run….it’s sort of like a tsunami hitting a city on the beach….the local officials can quickly put up a few barriers and evacuate some people (bankers), but the devastation will eventually hit and there’s not much they can do about it (credit bubble popping.)
I see tons of resistance between 1008 and 1054. I see huge resistance on the Nasdaq at 2062. So, we’ll see how the market behaves into these levels and take it from there….
-AT
August 3rd, 2009 at 10:53 pm
To borrow from a comment on another blog:
The Gods have repealed all the old laws of economics, physics and morality. We’re creating the ultimate dystopian nightmare. Close your eyes, hold your nose, and try not to breathe.
And oh by the way. WordPress’ spell checker isn’t sophisticated enough to recognize the word, dystopian. I’m sure others have noticed many other words it doesn’t know also. Pretty weak, if you ask me.