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Bob Bronson: Q1 GDP Overstates Business Cycle Growth

Posted By Barry Ritholtz On May 3, 2010 @ 12:30 pm In Economy,Technical Analysis | Comments Disabled

Bob Bronson is in the bearish camp. He argues that the “Permabulls are at it again — promoting the notion that a deep or sharp V-shaped recovery is well underway, using just reported Q1 GDP data for support.

I don’t necessarily agree, but Bronson’s work is always interesting.

Bob’s beef is that the headline figure of 3.2% annualized growth was down 40+% from the Q4 growth rate of 5.6%. Hence, we see a sharp deceleration in the so-called economic recovery. Hardly what one would expect to see in a healthy robust post recession expansion.

And though Q1 was the third consecutive quarter of positive growth following three quarters of negative growth, this does not automatically mean we will have a balanced, V-shaped recovery, nor does it preclude a double dip recession.

Rather than focus on GDP, investors should pay attention to what Bob terms “the core business cycle” — below:

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[1]
courtesy of Bronson Capital Markets Research [2]
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The second chart below illustrates the Q1 GDP update of our working model of the double double-dips we expect, followed by a range of possible similar shapes of what can be more broadly thought of as a very wide U-shaped trough, or \____/ , rather than even the upside-down square root sign that only a few economists are expecting, as compared to the deep and/or sharp V-shaped and eventually self-sustaining recovery that the current consensus of them expects.

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click for larger graphic
[3]
courtesy of Bronson Capital Markets Research [2]


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URL to article: http://www.ritholtz.com/blog/2010/05/bob-bronson-q1-gdp-overstates-business-cycle-growth/

URLs in this post:

[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2010/05/BB_GDP-1.png

[2] Bronson Capital Markets Research: http://www.financialsense.com/editorials/bronson/main.html

[3] Image: http://www.ritholtz.com/blog/wp-content/uploads/2010/05/BB_GDP-2.png

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