GDP, Inflation & Recession

Why do I spend as much time as I do debunking inflation, employment and housing data? Today, you will see precisely why. 

At 8:30am, we get the advance GDP data from BEA. Consensus is for a marginally positive data point — 0.3%. This will follow Q7 2007  of 0.6%.

In terms of debunking the misleading data stats, today is the day where the rubber meets the road. Why? Well, if the official inflation data was reported in a way that was more reflective of reality, Q4 last year would likely have been anywhere from 0.75% to 1.5% lower (if not more), sending it into negative territory.   

The same will be true for today’s GD data point, with the probable overstatement enough to keep it marginally positive or flat.

Why does inflation matter so much to GDP? Gross Domestic Product (GDP) is the "broadest measure of aggregate economic activity and encompasses every sector of the economy." If you want to know understand how weak or strong an economy is, GDP is where you begin. But, you need to determine how much of GDP is nominal, and how much is real (i.e., after inflation growth).

Consider an economy that sold $100  worth of goods and services in one quarter. The next Q, it produced $110 worth. When determining the GDP of this economy, you want to know how much of those gains was additional output, and how much merely price increases.  Its usually a combination of more widgets and higher  prices, so if you want to know exactly how much the economy expanded, you need to know exactly how much inflation there was. Understate inflation, and you overstate growth. 

If today’s GDP is marginally positive, following Q4′s marginally positive
GDP data, then we officially will not be in a recession by the classic
"2 consecutive quarters of negative GDP growth."  This means that if the correct inflation deflator was built into GDP, we would have our two consec quarters.

Hence, for the reality based community, the recession will be officially here.

Of course, if you believe that actual inflation is running about 2.5%, then you should feel free to ignore this analysis.

Category: Data Analysis, Economy, Inflation

Video: Bear Stearns Bailout “Worst Fed Mistake in a Generation”

Category: Derivatives, Federal Reserve, Financial Press

Business Video

You may have noticed that I run a bit of video a few days a week on the site, usually overnight.

As part of the redesign, I am setting up a tab for Video (hence, the slow loading video won’t impact the main page). As such, I have been compiling a list of Business-related Video for the update, and this is what I came up with. 

(Have I missed anything significant?)

Video Reports:

Financial Times (FT)
http://www.ft.com/multimedia

Bloomberg
http://www.bloomberg.com/news/av/

WSJ
http://online.wsj.com/video

Economist
http://audiovideo.economist.com/

CNBC
http://www.cnbc.com/?id=15839263&tabid=15839798&tabheader=false&t=0.9244770663790405

Business of Innovation
http://innovation.cnbc.com/en

Forbes
http://www.forbes.com/video/

The Street.com
http://www.thestreet.com/video/index.html

Barron’s
http://online.barrons.com/public/main?mod=DNH_WSJ#

Marketwatch
http://www.marketwatch.com/tvradio/bcPlayer.asp

Yahoo Finance Tech Ticker TV
http://finance.yahoo.com/tech-ticker

CNN Money
http://money.cnn.com/video/

New York Times
http://video.on.nytimes.com/index.jsp

BBC tv
http://news.bbc.co.uk/2/hi/video_and_audio/default.stm

Fox Business
http://www.foxbusiness.com/

PBS
http://www.pbs.org/nbr/info/video.html

60 Minutes
http://www.cbsnews.com/sections/60minutes/main3415.shtml

CNET Video
http://www.cnettv.com/

Wallstrip
http://www.wallstrip.com/

Category: Television, Video

Media Appearance: CNN Money (04/29/08)

Category: Inflation, Media

Inflation Abounds

Category: Federal Reserve, Inflation

Home Prices Fall 12.7%

Category: Data Analysis, Real Estate

Bear Markets Seduce Investors

Category: Markets, Psychology, Technical Analysis, Valuation

KBH: Home Prices May Drop Another 20%

“I don’t think we’re anywhere near a bottom in housing”

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click for video
Broad

courtesy of Bloomberg

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Excerpt:

Eli Broad, a philanthropist and co- founder of KB Home, the fifth-largest U.S. homebuilder by revenue, said he expects home prices to drop another 20 percent.

"I don’t think we’re anywhere near a bottom in housing,” Broad told Bloomberg TV at the Milken Institute Conference in Beverly Hills, California. "We’re going to have a big inventory of unsold, unoccupied homes that’s going to take three or four years to clear out.”

Homebuilders, hurt by banks’ stricter requirements for granting home loans and concern over the rising number of homeowners failing to pay their mortgages, have begun work on the fewest number of houses since 1991, according to the U.S. Department of Commerce."

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Source:
KB Home’s Broad Says Home Prices May Drop Another 20%
Rhonda Schaffler and Bob Ivry
Bloomberg, April 28 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNGtHO1tbzng

Category: Real Estate, Video

Creating Fake Alpha

Category: Corporate Management, Derivatives, Wages & Income

Bear Stearns Bailout “Worst Fed Mistake in a Generation”

Category: Federal Reserve, M&A