The Guvvamint plastered a 3.5 percent GDP growth rate on the marquee yesterday, and traders acted as though the information had come from Walter Cronkite himself. We always expect the stock market to wet its pants when these dog-and-pony shows turn up the wow factor with “Sabre Dance” and a laser show. But did the bond markets have to go nuts as well? We would have thought they had better sense. It’s one thing for whacky speculators to drive share prices higher, but T-Bonds yields are supposed to surge only when it is really and truly believed that the economy is strengthening.
The rally felt like it was about 99.99% short-squeeze, with Abbe Cohen’s plump, grain-fed flock making up the other 0.01%. But that still begs the question of why Mr. Market should have been so nice to us, providing a fabulous opportunity to unload stocks even though “everyone” knows that the bear rally begun on March 9 is over, finito, kaput. There are only two possibilities: Mr. Market is planning to drown all the believers on Friday by providing no follow-through whatsoever; or, he aims to savage bears, just for the hell of it, with one final, gratuitous push back up toward the highs.
Banks Up, Households Down
We’re skeptical about the latter scenario, since the bank stocks that have led the market higher have exhausted their credibility, at least with sentient observers. How high can they go, really, when the recovery story has begun to stink worse then Limburger cheese? Lotto winners aside, have the prospects of any household in America improved as much as J.P. Morgan’s prospects? Regarding the Guvvamint’s numbers, we’d like to share with you an illuminating post from our friend Rich Cash in the Rick’s Picks forum that puts the GDP numbers in proper perspective. He attributed the following comments to Robert McHugh:
“The Commerce Department reported its estimate for third quarter GDP Wednesday, up 3.5 percent. The Central Planners moved fast to declare the Recession from 2008 over. This was the first reported rise in GDP since the second quarter 2008.
Clunkers Afterglow
“However, about half the growth came from the expired Cash for Clunkers, government- subsidized, vehicle-purchase plan where they provided significant cash rebates in exchange for consumers buying the cars the Central Planners wanted folks to buy. Most of the rest of the GDP growth came from increased government expenditures, which were up 7.9 percent. This is a great number for socialists; however, for households, which account for 70 percent of GDP in a capitalist economy, not so great. Households remain stuck in an economic quagmire. Current economic policy appears to be more about the government than the household, and 3rd quarter GDP brings the point home in spades. For the American Household, the deep recession/possible depression remains firmly intact. Present and future cash needs remain a fearful proposition. A massive tax rebate is what is needed for the American Household. Initial Jobless Claims, new folks collecting unemployment because of a job loss, came in at 530,000 in the latest reporting week, and continuing claims were 5.8 million.
“Eighty years ago today, to the day, the stock market crashed, the kickoff to the Great Depression of the 1930s.
Notes Rich: I agree with Robert McHugh, who wrote this, plus note Cash for Clunkers and the $8,000 Tax Credit for new homebuyers increased the indebtedness of underemployed Americans and the likelihood of increased defaults.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
Thanks, Rick, for the emergency plan feedback and info…I do think Boulder is an excellent place to ride this thing out. Thanks for the heads up on Mr Ure’s website also.