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  • commandor58 commandor58 Apr 26, 2013 11:54 AM Flag

    Recent Macro-Econ Data

    From the indicators I follow, just about everything has rolled over or is slightly trending down: Consumer spending, steel production, RR activity, copper, lumber, D-RAM prices,Baltic Dry Index, commercial paper, commercial loans.

    The summation of all suggest to me that 2ndQ GDP will be much less than the 1st Q, which is the current consensus view-that will make it hard for companies to make their sales and earnings estimates. Given that Europe is getting worse and there is evidence that China will go from high 7% GDP growth to low 6% GDP growth for the 2nd Q-make be a buyer of very little unless I can get a very low price.

    This silver lining is, much like the 2ndH of the 4th Q last year, M2 money supply has started accelerating again vs flat almost all of the 1st Q. In the last 7 weeks, M2 is up a 10.4% annual rate vs being flat the prior 9 weeks. Should this trend continue, it suggest the 3rd Q GDP will be better and a better environment for S&P 500 sales and earnings.

    The larger questions become, from what level will stocks rally and what sectors do the best? I probably won't be much help on the first question as I think stocks have been over valued since 1430 on the S&P500. On the 2nd Q, I think cyclicals, technology and commodity based stocks will do best.

    Alot to choose from in those three areas-cash rich tech, NG, and gold stocks will be among my favorites. In the interim, only taking small positions in some of those themes as I don't want to be too early and a 10% correction on the broader averages is way over due.

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    • Couple of thoughts.
      1)There is an economist, Wicksell, that has done some research on "credit" based economies. In a nutshell, his model describes the dynamic that if business investment expected rate of return is less than the cost of capital, then they won't invest. Obviously very logical, but the model goes on to suggest that excess liquidity will find its way into financial markets instead of investment in physical and human capital.

      This explains why stock and bond markets have been racing higher despite BO's very anti business policies. Liquidity is going into financial markets instead of physical and human capital. The danger, of course, is that stock and bonds markets are getting way ahead of the "real" economic value of what companies are producing and worth and the state of government's fiscal finances. When the "ponzi" scheme stops being fed additional QE, it will come crashing down hard.

      The 2nd thought is around the 1st Q GDP report-headline 2.5%. Some of the underlying data suggest a much weaker economy.
      1)The GDP deflator used was 1.2%, if CPI was used growth would have been 1.6%. Understating inflation overstates growth
      2)Increased inventories vs final sales, contributed an extra 1% of GDP
      3)Of the the 3.2% growth in consumer spending, 1.5% was increased spending on rents and utilities vs goods spending was up only .8% vs 4th Q's up 1.0%
      4)Real per capital disposable income fell 5.9% is is now lower than it was the 1st Q 2011.

      Bottom line, investing right now is a QE fed ponzi game. Take your chances with the timing of when it ends, because the real economy and the government's fiscal situation are going nowhere and getting worse respectively.

      • 3 Replies to commandor58
      • This week the Dallas Fed came out with their regional survey and the Chicago PMI (3.5 year low) come-both were very soft. In addition, Texas and the Midwest (because of automotive) had been two of the stronger regional markets. Bottom line, stocks going higher while the macro-econ is getting weaker.

        The question becomes, are stocks "seeing" a stronger 2ndH and moving higher in anticipation or is liquidity so strong that "bad" news is good news because central banks QE programs will be continued with no end is sight?

        I don't know, but I'm a buyer of very little, taking profits when I have them and expecting a "valley of doubt" to create, at least, a 10%+ selloff.

      • Commandor,
        Did Wicksell reach the same conclusion that you have? I assume he did. I am not the most intelligent small business owner, but it makes no sense to me that the market is so high in comparison to what the real economy is. I guess that is what you and Wicksell have been saying all along.
        Also, does Wicksell believe the current real estate market is artificially inflated too high in comparison to the stock and bond markets? TIA.

      • it ends monday. we got plenty of proof last week about how fragile this mkt is. i see a flash crash type event coming. or at the very least, a massive down day very soon to confirm the correction trend we are in. we are talking 50+ on the spx imo. correction started 11 apr. and everybody knows we are in a fed driven bubble so its going to end badly soon.

 
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