October 27, 2006 at 7:08 AM #7787
Roubini was right.
GDP is dropping fast, and was reported this morning at 1.6%. linkOctober 27, 2006 at 10:02 AM #38573
This is my favorite powayseller thread ever.
That Roubini guy is alright. Very impressive to stick his neck out there and be right.October 27, 2006 at 12:28 PM #38604qcomerParticipant
The GDP number is lower than most expected and even Goldman Sachs who had been predicting rate cuts based on slow economic growth had estimated GDP at 1.7%.
More surpising is the fact that the GDP number could have been even worse, if not for a one time statistical fluke this quarter. Without that, the GDP number could have been as low as 1%.
Republicans election chances also depend on how the GDP number is taken. So Henry Paulson and most other economists have come out in support of the economy pointing to consumer spending number that rose 3.3% and which accounts for 70% of GDP and that consumer sentiment increased to 93 or so. But a lot of these estimates are based on the belief that housing slump doesn’t seem to be affecting “reselient” US consumer and then housing slump has seen the worse behind it. They are saying that 4th quarter GDP will rebound but if it falls from this level, we will be bordering on recession. Another spin on GDP number I saw was in an investment newsletter which said that corporates are not dependent on US consumer or US GDP for earnings anymore, as they do business worldwide. It cited McD as an example. Only time will tell.October 27, 2006 at 3:50 PM #38633
The investment newsletter forgot that the US is 40% of China’s exports. McDonald’s is going to get hammered when the global engine of consumption, the US, slows down, because the rest of the world will slow down as well, at least temporarily.
The consumer is still resilient. I had expected the spending to slow down by this time, but the loose lending is still going, and credit card debt is rising as well. I think it will take 1-2 quarters more to slow down the consumer. Catalysts could be more mortgage resets, dropping house prices making it harder to refinance since the equity is not there, the non-traditional mortgage lending guidelines, and massive layoffs beginning soon in construction and real estate and lending.
Durable goods sales are already falling: the consumer has money to buy sweaters and china, but not enough now for cars and houses and furniture. So we are seeing the slowdown start with the big ticket items. Home Depot is clearly worried; why else would they be selling groceries??? What do you all think about that move?October 27, 2006 at 3:52 PM #38635(former)FormerSanDieganParticipant
Groceries from Home Depot ?
I’d call that a dumb move. Maybe a little desperate. They should concentrate on returning to the days where the employees were actually helpful. Can’t stand that place anymore.
Hopefully they are not putting groceries on the same aisle with the rat poison, bug sprays and fertilizer.October 27, 2006 at 5:47 PM #38651
“I think it will take 1-2 quarters more to slow down the consumer”
I think it could be several quarters away.
You speak of catalysts and massive layoffs as if you expect a true burst. As if the burst is an event, not a process. I see it as a small, unstoppable leak. There’ll be some layoffs this year. Some layoffs next year. Some more to follow after that, etc.
The catalysts are in place and slowly taking effect one-by-one. Not all at once.
Remember the boiling frog?
Sentiment is so hard to turn and that will delay the badness. People are talking about the real estate market recovering next year as if the bubble has burst. Meanwhile, the water gets warmer and warmer and warmer. It’s unbelievable.October 27, 2006 at 6:24 PM #38654CAwiremanParticipant
Shorting => There was an report on NPR today. It touched on the stock market and the fact that the run up in stocks is affected by a record increase in shorting along with record squeezing that’s taking place. Anyone else hear the same?October 27, 2006 at 8:08 PM #38658PDParticipant
That sounds interesting. Do you have a link to the story?October 27, 2006 at 8:41 PM #38659CAwiremanParticipant
PD I looked on the NPR website and couldn’t find anything. I heard the story (interview) on the radio today while driving home from work.October 27, 2006 at 10:57 PM #38667
I caught the last minute of the story too. Shorts are causing the Dow to go higher, according to the NPR story. They also talked about the high auto inventory, something like 80,000 vehicles.October 28, 2006 at 12:07 AM #38671AnonymousGuest
The only way shorts should cause the market to go higher is if a bunch of folks covered their shorts at the same time. Is that what they were implying? This shorting activity could explain some of the volatility in the market. However, this would not have any affect on the long term direction of the market.October 28, 2006 at 7:48 AM #38675
GDP is down because of a 17% drop in residential investment. Consumer spending is up 3.1%, “and the value of imported goods accelerated sharply to a 7.8 percent annual rate of increase in the third quarter, more than three times the second quarter’s 1.4 percent increase.”
“Nonresidential investment, which measures business spending, rose at an 8.6 percent annual rate in the third quarter, close to double the second quarter’s 4.4 percent. Consumer spending, which accounts for roughly two-thirds of national economic activity, increased at a 3.1 percent rate, up from 2.6 percent in the second quarter.” This makes sense, since business spending is a recipient of consumer spending at the front end of the chain. It also explains why we’ve had so many good earnings reports.
This raises a few questions. If residential construction is down 17%, why haven’t we heard of more layoffs and lower profits among companies which make copper, pipes, windows, carpet, and retailers which sell this stuff? How long can the consumer uise debt from credit cards and homes, to buy imported goods, in the face of declining home prices? Since consumers are buying mainly goods from Asia, who is benefitting from the purchases of these products? Asian manufacturers and US retailers, or US companies overseas?
Did our past recession happen in this split way too? Durable goods like autos and houses are declining (signaling a recession) yet consumer spending via debt is increasing?October 28, 2006 at 12:04 PM #38676
Because, powayseller, things take time.
Economies are slow-moving systems, measured in quarters and year-over-year comparisons.
People don’t just start mass layoffs because of a slow quarter. It is expensive to hire people, so you don’t just fire them if you don’t need them this week.
Also, keep in mind, the data we are getting now contains components from 4 (edited a typo) months ago.
Plus, your perception of the market is likely heavily influenced by your knowledge of San Diego, which is, as far as I can tell, pretty far ahead of the nation as far as the leaking bubble goes.
Your understanding of the market forces are pretty good, but your timing is a little fast.October 29, 2006 at 7:37 AM #38713
After revision, GDP growth is .9%. I smell a recession…
“An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist.
Last quarter’s annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today. ”
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