Thursday Outlook: 'As Advertised'

by: David Fry posted on: May 01, 2008 | about stocks: DVY / IEF / IWM / IYR / KBE / MDY / QQQQ / SPY / UDN / UUP / XHB / XLF / XLY    
The only surprise Wednesday was that bulls couldn’t pump an end-of-month window dressing rally. The Fed gave investors what was expected coupled with a mixed message of guidance.

To believe the Fed is now in inflation fighting mode with Fed Funds at 2% is comical. Barry Ritholtz probably outlined this comedy best with his Big Picture post today. Basically, if you believe in the so-called “core rate” then the inflation adjusted GDP hasn’t yet scored two consecutive negative quarters constituting a recession, but if you think it’s laughable we’ve got a recession already. Ritholtz concludes by saying:
By any honest measure of inflation -- and not the 3.5% BEA price index for gross domestic purchases -- both of the past two quarters would have been negative. How can we have an understated inflation rate of 4%, and a GDP Price Deflator of just 2.6%?
So, if you don’t drink the government’s Kool Aid then you know we’re already in a recession. There’s a real disconnect between how people feel about their economic realities versus what the government tells them it is. It’s dishonest and deliberately misleading. It’s been this way since the early 1980s as we’ve been outlining.

Volume was much higher yesterday [even though Yahoo Finance still can’t add columns] while breadth was negative.










































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David Fry

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This article has 4 comments:

  •  
    lobsterboy
    May 01 08:53 AM
    Liked the charts
  •  
    Art L.
    May 01 11:39 AM
    This I really do need: a questioning of what "is", and a truly insightful analysis of relevant social/political issues and market activity in the search for "reality" as it applies to trading. Great work, David!
  •  
    syruppy
    May 01 01:28 PM
    I understand the argument you make: that we really are in a recession, despite the numbers. However, the effect of increasing the cost of a key factor of production—e.g., higher oil prices, leading to, among other things, increased costs of energy, production, transportation, etc.—does not real inflation make.

    In a business atmosphere that was less politically charged, we’d either have the price of oil coming down by now, or U.S. growth would be through the roof instead of just above zero, as investment flowed to new and alternative sources of energy and carbon, such as nuclear energy, more oil and gas drilling, coal mining—not to mention, research and development of mitigation strategies and methods.

    What you see in the numbers is an understating of the economy. It is a failure to more objectively quantify—and add to the GDP—an amount equal to the apparent value of having anti-business, anti-capitalists stymie energy planning and policy as they hamstring U.S. energy production and demonize energy users.
  •  
    Manifestor
    May 01 11:48 PM
    By 'politically charged' if you mean the lobbyists and the campaign donations, I totally agree. Even if these are removed or their influence eliminated, there is still the element of rampant speculation and the associated bubble that builds up time and again. It is very difficult to ascertain what is the right amount of regulation needed to foster growth whiling keeping excessive gambling and manipulation in check.
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