A Brief Note on GDP

It's not my job to be negative about everything that comes out of Wall St. and Washington. It is however, my job to accurately assess the data and translate it into a profitable investment strategy.

Today's Advanced GDP report produced a positive 5.7% annual growth rate figure, which has sent rear window investors scrambling to buy stocks the A.M. The nominal rate of growth came in at 6.4% and so, due to the way the BEA calculates inflation, they have the temerity to report that domestic inflation rose at a .6% annual rate.

The CPI reported YOY inflation at 2.7% and even the PCEPI came in at 2.1% for the quarter. Also, the GDP report benefitted from a 3.4 percentage point increase due to a change in the rate of inventory adjustments.

Therefore, if inventories are not then translated to final sales this morning's GDP number will be a onetime blip. And if inflation was accurately accounted for and subtracted from the nominal number, real GDP would have posted something closer to a 3.7% annual growth rate.

That number is still positive and shows clearly that the country can limp along as long as interest rates are near zero percent and if government pulls forward demand by a myriad of lunatic stimulus programs.

However, and hear is where an objective eye pays off, if investors want to trade on information reported on the Q4 of 2009, so be it. That would be, in my opinion, a tragic error. The market is pricing in today what will happen in the next 6 months and beyond. The conclusion of Fed purchases of MBS, a possible tightening of monetary policy and increasing taxes and regulations are what stocks care about now. They are also concerned about a sovereign debt crisis in Europe that is only a few years away in the U.S. if we continue down this path. Can it be any wonder why we have sold off 6% in the last week?

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January Hi, Mike, Do you think Obama's challenge to Wall Street had anything to do with the sell off? Submitted by Mike Sabatino (not verified) on Sun, 2010/01/31 - 11:43am » reply |

gold Any more thoughts on gold after your great call. Has it corrected enough to add to positions. Submitted by Harry (not verified) on Mon, 2010/02/01 - 12:24pm » reply |

What is your view on gold What is your view on gold after your great call last month? Submitted by Harry (not verified) on Mon, 2010/02/01 - 1:11pm » reply |