Wednesday, April 29, 2009

Sure Enough

Sure enough, GDP prints a horrible figure and tocks go down for a millisecond before trampolining back up to within a couple of ticks of the high of the day. In fairness, the -6.1% had a couple of mitigating factors- the inventory drawdown was huge and the deflator was actually quite big; nominal GDP shrank an unannualized 0.9% q/q, quite a bit better than Q4's -1.6% print.

Still, for all that the Green Shoots Posse is still fluffing their risk assets of choice, Macro Man cannot help but observe that many forecasters are still calling for current quarter GDP to be the worst (before the last two, of course) since the horrible '82 recession. So here's what's going on:

In late Q3 2008, the US and global economic trajectory morphed from a painful recession to a depression, courtesy of the Agencies/ Lehman, AIG, etc. Thanks to the plethora of programs and public support to the financial system, we are now morphing back into a recession- albeit a long and painful one.

While the trajectory of the weekly leading indicator has slowed from the freefall of late '08/early '09, it has yet to put in the sort of bounce that has preceded prior recvoeries- in both the economy and the stock market.
This transition back to recession from depression is what has made the current environment so tricky; there is no obvious point at which the pricing out of the depression is fully accomplished. From Macro Man's perch, it is already done and we're now overshooting, but it's entirely reasonable to think otherwise.

Still, the endgame does appear likely to end in overshoot (either here or higher up). At that point (and at the risk of sounding like a broken record playing a very grumpy old man), equities should represent a great selling opportunity.


hopefully anon said...

bernanke is agent smith fighting neo in part 2: " MORE! MORE!!!!!".
with the same insane look on his face.

Anonymous said...

the government is wonderful, and we owe our lives to them for turning this economy around. God Bless the motherfuc$ers! It would be a shame if they were all lying huh?

pej said...

MacroMan was wrong

Anonymous said...

cassandras are less and less popular recently and start to be target of jokes and accused of arguing with the tape (an example in this post, putting Cramer toghether with Roubini and Krugman Signs that sentiment is gradually shifting from overly pessimistic to more bullish? this could be wat is needed to see this squeeze fade....

sick trader

Skeptical Smith said...

mate, striking is the fact the besides permabulls there are not many who believes we are recovering. that said, this market keeps close to the highs of this rally. going short is beem painful.

wcw said...

You didn't short BMY the day before yesterday, then. (Pure luck, that; my recent non-BMY shorts are ~2/3rds losers.)

Me, I have started to sell this rally, but mostly longs, not new shorts. I am not seeing the good entry points in most of my short targets yet, but I think we'll get them. Net long ~.7 beta for now.

heather said...

Unrelated question on currencies,of which I'm a dweeb.

Why does the Euro and USD move in the inverse? I don't see that pattern with the Yen.

And why is it that the US markets go down when the dollar goes up...yet, the FTSE goes up when the Euro goes up?

Is there a simple relationship that typically holds true?


Anonymous said...

no there is no stable relationship . lately EURUSD and equities are correlated. a few months ago they were negatively correlated via crude.