Wednesday, April 29, 2009
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.