1/30/2013 5:44 PM ET|
Is the recovery over?
The first negative GDP print since 2009 has confounded the bulls. And there is more pain coming.
For the first time since the recession ended in the middle of 2009, the U.S. economy contracted at the end of last year. Fourth-quarter GDP growth fell to -0.1% from a 3.1% rise in the third quarters, surprising the optimists so focused on Dow 14,000. As I've been saying for weeks, the fundamentals didn't justify the market melt up. And eventually, fundamentals matter.
The optimists are already trying to dismiss the report as a fluke since a large part of the drop was connected to a 22% fall in defense spending. It's no fluke: In a month, the Pentagon will likely be hit with another budget cut worth 9.4% of its discretionary spending, or more than $50 billion a year.
And it's about to get worse.
People forget that it was government spending -- in the guise of bailouts, unemployment benefits, and stimulus -- that bolstered the economy in the early stages of the recovery when business and consumer spending was in the doldrums. Now, with businesses nervous and consumers suffering from tax hikes, higher health care costs, and still stagnant wages, the government's fiscal mess is forcing it to pull back.
The bulk of the fiscal cliff -- the tax hikes and spending cuts worth 5% of GDP -- was merely postponed. The fact remains that the government has no choice but to tighten the budget, or else it faces the threat of additional credit rating downgrades.
So people should get used to weak government spending contributions to GDP.
What about consumers, who contributed +1.5% to the Q4 GDP number? Not only is confidence down hard on the payroll tax hike, but they are about to be hit with higher gasoline prices and higher rental costs as well. Moreover, the chart below shows how government budget cuts will impact consumer spending -- which the bulls and political operatives are grabbing onto as the bright spot in the report -- since government transfer benefits (unemployment, etc.) have been a more important factor than work wages.
All of this will drag on consumption expenditures later this year and reverse the one bright spot in the report.
And businesses started pulling back on inventories in Q4 in response to uncertain demand from consumers. This should continue as well.
A second negative GDP print in Q1, amidst budget battles and tax hikes, would technically throw the U.S. economy back into recession -- joining most of Europe, Japan, and soon, the United Kingdom.
If you average out the last two GDP prints, you get an economy stumbling along at a 1.5% annual growth rate. An economy that isn't ready for the fiscal cuts and political turmoil that awaits in 2013. Already, the regional Fed manufacturing surveys have been terrible. Home sales are down. It's not looking pretty.
In response, I'm adding new short exposure to my Edge Letter Sample Portfolio via Alpha Natural Resources (ANR) and U.S. Steel (X). I'm also doubling up on the VelocityShares Daily 2x VIX (TVIX) with the CBOE Volatility Index ($VIX) deeply oversold and rounding higher.
Disclosure: Anthony has recommended X short, ANR short, and TVIX long to his clients.
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What economic recovery, the one that was made up to help the King be re-elected? I am sorry but there was never an economic recovery.
1. TAX THE RICH LIKE THEY DID IN THE 1950'S
2. TAX Churches (70 billion a year)
3. Take out tax loopholes for corporate America that pay NOTHING in income tax.
4. SLASH the bloated industrial military complexes budget.
The top 20% of the populace controls 89% of the wealth. Of that amount, the top 0.01% control 37%. The bottom 80% only control 11%. This shift of wealth to the elite has decimated the middle class.
It's no wonder the congress is hesitant to tax the top 2%, since individually they are in this group. Our constitutional republic has evolved into a plutocracy thanks to over four decades of poor governance due to greed and corruption by our elected reps.
In answer to the question, a balance of power.
(a) transfer wealth from everyone else to the rich, or,
(b) distract everyone else from the fact that (a) is occurring."
Republicans could be smart and take this opportunity to embrace the ideas of helping the poor,middle class, and the rest of the 99% of America and get rid of their reputation of being crazy and sold out to Wall Street.
If Republicans, for example, were to embrace reality and start acting like reasonable people they could cut into the Democratic base and do better in future elections. I encourage them to do so.
I'd rather vote for the party that accomplishes the most rather than the party that scares me the least.
Taxing the ultra-wealthiest, and coincidentally, the most corrupted group on the Planet, is being blocked by their employees: the entire GOP.
This is what happens when you have three GOP idiots as President who were drunken-sailor-spending, warmongering "laissez faire" economic wonder boys (Reagan, GHWB, and the most incompetent criminal-idiot ever in the White House, GWB).
The GOP is no longer a political party and has not been one for 3 decades.
What the GOP is today is a wall-street owned and elitist managed CRIMINAL ENTERPRISE!!
AND, SO OBVIOUSLY SO!!!
"Laws are for the governed" . "White collar" crime is still socially acceptable in this country. It's the Golden Rule: He who has the Gold, makes the rules.
A 'cult,' according to Merriam-Webster, can be defined as "Great devotion to a person, idea, object, movement, or work..(and)..a usually small group of people characterized by such devotion."
Capitalism has been defined by adherents and detractors: Milton Friedman said, "The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system." John Maynard Keynes said, "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone."
Perhaps it's best to turn to someone who actually practiced the art: "Capitalism is the legitimate racket of the ruling class." Al Capone said that.
Capitalism is a cult. It is devoted to the ideals of privatization over the common good, profit over social needs, and control by a small group of people who defy the public's will. The tenets of the cult lead to extremes rather than to compromise. Examples are not hard to find.
The economy has the flu. 23 million out of work and growing. The economy has no pulse. As new paychecks get nickle and dimed to new lows families are cutting back on restaurants and mall store shopping.
The Obama administration has not one clue as to how to fix this economy. Time to downsize and tighten the belt. PB+Jelly, bread and water. 2013 will be the worst economic year yet. The stock market will hit 10,000 by August. Not good......Robo smachinery are ending jobs every day.
Not looking good for next 2 years. Good luck to everyone. 47% will grow to 55% soon. Then we will be Greece.
Outside of all that life is good.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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