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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The stock market is fueld by Ben Bernanke.....both with easy money and with the manipulation of interest rates. Despite his failed policies, Wall Street continues to look at the federal reserve as the solution, when in reality they are the problem.
The federal reserve needs to quit printing money and let the market dictate interest rates
Good viewpoints. The large number of unemployed, not the phony government data but ALL unemployed, and the job creation rate well below what is neede to just accomodate new entrants into the job market, alone, in my opinion, constitute a continuing recession as far as we can see. Wall Street and Washington deceive the public for their own interests, financial and political.
Repressive regulations, government debt bloat, and a horrific tax code assure continuing volatility, leaving a lot of potential investment $ on the sidelines or flowing to other countries.
Pull back from recovery? When was there a recovery?
There certainly has been no real recovery in the labor market or in wage earnings.
The ONLY reason the unemployment numbers are below 10% is still due to millions permanetley giving up and not being counted. Why is this so hard for people to understand? Oh, I know because the media refuses to talk about the facts.
In the meantime, wages have been stagnant while basic costs of living have skyrocketed. Food, gas, electricity, healthcare have all gone up while wages have been stagnant or lowering due to less working hours.
GDP growth shock?? huh? who's shocked by the contracting economy except you idiot leftist pigs in the media, the rest of us know what the deal is, you idiots are acting like everything was 'honkey dory' all along, this regime is hammering the economy with ridiculous phony influx of 'phony' money, the fed's buying up stocks, in essence buying it's own product, much like the stupid chevy dolt, the majority of those ugly azzed cars were bought up by gov't, recovery??? what recovery is that?? unless you're 'recovering' from the flu the economy is in recession like it's always been, now just getting worse, NY unemployment is 8.8%, in reality it's 14% outrageous!! meanwhile get ready for new taxes! on who? the mid class of course, and once again I'll just have to laugh, everything we've been saying about this obama pig muslim's idea of utopia in America has come to it's fruition, coming to it's fruition, meanwhile Sandy "victims" are out in the cold, literally and financially as well, WHAT A SHOCK!!!! not!
oh yea, and I'm still laughing at the 'penaty' you smokers that voted for that pig obama are going to have to pay try $5500! ahahahahahahahahahah!!!HAHAHAHAHAHAHAAHAHAAHHAAAA enjoy and revel in the phony messiah you voted for and will now seperate you from your money, hahahahahaha!!!HAAHAAA!!
We are going into a depression just like 1929! All the signs are there ! But our government says we are in the recovery mode ! Great spin by the puppet masters ! Wall street is a perfect example of the this !
SCREW THE SMALL INVESTORS ! Keep the (TBTF) Financials so they can SCREW THE AMERICAN PEOPLE ! TAKE YOU MONEY AND RUN !
The faster we get into a recession or depression, the faster the Secular Progressives can get rid of the Constitution and all it stands for. We are on the razor's edge of a very steep dive into a country dominated by "progress". Only the progress isn't for the average person. This is just the beginning.
Remember the writing on the wall: "Everyone is equal", painted over by "Some are more equal than others".
What are Obama's 29 Czars and their 1200 patronage workers going to do during his second term besides collect a pay check and go golfing all the time with '57 states'? I'd love one of you Obama supporters to describe any work they have actually done or for that matter one thing any of them have done... Quick, can you name 3 of them?
LOL... here is the VERY FIRST place we can cut... Fire all 1200 of the patronage workers and the 29 Czars...
In 2007 stocks were at all time highs when according to the so-called economic experts a recession had already begun. But the TV pundits will tell you: stocks know, stocks are smart, stocks are an indicator. That's why they keep ramming that ridiculous dow number down your throat every 2 minutes like some kind of stinking mina bird.
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