Is the recovery over?

The first negative GDP print since 2009 has confounded the bulls. And there is more pain coming.

By Anthony Mirhaydari Jan 30, 2013 1:44PM

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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106Comments
Feb 4, 2013 12:46PM
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Well, at 1140 hrs scumbags started accelerating the selling....Not a real surprise, this is the way things will go throughout the day...Best play today is the sidelines...This whole week will be very similar....Play it safe and smart...More later.
Feb 4, 2013 11:08AM
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Like we said on friday afternoon, this week will be a bit different; manipulators out of the gate doing their thing so they have dropped us big already...Not a big shocker after the last few weeks...Play it safe today, be defensive, stay on the sidelines if possible...These crooks will try to bring us down huge by closing time, no doubt about that....More a bit later.
Feb 1, 2013 4:32PM
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The jobs report wasn't what we expected but not too bad, unemployment going up was not a real shocker...We've been having buyers all day; still 30 minutes to go though...Something we learned long ago, never ever take these cheating crooks for granted....Hope everyone has a great weekend and be ready for next week  believe us, these manipulators will.
Jan 31, 2013 6:56PM
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Well, no surprise at the closing, warned you earlier and it wasn't all "profit taking". Manipulators are getting bold once again after a bad month for them and tomorrow jobs data. As bad as the economy is we are not expecting much, maybe a surprise? Hey, wouldn't be a first...We shall see.
Jan 31, 2013 4:10PM
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HELLO, you cadre of FISHER INVESTMENT employees and others (scavengers) whose only function is to scour, scout, search, glean the Internet for ANY negative, derogatory, and/or demeaning information about FISHER INVESTMENTS, whether factual or not, and take action to "neutralize" such information!  THANK ALL OF YOU FOR THE "THUMBS DOWN;" it warms my heart to know that I'm getting through to you Scavengers!  Oh, be sure to tell Mr. FISHER hello for me.

My name is Don Moore and I have been commenting and posting my opinion (and facts) about various columns/articles and other related subjects on this Website, MSN Money, for about 6 months; actually, after June 11, 2012, the day that I "FIRED" FISHER INVESTMENTS as my "financial investment advisor/money manager".  Every word that I have written about FISHER INVESTMENTS and KEN FISHER, CEO and Principal Owner, is the absolute truth!  Very interestingly, but by no means coincidentally, within days after my second or third comments (postings) about FISHER INVESTMENTS appeared on MSN Money, I received a surprising, very early morning phone call from Mr. Rick Zwiener, III, my so-called "Investment Counselor" at FISHER INVESTMENTS.   He was terribly upset that I was commenting about FISHER INVESTMENTS on MSN Money, such a popular and public Website.  My response was, "Yes, that's exactly why I chose the MSN Money forum to tell my story and WARN others about FISHER INVESTMENTS' egregious, deceptive, and unethical "investment advisory/money management" conduct and services!  He abruptly hung-up the phone.

Now, my question to all you fine people in "MSN Money Land" how did FISHER INVESTMENTS pick-up on my postings so quickly?  Let me tell you how:
I have knowledge from a very reliable source that It (Fisher Investments is a singular noun) has a cadre of employees and others (scavengers) whose only function is to scour, scout, search, glean the Internet for ANY negative, derogatory, and/or demeaning information about FISHER INVESTMENTS, whether factual or not, and take action to "neutralize" such information!  These "scavengers" do this by posting negative and contradictory replies to my comments, by posting negative and contradictory comments of their own, and mainly by voting on or evaluating my comments with a THUMBS DOWN! Finally, I leave you with WORDS OF WARNING:  BE AWARE AND BEWARE OF FISHER INVESTMENTS!
Don Moore
Jan 31, 2013 1:58PM
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Economics 101: Small price mark-ups = huge "VOLUME" sales = Healthy Profits = Loyal Consumer base = Long-term business success.

 

Where did most of you idiots go to school to learn Economics?..... IDIOTSVILLE?

 

Most of you IMBECILES and ECONOMIC CHALLENGED will NEVER get it!

Jan 31, 2013 12:09PM
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Well, at 1100 hrs scumbags called to accelerate the selling so we are now in the red...No real surprise, still early of course. And tomorrow is jobs report day...Once again, be very cautious.;
Jan 31, 2013 11:24AM
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Yes, we are up almost 30 points however, be careful, do not get too hopeful nor excited; manipulators taking over slowly but surely, starting to drop already, do not be shocked if we go negative soon....That's life down here when cheaters are in charge...More later.
Jan 31, 2013 7:48AM
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Hi, a drop in the Stock Market at the end of the day and you republicans say see look every thing is coming undone ,I keep buy stocks and when they go down some I get a better value on my stock purchase !
Jan 31, 2013 12:46AM
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JAV....Yeah, I believe we are going to have some inflationary pressures coming..

And also more devaluation of the Dollar...

 

My guess is to invest accordingly, stalwarts, dividenders and precious metals.

But there are a lot of choices...???

Jan 31, 2013 12:41AM
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With gains of from 3%-!4% since years beginning...

I think we can comfortably take a near 5% correction.?

And it may present buying opportunities for stagnant cash, or recent profits taken??

Some Companies are showing decent numbers on "lesser expectations"

But the "forward guidance" on the 2nd. Quarter is somewhat un-nerving..

Although the same people are "projecting an uplifting" 2nd. Half.

 

Don M.... Fisher's group and firm; For all their "fanfare", should have been more on top of the ugly turndown..And a 50% loss is somewhat unforgiveable, many loss as much or even up to 70%, stories I've read...

We suffered about 20-21% FMV losses across our portfolios on average...

I took profits on some that held up, also maybe PMs investments; can't remember all ??

Re-allocated, some of the losses and profits,re-invested 2008 Dec. and Mar/Apr 2009 and pulled EVEN by July 24th-25th. 2009..Fully recovered...If I can, I think many could have...??

It takes time and research, pays to take a little bit at a time to start doing your own investing or at least find someone you trust that has good track record..Be a little self directive, don't buy everything that anyone tells you.. 

Jan 31, 2013 12:00AM
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Below is a copy of the actual letter that KEN FISHER, CEO and Principal Owner of FISHER INVESTMENTS, sent to me immediately after I FIRED him as my "Investment advisor / money manager on June 11, 2012.  Notice the meek apology and weak euphemism that he gives for explaining why he totally missed the worst Bear Market in over 80 years, "The Great Recession of 2008."  This little miscalculation from the great and powerful OZ, uh, I mean the great and wise stock market "GURU," KEN FISHER, cost almost 38,000 investors, including myself, over 50% of our net worth, including "investment advisory fees" and other miscellaneous and extraneous expenses and fees!  Please read the letter in its entirety; this will give you in-depth insight into the sociopathic nature and narcissistic personally of KEN FISHER!   WORDS OF WARNING:  If you are currently a client of FISHER INVESTMENTS -- GET OUT -- before its too late and you lose everything!  If you are even thinking about, or worse, anticipating investing with these charlatans -- DON'T --  it will be the worse mistake that you make in your entire life!  BE AWARE and BEWARE of FISHER INVESTMENTS! 

Don Moore


F I S H E R    INVESTMENTS

PRIVATE   CLIENT   GROUP 

 

June 21, 2012

 

Mr. Donald K. Moore

xxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxx


Dear Mr. Moore,


I am writing to let you know how disappointed we are that you recently decided to end your relationship with Fisher Investments.  I personally would like to thank you for choosing to hire us and to apologize if we failed to meet your expectations.

 

We always strive to do our very best for all our clients, both in the management of their portfolios and in client service.  As expressed in our earlier communications, we're very sorry we didn't better see the direction of the market in 2008.  I always feel terrible when we disappoint clients and fail in any way to meet their expectations – in this case, your expectations.

 

As the founder of the firm, I take your departure very personally.  While this has been a period of well intended efforts, I wish we had been better able to do the things that would have made you want to remain a client, and I apologize to you for not doing so.

 

While we accept your departure completely, I also want you to know that we will do everything we can to deliver whatever service you may need as you complete your transition away from Fisher Investments.

 

Finally, if your circumstances ever change and you would like to return, we will work hard to make your transition back to this firm as easy and seamless as possible.

 

Again, thank you for your time as a valued client, and I very sincerely wish you all the best going forward.

 

Sincerely,

 

Ken Fisher

Jan 30, 2013 11:49PM
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I HOPE you all CHANGE your investment attitudes going FORWARD. I look FORWARD to the country CHANGE-ing how they HOPE. FORWARD thinkers will CHANGE how they view investments as the HOPE of a big reward is CHANGE-ing. 

UGGHH!!!!  Four More

 I HOPE we CHANGE our voting parameters going FORWARD. I am looking FORWARD to the CHANGE in the spending attitudes of those who HOPE to run for office next time. 
Jan 30, 2013 11:23PM
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Let's talk about a 5-7% correction, over a week period..

That's under a 1000 pts...

1400 pt. drop is a little stiff...IMO..

And a 5-7% would take back about the average of upside on 2/3 of  Companies gains..

Other 1/3 of Companies have gained about, near 10-14%...

Assuming that we are talking Better then Average Companies, and not flash in pans or cheap day trading type stocks...???

Jan 30, 2013 11:06PM
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One question..left, Who the hell is FRED, and where do those Charts come from??
Jan 30, 2013 11:01PM
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CountingSheep.....It was NOT A TAX HIKE, it was a TAKE BACK....

Supposedly to help the American Consumer to ease the "pain at the pumps" and buy Groceries.

 

I do not believe it added enough "outright spending" to the Economy, it was used for above items and some of it might have been saved ??

It spurred little growth and did not accomplish demand and production...Therefore maybe one of the reasons for a take back...?

Plus the SS Administration...Needs the money to keep funding it's OBLIGATIONS...imo.

Kind of curious about "the figure of $200 billion less spending" in the 1st. quarter.????

Jan 30, 2013 10:55PM
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CountingSheep.....It was NOT A TAX HIKE, it was a TAKE BACK....

Supposedly to help the American Consumer to ease the "pain at the pumps" and buy Groceries.

 

I do not believe it added enough "outright spending" to the Economy, it was used for above items and some of it might have been saved ??

It spurred little growth and did not accomplish demand and production...Therefore maybe one of the reasons for a take back...?

Plus the SS Administration...Needs the money to keep funding it's OBLIGATIONS...imo.

Kind of curious about "the figure of $200 billion less spending" in the 1st. quarter.????

Jan 30, 2013 10:40PM
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MIRAGE GUY&SRTDRIVER.You guys sure have a lot of hate in you.I got a scope for you:

Obama shot Abe Lincoln.

Jan 30, 2013 10:36PM
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It`s been 482 days since we`ve had a 10% crrection in the market.We`ve due.That

doesn`t mean a recession.

Jan 30, 2013 10:22PM
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Think it is pretty hard to make a "blanket statement" that the "Recovery may be over", when we have not RECOVERED YET !!

 

We have a few Issues.....Such as Housing and Real Estate, then the Jobs Recovery to get back to a reasonable un-employment level;  Which will probably "average higher" then it has for more then 25-30 years...

Plus we have a Monster spending level to get under control, and lowering of our Nation's debt..

Cuts have to be made, period; Wars have to be ended..And maybe slight tax increases ??

Deficits have to be corrected, without upsetting the apple cart, and causing Trade Wars..

And then the Stealth Inflation will probably come into play, in the correcting process..IMO.

Our Depression took about a Decade of recovering...If this "deep Recession" takes much less I will be surprised, maybe about 7-9 years, a WAG.

The Market's nearing new highs are not the end of the Recovery, just new highs...IMO  

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