The economy is weaker than it looks
The third-quarter GDP number continues a streak of misleading economic data.
At first blush, Friday's first read on GDP growth in the third quarter was pleasantly strong. Growth re-accelerated to 2% from 1.3% in Q2 and seemed to fit with recent signs of hope, including a drop in the unemployment rate, rising consumer confidence and a rebound in housing. Even the drop in business spending seems to have reversed, with a good headline number from Thursday's durable goods report.
But once again, the devil is in the details. Stripping away the statistical oddities (like the way a huge surge in part-time jobs dropped the unemployment rate to 7.8% last month) reveals an economy still vulnerable to the fiscal cliff and unresolved issues in Europe. It's an economy that has CEOs and small-business owners, who tend to have a better feel for what what's happening down in the trenches, much more worried than average consumers.
Take Thursday's durable goods report. The overall number was boosted by a big jump in airline and defense orders. But after digging in, the team at Capital Economics noted that capital goods shipments outside of defense and aircraft declined, maintaining a recent trend of weakness as businesses cut back on investment spending. The three-month-on-three-month annualized growth rate in this core measure fell to minus 4.9% in September, as shown in the chart above.
Economists at JPMorgan are looking at the way durable goods orders have fallen below shipments in a big way for the first time since the early stages of the 2007-09 recession. Clearly not a good sign.
What about Friday's GDP numbers? Well, those were boosted by a huge jump in government spending, specifically on defense. With big cuts headed to the Pentagon as part of the fiscal cliff, such a spending rate isn't likely to continue.
Real, hard measures of the economy maintain their downward trend: real consumption, real business investment, real inventories, and personal income.
Until these measures reverse and move higher, I will remain skeptical.
For now, I continue to recommend that my clients focus on targeted short positions in energy and emerging markets as well as longs in haven assets. Holdings include a short in Hercules Offshore (HERO) and a long in the Direxion 3x Treasury Bull (TMF) and ProShares UltraShort Oil & Gas (DUG).
Disclosure: Anthony has recommended DUG, HERO short, and TMF to his clients.
I found all three positions with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
WOW .... and I keep asking myself ... who could be so dumb, so stupid, such a knucklehead that they would vote for Obama after the mess he's made in just 4 years??? The economy is a total mess. Debt is unpayable and the US is bancrupt. That's not a joke? It is for real?? There is no more money for any stimulus ..... so Obama is out of luck. It takes someone that has knowledge of economics to solve this mess Obama has put us in .... and Romney is the guy.
Please ..... get a grip on your idiotic self and vote for R+R. Boneheads!
"The banks ARE getting money from the Fed, they don't lend it, they buy stock. This is what is supporting the market."
The market is not being "supported" by banks. Prices are determined by earnings, not "Fed money" or Ben Bernanke. Price to earnings ratios today are no different today than they were 130 years ago. The only way a collapse could happen is if: 1) PE values were ridiculously high, which they aren't, or if 2) earnings collapsed. Earnings aren't collapsing and even if the economy went into another recession, the sheer volume of consumers on the planet guarantees that earnings will always bounce back in proportion to inflation.
All the garbage nonsense about how "fiat money" is going to cause a market collapse is sheer lunacy. You doom and gloom, conspiracy minded, tin-foil hat wearing loony birds have no idea what you are talking about. Inflation erodes the buying power of the dollar, and hurts savers, not investors. If anything, inflation also pushes stock prices up.
The time to worry about the stock market is when INTEREST RATES go up.
VL said: "Wall Street and Banks have gone to the Federal Reserve, cashed in some crappy credit for fiat money and are pumping the Dow."
This is the dumbest theory I've ever heard. It was dumb the first time I read it on a VL post, it's still dumb. When is this DOW crash to zero going to happen again? You said, over and over and over, that it would be by the end of the year. There's roughly 40 trading days left. That's around 300 point drop per day if it started now. DOW is up 3 points today at the moment, guess the big day is not today.... Maybe tomorrow.....
Here's a better theory you should dwell on, considering the thumbs up voting system is, in your universe, a conspiracy with MSN, and that, in your universe, everything around you seems to be a "card-board cut out". perhaps what's really going on is that you are just plain WRONG. Your communist world view is wrong, your theories are wrong, your version of reality is wrong, everything about you, is just plain wrong.
As a small business owner I am in the trenches and the economy sucks; every small business owner I speak with shares the same sentiment. Facts are facts you dimwits: 1.9%, 1.3% and I'm guessing 1.5% growth after this latest falsified number is downgraded. Get it? My gawd, guessing most of you MENSA candidates were educated by our wonderful Public system.....
There's a reason Bernanke and Geithner are not wanting to serve after this year. They know what's coming!
"So our GDP is over stated by about 35 percent our real GDP is about $10 trillion which is right in line with what main street is feeling right now. This is why things are falling apart and our debt is now like 160 percent of GDP and we are going to crash and burn soon"
You don't think it's because the globe is $1 quadrillion in the hole including fake debt notes on falsely printed fiat currency and the sheer overhead for this folly isn't taking it's toll? 40 MILLION Americans alone are blockaded from the workforce. Other nations have unemployment rates about 20%. Who's working? Lawyers, Financiers, Bankers, Politicians and Administrators... in other words, no one important or that contributes to the economy, only takes from it. Anyone can put three letters together to make an acronym. Acronyms don't lead economies, actual functional economy does.
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