Watching markets roar up yesterday you have to shake your head. US Q3 GDP came in at 3.5% and within the 3 to 3.7% range that was expected; markets soared. Still on low volume; but prices soared nonetheless.
The ludicrous aspect of this response is that the likelihood that US Q3 GDP would be above 3% (annualized) has been common knowledge for several weeks now. It was known all through the past few weeks as markets sold off day after day. Yesterday’s release was not a surprise. The bulk of the reported growth came courtesy of two main components: higher exports thanks to a lower US dollar, lower imports due to less consumer spending, and government programs that helped to artificially encourage home and auto sales in Q3. After these enormous impacts, thank Ben we did see some life in GDP!
But the important question is not whether herculean Government stimulus can goose up a quarter or two, the question is how do we keep growth alive going forward? How likely is it that government kindling will be able to ignite a lasting fire under the economy in 2010? So far the flames are too weak and sputtering to warm our hands never mind spark great confidence.
Sure enough markets are slumping again this morning as we learn that US personal spending dipped 0.5% M/M in September, as the impact of the “cash for clunkers” program unwound. Anyone surprised to hear this news is truly out of touch.
We live in manic times, and world markets are a bi-polar beast. The bad news for the recent market optimism is that western consumers are not coming back any time soon. The good news for the world is that western consumers are learning to spend less, save more and develop more self-restraint around credit.
I see evidence of this everywhere I go. On some of my travels the past few weeks I noted that taxi drivers in most cities seemed to be no longer accepting debit cards for payment. I asked a few of them why. Their answers were quite encouraging. A couple explained to me the following: they said banks were charging so much for the debit transactions and access that the cabbies were giving away most of their recession-thinned profits. The cab drivers decided they had had enough. “The banks are making billions and killing the rest of us,” one cabbie said, “we said to hell with them, we cut them out.”
Working people are finally catching on. It’s about time.
The cacophony of bullish noise is a persistent part of this job. Disciplined thinkers must continually focus and filter to think clearly through the babble. Yesterday, David Rosenberg seemed unusually insistent on making his points over the noise of “trader talk” on Fast Money. We all like to be polite and professional in our interviews, but once in a while, it is kind of fun to see one of the truth police pushing through:
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