Oh, Facts!

Darn those facts - they keep getting in the way of a rally attempt.

For those of you new to the blog I encourage you to read my December 2007 predictions and how they have turned out so far [Jul 14: Reviewing December 2007's Roadmap & Views] I find it ironic that the "market" is supposed to be the best predictor of the future yet last fall (September/October 2007) the market shrugged off the embryonic stage of the credit crisis and pushed to all time highs. Somehow its predictive powers missed multiple stages of stock price implosion, especially that of the November 2007, January 2008, and March 2008 kind. It missed the need for the Federal Reserve to take historic actions, and create unprecedented financial bailouts. Then the "best predictor of the future" once again went on a 2 month rally after the Bear Stearns bottom, rallying in April and most of May 2008. Why wasn't it predicting the June 2008 stock market implosion (one of the worst months in history), 7 out of 8 weeks straight down, the Fannie Mae, Freddie Mac bailout, and the like.

This is the problem with the market - those of us who have been calling it correct can be swooshed away in one of these big rallies and to remain short and inflexible will lead to a lot of short term losses during times of heavy Kool Aid drinking by market bulls. I remain fully negative on this economy but cognizant that periods like early fall 2007 and late spring 2008 when the market rallies on any whiff of "hope" can obliterate short positions. Even if intellectually these rallies are garbage. Hence why one must remain a flip flopper - the punditry are looking for ANY silver lining to run this market up. ANY - the latest are things such as "yes house prices are falling at historic rates - the like of which we've never seen but in 7 of 20 cities surveyed they fell LESS than last month - the bottom must be here any moment" Etc.

So the reason I am bringing this up is a few figures out today - first the GDP which is Gross Domestic Product. This number is published, and then revised constantly and even then I doubt it is very accurate. But as we look back we had the seals clapping all over financial TV and media that fourth quarter GDP was positive and the doomsdayers were creating lot of fuss when none should be - well that "positive" GDP just went negative as the revisions started coming in - now Q4 2007 is -0.2% instead of the +0.6% all the bulls were waving in our face as a "resilient economy".

Next we move onto 1st quarter 2008 which is going through its first revision and is already losing steam, its down to +1.0%, and folks that number is pure garbage - to find out why read this [May 1: Is it an Official Recession? NY Post Says it Should Be] The Cliff Notes version is "official inflation" is 4.0% at the time; but the government agency who creates GDP says, nah it's only 2.6% inflation - so lo and behold instead of a negative GDP we had a positive GDP since we had a 1.4% swing. Not withstanding that 4% inflation is also a corrupt joke - we had negative GDP in Q1 2008 as well, if the government had used 4% inflation.

So the "official" definition of recession? Two back to back quarters of negative growth - we just had them in Q4 2007 and Q1 2008 (reality version). This quarter? Positive 1.9%. Awesome - the economy is back! Not so much. This quarter's GDP strength was brought to you courtesy of your grandchildren's hides. They will pay for this quarter's strength with the $160B tossed into this economy from the stimulus check. So make sure to thank them the next time you see them (if you have any). And this number will be revised lower over time - be sure of it... even with all the stimulus we threw at it.

Now tomorrow we have the monthly employment report which is a farce in itself - I try to restrain myself from talking about it too much and just refer people to another site who breaks it down each month for the illusion it is. Again if you are new to the website (within past 30 days) I'll refer you to last months posts [Jul 3: A Quick Word about the Unemployment Report] Cliff Notes version - the government created a Birth/Death model of jobs that are "too new" to measure so creates numbers out of thin air to juice this report - lately they've been creating a whole lot of jobs in the construction, financial, and retail areas - areas we are seeing bankruptcies and job losses across most of the country. But nevermind that - the government is seeing jobs no one else does. Further the main jobs being created? Federal government. Healthcare. The two areas we should be cutting jobs because they are creating a national strain of epic proportions.

We do have a weekly jobless claim figure and traditionally when it goes over 400K people get worried. We've been assured for months on end "why the fuss" it's only in the mid 300s to upper 300s. Of course people do not realize the massive US economy is not a like a video game where someone with a controller can change direction in a 15 day period. It's more like a ship... let's say the Titanic for example... that takes a while to turn. Why all the fuss by the doomsdayers? Because weekly unemployment claims just hit 448,000. And continuing claims? Approaching 3.3 million.

But not to worry - the same people who throughout late winter and spring 2008 were telling us this too shall soon pass and the "2nd half 2008 recovery" is soon upon us, are back out there today saying.... not to worry. So again the market, the "greatest discount mechanism" in the world could be up, could be down - I have no idea. But I am sticking by my guns that this economy is degrading and all you need to do is read company reports... and ignore the vast majority of the government's data, especially those with multiple inputs that can be "adjusted" - those are the ones full of "silver linings".

Summary: Don't worry. Be happy. Find a silver lining. And drink your Kool Aid.