Thursday, January 28, 2010

GDP Chocolate Bunny

Tomorrow morning at 8:30 Eastern Time the Q4 GDP numbers will be released. All indications suggest we'll have positive growth again after a 2.2% increase in Q3. Some economists are suggesting even a 5.5% growth for Q4. This would be the most powerful growth rate since 2006! Great news right? Well, not so fast. (Joe, who licked the Chocolate off of your bunny?) Nobody, Joe's bunny still has its chocolate intact, but he's just a bit skeptical about anything being reporting right now during this depression which is raging stronger now every day. Let's take a look under the hood of this 5.5% growth engine.

1. The US Dollar was extremely weak during the fourth quarter, so everything we made domestically was cheaper abroad, and this likely boosted exports and decreased imports. Since net exports (exports-imports) is a component of GDP, then of course stronger exports will sweeten the GDP.

2. The Federal Government has been auctioning Treasury bills and notes like crazy and the "Federal and UnReserved Banking Cartel" has been cranking up its toys like a kid on Christmas morning. Since Government spending is also a component of GDP, and Congress is more than willing to spend it, we'll likely see a few percentage points due to government spending. Just today Hail Mary Harry's (Joe lame duck) Senate voted to raise the debt ceiling by 1.9 trillion to a staggering 14.3 trillion dollars. This was just raised a month ago by the Senate. What will it be raised to next month?

3. Inventories have been replenished after a long drought for most of 2009. For more on this click here.

What does this mean for Joe? Joe understands this GDP number could look very pretty on the outside, but on the inside it could be quite hollow. (Joe Chocolate Bunny, and it's not even Easter) While a GDP of 5.5% would seem to suggest the economy is nice and solid, a few cracks and the whole bunny could crumble to pieces. (Joe Chocolate Bunny - in the outdated clearance shopping cart a month or two after Easter) Investors have priced in a GDP number of about 5.5%, so if the GDP is less than that, expect another down day tomorrow. A close look at inventory positions within the GDP report will also be quite telling of what we can expect ahead. If inventories are high, look out for a low to negative Q1 growth rate to be reported next time around.

1 comment:

  1. I haven't heard the wonderful metaphor of the chocolate bunny for a good while. I am glad that it is applicable in multiple venues. Keep up the good work.


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