WASHINGTON (AP) — The economy shifted to a higher gear in the spring, growing at its fastest pace in nearly a year as foreign buyers snapped up U.S. exports and tax rebates spurred shoppers at home.
The Commerce Department reported Thursday that gross domestic product, or GDP, increased at a 3.3 percent annual rate in the April-June quarter. The revised reading was much better than the government’s initial estimate of a 1.9 percent pace and exceeded economists’ expectations for a 2.7 percent growth rate.
I like Barry’s take on the GDP numbers GDP is out, ticking higher to 3.3% rather than 2.7%
And if you believe that data, I also have a bridge for sale in Brooklyn.
Why the beat on the headline figure? Aside form the usual inflation nonsense, there were two other factors: Exports, which rose to 13.2% (versus earlier reported 9.2%) and Inventories, which also played a part in the apparent strength.
South Korea’s top financial regulator on Monday warned that Korea Development Bank should take a “cautious” approach to buying an overseas bank, following the state-run group’s expression of interest in Lehman Brothers (NYSE:LEH) .
CK: What did I tell you?
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As I am still waiting to see a financial meltdown to occur, I am baffled by all these artificial rallies caused by false hope-mongering rumors. Yesterday, we witnessed how media spin the truth. I am referring to the news involving Korean Development Bank (KDB) and the battered investment bank Lehman Brothers. Report says the state owned KDB is “considering” a possible investment in Lehman brothers.
The original news release from Seoul indicates that KDB after its detailed talks with Lehman Brothers have decided to shelve its bid for a stake in Lehman. This means KDB is clearly not interested in making a deal at the price offered by Lehman. Just a day earlier Financial Times reported that both China’s CTIC securities as well as KDB walked away from a deal since the price was too high.
Government official quoted “We concluded that it was too risky for KDB to take the deal”. You can read the complete article here. SKorea banks shelved bid for stake in Lehman: report
and here is the spin from our major news media outlets
1) S.Korea’s KDB says buying Lehman a “possibility”
But our stock market failed to decode the message. Dow Jones rallied to almost 200 points. Sometimes I feel people are fixing the news to cause an artificial rally. But towards the end of the day Lehman sold off. It closed towards lower end of day’s trading range. This tells me this was all a set-up to bring some suckers into the market. This market rally will fizzle early next week. You can mark my word on that.
I bet that government will have to interfere to bail out both Freddie and Fannie. The likelihood Freddie or Fannie will find willing investors took another hit yesterday after Moody’s Investor Service lowered the company’s preferred stock ratings.
People ask when I think market will bottom? Market will bottom when so called market experts and analysts stopped calling a bottom. When you a see a major capitulation (like that happened in mid 2002), mutual funds redemption and sharp up-swings in VIX, we can safely assume we are getting close to the bottom. Until then keep your “short” in Financials long.
Zephyr, an ultra-lightweight carbon-fiber aircraft that weighs less than 70lbs and is designed to launch by hand. The little aircraft flies on solar power generated by amorphous silicon arrays covering the aircraft’s paper-thin wings. It is powered day and night by rechargeable lithium-sulfur batteries that are recharged during the day using solar power.
Zephyr built by UK defense firm Qinetiq, flew for 54 hours during tests conducted in the US Military Sands Missile Range in New Mexico.
Tyler Owen on this weekend New York Times writes about finding the mess behind the current mess. I like to highlight some of the points he raised that are interesting.
“The fundamental problem in the American economy is that, for years, people treated rising asset prices as a substitute for personal savings.”
As the housing market imploded, gone are the days when people were able to pay down payments with their credit cards.
“In addition, there are still excess homes on the market, and housing prices need to fall further. Of course, such price declines can make banks less solvent and thus worsen the credit crisis. And politicians would like to moderate this fall in prices, again prolonging the adjustment process.”
Fed and Treasury are both stepping into save banks from failing. But how many are they going to save? As the author points out, this will only prolong the recovery process.
I predicted the possibility of this at the beginning of the year. U.S economy is highly leveraged and it has been for a while. With increasing inflationary pressures combined with Fed/Treasury reckless opening of the credit window to everyone and their mom will further fuel this credit mess. We are going towards a Stagflationary economic environment. This is nothing new to us. We were in this environment back in the mid 80s during Reagan administration. This means higher interest rates (10%+) and slower growth. For those of you who think this is not a possibility, please come back to earth and look around you.
I also suggest if you have bank accounts with a small local/regional bank with bad balance sheets, move your money out of immediately to a safer bank (with better financials). We are expecting at least 600 banks to go belly under within a year. FDIC (yes the insurance company) itself might collapse.
Some highlights from last week
1) One in every 464 U.S. households — 272,171 U.S. properties — received a foreclosure filing, got a default notice, was warned of a pending auction or were foreclosed on during the month of July.
2) Fannie Mae and Freddie Mac will go bankrupt and govt will have to bail out. These two are the worst run quasi govt organizations in the planet. I can’t even believe why the U.S govt is printing money to help these freaks from going under. We as tax payers are lending money to finance them to keep them afloat. But the repercussions are going to be immense. Fannie’s leverage ratio is 78:1.
3) U.S Government Credit Rating - will be downgraded from AAA to AA+ (first time in history i believe?)
4) Following IndyMac infamous collapse 2 weeks ago, FDIC expects 100s of banks to go belly under within the next year. Remember Savings and Loan crisis? FDIC itself might go out of business.
5) Inflation will skyrocket forcing Fed to raise rates. We are seeing 10% or over. Ofcourse being the election season, Fed will play nice to support politicians.
6) De-coupling - whatever happened to argument that the BRIC nations are decoupled from U.S economy? Not true. In this highly integrated world markets, everyone is in same hole.
India down - 25%
China down - whopping 54%
7) Wall Street Job losses increase to 100,000. Forget about the bonus for this year end.
8) Turn-around - when will the housing turn around? Not until 2010.
For those who follow technicals, you can clearly spot a double-top in the chart and a Head and Shoulder pattern. Dow is below 9, 50 and 200 dma and poise to move lower (target 10,000) by year end.
2) Oil Technical
We pointed this out before. Oil broke the up trend in mid July. It continues to fall as demand destruction and sector rotation continue to weigh on the price. I think it’s nothing to cheer about the falling Oil price. It says a lot about the health of our Global economy.
3) Financials (XLF)
Financials continue to fall this year.
XLF has moved up in the last few days while volume has dramatically dropped off. At the bottom of this chart, I have also plotted the on-balance volume (OBV) indicator.
The OBV indicator is a running cumulative total of upside and downside volume. It’s calculated by adding the volume on up days and subtracting it on down days. The reason I am showing this indicator is because it’s clearly diverging with the price of the index. That’s not a good sign.
4) Titanium (Agriculture)
As Oil fell, it took all the Commodities with it. Titanium went public last December and has been a high-flyer since its debut. But when the commodities broke down last week, stocks like Titanium felt the pain. Where is the bottom now?
If you think this won’t be a consumer led recession, think again. Consumer spending makes 70% of GDP. If consumer sneezes, economy as a whole catches the cold. Here are the reasons why this will lead into a consumer led recession.
1) Toyoto reported sharp decline in its fiscal first-quarter profit. Toyoto blames this shortfall on 2 reasons.
* Drop in sales growth due to U.S downturn and soaring gas prices
2) Wallmart posted dissapointing July sales results. Same-store sales rose 3% in July, but fell short of 3.4% expectations from Wall St. So the tax rebates couldn’t really spur consumers to re-ignite the economy?
“With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month,” said Eduardo Castro-Wright, head of Wal-Mart’s U.S. operations.
3) Despite government efforts to spur up the economy with a tax stimulus, consumer behaviour does not correlate with type of spending that would stimulate the economy. Retailers are feeling the pinch, either closing down the business or reducing their presence.
WSJ reported most tax stimulus went into savings. It is typical in this environment people tend to conserve more cash than spend which in itself acts as a major catalyst for recession. Data for May and June suggest that the rebate payments provided by the Economic Stimulus Act of 2008 may not yet have provided much of a boost to consumption.
4) Sure, Consumer Confidence edged up to 51.9% from a revised 51% in June. But the figure is about half the level a year ago reflecting steep declines in confidence as a result of deep housing crisis and credit squeeze.
5) Apparel Retailers face tough summer season
With the benefits of their stimulus checks dried up, Americans are focusing even more on necessities like detergent and milk. That’s creating big problems for apparel chains at the malls as the important back-to-school shopping season gets under way.
Wall Street soared Tuesday after the Federal Reserve left interest rates unchanged at 2% and assuaged some of the market’s fears about the economy. The Dow Jones industrial average shot up more than 330 points, and all the major indexes had gains approaching 3 percent. The next FOMC meeting is on September 16 and there is a 69.5 percent probability the Federal Reserve will leave rates unchanged, according to Fed Funds futures. The FOMC statement was less hawkish than expected.
After market hours, Whole Foods, Priceline and Cisco reported their Q2 earnings. Cisco beat the earnings expectations and stock edged up 7% in the extended hours trading. But Priceline and Whole Foods reported dissapointing numbers. While I think Cisco did great in the last quarter, I would put more emphasis on the earnings results of consumer stocks Priceline and Whole Foods. Consumer makes up 70% of U.S economy. Any sign of weakness in consumer spending (travel, food, retail etc) is a bad sign for the fundamentals of this economy. I still think we are going into a recession.
In other news, commodities plunged again as oil continue to break from its trend. U.S Dollar sold off on the Fed decision to hold rates.
Economist had a review of the movie I.O.U.S.A on Aug 14th 2008. I recommend anyone who is less knowledgeable on our budget deficit should go watch this movie.
“AMERICA’S infamous debt clock, near New York’s Times Square, was switched off in 2000 after the national burden started to fall thanks to several years of Clinton-era budget restraint.
The biggest deficit of all, the film contends, is in leadership: politicians continue to duck hard choices. It hints at dark consequences. As America has become more reliant on foreign lenders, it warns, so it has become more vulnerable to “financial warfare”, of the sort America itself threatened to wage on Britain, a big debtor, during the Suez crisis. Warren Buffett, America’s investor-in-chief, pops up to warn of potential political instability.”
Until now, solar power has been a daytime only energy source, because storing extra solar energy for later use is expensive and inefficient. MIT researchers today annouced that they have come up with a simple, inexpensive and highly efficient process for storing solar energy.
Inspired by the photosynthesis performed by plants, Nocera and Matthew Kanan, a postdoctoral fellow in Nocera’s lab, have developed an unprecedented process that will allow the sun’s energy to be used to split water into hydrogen and oxygen gases. Later, the oxygen and hydrogen may be recombined inside a fuel cell, creating carbon-free electricity to power your house or your electric car, day or night.
![Freakonomics[Revised and Expanded]](/images/21xRHBWYYML.jpg "Freakonomics[Revised and Expanded]")
