Tuesday, December 22, 2009

3Q GDP...

We all expected the third quarter numbers to be revised down, but the scope of the revision was pretty dramatic. Down from 3.5% growth originally reported to 2.2% growth. The growth was principally driven by exports (the weak US dollar makes our exports cheaper to overseas buyers) and government spending. The principal areas of revision included business investment, consumer spending and inventory changes.

Given that almost 1.7% of the growth in Q3 was due to "Cash For Clunkers" the balance of the growth (0.5%) was also impacted by other stimulus and the First Time Homebuyer Credit.

My point is that organic growth in the US economy -- the number that one uses to measure a company's health -- is extremely low right now. There have been some positive signs (like temp hiring last month) but this revision is worth keeping in mind when the fourth quarter GDP are released in January.

Keep in mind that Federal and State budgets are premised on 3% growth next year and a corresponding rebound in tax revenues. Without a big snapback we could be facing huge deficits and more spending cuts in the spring.

Now Q1 2010 should show a substantial rebound in growth, but by as employment lags the recovery could stall out.
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Will 2010 be the year of the tech ipo? I'm not buying this logic, but there are a number of tech companies lining up for potential ipos - Facebook, Twitter, Yelp (local review site like Angie's list), Zynga (makers of all of those terrible data mining games like Farmville, Mafia Wars, etc) - and raising money like ipos are just around the corner.

I don't buy it because these sites are all the pets.com of this decade. I don't see any value in any of these businesses outside of data mining for advertising. Someone does see value because they are getting huge money but I've tried all of them (except Zynga) and I think they're zeros.

Cheers!

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