Thursday, May 29, 2014

The economy shrinks 1% in Q1 2014 and BOOM STOCKS SOAR TO NEW RECORDS!

This won't come as news to regular readers but the "bad news is good news" crowd was running wild today.  I've watched a series of data come in over the past 2 months which seemed to me to indicate that the Q1 GDP for the US would be lower than the initial number and probably fall to -1% to -1.2%.  When the final number came in at -1% today it was easily explained to those of us in the Northeast with a simple "but remember the snow!!!".  Conveniently, this ignores the fact that California where 12% of America lives/works was warmer and drier than normal, but why get hung up on facts.

So, the question remains, even if the GDP number was old and influenced by snow, it can't be good for stocks that our economy shrank, can it?  Well, this is where it gets interesting.  There is a small percentage of the public that still buys the "hey, if things get bad, the Fed will step in again and again and AGAIN".  I do not believe this to be the case but there are some that buy that message.  However, this market continues to be driven by computers which are buying based on currency moves which are far to complex to cover in a blog.  Interestingly, interest rates continue to fall which means bond prices are rising which is generally a sign of fear of weakening in the economy.  So should we believe the stock market or the bond market?  Time will tell.

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In a related story, I read last week that state income tax receipts fell on average about 10% from 2013 in the first quarter.  This is a really troubling trend because 1) states are spending like they have access to unlimited cash and 2) income tax receipts are a pretty good predictor of economic activity.

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Finally, I'd note that there is another data point measuring the movement of money - a general gauge of economic activity - slowed dramatically in April (after all of the snowstorms) to 1.6% from 6% 2013.  Hmm, something is going on here beneath the surface of our bubbly stock market.

Cheers!


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