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5 Things To Ponder: GDP – Love It Or List It

  • Written by Syndicated Publisher No Comments Comments
    May 3, 2015

    My wife is a huge reality television show junkie, and despite male macho commentary to the contrary, every “happily” married man knows that it is “she” who controls the remote. Therefore, as a consequence of remaining “happily” married, I wind up watching more reality television than I would like. I reserve the hope that at some point we, as American’s, will learn to STOP making stupid people famous.

    There is a particular show that my wife likes to watch called “Love It or List It” where an interior designer and a realtor go head-to-head over a particular couple’s housing related issue. That got me to thinking about the latest GDP report.

    As discussed yesterday, the data trends on many fronts suggest that the current weakness is more than just weather related:

    “The problem with the “weather excuse” is that temperatures were only “much below normal” in a relatively few states. The map below shows average temps across the U.S. for the 2014 winter period. Importantly, three of the most populous states – Texas, Florida, and California had normal to above normal temperatures for the winter period. But then again, maybe it was just “too hot” for shoppers as well.”

    Temps-2014-15

    “However, and importantly, this is why the Bureau of Economic Analysis “seasonally adjusts” the data to account for winter weather that tends to, surprisingly enough, happen during the winter.

    Lastly, let’s not forget that while economists are blaming the weather for weak first quarter GDP growth, they were also the ones that said GDP should get a boost from lower gas prices. So, assuming they right, then the savings from lower gas prices on a national basis should have offset any drag from weather related issues. Right? (Read this for why that didn’t happen.)”

    As I reviewed much of the commentary relating to the latest GDP report and economic outlook, the question that we must answer as investors is: Should we “love it or list it?”


    1) Ignore The “Whiff Of Panic” As Economy Stall by Ambrose Evans-Pritchard via The Telegraph

    “The US economy has suddenly stalled. A blizzard of shockingly weak figures raise the awful possibility that America’s six-year growth cycle since the Great Recession has already rolled over, with unsettling implications for the world.

    We should not ignore his warnings lightly, yet for once I am an optimist, clinging to the belief that the US will recover from the strange “air pocket” of early 2015. A siege of snow and ice across the North East over the late winter – for the second year in a row, and some say evidence of a drastically slowing Gulf Stream – has obscured the picture. The first flash of data is often wrong, in any case.”

    oil gas rigs 3285858a

    Read Also: The Economy’s Biggest Weakness Is…Winter? by Matt O’Brien via The Washington Post

    2) Another Winter Of Discontent by Matthew C. Klein via FTAlphaVille

    “First off, investment spending, excluding inventory accumulation, knocked off about 0.4 per cent from total GDP growth last quarter — the worst performance since the recession ended (all rates are annualised). Had investment spending increased at its average rate since the start of 2011, excluding the first quarter of this year, then GDP growth would have been about 1.5 per cent in the past quarter, rather than 0.2 per cent. (And if my grandmother had wheels she’d be a wagon, but still…).”

    US-real-disposable-personal-income-per-person-590x312

    Read Also: Another Lousy GDP Number To Forget by Richard Moody via Regions Bank

    3) The Step Down In Long-Term Growth Rates Breaks Lower by GaveKal via Gavekal Capital Blog

    “From 1974 to 2007, the long-term US growth rate in real GDP generally fell between 3-3.5% on annualized basis (excluding the v-shaped bounce from 1982-1984).  We define long-term here by looking at the 10-year annualized percentage change. With the 1Q now in the books, this series just dropped to an all-time low of 1.46%.”

    Gavekal-GDP-10yr-043015

    Read Also: What’s Driving The Economic Slowdown by Dr. Ed Yardeni via Dr. Ed’s Blog

    4) Be Skeptical Of The Weather Excuse by Chico Harlan via The Washington Post

    “To be sure, the weather in some parts of the country between January and March was really bad. Boston got crushed by snow. So did Chicago. In the Northeast, this was the coldest winter in 30 years.

    But the tie between weather and economic performance is often overstated, according to the small number of experts who’ve searched for a correlation. In fact, the data shows that only a few slices of the economy — manufacturing and construction, namely — can be hurt by a brutal winter. Retail sales, to a much lesser extent, can also feel a pinch. But weather alone won’t bring a humming economy to a halt.”

    Read Also: America’s Risky Recovery by Martin Feldstein via Project Syndicate

    5) The Harsh Winter Actually Boosted US Economy by Tyler Durden via ZeroHedge

    “Which is why a quick look at what said Joe spent in the harsh winter reveals something stunning: no, not that the most consumed “service” was again healthcare – mandatory spending on Obamacare will be with us for a long, long time, “boosting” the US economy by this mandatory spending item.

    No, what surprised even us is that far from subtracting from GDP growth, the harsh winter actually boosted consumption, in the form of Utility (i.e., heating) spending, which made up the second largest increase in personal consumption in the first quarter. Because, to every economist’s cries of horror, freezing weather while perhaps reducing discretionary spending actually boosts spending on such mundane, if very expensive, tasks as utilities which, to the same economists, also translates into growth.”

    Personal-Consumption-Q1-2015


    BONUS READS

    It’s Going To Take A Major Bear Market To Meet Investor Expectations? by Jesse Felder via The Felder Report

    “What investors need to know today is that they are currently priced just as high as they were back then! The problem is they once again want their cake and to eat it, too. Despite paying an extremely high price for stocks today they also expect a high rate of return. A few recent polls show investors expecting to get 10% per year from their equity investments right now. Some are even expecting to generate twice that much and there’s just no chance it’s going to happen.”

    Things People Say During A Bull Market by Ben Carlson via Wealth Of Common Sense

    “On Fair Value:

     Bears: We think the market’s fair value is much lower than current levels. (Translation: We have to say it’s way lower than the level where we called for a crash four years ago.)

     Bulls: We think the market is fairly valued at current levels. (Translation: I have no idea what the fair value of the market is and neither does anyone else.)

     Investment Strategists: If earnings grow at a consistent rate forever into the future and you slap a P/E ratio of 16x on the market we think stocks will rise 8-10% this year. (Translation: Stocks are up 3 out of every 4 years so if I keep predicting this I’m bound to be right eventually.)

     Value Investors: The market is overvalued but our stocks are trading at a 30-40% discount to fair value.

    Growth Investors: The monthly active user numbers are off the charts for this 3 person company that’s worth $50 billion.”


    “They say that it was so hot in the city today, grown men were walking up to cops on street corners begging them to shoot them.” – Glengarry Glen Ross

    Have a great weekend.

    Images: Flickr (licence attribution)

    About The Author

    Lance Roberts – Host of StreetTalk Live

    After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much “been there and done that” at one point or another. His common sense approach has appealed to audiences for over a decade and continues to grow each and every week.

    Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to the management portfolios. A daily financial blog, audio and video’s also keep members informed of the day’s events and how it impacts your money.

    Lance’s investment strategies and knowledge have been featured on Fox 26, CNBC, Fox Business News and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, The Washington Post all the way to TheStreet.com as well as on several of the nation’s biggest financial blogs such as the Pragmatic Capitalist, Zero Hedge and Seeking Alpha.
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