W-Shaped Recession Coming UPDATED

Today's GDP report makes it more likely that we are headed to a W-shaped "double-dip" recession, somewhat like 1980 and 1982: GDP for the second quarter is estimated at -1%, less bad than the expected -1.5%. At the same time, the prior four quarters were all reduced to twice as bad as previously reported, a huge revision down.  Now, you conspiracy theorists should not jump to conclusions - the NBER appears to be an agency which has retained its integrity when so many others have become hopelessly politicized.  Revisions like this are common.  This Q2 report is likely to be revised downward with more information, but will still show a positive trend off the prior quarter. 

Consumer spending was down in Q2, despite having been up in Q1; the GDP uplift came from massive increase in government spending (up 11%).  This has caused the USD to plummet and bonds to skyrocket (yields collapsing) - see chart, courtesy of Market Ticker.  The FX market expects the government to trash the USD via a continuation of QE (Fed buying bonds to helicopter money into the economy).  The US economy is now on life support, but at least the patient is still breathing. 

Part of the less-bad news was statistical: imports fell more than exports, which added 1.4% to the estimate.  Barry Ritholz notes how odd this is, since we sold less overseas, but bought more less, and so it made our GDP look better! 

UPDATE: another good analysis of these numbers at Economic Edge.  Take a look, and be sure to click on the video (Chris Mortenson's Crash Course on GDP follies and cheats).  Cliff Notes version:

Inventories were cut MORE in Q2 by businesses than in Q1, $141.1 vs. $113.9. No green shoots there.

GDP has now *officially* been negative for five of the past six quarters. And Q1 was revised waaaaay lower, even lower than the *advance* estimate we received in late April, -6.4 vs. -6.3, making Q1 of 2009 WORSE than Q4 of 2008 (at -5.4), the opposite of what had been previously assumed. No green shoots there.

For 2008: Q1 was revised sharply lower, to -.7 from .9; Q2 to 1.5 from 2.8, and Q3 to -2.7 from -.5. No green shoots there.

Gross private domestic investment fell for the seventh quarter in a row, the past three quarters seeing declines of 24.2, 50.5 and 20.4 respectively. Residential fixed investments have now been negative for a stunning 14 consecutive quarters, with the past 13 showing double-digit declines. The past three have shown retrenchments of 23.2, 38.2 and 29.3 respectively. No green shoots there.

What has picked up the slack? Why government spending, of course. This was most pronounced in Q2 2009. Gov't consumption and expenditures rose 5.6. At the Federal level, spending rose a whopping 10.9 in Q2, national defense jumped 13.3 (more wars anyone?), nondefense jumped 6.0 while state and local government spending climbed 2.4. Yes, bankrupt governments across the land INCREASED spending in the prior quarter. That's smart. You can call these numbers green shoots if you are a corporate-fascist-state admirer; that's your prerogative, Bobby Brown.

So there you have it. Once again, down is the new up.

Comments

[da bear]

EWI posted its latest Financial Forecast. they are short-term bullish.
that is probably a bad sign for the bullish case. lol

da bear

[Mamma Boom Boom]

I'm expecting the economy to resemble a 'saw blade' for years. Governments will continue to drag it out, until it becomes obvious that the bills can't be paid.

[Anti-Ned]

I'm expecting the economy to resemble what I call a "reverse saw blade." The teeth will be where Ned places the divots and the divots will be where Ned sees the teeth. Governments will bite the bullet long before it becomes obvious that the bills can, indeed, be paid.

[Ned's grandma]

And EWI is evidence of what really kills me. Trade whats there, not what you expect. Trend is up right now, tomorrow could be different, but the trend is up. I am not a full bull, but I trade the upswing until it changes.

Ned, your stuff was pointing down, now sideways? Pick a direction dude.

I don't think anyone has a real tight grip on what tomorrow brings just yet. You can flame me all you want.

[joe]

in regards to the puestz window ill note a few things
first of all it does blend with chris carolans work but the 2
are not the same , secondly it has been working for the past
couple years including the decline into march 2009 .
you explained it fairly well yet ill note the formula
and then the dates going forward .ive used this over the past
several years and i look at it as a market turn set up not always
bearish but usually strong moves follow the dates so they bear
watching at this junture .
based on puetz parameters it goes like this .
the market will be at a high point on the first full moon following a solar eclipse when that
full moon is also a lunar eclipse
from that full moon lunar eclipse a down trend will begin (better put as a trend change will begin ) the cycle ends 6 days before to 3 days after a full moon that is with in 6 weeks of the solar eclipse .
hence solar eclipse was july 22
the next full moon lunar eclipse is aug 5th . the stock market is overbought and due for a pullback so if we were to use this stradegy we would turn bearish aug 5th 6th 2009 and hold waiting untill 6 day before to 3 days after a full moon that is with in 6 weeks of the july 22 solar eclipse
to sum it up:turn bearish aug 5th 6th and look to exit aug 29th sept 7th
then you take chris coralans work which im not going to explain in detail
ill just note the dates
may 16 spring low
aug 20 summer high
sept 27 autumn high
oct 14 15th crash
using both these theries you can see why there is a strong move coming yet the puetz window
would need to set it off in the right direction as i see it .
aug 5th 6th top and down into aug 29 sept 7th
then upwards into the sept 27th autumn high and then down into mid oct
might just be a large B wave decline and yet both theories may blend together
calling this as a simple A B C decline . id keep these theories in mind each year
cause it doesnt matter weather the market crashes or turns upwards and rallies strongly
the dates tend to caall market turns fairly closely .
joe
www.tradersaffiliates.com

k