Global Warming Drives GDP Revision Up

I may have scooped The Onion with this headline. Revised GDP ay 1.6% beat the expectations of 1.3%, although fell below ZH's revised revision at 1.8%, but what caught my eye was this from MarketWatch: 

Wall Street appears to have been caught off-guard by an upward revision to electricity and natural-gas usage figures, which led to an increase in real personal consumption to 2% from the 1.6% initially projected.

A simple explanation, offered by Bank of America Merrill Lynch's Neil Dutta: households ran their air conditioners longer because of warmer-than-average temperature.     

The best news was the increase in business spending to replenish capital equipment, but the recent weak durable goods numbers suggests that trend may not continue into the Q3 number. 

The best bad news was that imports surged even more than in the prior report, to the best growth since 1984, which has a damper on GDP (the net of exports less imports is added to GDP), but that is likely stocking up for all those gadgets expected to be hot this Christmas, and is also unlikely to continue in Q3. Put into GDP numerology, real domestic purchases grew 4.9%, up from 2.9% in Q1, but real sales of domestic product grew only 1%, a drop from 1.1% in Q1. This means domestic demand is there, and if we get a drop in imports relative to exports in Q3, it might bolster the Q3 number - so look askance at predictions of a double-dip as early as Q3. 

Nonethelesss Goldman Sachs sees a slightly lower Q3 number, largely driven by inventory rebalancing still being high; as it lessens the GDP is lowered. 

The biggest risk to their revision is their assumption about fixed residential investment expanding at 27%, which seems nuts based on recent housing news. It has also been an area of over-estimation in past reports that led to downward revisions. 

 

Bernanke's speech was a bit of a dud, especially when he admitted that “central bankers alone cannot solve the world’s economic problems.” Why we would believe in Fed omnipotence is a topic for another day, but suffice to say the Fed claims it has more bullets to fire at the problem even as it confesses it is running out of ammunition. PragCap gives the Cliff Notes version:

• Bernanke sees no double dip (he also saw no housing bubble)
• Bernanke believes QE2 will “be effective in further easing financial conditions.” (Historical evidence and lending data shows that QE is a non-event)
• His two ideas that have everyone all excited this morning are: (1) changing his wording (which will do absolutely nothing for Main Street even though it might get Wall Street all excited for a few hours) and (2)he will cut the interest on reserves a whopping 25 bps (25 bps isn’t changing anything at this point Mr. Bernanke)
• Bernanke is oblivious to the fact that he has run out of ammo: “The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do"

The market has ratcheted around a bit this morning, which has emboldened bulls. The expectations game applies to GDP as well as earnings(!), yet the market in the short run tends to be driven by technicals not fundamentals, so too much can be made of momentary jinks and jives due to a news event. Later I will post on the wave structure, which anticipated the sort of sideways move we have seen over the last three trading days. 

Comments

[da bear]

I was flipping through a David Icke book at the local book store the other day and found a chart in there about global temperatures going back a long time. Well, it appears that global temps are in the early stages of a fifth wave. No kidding...

oh, and short-term the DOW may be trying to put in a right shoulder of a H-S pattern since the start of the early July rally.

link: http://bigcharts.marketwatch.com/charts/big.chart?symb=djia&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=1643&style=320&time=6&freq=1&nosettings=1&rand=6920&mocktick=1&rand=5406

da bear

[Hank Wernicki]

Dow is Up over 100 points now

What's Next ?

[Mamma Boom Boom]

>Dow is Up over 100 points now

What's Next ?<

I'll bite, Hankleberry. I can see that we are moving back to bullish posturing, though.

[Michael]

"households ran their air conditioners longer because of warmer-than-average temperature."

Try telling that to anyone that lived in California this past Summer.

[JT]

ACI, ANR, BTU, CNX, CLF, JOYG, FCX, WLT, and X surging again and shorts getting buried as usual.

[Trader123]

No doubt about it.
The Shorts are getting creamed in commodity names like CLF and FCX.

[Hank Wernicki]

I like the name !

[Michael]

NYSE Advance/Decline line running 5:1 to the upside on a Summer Friday.

[Les]

1.1 and 1.3 SIR in CLF and FCX is very small short interest.

SPX still has a little higher (1072-1075) to go to reach its most recent downtrendline.

[Les]

How do these posters get the same pattern to the left of their comment?

[Rally Time!]

"Whats Next?"

Rally into Labor Day!

[Michael]

"How do these posters get the same pattern to the left of their comment?"

Simple.
Several traders in an office connected to the same Router and network, sharing the same IP.

[Rally Time!]

Where are all the loudmouth bears now who said dont buy this latest dip?

[Mamma Boom Boom]

After todays action 'marinates' over the weekend, maybe we'll start to see some fireworks. I'm ready, dude.

Neo-Mamma

[Michael]

"1.1 and 1.3 SIR in CLF and FCX is very small short interest." - les

As you are probably well aware, the short interest figures that you cite for CLF and FCX are old data as of August 13th. Moreover, the short percentage of the float is the more meaningful number ( 4.9% and 3.7% respectively ). Granted these percentages are not all that high.

But take a look at the Natural Gas chart over the last two weeks... NG has plummeted nearly 15% over the same period. Given that NG is a cheaper substitute for coal when it comes to electricity generation (at a certain price-point), I would strongly suggest that there are many new shorts in the coal and iron ore names given the price action in NG just this past week, hence the huge percentage moves of ACI, ANR, BTU, CNX, CLF, and WLT.

[Les]

CLF diverges from NG quite a bit. Try plotting the Natural Gas contract against it. It trades in synch with the Copper contract much more of the time.

[betterdays]

What next?????? decline into 9-3.......419 week cycle after a top Monday or Tuesday

[JohnEBGoode]

Up against rising trendline. Anything above 1065 renders a further decline moot. I'm still betting on further decline thru 9/11. Then a brief respite, then down thru October. What's Mommas target, indicators pointed up! LOL!!

[JohnEBGoode]

Up against "rising"( s/b falling)trendline.

[trendlines]

1040 acts as solid support once again! The strong rally towards 1065 in the last session, will run into resistance(channel) around here, and at the congestion area around 1070. Would be interesting to see if 1060 holds during the ensuing consolidation. If it DOES, we may see 1080. If it DOES NOT, we may be about to find out how solid (or not) 1040 really is!

http://trendlines618.blogspot.com/2010/08/s-very-short-term-up-against-channel.html

[JT]

In their recent marketing SPAM, it looks like EWI is jumping on the "Head and Shoulders" bandwagon with other market strategists/technicians ... this could really backfire on them. This "trade" seems to be getting quite crowded!

[molecool]

Re: Rally Time's Bear Cavalry:

Something I have noticed in the past few years: Many of the bears I have met celebrate victories quietly with a cigar after a bloody battle.

The bulls I have met love to boast and seem to be predisposed to Schadenfreude.

Personally I'm neither - I'm a trader. But I am convinced that anyone with a chronically bullish disposition may just have a small penis.

[El Coro]

I have a small penis (diagnosed as micropenis) but my androgens are normal-low and I am (obviously) xy. I am bearish because I think that Prechter is, after more than two decades of disaster, due for a victory.

[Pat Riley Operator #136]

SP 500 20 week average is currently crossing its 50 week average a rare occurrence that has happened twice since late 2007. I'd like to see the bulltards try and reverse this crossing with the latest rampjob to the moon that they are all jumping aboard the last few days. Inverse H and S???. We know who plays Head and Shoulder patterns. Not a lot of fearful bulls considering we keep on hearing how bearish everyone is.

[Pat Riley Operator #136]

I went back to 1998 and there have been only 6 occurrence of the 20 week average crossing the 50 week with only one fakeout in 2004 when a sideways 20 week briefly crossed below the rising 50 week. Different scenario this time as the 50 week is starting to turn down. So good luck bulltards the odds are on your side. The crosses: Fall 2000 (20 below 50---and remains this way until the Summer of 2003, cross #2. 2004 fakeout cross #3. Early 2008, 20 week crosses below 50 week and remains below it until Summer of 2009 when we get cross #5 until today when it looks inevitable that cross #6 occurs unless we get a rampjob to the moon by the close of next week. There wasn't even a cross during the brief bear market in 2008 so I am guessing the last cross before that was in 1994 so really there have been 7 crosses in 16 years, 6 if you exclude the 2004 fakeout which doesn't even look like a cross but two averages hugging along each other.

[Pat Riley Operator #136]

There wasn't a cross during the brief bear market in 1998 not 2008.

[Hockthefarm]

"Personally I'm neither - I'm a trader. But I am convinced that anyone with a chronically bullish disposition may just have a small penis.

Ahahahahahahahaha!

Pretty cool, molecool

H

[Les]

20 and 50 week will likely cross this week.

[Hank Wernicki]

The XAU has topped or will top shortly, a great short trade ...

[Chabazite]

Silly season officially ends here in the UK this weekend, what with the long weekend and the Notting Hill Carnival. Back to business on Tuesday. 'What's next', you ask Hank? Was hoping you would tell me. Next stop is Christmas - need to make some dosh!

[george]

mchugh states on safehaven.com that friday august 27th was another hindenberg omen. this increases the odds of a selloff. he details the increases of the percentages.

[george]

http://www.safehaven.com/article/17994/an-update-on-the-hindenburg-omen-of-august-2010
link to the hindenberg update

[Hank Wernicki]

Sept 23rd bottom, prices will fall into the fall ( no pun intended )

-:)

[Trader 123]

Tons of Bears on this blog.
Tons of Bears on Evil Speculator blog, Daneric's Elliott Wave blog, Kenny's Technical blog, and Trading to Win blog.

Very telling.

PS. Show me an "active" trader that actually trades off of 50 and 200 WEEK MA's???

You've got to be kidding.

[Trader 123]

"I am bearish because I think that Prechter is, after more than two decades of disaster, due for a victory."

That's got to be one of the dumbest reasons to be Bearish. He's still not even break-even on his original 100% short position from August and November of 2009.

Hope you enjoy losing money based on what a newsletter writer says ...

[betterdays]

Hank .... is the market following 1987 ?

[Les]

I believe Sep 23rd is full moon and autumnal equinox.

Because of election, market is inclined to make its low much earlier than traditional late October. but who knows? Saw the news that hedge funds were meeting with the Republicans and are plotting strategy.

Hindenburg is skewed because of all the bond CEFs and ETFs that were making new highs.

[Hockthefarm]

This is going to make for a really interesting September.

http://www.amateur-investor.net/Weekend_Market_Analysis_August_28_10.htm

Bulls to the left of me,
Wavers to the right,

Hock

[Chabazite]

Sept 23rd bottom, prices will fall into the fall ( no pun intended )
--------------------------------------------------------------------
'The' bottom or 'A' bottom? So far so fast! Hope you are right Hank, 'cause this nonsense has been going on long enough. Best. Chab

[Les]

It's also 2 days after the next Fed meeting. Ben may be contributing to some of the weekness in stocks by encouraging front-running of QE2.

[Hockthefarm]

Where have all the posters gone?

What a move today. My initial fun money puts are back to break even and the last ones are off 25 to 50 percent. Yikes!

I said earlier that September was going to be interesting. Maybe I chose the wrong words!

Hock