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Brown Shoot: Rapidly falling imports artifically inflated the Q1 GDP

Recs

21

May 01, 2009 – Comments (18)

We all know that the Commerce Department published the first quarter GDP earlier this week and that the 6.1% contraction was worse than economists were expecting.

What you won't read in the headlines is without the rapid drop in imports resulting from a drop in U.S. consumption, which obviously is a bad thing for the global economy, the GDP would have actually been much worse (kudos to The Big Picture to bringing this to my attention).

You see, imports are subtracted from the U.S. GDP number when it is calculated.  The drop in foreign imports to the United States actually boosted the Q1 GDP by 6.05%.  Without this adjustment, the GDP in Q1 would have been a stunning -12.15%.  Ouch.  Forget about green shoots, this is one huge brown shoot if you ask me. 

Had that been the headline number, I doubt that Mr. Market would have been nearly as cheery lately as he has.  I am playing things very cautiously right now.  Other than purchasing a small starter position in the common stock of an unnamed large cap dividend paying company the other day, I have not committed any nw money to the stock market since this rally began.  I think that we will see another "buying opportunity" before things are all said and done.

Deej

18 Comments – Post Your Own

#1) On May 01, 2009 at 11:19 AM, alstry (36.57) wrote:

All kidding aside...great post.

Now imagine a 12% contraction in GDP and a 16.2% unemployment rate......

Hmmmmmmmmmmmmmmm.  What will things be like next week when unemployment exceeds 17%????

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#2) On May 01, 2009 at 12:06 PM, russiangambit (29.49) wrote:

Don't you know all the bad news is a lagging indicator? Everything is going to be just fine by the summer, now that we got cosnumer confidence up (how did that happen, by the way? I remember it started with C and WFC good news) they will go out and start spending as usual. This is the current market premise, at least.

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#3) On May 01, 2009 at 12:17 PM, TMFDeej (99.22) wrote:

Hey russian.  I badly want to see the positive things that others are seeing in the economy...I just can't.  I am having a very difficult time understanding the current rally, but I highly doubt that it will stick.  Hopefully I'm wrong and I'm just a pessimist because I have been bearish on things for so long, but I doubt it. 

All of this lagging indicator stuff is a bunch of garbage.  sometimes the bad news is just an indication of the fact that things are bad.  This is not going to be a V shaped recovery.  We will finally hit a bottom and sit there with slow to no growth for a while.

At least that's my $0.02.

Deej

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#4) On May 01, 2009 at 12:18 PM, TMFDeej (99.22) wrote:

Alsty, go away.

Deej

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#5) On May 01, 2009 at 12:21 PM, russiangambit (29.49) wrote:

>We will finally hit a bottom and sit there with slow to no growth for a while.

Funny. I agree with you. I am just a bit irritated since I keep hearing about green shoots and laggining indicators from mainstream media . I don't know why they don't understand that by pushing half-truths they loose all the credibility sooner or later. It reminds me  USSR propaganda so much, it is not funny

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#6) On May 01, 2009 at 1:29 PM, alstry (36.57) wrote:

Deej,

Only if you say please and appologize....otherwise, loosen your shorts a bit and learn to take what you dish out.

 

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#7) On May 01, 2009 at 2:22 PM, TMFDeej (99.22) wrote:

Alsty, go away.

Deej

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#8) On May 01, 2009 at 2:31 PM, lenri (71.73) wrote:

I love the term "brown shoots". Brown as in dead or the color of fecal matter. I think I will puke if I hear the green shoot term much more.

I agree, Deej. I think we over-corrected in March downward but we may be just as over-corrected now. Valuations and matrices seem to be too high now. When will the downward move come? If the history of the market is any indication we may be looking at SP 950 or 1000 before it does.

 

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#9) On May 01, 2009 at 3:51 PM, alstry (36.57) wrote:

Deej,

I also want you to appolgize to Sinchy as well for making fun of him too.....

It is time for you to grow up a bit....don't you think???

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#10) On May 01, 2009 at 4:59 PM, TMFDeej (99.22) wrote:

Sinch and I are friends and we've already discusses this. 

Alsty, go away.

Deej

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#11) On May 01, 2009 at 6:01 PM, alstry (36.57) wrote:

So are you and I from my perspective.

What does that have to do with saying please and appoligizing.

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#12) On May 01, 2009 at 7:29 PM, megank12 (< 20) wrote:

Alsty, go away.

Deej

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#13) On May 01, 2009 at 7:31 PM, TMFDeej (99.22) wrote:

I'd be happy to just call a truce.  We all would be able to be more productive and learn more from each other if we would stop this silly bickering.

Deej

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#14) On May 01, 2009 at 8:58 PM, alstry (36.57) wrote:

Alsty, go away.

Deej.

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#15) On May 02, 2009 at 12:46 AM, awallejr (75.87) wrote:

Yeah but the drop in foreign imports is actually a GOOD thing I submit.  Well good to the US anyway, since it means less money flowing out.  Now if you just want to debate how GDP should be calculated in general, fine, but what about all those periods when rises in imports lowered GDP calculations in the past.  Can't have it both ways.  Maybe I am missing something on the calculation method.

 

And Alstry go away.

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#16) On May 02, 2009 at 8:16 AM, portefeuille (99.66) wrote:

All of this lagging indicator stuff is a bunch of garbage.  sometimes the bad news is just an indication of the fact that things are bad.  This is not going to be a V shaped recovery.  We will finally hit a bottom and sit there with slow to no growth for a while.

At least that's my $0.02.

Lagging indicators lag. Unemployment for example has recently been very good at lagging (for the last 2 recessions see figure 3.4 here). I don't consider them (nor mentioning that a certain indicator is lagging) garbage.

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#17) On May 02, 2009 at 8:31 AM, portefeuille (99.66) wrote:

If you insist on looking at the "pink GDP" then you have to compare the Q1 GDP yoy change with that of past recessions wearing the same "pink shades" and the 12% drop would again be not that special.

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#18) On May 02, 2009 at 8:40 AM, portefeuille (99.66) wrote:

... and if you go pink you might want to skip the D in GDP ...

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