Wednesday, February 6, 2013

Some “Experts” Got Some Splainin' To Do!

The initial GDP estimate for Q4, 2012 came in at -0.1%.  Yes, NEGATIVE! 0.1%.  And the economic world was shocked.  Economists were shocked, commentators were shocked and government officials were really shocked.  It was in a word SHOCKING!  This was truly an economic tremor, because no one, absolutely NO ONE saw this one coming!

Shocking News?  Really?
Well maybe not everyone was so shocked.  And just maybe you might know someone who may have thought this was happening.

From my December 9, 2012 post “A Very Ugly Freight Market”:

“The freight data is consistent with my forecast that the economy is bouncing between 0-2% GDP with no upward momentum.  It appears that we are falling to around 0% (the bottom of this cycle) at the end of the year.”

The Freight Market Doesn’t Lie!

The government economy gurus blamed the contraction on “weather” and decreased government spending.  This is the equivalent of your brother-in-law telling you for the tenth time why he can’t pay you the money he owes you.  It all just sounds like blah, blah, blah, blah at this point.  It is however more reassuring than “We are total morons and we have no clue what we are doing.  We are hoping things get better soon, but don’t expect it.  Check back with us in three months and maybe we will be smarter then.”

While the government was claiming the number was not that bad, some economists say the number could have been lower than -1.0% due to changes in the GDP deflator.  However the trend has been to revise the GDP up from the first estimate, so it would not be a surprise to see a final number around positive 0.3%.

What Now?

The recent January economic numbers have been more positive, so it doesn’t appear we are headed for the mini-recession that I expected at the beginning of last year. It should be noted that no economist on the Wall Street Journal panel forecasted a GDP lower than 0.9% just two weeks ago.  To all those economists who forecasted 2% growth for Q4: You got some splainin’ to do!  Here are the current 2013 GDP forecasts from my economic panel (my 7 favorite economists from the Wall Street Journal Panel):


This looks good to me and I think we can get to 3%in Q4. (So does my favorite economist Jim Meil from Eaton at +3.1%)

Latest Jobs Report

The economy generated only 157,000 in January.  Some commentators had the audacity to say this is positive news and a reason to be optimistic.  Let me put this into terms anyone can understand: this number is AWFUL.  It is TERRIBLE.  It is ROTTEN.  It is APPALLING.  It is ABYSMAL.  It is, okay my thesaurus ran out of words, but you get the idea.  Let’s put this into perspective. If you fill Ohio Stadium with people and then add another 50,000 (half-filled again), that’s how many people went back to work in January.  But there are over 22 million people looking for a “regular” full-time job.  At this pace the unemployment rate becomes a big issue in the NEXT presidential election!

Since my last post on the problems measuring the total unemployment rate, I learned about the SGS Alternative Unemployment Rate calculated by Shadow Government Statistics that attempts to measure just that.  The SGS rate was at an all-time high of 23.0% in January (unchanged from December).  If this is true, it should scare the hell out of us.  The unemployment rate peaked at around 25% during the Great Depression.   And President Obama just disbanded his “Jobs Council”?  Somebody in the government got some splainin’ to do!

Model T Update:

The model is predicting an S&P 500 Index peak of 1550.  If the market has not reached 1550 by May, then consider making a move at that time.  Some commentators are urging people to sell off now.  This is common near the end of a run, but I do think the market has some steam left.  On the other hand, the Model T has shown a variance of +/- 2%, which means an S&P of 1519, could be the top. The market closed at 1512 today, so we are now very close to the bottom of the “sell” range. 


  1. Since we are in the mother of all 15 year s&p 500 head and shoulder formations I think the market will challenge but fail to exceed the earier tech bubble shoulder of 1527 in made 2000 the 2007 housing head of 1569 will not be surpassed and we will challenge the low of 666 set in March of 2008 Which was never fully retested at that time.

    1. Wrong on 1527 and maybe only a few days away from being wrong on 1569. There is an old saying that goes something like. The sea bottom is littered with wrecked ships all with rooms full of charts. :-)

  2. Yes, forecasting a number is difficult. The market finished today at 1551. The model has a 2% varience so 1580 may be the top.