The Government's or Private's?

On July 20th, the government (Bureau of Economic Analysis, BEA) released its third revision for economic growth for Q1 of 2010. For the charts and the complete report, go to the original pdf file: (http://www.bea.gov/scb/pdf/2010/07%20July/0710_gdpecon.pdf). The report opens with ‘Real domestic product (GDP) increased 2.7 percent in the first quarter of 2010, according to the “third” estimates .... The increase was revised down 0.3 percentage point from the “second” estimate.... In the fourth quarter of 2009, real GDP increased 5.6 percent.’ These data are quarter over quarter, then annualized.

Of course, by now, this is old news. But this morning, the most recent report from Consumer Metrics Institute crossed my desk (actually it crossed the screen of my laptop which is perched on an unused kitchen-cabinet door, which in turn rests on a hamper full of stuff, which has been 'full of stuff' since the earthquake of August 15, 2007; my ‘office’ is a bit like the Hindu cosmology. Neither my wife nor I know any longer precisely what that 'stuff' really is.) Again, to see their charts (which are always stunning and tend to lead the government’s endless revisions) go directly to their site (http://consumermetricsinstitute.com/) and scroll down the page, passing fascinating stuff along the way, till you get to ‘August 20, 2010 - Politics and the Economy.’

Their report begins with ‘At the Consumer Metrics Institute we have a unique perspective on the economy. We measure consumer demand on a daily basis, providing nearly two orders of magnitude more resolution than the BEA's GDP releases. This is like moving from naked eye observations to using a lab-grade microscope. As a result we can see timing relationships that simply can't be seen in quarterly data.

‘Last month the BEA revised their GDP readings for the 4th quarter of 2008, now over 18 months old. In so doing, they have reported for the first time (at least in their data) that the Great Recession's annualized "growth" rate bottomed in the 4th quarter of 2008, not the 1st quarter of 2009 as they had been telling us for over a year. Although it is always disconcerting to have history revised, this particular revision was hardly news to us, since our daily data has always recorded the Great Recession's absolute bottom occurring on November 5th, 2008 ....’

At their site, you’ll see the chart of what they refer to as the Great Recession of 2008 hitting bottom on November 5th. From there, we had a V-shaped recovery, which many had been hoping for, and which the stock market eventually reflected - after the fact, beginning a sharp recovery of its own after hitting its March 2009 low, and ending in our (never-humble) opinion on April 15th (NYSE Composite) or April 25th (Russell 2000 and S&P 500), 2010. Take your pick. Again, in our opinion, those highs won’t be seen again before the markets hit new lows. That economic recovery has been petering out, even according to the government’s own numbers.

CMI’s methodology consists in measuring on-line demand for consumer durables, which they believe to be ‘”...the 800 pound gorilla" in this recession, and the [consumers’] actions (or inactions) will ultimately be felt to a major extent in the GDP.’

Not being ‘investment professionals’ (we give away advice free, whether asked for or not) but having been intellectually fascinated by the great Wall Street Casino, if we had any money we would either be in cash or in inverse ETF’s. To the surprise of many, the long bond - already at dizzying heights and paying almost nothing in interest by historic standards - might even go higher, earning PIMCO even more zillions than they already have. If you have a 401k, we would suggest being defensive - just as we hope you were in the fourth quarter of 2007.