The Most Important Messages From the 4Q GDP Report
Some very quick headline background. Although it may have been a bit lost in the shuffle, a rise in inventories contributed to the headline GDP number. Academically, rising inventories are a positive for GDP in that they are additive to the number. Of course actual businesses may see it a bit differently, no? Here’s what we believe to be one important observation. In almost classical terms, US recessions in the post war period have been led by inventory corrections. The key character trait is “led” by inventory corrections. Absolutely classic stuff. But in our current circumstances we’re now supposedly 14+ months into the current recessionary interlude and it’s only in the last quarter that an inventory problem is now occurring.
Oh oh!
You can see that we’ve shaded in the anomaly that is the current cycle. Point blank, we have not seen this type of a dichotomy anywhere in the US postwar period. For now, this is something completely different. THIS is probably the key message of the GDP report that we believe has been virtually completely neglected in mainstream financial reporting. Key point being, not even lower prices could spark consumption strength. This is quite the oddity in the post war period shown as households have always used price weakness to increase real consumption. Always...until now.
Oh oh!
"inventory corrections": that's an odd expression - it doesn't actually tell you whether it means an increase or decrease. I suppose the world of finance is just full of evasions and lies?
ReplyDeletedearieme,
ReplyDeleteHELOC
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dearieme,
ReplyDeleteHere's what I take away from the article.
I think the chart that shows inventory to sales ratios should look VERY scary for those who think this recession is just about over.
Note the peak in 2001. The stock market didn't bottom out for at least a year after that point.
Note that our current rate of ascent dwarfs the rise it was undergoing back then.
Note that there is absolutely no indication in the chart that we have even begun to peak. It's just a line that goes nearly straight up. It could peak tomorrow. It could peak a year from now. Who knows?
Scary!
Oh, I'm thoroughly scared all right.
ReplyDeletedearieme,
ReplyDeleteThey say that there's always a bull market somewhere. Right now it's snorting, bucking, and rampaging through the world's financial "China" shops! ;)